www.asiriyar.

net

GOVERNMENT OF TAMIL NADU

HIGHER SECONDARY SECOND YEAR

COMMERCE

Untouchability is Inhuman and a Crime

A publication under Free Textbook Programme of Government of Tamil Nadu

Department of School Education

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Government of Tamil Nadu

First Edition - 2019

(Published Under New Syllabus)

NOT FOR SALE

Content Creation

The wise
possess all

State Council of Educational

Research and Training
© SCERT 2019

Printing & Publishing

Tamil NaduTextbook and Educational

Services Corporation
www.textbooksonline.tn.nic.in

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Dear Students!
There is a wonderful treasure on your hands now in the form a text book, which is going to make you a really resourceful
and an able person in future. You have to believe it first so that you can develop a multi-dimensional personality in your
own self with a thorough knowledge in Commerce.
This is for you to know, how you could make use of the book for the best understanding of various useful and valuable
knowledge sources hidden within the text. These tips would certainly make a difference in you while learning the units,
lessons and relevant concepts thereof.
Actually the book is divided into 10 Units, 33 Chapters where in there are several sections are written in a student
friendly way. An attempt is made here to explain how to use them for a better learning experience.

The units are broad heading of the book which contains several
Chapters in each of them so that you can understand the section
specific knowledge in various parts of Commerce Education.
This is the usual way of learning. There are three Chapters, for
UNITS example, in Unit I, which gives you the basic and introductory
aspects of Commerce Education. Similarly the remaining
Units give you the specialized knowledge on the different Unit
headings so required at the level of Eleventh Standard. Omission
any unit may lead to loss of knowledge continuity.

All the 33 Chapters in the book are a real treasure for one who
wants to learn the theory and practice of Commerce today. So
you have to look into these chapters as useful, informative and
CHAPTERS capacity building capsules in any individual student who wants
to learn the elements and fundamentals of Commerce. Omission
HOW TO USE of any Chapter would lead to loss of knowledge in real terms and
other related benefits.
THE BOOK
These headings are given for you to remember the major
divisions of a chapter with conceptual clarity and information
sequence in an orderly manner so as to arrange your learning
SUB-HEADINGS method made easy. So you have to learn the subject content of a
chapter, mainly based on the ‘sub-headings’ of a chapter. This is
the simple way of learning.

This section of the Chapters in general would give you various

tips on the present or past events or bits of useful information
in the field of Commerce so relevant to the subject matter
discussed in a specific Chapter, of course in almost all Chapters.

This section is an attempt to explain you how some people or

organisations have been able to grow from nothing to top today
and those who set an example by their way of becoming the
SUCCESS STORY role models. You can understand the way of growing and also
you can follow such role models for achieving your own future
ambition.

This section is given to test your ‘applied knowledge’ on the

subject matter of a Chapter or Chapters wherein you have to
think and analyze about the case and give your best ability to
understand the situation and explanation thereof / relevant
answers so as to depict yourself as a student with practical
Case study
knowledge or applied knowledge on the chosen case study.

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This is an exercise given to you to do either class work or home

work on the chosen theme or subject matter in each Chapter
or chapters. Commerce Education is required to have practical
PROJECT WORK exposure to various forms of business organizations around the
world. Project work will ensure your ability to bring about a
solution to present crisis in an organization or give plans for future
development of the same.

There is an useful section in all chapters for ‘ your own thinking

‘ either with some meaning of concepts or practical situation for
your understanding. Repeated thinking of these aspects would
ensure your ability to understand developments in Commerce and
FOR OWN THINKING capacity to do your own business in future.

This section is attempted to make the students to learn about

necessary concepts or section of Commercial knowledge by doing
home work or by doing further study through browsing or learning
FOR FUTURE LEARNING from reference books.

Students are expected to be thorough about certain concepts which

are chapter specific and related to the knowledge dealt in that
KEY TERMS chapter. This would enable the students to be clear about various
concepts which is essential for clarity of thought and able learning
about the subject matter.

As you are aware of, this section is essential to evaluate your ability
to answer specific questions, may be long answer or short answer
or fill in the blanks or choosing the correct one from among the
multiple-choice of answers. Scoring high marks is an indicator
of your knowledge level for higher studies and hence you need
QUESTIONS to prepare for these questions well in advance to the schedule of
examination time-table. You can try to find answers before your
teachers direct you to answer them. Prevention is better than cure.

