Regulators in india

Your name: Varma Pranjal
Roll no: 13011114
Specialization: Finance
Course: Financial regulatory Framework
Academic Year: AY 2014-15
Name of the tutorial: Presentation on website report
A. REGULATORY FRAMEWORK FOR FDI:-
In India, FDI is considered as a development tool, which can help in achieving self-reliance in all
the sectors of the economy. India’s rich and diversified resources, its sound economic policy,
good market conditions and highly skilled human resources, make it a proper destination for
investment. Direct Investment across national borders is a distinct feature of international
economics, which has gained intense attention of all the countries of the world recently. FDI is
the process whereby resident of one country (the home country) acquire ownership of assets
for the purpose of controlling the production, distribution and other activities of a firm in
another country (the host country). FDI is now approved as an important driver of growth in the
country. Liberalization refers to relaxation of previous government restrictions usually in areas
of social and economic policies. Liberalization was introduced in1991 in India. The pre economic
liberalization period was challenge for the Indian economy to grow because there were many
constraints to overcome. Actually in the early1980s, Indian government adopted a liberal policy
towards FDI, especially in high technology areas and exports and it was then that FDI friendly
environment was created. In away eighties were the fore-runners of the liberalization policy of
1990s and so this period is termed as pre liberalization period in the study. The period after

1991 is termed as post liberalization period during which not only the quantum of FDI to India
escalated but the sector-wise composition of FDI also underwent incredible change. The post
liberalization period was very productive for the Indian economy to head with a swift pace.
Though the liberal policy position and strong economic fundamentals appear to have driven the
sharp rise in FDI flows in India over past one decade and continued their strength even during
the period of global economic crisis (2008-09 and2009-10), the subsequent moderation in
investment flows despite faster recovery from the crisis period appears somewhat inexplicable.
Survey of empirical literature and analysis seems to suggest that these divergent trends in FDI
flows could be the result of certain institutional factors that reduced the investors „sentiments
despite continued strength of economic fundamentals. Find. FDI is characterized as any form of
long-term investment that earns interest in an enterprise which functions outside the domestic
territory of the investor. In an era of globalization and liberalization, Foreign Direct
Investment(FDI) is a good source of flow of private foreign capital to the developing countries
as it adds to the domestic resources of the recipient country. Unlike borrowings from foreign
resources, which involves contractual obligation from the first day, direct foreign investments
does not involve any fixed charges and dividends, which would have to be paid only when the
firm earns profit. Consequently, FDI leads to increase in Profits, Gross Domestic Product (GDP),
Aggregate Employment and Foreign Trade of the recipient country.
FDI is an important tool in the economic development of the nation. Contribution of FDI
through financial resources, technology and innovative techniques raises overall productivity of
diverse sectors of economy. If properly navigated, it also acts as a catalyst for development of
sectors such as agriculture, manufacturing, service, SME and many more. Indian retail sector is
one of the most sought after sectors that carry great potential for attracting FDI. The sector is
rightly projected as sunrise sector of India. The growth of retail, especially in 21st century is
mind boggling and attracting the attention of retailers world over. With steady entry of top
global retailers such as Wal Mart, Tesco, Carrefour and many more in last couple of years
despite conservative approach of the government, the sector has

become more fascinating for research study. The recent decision of Indian government of
opening up the sector for FDI in single and multi brand retail has stirred up the heat with
intense agitation activities witnessed all over India. The whole issue needs dispassionate view
from all - intelligentsia, corporate world as well as from government so that Indian retail sector
benefits in its onward march of progress.
Foreign investment is investment in an enterprise by a Non-Resident irrespective of whether
this involves new equity capital or re-investment of earnings. Foreign investment is of two kinds
– (i) Foreign Direct Investment (FDI) and (ii) Foreign Portfolio Investment. FDI is defined under
Dictionary of Economics as ―Investment in a foreign country through the acquisition of a local
company or the establishment thereof an operation on a new site. It refers to capital inflow
from abroad. It is a form of long term international capital movement, made for the purpose of
productive activity and accompanied by the intention of managerial control or participation in
the management of foreign firm. International Monetary Fund (IMF) and Organization for
Economic Cooperation and Development(OECD) define FDI similarly as a category of cross
border investment made by a resident in one economy (the direct investor) with the objective
of establishing a lasting interest‘ in an enterprise (the direct investment enterprise) that is
resident in an economy other than that of the direct investor. Regulatory Framework for FDI in
India
Indian companies can receive FDI under two routes-
1. Automatic Route – It does not require prior approval either of Reserve Bank of India (RBI) or
government. It is allowed in all activities / sectors except where the provision of consolidated
FDI policy paragraphs ―Entry route for investment issued by government of India from time to
time is attracted.
2. Government Route –Government route means that investment in the capital of resident
entities by non-resident entities can be made only with the prior approval from FIPB, Ministry
of Finance or SIA, DIPP as the case may be. FDI in sectors, not covered under automatic route
requires prior approval of the government which is considered by Foreign Investment

Promotion Board (FIPB), Department of Economic Affairs, and Ministry of Finance. Following
sectors require prior approval of Government of India.
1. Sectors prohibited for FDI - retail trading, lottery business, atomic energy, gambling and
betting, business of chit fund, agriculture and plantation, nidhi companies, housing and real
estate business.
2. Activities that require industrial license
3. Proposals in which the foreign collaborator has existing financial / technical collaboration in
India in the same field.
4. Proposals for acquisition of shares in an existing Indian company in financial services and
where Securities Exchange Board of India (SEBI) regulation, 1977 is attracted.
5. All proposal falling outside notified sectoral policy in which FDI is not permitted.The Legal
basis
Foreign Direct Investment by non-resident in resident entities through transfer or issue of
security to person resident outside India is a ‗Capital account transaction and Government of
India and Reserve Bank of India regulate this under the FEMA, 1999 and its various regulations.
Keeping in view the current requirements, the Government from time to time comes up with
new regulations and amendments/changes in the existing ones through order/allied rules,
Press The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce &
Industry, Government of India makes policy pronouncements on FDI through Press Notes/ Press
Releases which are notified by the Reserve Bank of India as amendment to notification No.
FEMA 20/2000-RB dated May 3, 2000. These notifications take effect from the date of issue of
Press Notes/ Press Releases. The procedural instructions are issued by the Reserve Bank of
India vide Circulars. The regulatory framework over a period of time thus consists of Acts,
Regulations, Press Notes, Press Releases, Clarifications, etc. This circular consolidates into one
document all the prior policies/regulations on FDI which are contained in FEMA, 1999, RBI
Regulations under FEMA, 1999 and Press Notes/Press Releases/Clarifications issued by DIPP
and reflects the current policy framework‘ on FDI. It deals comprehensively with all aspects of

FDI Policy which are covered under the various Press Notes/Press Releases/ Clarifications issued
by DIPP.
Sector Specific Limits of Foreign Investment in India
Sector FDI Cap/Equity Entry Route Other Conditions
A. Agriculture
1. Floriculture, Horticulture,
Development of Seeds, Animal
Husbandry, Pasic culture
,Aquaculture, Cultivation of
vegetables & mushrooms and
services related to agro and
allied sectors
2. Tea sector, including
plantation (FDI is not allowed
in any other agricultural
sector /activity)
100%
100%
Automatic
FIPB
B. Industry
1. Mining covering exploration
and mining of diamond &
precious stones; Gold, silver
100% Automatic

and
minerals.
2. Coal and lignite mining for
captive consumption by power
projects and iron & steel,
cement production.
3. Mining and mineral
separation of titanium bearing
minerals
100%
100%
Automatic
FIPB
C. Manufacturing
1. Alcohol-Distillation &
Brewing
2. Coffee & Rubber processing
& Warehousing
3. Defense production
4. Hazardous chemicals and
isocyanides
5. Industrial explosives -
Manufacture
6. Drugs and Pharmaceuticals
7. Power including generation
(except Atomic energy);
transmission, distribution and
100%
100%
26%
100%
100%
100%
100%
Automatic
Automatic
FIPB
Automatic
Automatic
Automatic
Automatic

power trading. (FDI is not
permitted for generation,
transmission & distribution of
electricity produced in atomic
power plant/atomic energy
since private investment in
this activity is prohibited and
reserved for public sector.)
D. Services
1. Civil aviation (Greenfield
projects and Existing projects)
2. Asset Reconstruction
companies
3. Banking (private) sector
4. NBFCs: underwriting,
portfolio management
services, investment advisory
services,
financial consultancy, stock
broking, asset management,
100%
49%
74% (FDI+FII).
FII not to
exceed49%
100%
Automatic
FIPB
Automatic
Automatic s.t.minimum
capitalisation
norms

venture capital, custodian,
factoring, leasing and finance,
housing finance, forex broking
etc.
5. Broadcasting
a. FM Radio
b. Cable network;
c. Direct to home
d. Hardware facilities such as
up-linking, HUB.
e. Up-linking a news and
current affairs TV Channel
6. Commodity Exchanges
7. Insurance
8. Petroleum and natural gas
a. Refining
20%
49% (FDI+FII)
100%
49% (FDI+FII) (FDI
26,% FII
23%)
26%
FIPB
FIPB
Automatic
FIPB (for
PSUs).

9. Print Media
a. Publishing of newspaper
and periodicals dealing with
news
and current affairs
b. Publishing of scientific
magazines / speciality
journals/periodicals
10. Telecommunications
a. Basic and cellular, unified
access services, national
/international long-distance,
V-SAT, public mobile radio
trunked services (PMRTS),
global mobile personal
communication services
(GMPCS) and others.
49% (PSUs).
100% (Pvt.
Companies)
26%
100%
74% (including
FDI,FII,
NRI,
FCCBs,ADRs/GDRs,
convertible
Automatic
(Pvt.)
FIPB
FIPB
Automatic
up to 49%
and FIPB
beyond
49%.
Clearance
from IRDA
S.t.guidelines
by Ministry of
Information &
Broadcasting

preference
shares, etc.
Example:-
Capital controls against FDI in aviation: An example of bad governance in India
FDI in aviation was liberalised by the Reserve Bank of India on September 21, 2012 through a
change in the Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) Regulations, 2000 (link). Following that change, private players began
putting together a number of complex transactions between Indian and foreign companies such
as Jet-Etihad, AirAsia-Tata, and Tata-Singapore Airlines.
On November 20, 2013, the Directorate General of Civil Aviation (DGCA) revised its `Civil
Aviation Requirements' or "CAR" (CAR 4.1.5 to 4.1.16) to state that a domestic airline company
cannot enter into an agreement with a foreign investing entity (including foreign airlines) that
may give such foreign entity a right to control the management of the domestic operator ( link).
This change in regulations has major consequences for some of the transactions which are in
progress.
B. REGULATORY FRAMEWORK FOR FII:-
The foreign investment is necessary for all developing nation as well as developed nation but it
may differ from country to country. The developing economies are in a most need of these
foreign investments for boosting up the entire development of the nation in productivity of the
labour, machinery etc. The foreign investment or foreign capital helps to build up the foreign

exchange reserves needed to meet trade deficit or we can say that foreign investment provides
a channel through which developing countries gain access to foreign capital which is needed
most for the development of the nations in the area of industry, telecom, agriculture, IT etc.
The foreign investment also affects on the recipient country like it affects on its factor
productivity as well as affects on balance of payments. Foreign investment can come in two
forms: foreign direct investment and foreign institutional investment. Foreign direct investment
involves in direct production activities and in a long and medium term nature. As far as the FIIs
concern it is the short term nature and short term investments. FIIs invest in financial markets
such as money markets, stock markets and foreign exchange markets. Introduction to Foreign
Institutional Investors (FII’s)Since 1990-91, the Government of India embarked on liberalization
and economic reforms with a view of bringing about rapid and substantial economic growth
and move towards globalization of the economy. As a part of the reforms process, the
Government under its New Industrial Policy revamped its foreign investment policy recognizing
the growing importance of foreign direct investment as an instrument of technology transfer,
augmentation of foreign exchange reserves and globalization of the Indian economy.
Simultaneously, the Government, for the first time, permitted portfolio investments from
abroad by foreign institutional investors in the Indian capital market. The entry of FIIs seems to
be a follow up of the recommendation of the Narsimhan Committee Report on Financial
System. While recommending their entry, the Committee, however did not elaborate on the
objectives of the suggested policy. The committee only suggested that the capital market
should be gradually opened up to foreign portfolio investments. From September 14,1992 with
suitable restrictions, Foreign Institutional Investors were permitted to invest in all the securities
traded on the primary and secondary markets, including shares, debentures and warrants
issued by companies which were listed or were to be listed on the Stock Exchanges in India.
While presenting the Budget for 1992-93, the then Finance Minister Dr. Manmohan Singh had
announced a proposal to allow reputed foreign investors, such as Pension Funds etc., to invest
in Indian capital market Market design in India for foreign institutional investorsForeign
Institutional Investors means an institution established or incorporated outside India which
proposes to make investment in India in securities. A Working Group for Streamlining of the

Procedures relating to Foreign Institutional Investors, constituted in April, 2003, inter alia,
recommended streamlining of SEBI registration procedure, and suggested that dual approval
process of SEBI and RBI be changed to a single approval process of SEBI. This recommendation
was implemented in December 2003.Currently, entities eligible to invest under the FII route are
as follows:
As FII:
Overseas pension funds
mutual funds
investment trust
asset management company
nominee company
bank
institutional portfolio manager
university funds
Endowments
Foundations
Charitable trusts
Charitable societies ( a trustee or power of attorney holder incorporated or Established outside
India proposing to make proprietary investments or with no single investor holding more than
10 per cent of the shares or units of the fund.)
As Sub-accounts: The sub account is generally the underlying fund on whose behalf the FII
invests. The following entities are eligible to be registered as sub-accounts

Partnership firms
Private company
Public company
Pension fund
Investment trust
Individuals.
FIIs registered with SEBI fall under the following categories:
1. Regular FIIs- those who are required to invest not less than 70 % of their investment in
equity-related instruments and 30 % in non-equity instruments.
2. 100 % debt-fund FIIs- those who are permitted to invest only in debt instruments.
The Government guidelines for FII of 1992 allowed, inter-alia, entities such as asset
management companies, nominee companies and incorporated/institutional portfolio
managers or their power of attorney holders (providing discretionary and non-discretionary
portfolio management services) to be registered as Foreign Institutional Investors. While the
guidelines did not have a specific provision regarding clients, in the application form the details
of clients on whose behalf investments were being made were sought. While granting
registration to the FII, permission was also granted for making investments in the names of
such clients. Asset management companies/portfolio managers are basically in the business of
managing funds and investing them on behalf of their funds/clients. Hence, the intention of the
guidelines was to allow these categories of investors to invest funds in India on behalf of their
‘clients’. These ‘clients’ later came to be known as sub-accounts. The broad strategy consisted
of having a wide variety of clients, including individuals, intermediated through institutional
investors, who would be registered as FIIs in India. FIIs are eligible to purchase shares and
convertible debentures issued by Indian companies under the Portfolio Investment Scheme.

Registration Process of FIIs:
A FII is required to obtain a certificate by SEBI for dealing in securities. SEBI grants the
certificate SEBI by taking into account the following criteria:
i) The applicant's track record, professional competence, financial soundness, experience,
general reputation of fairness and integrity.
ii) Whether the applicant is regulated by an appropriate foreign regulatory authority.
iii) Whether the applicant has been granted permission under the provisions of the Foreign
Exchange Regulation Act, 1973 (46 of 1973) by the Reserve Bank of India for making
investments in India as a Foreign Institutional Investor.
iv) Whether the applicant is :-
a) An institution established or incorporated outside India as a pension fund, mutual fund,
investment trust, insurance company or reinsurance company.
(b) An International or Multilateral Organization or an agency thereof or a Foreign
Governmental Agency or a Foreign Central Bank
(c) an asset management company, investment manager or advisor, nominee company, bank
or institutional portfolio manager, established or incorporated outside India and proposing to
make investments in India on behalf of broad based funds and its proprietary funds in if any or
(d) university fund, endowments, foundations or charitable trusts or charitable societies.
v) Whether the grant of certificate to the applicant is in the interest of the development of the
securities market.
vi) Whether the applicant is a fit and proper person. The SEBIs initial registration is valid for a
period of three years from the date of its grant of renewal.

Sectors Percentage
Share of
Foreign
institutional
March 07 March
08
March
09
March
10
September11
Banks 18.41 19.15 14.27 16.02 17.62 18.17
Engineering 11.45 10.63 7.34 8.28 9.36 9.30
Finance 18.18 17.44 13.01 16.53 23.35 19.20
FMCG 16.34 11.91 14.07 12.72 14.09 16.34 17.00
Information
Technology
14.53 16.00 12.44 11.68 21.16 17.07
Infrastructure 7.15 8.86 7.31 8.90 7.87 7.50
Manufacturing 9.57 9.46 7.28 8.79 9.41 9.60
Media &
Entertainment
15.20 11.71 11.42 7.06 10.97 11.63
Petrochemicals 5.83 4.73 4.77 6.08 6.52 6.49
Pharmaceuticals 11.17 10.69 7.88 8.78 10.19 10.13
Services 13.09 10.70 8.39 8.05 7.41 9.50
Telecommunication 11.17 9.12 6.85 8.64 8.44 8.46
Miscellaneous 8.19 9.30 8.39 8.10 13.65 13.37

Total stake of FIIs in
all the Sectors
10.78 10.62 8.40 9.58 10.32 10.45
Example:-
Historically, retailers have tried to exploit relationships with supplier. A great example was in
the 1970s, when Sears sought to dominate the household appliance market. Sears set very high
standards for quality; suppliers that did not meet these standards were dropped from the Sears
line. This could also be seen in case of Wal-Mart that places strict control on its suppliers. A
contract with a big retailer like Wal-Mart can make or break a small supplier. In retail industry
suppliers tend to have very little power.
(ADR) American depositary receipt:-
Definition:-
A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one
share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S.
dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to
reduce administration and duty costs that would otherwise be levied on each transaction. This
is an excellent way to buy shares in a foreign company while realizing any dividends and capital
gains in U.S. dollars. However, ADRs do not eliminate the currency and economic risks for the
underlying shares in another country. For example, dividend payments in euros would be
converted to U.S. dollars, net of conversion expenses and foreign taxes and in accordance with
the deposit agreement. ADRs are listed on either the NYSE, AMEX or Nasdaq as well as OTC.
ADRs are one type of depositary receipt (DR), which are any negotiable securities that
represent securities of companies that are foreign to the market on which the DR trades. DRs
enable domestic investors to buy securities of foreign companies without the accompanying
risks or inconveniences of cross-border and cross-currency transactions.

Each ADR is issued by a domestic custodian bank when the underlying shares are deposited in a
foreign depositary bank, usually by a broker who has purchased the shares in the open market
local to the foreign company. An ADR can represent a fraction of a share, a single share, or
multiple shares of a foreign security. The holder of a DR has the right to obtain the underlying
foreign security that the DR represents, but investors usually find it more convenient to own
the DR. The price of a DR generally tracks the price of the foreign security in its home market,
adjusted for the ratio of DRs to foreign company shares. In the case of companies domiciled in
the United Kingdom, creation of ADRs attracts a 1.5% stamp duty reserve tax (SDRT) charge by
the UK government. Depositary banks have various responsibilities to DR holders and to the
issuing foreign company the DR represents.
1. Programmes:-
When a company establishes an ADR program, it must decide what exactly it wants out of the
program, and how much time, effort, and other resources they are willing to commit. For this
reason, there are different types of programs, or facilities, that a company can choose.
2. Unsponsored :-
Unsponsored shares trade on the over-the-counter (OTC) market. These shares are issued in
accordance with market demand, and the foreign company has no formal agreement with a
depositary bank. Unsponsored ADRs are often issued by more than one depositary bank. Each
depositary services only the ADRs it has issued.
As a result of an SEC rule change effective October 2008, hundreds of new ADRs have been
issued, both sponsored and unsponsored. The majority of these were unsponsored Level I
ADRs, and now approximately half of all ADR programs in existence are unsponsored.
A) Sponsored level 1 :-
Level 1 depositary receipts are the lowest level of sponsored ADRs that can be issued. When a
company issues sponsored ADRs, it has one designated depositary who also acts as its transfer
agent.

A majority of American depositary receipt programs currently trading are issued through a
Level 1 program. This is the most convenient way for a foreign company to have its equity
traded in the United States.
Level 1 shares can only be traded on the OTC market and the company has minimal reporting
requirements with the U.S. Securities and Exchange Commission (SEC). The company is not
required to issue quarterly or annual reports in compliance with U.S. GAAP. However, the
company must have a security listed on one or more stock exchange in a foreign jurisdiction
and must publish in English on its website its annual report in the form required by the laws of
the country of incorporation, organization or domicile.
Companies with shares trading under a Level 1 program may decide to upgrade their program
to a Level 2 or Level 3 program for better exposure in the United States markets.
B) Sponsored Level II ADRs ("Listing" facility)
Level 2 depositary receipt programs are more complicated for a foreign company. When a
foreign company wants to set up a Level 2 program, it must file a registration statement with
the U.S. SEC and is under SEC regulation. In addition, the company is required to file a Form 20-
F annually. Form 20-F is the basic equivalent of an annual report (Form 10-K) for a U.S.
company. In their filings, the company is required to follow U.S. GAAP standards or IFRS as
published by the IASB.
The advantage that the company has by upgrading their program to Level 2 is that the shares
can be listed on a U.S. stock exchange. These exchanges include the New York Stock
Exchange (NYSE), NASDAQ, and the American Stock Exchange (AMEX).
While listed on these exchanges, the company must meet the exchange’s listing requirements.
If it fails to do so, it may be delisted and forced to downgrade its ADR program.
C) Sponsored Level iii :-
A Level 3 American Depositary Receipt program is the highest level a foreign company can
sponsor. Because of this distinction, the company is required to adhere to stricter rules that are
similar to those followed by U.S. companies.

Setting up a Level 3 program means that the foreign company is not only taking steps to permit
shares from its home market to be deposited into an ADR program and traded in the U.S.; it is
actually issuing shares to raise capital. In accordance with this offering, the company is required
to file a Form F-1, which is the format for an Offering Prospectus for the shares. They also must
file a Form 20-F annually and must adhere to U.S. GAAP standards or IFRS as published by the
IASB. In addition, any material information given to shareholders in the home market, must be
filed with the SEC through Form 6K.
Foreign companies with Level 3 programs will often issue materials that are more informative
and are more accommodating to their U.S. shareholders because they rely on them for capital.
Overall, foreign companies with a Level 3 program set up are the easiest on which to find
information. Examples include the British telecommunications company Vodafone(VOD), the
Brazilian oil company Petrobras (PBR), and the Chinese technology company China Information
Technology, Inc. (CNIT).
3. Restricted Programs:-
Foreign companies that want their stock to be limited to being traded by only certain
individuals may set up a restricted program. There are two SEC rules that allow this type of
issuance of shares in the U.S.: Rule 144-A and Regulation S. ADR programs operating under one
of these 2 rules make up approximately 30% of all issued ADRs.
4. Privately placed:-
Some foreign companies will set up an ADR program under SEC Rule 144A. This provision makes
the issuance of shares a private placement. Shares of companies registered under Rule 144-A
are restricted stock and may only be issued to or traded by qualified institutional buyers (QIBs).
US public shareholders are generally not permitted to invest in these ADR programs, and most
are held exclusively through the Depository Trust & Clearing Corporation, so there is often very
little information on these companies.
Characteristics include:
1. It is a secured security

2. A fixed rate of interest is paid
3. Can be converted into multiple shares
5. Offshore (SEC Regulation S) ADRs:-
The other way to restrict the trading of depositary shares to US public investors is to issue them
under the terms of SEC Regulation S. This regulation means that the shares are not, and will not
be registered with any United States securities regulation authority.
Regulation S shares cannot be held or traded by any “U.S. person” as defined by SEC Regulation
S rules. The shares are registered and issued to offshore, non-US residents.
Regulation S ADRs can be merged into a Level 1 program after the restriction period has
expired, and the foreign issuer elects to do this.
6. Sourcing:-
One can either source new ADRs by depositing the corresponding domestic shares of the
company with the depositary bank that administers the ADR program or, instead, one can
obtain existing ADRs in the secondary market. The latter can be achieved either by purchasing
the ADRs on a US stock exchange or via purchasing the underlying domestic shares of the
company on their primary exchange and then swapping them for ADRs; these swaps are
called crossbook swaps and on many occasions account for the bulk of ADR secondary trading.
This is especially true in the case of trading in ADRs of UK companies where creation of new
ADRs attracts a 1.5% stamp duty reserve tax (SDRT) charge by the UK government; sourcing
existing ADRs in the secondary market (either via crossbook swaps or on exchange) instead is
not subject to SDRT.
7. Termination:-
Most ADR programs are subject to possible termination. Termination of the ADR agreement will
result in cancellation of all the depositary receipts, and a subsequent delisting from all
exchanges where they trade. The termination can be at the discretion of the foreign issuer or
the depositary bank, but is typically at the request of the issuer. There may be a number of

reasons why ADRs terminate, but in most cases the foreign issuer is undergoing some type
of reorganization or merger.
Owners of ADRs are typically notified in writing at least thirty days prior to a termination. Once
notified, an owner can surrender their ADRs and take delivery of the foreign securities
represented by the Receipt, or do nothing. If an ADR holder elects to take possession of the
underlying foreign shares, there is no guarantee the shares will trade on any US exchange. The
holder of the foreign shares would have to find a broker who has trading authority in the
foreign market where those shares trade. If the owner continues to hold the ADR past the
effective date of termination, the depositary bank will continue to hold the foreign deposited
securities and collect dividends, but will cease distributions to ADR owners.
Usually up to one year after the effective date of the termination, the depositary bank will
liquidate and allocate the proceeds to those respective clients. Many US brokerages can
continue to hold foreign stock, but may lack the ability to trade it overseas.
(GDRs) Global Depositary Receipts:-
A Global depository receipt (GDR) also known as International depository receipt (IDR), is a
certificate issued by a depository bank, which purchases shares of foreign companies and
deposits it on the account. They are the global equivalent of the original American Depository
Receipts (ADR) on which they are based. GDRs represent ownership of an underlying number
of shares of a foreign company and are commonly used to invest in companies from developing
or emerging markets by investors in developed markets.
Prices of global depositary receipt are based on the values of related shares, but they are
traded and settled independently of the underlying share. Typically 1 GDR is equal to 10
underlying shares, but any ratio can be used. It is a negotiable instrument which is
denominated in some freely convertible currency.[1] GDRs enables a company (issuer) to access
investors in capital markets outside of its home country.

Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, The
Bank of New York Mellon. GDRs are often listed in the Frankfurt Stock Exchange, Luxembourg
Stock Exchange and in the London Stock Exchange, where they are traded on the International
Order Book (IOB).
Characteristic:-
1. it is an unsecured security
2. it may be converted into number of shares
3. interest and redemption price is public in foreign agency
4. it is listed and traded in the stock exchange
usage:-
If for example an Indian Company which has issued ADRs in the American market wishes to
further extend it to other developed and advanced countries such as Europe, then they can sell
these ADRs to the public of Europe and the same would be named as GDR.
(ECB) external commercial borrowing :-
An external commercial borrowing (ECB) is an instrument used in India to facilitate the access
to foreign money by Indian corporations and PSUs (public sector undertakings). ECBs
include commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such
as floating rate notes and fixed rate bonds etc., credit from official export credit agencies and
commercial borrowings from the private sector window of multilateral financial
Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. ECBs
cannot be used for investment in stock market or speculation in real estate. The DEA
(Department of Economic Affairs), Ministry of Finance, Government of India along with Reserve
Bank of India, monitors and regulates ECB guidelines and policies. For infrastructure and

greenfield projects, funding up to 50% (through ECB) is allowed. In telecom sector too, up to
50% funding through ECBs is allowed. Recently Government of India has increased limits on RBI
to up to $40[1] billions and allowed borrowings in Chinese currency yuan.
Borrowers can use 25 per cent of the ECB to repay rupee debt and the remaining 75 per cent
should be used for new projects. A borrower can not refinance its existing rupee loan through
ECB. The money raised through ECB is cheaper given near-zero interest rates in the US and
Europe, Indian companies can repay their existing expensive loans from that.
(FEMA)Foreign Exchange Management Act,1999:-
The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India "to
consolidate and amend the law relating to foreign exchange with the objective of facilitating
external trade and payments and for promoting the orderly development and maintenance of
foreign exchange market in India". It was passed in the winter session of Parliament in 1999,
replacing the Foreign Exchange Regulation Act (FERA). This act seeks to make offenses related
to foreign exchange civil offenses. It extends to the whole of India.,[1] replacing FERA, which had
become incompatible with the pro-liberalization policies of the Government of India. It enabled
a new foreign exchange management regime consistent with the emerging framework of
the World Trade Organization (WTO). It also paved way to Prevention of Money Laundering
Act 2002, which was effected from 1 July 2005.
Unlike other laws where everything is permitted unless specifically prohibited, under this
act everything was prohibited unless specifically permitted. Hence the tenor and tone of the Act
was very drastic. It required imprisonment even for minor offences. Under FERA a person was
presumed guilty unless he proved himself innocent, whereas under other laws a person is
presumed innocent unless he is proven guilty.
Switch for FERA:-

FERA, in place since 1975, did not succeed in restricting activities such as the expansion
of transnational corporations (TNCs). The concessions made to FERA in 1991-1993 showed that
FERA was on the verge of becoming redundant.[3] After the amendment of FERA in 1993, it was
decided that the act would become the FEMA. This was done in order to relax the controls on
foreign exchange in India, as a result of economic liberalization. FEMA served to make
transactions for external trade (exports and imports) easier – transactions involving current
account for external trade no longer required RBI’s permission. The deals in Foreign Exchange
were to be ‘managed’ instead of ‘regulated’. The switch to FEMA shows the change on the part
of the government in terms of foreign capital.[4]
Need for management:-
The buying and selling of foreign currency and other debt instruments by businesses,
individuals and governments happens in the foreign exchange market. Apart from being very
competitive, this market is also the largest and most liquid market in the world as well as
in India.[5] It constantly undergoes changes and innovations, which can either be beneficial to a
country or expose them to greater risks. The management of foreign exchange market becomes
necessary in order to mitigate and avoid the risks. Central banks would work towards an orderly
functioning of the transactions which can also develop their foreign exchange market.[6]
Whether under FERA or FEMA’s control, the need for the management of foreign exchange is
important. It is necessary to keep adequate amount of foreign exc from Import Substitution to
Export Promotion.
Main feature:-
 Activities such as payments made to any person outside India or receipts from them, along
with the deals in foreign exchange and foreign security is restricted. It is FEMA that gives
the central government the power to impose the restrictions.
 Restrictions are imposed on residents of India who carry out transactions in foreign
exchange, foreign security or who own or hold immovable property abroad.

 Without general or specific permission of the MA restricts the transactions involving foreign
exchange or foreign security and payments from outside the country to India – the
transactions should be made only through an authorized person.
 Deals in foreign exchange under the current account by an authorized person can be
restricted by the Central Government, based on public interest.
 Although selling or drawing of foreign exchange is done through an authorized person, the
RBI is empowered by this Act to subject the capital account transactions to a number of
restrictions.
 Residents of India will be permitted to carry out transactions in foreign exchange, foreign
security or to own or hold immovable property abroad if the currency, security or property
was owned or acquired when he/she was living outside India, or when it was inherited by
him/her from someone living outside India.
 Exporters are needed to furnish their export details to RBI. To ensure that the transactions
are carried out properly, RBI may ask the exporters to comply to its necessary
requirements.
B) (FMC) Forward Markets Commission:-.
1. Name of the organization and logo:- Forward Markets Commission:-.

2. Year of establishment:- 1953
3. Website:- www.fmc.gov.in
4. All about FMC in brief:
The Forward Markets Commission (FMC) is the chief regulator of commodity futures
markets in India. As of July 2014 for the year 2014-15, it regulated Rs 17 trillion[1] worth
of commodity trades in India. It is headquartered in Mumbai and this financial
regulatoryagency is overseen by the Ministry of Finance.
Commission:-
Established in 1953 under the provisions of the Forward Contracts (Regulation) Act, 1952, it
consists of not less than two but not exceeding four members appointed by the Central
Government, out of them one being nominated by the Central Government to be the Chairman
of the Commission. Currently Commission comprises three members among whom Shri Ramesh
Abhishek, IAS is the Chairman, Dr. M. Mathisekaran, IES and Shri Nagendraa Parakh are the
Members of the Commission. Currently, the Commission allowscommodity trading in 22
exchanges in India, of which 6 are national.
Chairman of FMC
Mr. Ramesh Abhishek is the Chairman of commodities regulator FMC. He is an IAS Officer of
1982 Batch (Bihar Cadre) and was appointed on 24 September 2012 as the Chairman of

Forward Market Commission. Mr. Abhishek, an alumnus of the Harvard Kennedy School, holds
post graduate degrees in public administration and international relations.
Members of FMC
1. Dr M.Mathisekaran
Dr M.Mathisekaran belongs to 1981 batch Indian Economic Service. He has Post Graduate
Degree in Economics from Madurai Kamraj University, M.Sc (National Development Project
Planning) from University of Bradford, UK and Ph.D from University of Madras.
Before joining IES, he had worked as Assistant Professor of Economics from 1978 to 1981.After
joining IES, he has worked in various capacities in different organizations of the Government of
India. He had worked in the Programme Evaluation Organization of Planning Commission in the
regional offices at Hyderabad, Mumbai and Chennai. He had also worked as Chief Vigilance
Officer in the Tuticorin Port Trust and General Manager (Vigilance) in Food Corporation of India.
He was on deputation with Tamil Nadu Government from 8.11.2008 to 30.5.2011.
Before joining as Member, Forward Markets Commission he has worked as Economic
Adviser,FMC from 12.12.2007 to 31.10.2008 and 31.5.2011 to 15.12.2011,As Director,FMC from
9.10.1990 to 5.6.1991 and as Deputy Dirtector,FMC from 27.6.1998 to 15.11.1989.
2. Shri. Nagendra Parakh
Shri. Nagendra Parakh is a rank holder Chartered Accountant (CA) and Company Secretary (CS)
by professional Qualifications. He qualified CA and CS in 1985-86.
Before joining FMC in July 2013, Shri. Parakh was working as Chief General Manager at SEBI,
During his career with SEBI since 1994, He was associated in various reforms in the Indian
Securities market like on-line trading, demeterialisation, rolling settlement etc. He was key
person behind introduction of the Equity Derivatives Market and T+2 rolling settlements in
Indian securities Markets. He was SEBI nominee director on the board of Bangalore Stock
Exchange, Cochin Stock Exchange, Derivative segment of National Stock Exchange and
Derivative segment of The Stock Exchange Mumbai. Besides he has represented SEBI in various

committees set up by Reserve bank of India, Ministry of Finance and Govt. of India. He was also
a member representing India on the Standing committee II of the IOSCO.
Nagendra Parakh carries with him varied regulatory experiences of Indian and global Securities
market.
History:-
From 2013 september 09, the commission is overseen by the Department of Economic
Affairs, Ministry of Finance. Since futures traded in India are traditionally on food commodities,
earlier it was overseen by Ministry of Consumer Affairs, Food and Public Distribution (India).[2]
Development of the Industry:-
India has a long history of trading commodities and considered the pioneer in some forms of
derivatives trading. The first derivative market was set up in 1875 in Mumbai, where cotton
futures was traded. This was followed by establishment of futures markets in edible oilseeds
complex, raw jute and jute goods and bullion. This became an active industry with volumes
reported to be large.
However, in 1935 a law was passed allowing the government to in part restrict and directly
control food production (Defence of India Act, 1935). This included the ability to restrict or ban
the trading in derivatives on those food commodities. Post independence, in the 1950s, India
continued to struggle with feeding its population and the government increasingly restricting
trading in food commodities. Just at the time the FMC was established, the government felt
that derivative markets increased speculation which led to increased costs and price
instabilities. And in 1953 finally prohibited options and futures trading altogether.[3]
The industry was pushed underground and the prohibition meant that development and
expansion came to a halt. In the 1970 as futures and options markets began to develop in the
rest of the world, Indian derivatives markets were left behind. The apprehensions about the
role of speculation, particularly in the conditions of scarcity, prompted the Government to
continue the prohibition well into the 1980s.

The result of the period of prohibition left India with a large number of small and isolated
regional futures markets. The futures markets were dispersed and fragmented, with separate
trading communities in different regions with little contact with one another. The exchanges
had not yet embrace modern technology or modern business practices.
5. Functions of the regulator:
The functions of the Forward Markets Commission are as follows:
 To advise the Central Government in respect of the recognition or the withdrawal of
recognition from any association or in respect of any other matter arising out of the
administration of the Forward Contracts (Regulation) Act 1952.
 To keep forward markets under observation and to take such action in relation to them, as
it may consider necessary, in exercise of the powers assigned to it by or under the Act.
 To collect and whenever the Commission thinks it necessary, to publish information
regarding the trading conditions in respect of goods to which any of the provisions of the
act is made applicable, including information regarding supply, demand and prices, and to
submit to the Central Government, periodical reports on the working of forward markets
relating to such goods;
 To make recommendations generally with a view to improving the organization and
working of forward markets;
 To undertake the inspection of the accounts and other documents of any recognized
association or registered association or any member of such association whenever it
considers it necessary.
It allows futures trading in 23 Fibers and Manufacturers, 15 spices, 44 edible oils, 6 pulses, 4
energy products, single vegetable, 20 metal futures, 33 others Futures.
6. Do’s and Don’ts of investing in commodities market:-

1. Objectives:
 To ensure that markets efficiently perform the twin
economic functions of :
Price discovery
Price Risk management
 To maintain market integrity and financial integrity across the market, the Exchanges
and the Intermediaries (brokers, warehouses, assayers) etc.
2. Maintaining Financial Integrity:-
a) Capital Adequacy of Exchanges and Intermediaries.
b) Payment of Adequate Margins by Intermediaries.
3. Maintaining Market Integrity:-
a) Effective Surveillance and Monitoring
b) Audit of Exchanges and Intermediaries.
4. Ensuring alignment of Future and Spot prices:-
a) Threat of Delivery
b) Final Settlement based on correct spot prices
5. Investor Protection:-
a) Fair and even handed conduct of the Exchanges.
b) Protection against unscrupulous Intermediaries
6. Fairness and Transparency in Trading, Clearing and Settlement Process:-
a) Demutualized Set up of the Exchanges.
b) Electronic Trading
c) Corporate Governance in the Exchanges.
Act 1952:-
1. Constitution of India lists futures market and stock market in the Union List and the Central
Government is given the power to legislate.
a) Spot market is regulated by the States.

2. Forward Contract (Regulation) Act 1952 enacted.
D) Non –Banking Financial Company(NBFC):-
1. Name of the regulator with logo:
Non-Banking Financial Company
2. Website: www.nbfc.rbi.org.in
3. All about NBFCs in brief:
The financial sector in any economy consists of several intermediaries. Apart from banking
entities, there are investment intermediaries (such as mutual funds, hedge funds, pension
funds, and so on), risk transfer entities (such as insurance companies), information and analysis
providers (such as rating agencies, financial advisers, etc), investment banks, portfolio
managers and so on.
All such entities that offer financial services other than banking, may be broadly called non-
banking financial institutions. What is banking? Banking is commonly understood to mean
taking of deposits withdrawable on demand or notice - that is, banks can hold people's deposits

and promise to pay them on demand. There are variety of other entities that may accept
deposits - hence, acceptance of deposits is not the essence of banking.
In India, the term "non-banking financial companies" acquires a new meaning, and a huge
significance. The meaning of the term is such entities which are not banks, and yet carry lending
activities almost at par with banks. They may also accept deposits - however, these deposits are
term deposits and not call deposits.
The significance of non-banking financial companies in India lies in the massive capabilities of
NBFCs - short of acceptance of call deposits and remittance function, NBFCs can virtually do
everything that a bank can. Compared to this disability, the ease of entry and lightness of
regulation applicable to NBFCs makes it a tremendous focus of interest, particularly for foreign
investors wanting to enter India's financial sector.
For instance, it is possible to hold 100% foreign ownership of NBFCs, while in case of banks,
there are serious caps.
It is possible to either start an NBFC or buy one of the 17000-odd companies many of which are
formed for sale. On the other hand, getting a banking license requires a real penance.
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act,
1956 engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business
but does not include any institution whose principal business is that of agriculture activity,
industrial activity, purchase or sale of any goods (other than securities) or providing any
services and sale/purchase/construction of immovable property.
A non-banking institution which is a company and has principal business of receiving deposits
under any scheme or arrangement in one lump sum or in installments by way of contributions
or in any other manner, is also a non-banking financial company (Residuary non-banking
company).

Non-bank financial companies are financial institutions that provide banking services without
meeting the legal definition of a bank, i.e. one that does not hold a banking license. These
institutions typically are restricted from taking deposits from the public depending on the
jurisdiction. Nonetheless, operations of these institutions are often still covered under a
countries banking regulations.
The specific banking products that can be offered by NBFCs depends on the jurisdiction, and
may include services such as loans and credit facilities, savings products, investments
and money transfer services. In some jurisdictions, such as New Zealand, any company can
engage in banking business, except they are not allowed to use the word bank in their name. A
company can only call itself a bank if it is a registered as such with the nation's central bank.
Services provided:-
NBFCs offer most sorts of banking services, such as loans and credit facilities, private education
funding, retirement planning, trading in money markets, underwriting stocks and shares,
TFCs(Term Finance Certificate) and other obligations. These institutions also provide wealth
management such as managing portfolios of stocks and shares, discounting services e.g.
discounting of instruments and advice on merger and acquisition activities. The number of non-
banking financial companies has expanded greatly in the last several years as venture capital
companies, retail and industrial companies have entered the lending business. Non-bank
institutions also frequently support investments in property and prepare feasibility, market or
industry studies for companies.
However they are typically not allowed to take deposits from the general public and have to
find other means of funding their operations such as issuing debt instruments.
Regulations:-
For European NCs the Payment Services Directive (PSD) is a regulatory initiative from the
European Commission to regulate payment services and payment service providers throughout
the European Union (EU) and Eurofff Economic Area (EEA). The PSD describes which type of
organisations can provide payment services in Europe (credit institutions (i.e. banks) and
certain authorities (e.g. Central Banks, government bodies), Electronic Money Institutions

(EMI), and also creates the new category of Payment Institutions). Organisations that are not
credit institutions or EMI, can apply for an authorisation as Payment Institution in any EU
country of their URL choice (where they are established) and then passport their payment
services into other Member States across the EU.
4.Categories of NBFCs:
NBFCs are categorized
a) in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs,
b) non deposit taking NBFCs by their size into systemically important and other non-deposit
holding companies (NBFC-NDSI and NBFC-ND)
c) by the kind of activity they conduct. Within this broad categorization the different types of
NBFCs are as follows:
i. Asset Finance Company(AFC) : An AFC is a company which is a financial institution
carrying on as its principal business the financing of physical assets supporting
productive/economic activity, such as automobiles, tractors, lathe machines, generator
sets, earth moving and material handling equipments, moving on own power and
general purpose industrial machines. Principal business for this purpose is defined as
aggregate of financing real/physical assets supporting economic activity and income
arising therefrom is not less than 60% of its total assets and total income respectively.
ii. Investment Company (IC) : IC means any company which is a financial institution
carrying on as its principal business the acquisition of securities,
iii. Loan Company (LC): LC means any company which is a financial institution carrying on
as its principal business the providing of finance whether by making loans or advances
or otherwise for any activity other than its own but does not include an Asset Finance
Company.

iv. Infrastructure Finance Company (IFC): IFC is a non-banking finance company a) which
deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum
Net Owned Funds of Rs. 300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d)
and a CRAR of 15%.
v. Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an NBFC
carrying on the business of acquisition of shares and securities which satisfies the
following conditions:-
vi. (a) it holds not less than 90% of its Total Assets in the form of investment in equity
shares, preference shares, debt or loans in group companies;
(b) its investments in the equity shares (including instruments compulsorily convertible
into equity shares within a period not exceeding 10 years from the date of issue) in
group companies constitutes not less than 60% of its Total Assets;
(c) it does not trade in its investments in shares, debt or loans in group companies
except through block sale for the purpose of dilution or disinvestment;
(d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f)
of the RBI act, 1934 except investment in bank deposits, money market instruments,
government securities, loans to and investments in debt issuances of group companies
or guarantees issued on behalf of group companies.
(e) Its asset size is Rs 100 crore or above and
(f) It accepts public funds
vi. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC is a
company registered as NBFC to facilitate the flow of long term debt into infrastructure
projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of

minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-
NBFCs.
vii. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI): NBFC-MFI is a
non-deposit taking NBFC having not less than 85%of its assets in the nature of qualifying
assets which satisfy the following criteria:
viii. a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not
exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs.
1,20,000;
b. loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent
cycles;
c.total indebtedness of the borrower does not exceed Rs. 50,000;
d. tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000
with prepayment without penalty;
e. loan to be extended without collateral;
f. aggregate amount of loans, given for income generation, is not less than 75 per cent of
the total loans given by the MFIs;
g. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the
borrower
ix. Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factor is a non-deposit
taking NBFC engaged in the principal business of factoring. The financial assets in the
factoring business should constitute at least 75 percent of its total assets and its income
derived from factoring business should not be less than 75 percent of its gross income.
5. What are the requirements for registration with RBI?

A company incorporated under the Companies Act, 1956 and desirous of commencing business
of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should
comply with the following:
i. it should be a company registered under Section 3 of the companies Act, 1954
ii. It should have a minimum net owned fund of Rs 200 lakh. (The minimum net owned fund
(NOF) required for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs is indicated separately
in the FAQs on specialized NBFCs)
5. Residuary NBFCs:
They structure a part of Non-Banking Financial Company however their working is
diverse from the normal Nifco Residuary Non-Banking Company is a class
of NBFCS whose chief business is accepting of stores, under any plan or arrangement.
The stores appropriated don't include venture, asset financing, or credits. These
organizations are instructed to uphold speculations as per directions of RBI,
notwithstanding fluid possessions. The working of these companies is unique in relation
to those of organization enrollment as far as strategy for activation of stores and
necessity of arrangement of depositors’ funds. Sahara Mutual Fund was the first RNBC
began in India. The exercises of different Nifco are at present controlled by RBI. For this
reason, Nifco are essentially separated into two classes viz., those tolerant open stores
and those not tolerating open stores.
6. Detail report on any 5 NBFCs in India:
1. Futura:-

Futura’ today is truly a ‘Complete Polyester Company’, covering the entire range of
Polyesters from PET through PBT, PTT, PEN, PTN and PBN! The `Futura’ brand is
synonymous with products for the future: Speciality Polyesters for high end application.
Futura works with Global Companies such as Pepsi, Coke, GE Plastics, Shell Chemicals,
Faerchplast-Denmark, Associated Packaging Technologies - USA. Committed to Global
Quality Systems : ISO 9001:2000 Certification for the production facilities of Fibres,
Polymers and Preforms ; Committed to Environment, Health and Safety : ISO
14001:1996 for the PET Recycling facilities. $140 Million Sales in Fiscal Year 2006-07
including Exports of $ 71 Million
2. Tulsi Capital Market Limited:-
Tulsi Capital Market Limited is a Public Company incorporated on 28 July 1993. It is
classified as Indian Non-Government Company and is registered at Registrar of
Companies, Bangalore. Its authorized share capital is Rs. 110,000,000 and its paid up
capitalisRs.46,575,000. Tulsi Capital Market Limited's Annual General Meeting (AGM)
was last held on 30 September 2013 and as per records from Ministry of Corporate
Affairs (MCA), its balance sheet was last filed on 31 March 2013.
3. VIJI Finance Limited:-
The Leader in Financial Services Viji Finance LTD. brings deep industry experience,
innovative service offerings and next generation global delivery to serve the financial
services industry. VIJI Finance Ltd. is in the business of providing financial services to its
customers engaged in Infrastructural Development and construction, with a focus on
Infrastructure, Housing, and Equity, Vehicle Finance sectors in India. Viji Finance Ltd. has
played a fundamental role in financing projects, funded through long-term investment
instruments. Viji Finance Ltd. also provides customized financial solutions for Major
Groups. Viji Finance Ltd. formerly known as Panjon Finance Ltd. is a non-banking
company incorporated at 12 October 1994; the name changed of the company was
effective from 12 September 2012. The Company's principle activity is to provide

financial and investment services. The Company is mainly doing Finance Business. There
is stiff competition among major NBFCs in finance sector, but due to long history and
good background, the customers give preference to the Company. It is a Non-Banking
Finance Company (NBFC) registered at Reserve Bank of India, Department of Non-
Banking Supervision, Bhopal Office. Its Registration Number is B-03.00080.
4. TCI Finance Ltd:-
CI Finance was incorporated on November 29, 1973, as a public limited company in the
name and style of 'Bhoruka Finance' at Bombay. The name of the company was changed
to TCI Finance with effect from November 20, 1992. The Registrar of Companies,
Maharashtra, has issued a fresh certificate of incorporation consequent upon the name
change on 20th November, 1992.The registered office of the company is located at 1-7-
293, MG Road, Secunderabad, Andhra Pradesh-500003. The company’s principal activity
is to provide non-banking financial services. Its products include hire purchase, leasing
and inter corporate loans.
5. About Yama Finance Limited:
Yama Finance Limited was registered on 25 November, 1993. Yama Finance Limited's Corporate
Identification Number (CIN) is L65910DL1993PLC191032, Registeration Number is 191032. Their
registered address on file is B-6/5, Local Shopping Centers afdarjung Enclave, New Delhi -
110029, Delhi, India. Yama Finance Limited currently have 3 Active Directors /
Partners: Poonam Sharma, Ravi Sharma, Narender Mukharaiya, and there are no other Active
Directors / Partners in the company except these 3 officials. Yama Finance Limited is currently
in Active Status.

D. Companies Act, 2013:-
1. Name of the regulator with logo:
Companies Act, 2013
2. Website: www.companiesact.in
2. Private and Public Company with 5 examples each:
Private companies:-
With an Annual GDP growth rate of 7-8 percent India is the one of the fastest growing
economies in the world. This stable annual GDP growth rate that India is witnessing is mostly
due to the rise of the major private sector companies in the country.

Private sector companies play a very important role in the Indian economy. Over the last 15
years or so the major Private companies in India have contributed more than significantly to the
growth of the Indian economy. After the liberalization policies in the 1990's India started
receiving huge amounts of foreign direct investment (FDI) which was one of the most important
reasons behind the success of the private companies in the country. Prior to this the Indian
economy was ruled mostly by the public sector enterprises which were known for their strict
rules and regulations and bureaucratization.
The liberalization policies proved to be a boon for the Indian economy. The economy witnessed
huge amounts of foreign funds and along with it came in cutting edge technology and new
ideas which started changing the functioning of India business. Slowly and steadily more and
more private sector companies started coming up and establishing themselves in this part of
the globe.
Since the 1990's most of the Foreign Direct Investment that India received was in favor of the
private sector. The total amount of investment increased from 56 percent in the first five years
of the decade to almost 71 percent in the other five years of 1990. This became the investment
trend and is continuing till today. Investments in private sector generally cover sectors like
transport, manufacturing, infrastructure, financial services, social services, agriculture,
telecommunication and Information technology. However the present investment trends show
that sectors like pharmaceutical, contract research semiconductor, biotechnology and product
research and development are also gaining immense importance.
The Major Private companies of India prioritized customer's need and speedy service, which
further fueled competition amongst same industry players. This healthy competition has
benefited the end consumers, since the cost of service or products has come down
substantially. B grade companies are also offering lucrative and competitively priced products
or service, whose quality is at par with 'A' grade companies.

Over the last few years the country has witnessed a sea change in its economy and this is
mostly due to some of the finest private sector BPOs, software companies, private banks and
financial companies. India's manufacturing sector is also flooded with a number of private
Indian companies that dominate the Indian industry and have also made a mark in the global
forefront. The manufacturing companies in the country encompass sectors such as chemicals,
textiles, petrochemical products, automobile, agri-foods, telecommunication equipment, and
computer hardware.
1. Reliance Industries:-
Reliance Industries Limited (RIL) is an Indian conglomerate holding company headquartered
in Mumbai, Maharashtra, India. The company operates in five major segments: exploration and
production, refining and marketing, petrochemicals, retail and telecommunications.
The group is present in many business sectors across India including petrochemicals,
construction, communications, energy, health care, science and technology, natural resources,
retail, textiles, and logistics.
RIL is the second-largest publicly traded company in India by market capitalization and is the
second largest company in India by revenue after the state-run Indian Oil Corporation The
company is ranked No. 99 on the Fortune Global 500 list of the world's biggest corporations, as
of 2013. RIL contributes approximately 14% of India's total exports.
2. Tata Consultancy Services
Tata Consultancy Services Limited (TCS) is an Indian multinational information technology (IT)
service, consulting and business solutions company headquartered
in Mumbai, Maharashtra. TCS operates in 46 countries. It is a subsidiary of the Tata Group and
is listed on the Bombay Stock Exchange and the National Stock Exchange of India. TCS is the
largest Indian company by market capitalization and is the largest India-based IT services
company by 2013 revenues. TCS is now placed among the ‘Big 4’ most valuable IT services

brands worldwide. In 2013, TCS is ranked 40th overall in the Forbes World's Most Innovative
Companies ranking, making it both the highest-ranked IT services company and the top Indian
company. It is the world's 10th largest IT services provider, measured by revenues
3. Bharti Airtel:-
 Bharti Airtel Limited, commonly known as Airtel, is an Indian
multinational telecommunications services company headquartered inNew Delhi, India.
It operates in 20 countries across South Asia, Africa, and the Channel Islands. Airtel has
a GSM network in all countries in which it operates, providing 2G, 3G and 4G services
depending upon the country of operation. Airtel is the world's third largest mobile
telecommunications company by subscribers, with over 275 million subscribers across
20 countries as of July 2013.[6] It is the largest cellular service provider in India, with
192.22 million subscribers as of August 2013.[7] Airtel is the Second largest Asia-Pacific
mobile operator by subscriber base, behind China Mobile.
 Airtel is the largest provider of mobile telephony and second largest provider of fixed
telephony in India, and is also a provider ofbroadband and subscription
television services. It offers its telecom services under the "airtel" brand, and is headed
by Sunil Bharti Mittal. Bharti Airtel is the first Indian telecom service provider to
achieve Cisco Gold Certification.[8] It also acts as a carrier for national and international
long distance communication services. The company has a submarine cable landing
station at Chennai, which connects the submarine cable connecting Chennai and
Singapore.
 Bharti Airtel added 5.10 lakh subscribers to take its base to 20.97 crore at the end of
July,2014. Its market share in India is highest with a value of 28.41%.
 Airtel is credited with pioneering the business strategy of outsourcing all of its business
operations except marketing, sales and finance and building the 'minutes factory' model
of low cost and high volumes. The strategy has since been copied by several
operators.[9] Its network—base stations, microwave links, etc.—is maintained
by Ericsson and Nokia Siemens Network[10] whereas IT support is provided

by IBM,[11] and transmission towers are maintained by another company (Bharti Infratel
Ltd. in India).[12] Ericsson agreed for the first time to be paid by the minute for
installation and maintenance of their equipment rather than being paid up front, which
allowed Airtel to provide low call rates of 1/minute (US$0.02/minute).
4.Wipro:-
Wipro Limited (Western India Products Limited[1]) is an Indian multinational IT
Consulting and System Integrationservices company headquartered in Bangalore,
Karnataka.[4][5] As of March 2014, the company has 146,000 employees servicing over 900 large
enterprise & Fortune 1000 corporations with a presence in 61 countries. On 31 March 2014,
its market capitalisation was approximately 1.27 trillion ($20.8 billion), making it one of India's
largest publicly traded company and seventh largest IT services firm globally.
To focus on core IT Business, it demerged its non-IT businesses into a separate company named
Wipro Enterprises Limited with effect from 31 March 2013 The demerged company offers
consumer care, lighting, healthcare and infrastructure engineering and contributed to approx.
10% of the revenues of Wipro Limited in previous financial yearRecently Wipro has also
identified Brazil, Canada & Australia as rapidly growing markets globally and has committed to
strengthen the presence in the respective countries over the next 3 years.
5.Infosys:-
Infosys Ltd (formerly Infosys Technologies) is an Indian multinational corporation that
provides business consulting, information technology, software
engineering and outsourcing services. It is headquartered in Bangalore, Karnataka. Infosys is
the third-largest India-based IT services company by 2014 revenues,[4] and the fifth largest
employer of H-1B visa professionals in the United States in FY 2013.[5] On 31 March 2014,
its market capitalisation was 188,510 crores ($31.11 billion), making it India's fifth largest
publicly traded company. Its Q2 profit for FY14/15 rose to Rs. 3,096 Crore

PUBLIC COMPANIES:-
1. Hindustan Machine Tools Limited:-
HMT Limited, formerly Hindustan Machine Tools Limited, is a state-owned
manufacturing company under the Ministry of Heavy Industries and Public
Enterprises in India.[1] The company manufactures tractors, watches under its watch
division and industrial machines and tools mainly under its Praga division[2] It has a work
force of 2,806 with manufacturing units located
at Bangalore, Pinjore, Kalamassery, Hyderabad and Ajmer
2. Powergrid Corporation of India Limited :-
The Power Grid Corporation of India Limited (POWERGRID),
(NSE: POWERGRID, BSE: 532898) is an Indian state-ownedelectric utilities company
headquartered in Gurgaon, India. POWERGRID transmits about 50% of the total power
generated in India on its transmission network. Its subsidiary company, Power System
Operation Corporation Limited (POSOCO) handles power management for Power Grid.
POWERGRID also operates a telecom business under the name POWERTEL
3. Bharat Heavy Electricals Limited:-
Bharat Heavy Electricals Limited (BHEL) owned by Government of India, is a power plant
equipment manufacturer and operates as an engineering and manufacturing company
based in New Delhi, India. Established in 1964, BHEL is India's largest engineering and
manufacturing company of its kind. The company has been earning profits continuously
since 1971-72 and paying dividends uninterruptedly since 1976-77.
4. Oil India Limited:-
Oil India Limited (OIL) is the second largest hydrocarbon exploration & production (E&P)
Indian public sector company and operational headquarters in Duliajan, Assam, India

under the administrative control of the Ministry of Petroleum and Natural Gas of
the Government of India. However, Company's Corporate office located inNoida in New-
Delhi-NCR region. OIL is engaged in the business of exploration, development and
production ofcrude oil and natural gas, transportation of crude oil and production
of liquid petroleum gas. The story of Oil India Limited (OIL) traces and symbolises the
development and growth of the Indian petroleum industry. From the discovery of crude
oil in the far east of India at Digboi, Assamin 1889 to its present status as a fully
integrated upstream petroleum company, OIL has come far, crossing many milestones.
The Company presently produces over 3.6-3.8 MMTPA (million tonnes per annum) of
crude oil, over 7 MMSCMD of Natural Gas and over 50,000 Tonnes of LPG annually.
Most of this emanates from its traditionally rich oil and gas fields concentrated in the
Northeastern part of India and contribute around 80% of total Oil&Gas produced in the
region. The search for newer avenues has seen OIL spreading out its operations in
onshore / offshore Orissa and Andaman, Cauvery offshore, Tamil Nadu, Arabian Sea,
deserts of Rajasthan, onshore Andhra Pradesh, riverbeds ofBrahmaputra and logistically
difficult hilly terrains of the Indian state Mizoram and Arunachal Pradesh. In Rajasthan,
OIL discovered gas in 1988, heavy oil / bitumen in 1991 and started production of gas in
1996. The company has accumulated over a hundred years of experience in the field of
oil and gas production, since the discovery of Digboi oilfield in 1889. It is possibly the
only company to do so. From well completion to wellbore servicing, installation,
operation and maintenance of modern surface handling facilities, the company has the
skill and expertise to manage the entire range of operations required for onshore oil and
gas production.
The company has over 100,000 square kilometres of license areas for oil and gas
exploration. It has emerged as a consistently profitable International company and
present
in Libya,Gabon, Nigeria, Sudan, Venezuela, Mozambique, Yemen, Iran, Bangladesh and
USA. OIL has recently emerged in the offshore giant gas-field project of Mozambique

and also made discovery of oil & gas in Gabon as an Operator and Libya as non-
operator. OIL acquired Shale oil asset in USA during 2012.
In recent years, OIL has stepped up E & P activities significantly in the North-East India.
OIL has set up the NEF (North East Frontier) project to intensify its exploration activities
in the frontier areas in North East, which are logistically very difficult and geologically
complex. Presently, exploration activities are in progress along the Trust Belt areas of
Arunachal, Assamincluding Mizoram. The Company operates a crude oil pipeline in the
North East for transportation of crude oil produced by both OIL and ONGCL in the region
to feed Numaligarh, Guwahati, Bongaigaon and Barauni refineries and a branch line to
feed Digboi refinery.
5. Indian Airlines:-
Indian, formerly Indian Airlines (Indian Airlines Limited from 1993 and Indian Airlines
Corporation from 1953 to 1993) was a major Indian airline based in Delhi and focused
primarily on domestic routes, along with several international services to neighbouring
countries in Asia. It was state-owned, and was administered by the Ministry of Civil
Aviation. It was one of the two flag carriers of India, the other being Air India. The airline
officially merged into Air India on 27 February 2011.
On 7 December 2005, the airline was rebranded as Indian for advertising purposes as a
part of a program to revamp its image in preparation for an initial public
offering (IPO).[1] The airline operated closely with Air India, India's national
carrier. Alliance Air, a fully owned subsidiary of Indian, was renamed Air India
Regional.[2]
In 2007, the Government of India announced that Indian would be merged into Air
India. As part of the merger process, a new company called the National Aviation
Company of India Limited (now called Air India Limited) was established, into which
both Air India (along with Air India Express) and Indian (along with Alliance Air) would be

merged. Once the merger was completed, the airline - called Air India - would continue
to be headquartered in Mumbai and would have a fleet of over 130 aircraft.
3. MOA (Memorandum of Association):
Memorandum of association is the charter of the company and defines the scope of its
activities. An article of association of the company is a document which regulates the internal
management of the company.
Memorandum of association defines the relation of the company with the rights of the
members of the company interest and also establishes the relationship of the company with
the members.
As per Section 2(56) of the Companies Act,2013 “memorandum” means the memorandum of
association of a company as originally framed or as altered from time to time in pursuance of
any previous company law or of this Act.
Section 4 of the Companies Act,2013 deals with MOA. The Memorandum of a company shall
contain the following;
1. Name Clause:
The name of the company with the last word “Limited” in the case of a public
limited company, or the last words “Private Limited” in the case of a private
limited company
2. Situation Clause:
The State in which the registered office of the company is to be situated.
3.Object Clause:-

The objects for which the company is proposed to be incorporated and any
matter considered necessary in furtherance thereof.
4.Liability Clause:
The liability of members of the company, whether limited or unlimited, and also state,—
(i) in the case of a company limited by shares- liability of its members is limited to the amount
unpaid, if any, on the shares held by them; and
(ii) in the case of a company limited by guarantee-the amount up to which each member
undertakes to contribute—
(A) to the assets of the company in the event of its being wound-up while he is a member or
within one year after he ceases to be a member, for payment of the debts and liabilities of the
company or of such debts and liabilities as may have been contracted before he ceases to be a
member,as the case may be; and
(B) to the costs, charges and expenses of winding-up and for adjustment of the rights of the
contributories among themselves;
5.Capital Clause:
(i) the amount of share capital with which the company is to be
registered and the division thereof into shares of a fixed amount and
the number of shares which the subscribers to the memorandum
agree to subscribe which shall not be less than one share; and
(ii) (ii) the number of shares each subscriber to the memorandum
intends to take, indicated opposite his name;

(iii) In the case of One Person Company, the name of the person who, in
the event of death of the subscriber, shall become the member of the
company.
Identical/undesirable names;
The name stated in the memorandum shall not—
(a) be identical with or resemble too nearly to the name of an existing company registered
under this Act or any previous company law; or
(b) be such that its use by the company—
(i) will constitute an offence under any law for the time being in force; or
(ii) is undesirable in the opinion of the Central Government
A company shall not be registered with a name which contains—
(a) any word or expression which is likely to give the impression that the company is in any way
connected with, or having the patronage of, the Central Government, any State Government, or
any local authority, corporation or body constituted by the Central Government or any State
Government under any law for the time being in force; or
(b) such word or expression, as prescribed in the Companies (Incorporation) Rules, 2014.
unless the previous approval of the Central Government has been obtained for the use of any
such word or expression.
Reservation of name:-

A person may make an application in Form No. INC.1 along with the fee as provided in
the Companies (Registration offices and fees) Rules, 2014 to the registrar for the reservation
of a name set out in the application as-
(a) the name of the proposed company; or
(b) the name to which the company proposes to change its name
The Registrar may, on the basis of information and documents furnished along with the
application, reserve the name for a period of sixty days from the date of the application.
Penalty:
If the company has not been incorporated, the reserved name shall be cancelled and the person
making application shall be liable to a penalty which may extend to Rs.1,00,000/-
Action:
If the company has been incorporated, the Registrar may, after giving the company an
opportunity of being heard—
either direct the company to change its name within a period of three months, after passing
an ordinary resolution;
 take action for striking off the name of the company from the register of companies; or
 make a petition for winding up of the company.
Form of Memorandum:
The memorandum of a company shall be in respective forms as outlined below

S.NoTable Form
1
Table A
MOA of a company limited by shares
2 Table B MOA of a company limited by guarantee and not having share capital
3 Table C MOA of a company limited by guarantee and having share capital
4 Table D MOA of an unlimited company and not having share capital
5 Table E MOA of an unlimited company and having share capital
Any provision in the memorandum or articles, in the case of a company limited by guarantee
and not having a share capital, purporting to give any person a right to participate in the
divisible profits of the company otherwise than as a member, shall be void
MOA- CA2013 Vs CA1956:

S.No CA,2013 CA,1956
1
It requires classification of objects as
1. Objects for which the company is
proposed to be incorporated and
2. Any other matter considered necessary in
furtherance thereof.
The objects of the company should be
classified in the memorandum as
1. main objects
2. Incidental or ancillary objects
3. Other objects
2
It requires that the memorandum shall
state liability of members of the company
whether unlimited or limited
The unlimited companies were not
required to state in the memorandum that
liability of the members of the company is
unlimited.
3
A company shall not be registered with a
name which contains any word or
expression which is likely to give the
impression that the company is in any way
connected with, or having the patronage
of, the Central Government, any State
Government, or any local authority,
There is no such provision

corporation or body
4
It incorporates the procedural aspects of
application for availability of name of
proposed company or proposed new name
for existing company
There is no such provision
5
It provides that the MOA of a company
shall be in respective forms specified in
Tables A,B,C,D,E of Schedule I of the 2013
Act as may be applicable to the company.
It does not allow the memorandum to be
in a form as near to the applicable Forms in
Schedule I as the circumstances admit
It provides that the MOA of a company
shall be in a such one of the forms in Table
B,C,D,E of Schedule I of the 1956 Act as
may be applicable to the case or in a Form
as near thereto as the circumstances
admit.
4. Share Capital:
5. Accounts and Audit:
The Ministry has taken a big step by notifying 183 major sections of Companies Act, 2013 w.e.f.
01.04.2014 out of which the provisions relating to Audit & Auditors is of utmost importance for
all the Chartered professionals out there. This article contains the key amendments bought into
effect in relation to audit and auditors and the way forward.

Chapter X –Audit & auditors ranging from Sections 139 to 148 of the Companies Act, 2013 (the
‘Act’) alongwith Companies (Audit and Auditors) Rules, 2014( the ‘Rules’) have been notified &
they shall come into force on the 1st day of April, 2014.
Below is the summary of all the sections within the ambit of this Chapter alongwith the
corresponding section form Companies Act, 1956:
Companies
Act,
2013(New
Act)
Companies
Act, 1956(Old
Act)
Section Title
139 224, 224A,
619
Appointment of Auditors
140 225 Removal, Resignation of auditor and giving
of special notice.
141 226 Eligibility, qualifications and disqualifications
of auditors.
142 224(8) Remuneration of auditors.
143 227, 228,
263A
Powers and duties of auditors and auditing
standards.
144 Nil Auditor not to render certain services.
145 229, 230 Auditors to sign audit reports, etc. (similar)
146 231 Auditors to attend general meeting.(similar)
147 232, 233, Punishment for contravention.

233A
148 233B Central Government to specify audit of
items of cost in respect of certain
companies. (Cost Audit)
Note: Sub-section 5 & proviso to sub-section 4 of Section 140 of Companies Act, 2013 has not
been yet notified & Proviso to sub-section (3) of Section 225 of Companies Act, 1956 still
remains in effect.
KEY CHANGES :
1) The term of auditor holding the office in a company is increased to 5 years subject to
ratification at every AGM as compared to one year in the previous act.
2) Mandatory rotation of auditors in case of listed companies, certain unlisted companies &
certain private companies after 5 years.
3) No. of audits per individual/partner reduced to twenty including private limited
companies.
4) LLP is eligible to be appointed as an auditor
5) A firm/LLP can partner with non-CA’s and still be appointed as auditor.
6) Automatic re-appointment of retiring auditor in case of other companies where no
resolution is passed in AGM
7) Certain services named in Section 144 which an auditor cannot provide to its auditee
8) Compliances in relation to appointment, resignation of auditor have increased and
changed significantly.
9) Acts of Relative is included within the ambit of disqualification of an auditor
10) Limits for disqualification in case of holding of security, indebtness to a company or
providing guarantee to a company have increased.

11) Business relationship with a company is bought within the ambit of disqualification of an
auditor
12) As per Section 143 (2), an auditor is required to make a report to the members on the
accounts examined by him and on every financial statement which are required by or under this
Act to be laid in GM report shall after taking into account the provisions of this Act, the
accounting and auditing standards and matters which are required to be included in the audit
report
a. Balance Sheet
b. Profit & Loss Account
c. Cash Flow Statement
d. A statement of changes in equity if applicable
e. Other Statements as prescribed
Note : CFS is not mandatory in case of One Person Company, Small Company & Dormant
Company.
Small Company means a company other than public company of which Paid up share capital
does not exceed Rs. 50 lakh or such prescribed amount & T/o of which as per its last P & L A/c
does not exceed 2 crores or such amount as prescribed. These do not include holding or
subsidiary company.
13) As per 143(9) of the company’s act 2013, every auditor shall comply with the auditing
standards.
14) Fraud Reporting to CG has been introduced and provisions regarding this are required to be
followed by auditor immediately within the specified time.
SECTION 139 – Appointment of auditors:
1) Appointment of Auditors other than First:
A company shall, at the 1st AGM, appoint an individual or an audit firm (always includes LLP) as
an auditor who shall hold office from the conclusion of that meeting till the conclusion of its
6th AGM and thereafter till the conclusion of every 6th AGM.

Appointment of First Auditors:
However, the first Auditors of a company are to be appointed always by the BOD within 30 days
of registration of company and in case of failure to do so, the members shall be informed who
shall within 90 days at an EGM appoint such auditor and such auditor shall hold office till
conclusion of 1st AGM.
2) Ratification at every AGM :
Company shall place the matter relating to such appointment for ratification by members at
every AGM.
Note : If the appointment is not ratified, the rules prescribe that the Board of Directors shall
appoint another individual or firm as its auditor or auditors after following the procedure laid
down in this behalf under the Act.
3) Compliance before appointment by company/auditor:
Before the appointment, a company shall obtain from the auditor–
a. Written consent of the auditor to such appointment
b. Certificate that
(a) auditor is eligible for appointment and is not disqualified for appointment under the Act,
the Chartered Accountants Act, 1949 and the rules or regulations made there under;
(b) the proposed appointment is as per the term provided under the Act;
(c) the proposed appointment is within the limits laid down by or under the authority of the
Act;
(d) the list of proceedings against the auditor or audit firm or any partner of the audit firm
pending with respect to professional matters of conduct, as disclosed in the certificate, is true
and correct.
4) Compliance after Appointment by Company:
A Company shall inform the auditor of his appointment & is to file a notice of appointment with
ROC within 15 days of the meeting in which auditor is appointed. (Form No. ADT – 1)

Note : Earlier auditor used to file Form 23B and inform ROC, now the company is to inform ROC,
so in a way they shifted the burden to inform on Company.
5) Mandatory Rotation of Auditors in case of Listed Companies & Certain classes of
Companies :
All Listed companies and Companies prescribed by CG shall not appoint or re-appoint–
o an individual – for more than one term of 5 consecutive years
o an audit firm – for more than two terms of 5 consecutive years
Classes of Company prescribed by CG under the Rules :
(a) all unlisted public companies having paid up share capital of rupees ten crore or more;
(b) all private limited companies having paid up share capital of rupees twenty croreor more;
(c) all companies having paid up share capital of below threshold limit mentioned in (a) & (b)
above, but having public borrowings from financial institutions, banks or public
deposits of rupees fifty crores or more.
Cooling Period:
An individual or audit firm as the case may be who/which has completed the abovementioned
terms shall not be eligible for re-appointment as auditor in the same company for 5 years from
the completion of such term
Common Partners Restriction:
As on the date of appointment, no audit firm having a common partner/s to the other audit
firm, whose tenure has expired in a company immediately preceding the F.Y., shall be
appointed as auditor of the same company for a period of 5 years.
Transition Period :
Every company required to comply as above, existing on or before the commencement of this
Act, shall comply with the above requirements within 3 years from 01.04.2014.
Rights of shareholders/ auditor unharmed :
Nothing contained above with respect to rotation shall prejudice the right of the company to
remove an auditor or the right of the auditor to resign from such office of the company.
Provisions in Rules regarding rotation :

- The period for which the individual/firm has held office as auditor prior to the commencement
of the Act shall be taken into account for calculating the period of 5 or 10 years, as the case
may be.
- The incoming auditor/audit firm shall not be eligible if such auditor/audit firm is associated
with the outgoing auditor/audit firm under the same network of audit firms.
Here, “same network” includes the firms operating or functioning, hitherto or in future, under
the same brand name, trade name or common control.
For the purpose of rotation of auditors,-
(a) a break in the term for a continuous period of five years shall be considered as fulfilling the
requirement of rotation;
(b) if a partner, who is in charge of an audit firm and also certifies the financial statements of
the company, retires from the said firm and joins another firm of chartered accountants, such
other firm shall also be ineligible to be appointed for a period of five years.
Illustration explaining rotation in case of audit firm :
Number of consecutive
years for which an audit
firm has been
functioning as auditor in
the same company [in
the first AGM held after
the commencement of
provisions of section
139(2)]
Maximum number of
consecutive years for
which the firm may be
appointed in the same
company (including
transitional period)
Aggregate period
which the firm would
complete in the same
company in view of
column I and II
I II III
10 years (or more than
10 years)
3 years 13 years or more

9 years 3 years 12 years
And so on
6) Reappointment in case of other than listed companies possible:
A retiring auditor is eligible for reappointment at an AGM, if
a) He is not disqualified for re-appointment
b) He has not given notice in writing of unwillingness to be re-appointed
c) SR passed at a meeting that some other auditor is to be appointed or expressly
providing that he shall not be re-appointed (Read special notice requirement in Section 140)
Where at any AGM, no auditor is appointed or re-appointed, the existing auditor shall continue
to be the auditor of the company.
7) Additional rights provided to Shareholders :
Subject to the provisions of this Act, members of a company may resolve to provide that -
o In the audit firm appointed by it, the auditing partner and his team shall be rotated at such
intervals as may be resolved by members; or
o The audit shall be conducted by more than one auditor.
8) Casual Vacancy (CV):
o CV caused because of resignation : By BOD within 30 days but the same should be approved
by the company within 3 months of recommendation and shall hold office till conclusion of
next AGM
o CV caused because of other reasons (disqualifications as per 141) : By BOD within 30 days,
No approval

9) Where a company is required to constitute an Audit Committee u/s 177, all
appointments, including the filling of a CV of an auditor shall be made after taking into account
the recommendations of such committee.
Section 140 : Removal, Resignation of auditor and giving of special notice
o The auditor appointed u/s 139 may be removed from his office before the expiry of his
term only by way previous approval of CG and a special resolution of the company to be
passed in a general meeting within 60 days of receipt of approval of CG. However, before
such step, the auditor shall be given a reasonable opportunity of being
heard. Theapplication to CG has to be made within 30 days of passing the board
resolution.(Form No. ADT- 2 along with fees).
Here, a long-term relationship is built for 5 years, since removal before 5 years would be
considered as removal before the expiry of his term. And for removal before the expiry of an
auditor’s term requires strict formalities to be followed.
o Compliance by auditor after resignation : The auditor who has resigned from the company
shall file within a period of 30 days from the date of resignation, a statement in the
prescribed form with the company and the ROC, indicating the reasons and other facts as
may be relevant. (Form No. ADT-3)
Punishment if auditor doesn’t comply : Fine of Rs. 50,000 to Rs. 5,00,000
o Special Notice : Special notice shall be required for a resolution at an annual general
meeting appointing as auditor a person other than a retiring auditor, or providing expressly
that a retiring auditor shall not be re-appointed, except in case of mandatory rotation in case
of listed companies. Other provisions w.r.t special notice are similar to the old Act.
Section 141 : Eligibility, Qualifications & Disqualifications
Eligibility:
a) Individual : Only if is a CA holding certificate of Practice as per Section 2(17) of the
Companies Act,2013.
b) Audit Firm/LLP : Majority of partners who are CA are practicing in India, apptd in Firm
name. Only the partner’s who are CA’s are authorised to act as auditors and sign.

Note : Thus, it seems Firm/LLP can contain partner’s who are Non-CA’s. The introduction of LLP
as an auditor and ability of a firm/LLP to operate with partners who are not Chartered
Accountants is a welcome change and in line with international practices. This will also result
in multi-disciplinary firms providing vide range of services.
Disqualifications : The following persons shall not be eligible for appointment as auditors of a
company or shall vacate the office after appointment :—
Disqualifications similar to old act :
(a) a body corporate other than a LLP
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an officer or employee of the
company;
Disqualifications amended and its limits :
(d) a person who, or his relative or partner—
(i) is holding any security of or interest in the company or its subsidiary, or of itsholding or
associate company or a subsidiary of such holding company:
Provided that the relative may hold security or interest in the company of face value not
exceeding 1000 rupees or such sum as may be prescribed; (Prescribed sum is Rs. 1 lakh)
(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a
subsidiary of such holding company, in excess of such amount as may be
prescribed; (Prescribed sum is Rs. 5 lakh)
(iii) has given a guarantee or provided any security in connection with the indebtedness of any
third person to the company, or its subsidiary, or its holding or associate company or a
subsidiary of such holding company, for such amount as may be prescribed;(Prescribed sum is
Rs. 1 lakh)
NEWLY ADDED disqualifications provided in the ACT:
(e) a person or a firm who, whether directly or indirectly, has business relationshipwith
the company, or its subsidiary, or its holding or associate company or subsidiary of such
holding company or associate company of such nature as may be prescribed;

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