This is an interesting section of many a chapter in the book

wherein you can have the learning experience through the online
support, using an Android phone with applied QR Code app.
You can listen to short lectures or demonstrations by experts or
experienced teachers. Of course this is mostly home work or leisure
time exercises, unless or otherwise the class teachers wanted to
display them in class-rooms during working hours.

GLOSSARY

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SCOPE OF “COMMERCE” EDUCATION

“Commerce” as a field of knowledge is all pervasive in nature. It offers
enormous opportunities for higher education and employment both in India
and abroad. The scope after higher secondary programme in Commerce is
given below:

EDUCATIONAL OPPORTUNITIES
Any of the following Degree Any of the following Any of the following Any of the following Any of the Research
Programmes can be pursued professional courses/ programmes in India or professional courses/ Programme after a
by the students both on programmes. abroad after a Formal Degree programmes after Formal Post Graduation
Regular mode and Distance Programme. Anywhere a Formal Degree in Commerce/
Education mode. in colleges. Universities Programme
or Indian Institute of
Management (IIM)
• B.Com., Bachelor of • C.A., Chartered • M.Com., • Chartered • M.Phil., (Commerce)
Commerce (General) Accountant as Master of Commerce. Accountancy Master of Philosophy
• B.Com., (Hons.) an Integrated • M.Com., •C  ost and • Ph.D., (Commerce)
Programme. (Accounting and Finance) Management Doctor of Philosophy
• B.Com., (Accounting &
Finance) • CMA(ICWA) • M.Com., (International Accounting (ICWA) • D.Litt., (Commerce)
• B.Com., (Corporate • ACS Business and Banking) •A  ssociate Company Doctor of Letters
Secretaryship) • B.L., Bachelor of Law • M.Com., (Computer Secretary • UGC – National
• B.Com., (Computer – Five year Integrated Applications) •B  achelor of Loss Eligibility Test (NET)
Application) Programme. • M.Com., (Co operative (LLB) • SET – State Eligibility
• B.Com., (International • B.Com., (LLB) Management) •U  nion Public Sercice Test
Business) Bachelor of Law – • M.B.A., Master of Business Commission (UPSC) • B.Ed., (Bachelor of
Five year Integrated Administration • I ndian Administrative Education) and followed
• B.Com., (Bank Management) Programme in India
• M.B.A., (Finance) Service (IAS) by
• B.B.A., (Bachelor of Business or Abroad
Administration) • M.B.A., (Marketing) • I ndian Police Service •M  .Ed., (Master of
• CIMA (Chartered (IPS) Education) Programmes
• B.B.M., (Bachelor of Bank Institute of • M.B.A., (Human Resource
Management) Management Management) • I ndian Foreign • Any PG Diploma
Accountants (UK)) Service (IFS) programme offered by a
• B.A., (Co-operation) • M.B.A., (Advertisement and standard Institute
• ACCA (Association Salesmanship) • I ndian Revenue
• M.Com., (Master of Service (IRS)
Commerce – Five year of Chartered Certified • M.B.A., (Hospital
Integrated programmed) Accountants (UK)) Management) • I ndian Audit and
• CPA (Certified Public Account Service
• Any Diploma Programme • MHRM (Master of Human (IA&AS) etc.
offered by a Standard Institute Accountant (USA)) Resource Management)
• MLM (Master Labour
Management)

EMPLOYMENT OPPORTUNITIES
a) For self employment there are a number of Enterpreneurial Development and Training Programmes sponsored by District Industries
Centres (DIC) throughout Tamil Nadu. Any Higher Secondary student can approach DIC in their own District Headquarters to train
up themselves to start their own Agri-business, small trade, Self Help Group, Departmental stores or any General Mercantile Shop.
b) After gaining a Formal Degree Programme, the commerce graduate can gain access to Bank Finance or Institutional lending for
business start-up
c) After Higher Secondary Course, the students can appear for Group IV and after formal degree programme, they can appear for
Group I and Group II for Govt Postings through TNPSC/UPSC, including services in police to postal departments, besides bank
employees in public sector.
d) Commerce graduates can become Income Tax practitioners and GST consultants with due qualifications.

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SCOPE ABROAD
The commerce students have a wide range of scope abroad as listed below.

1. Th
 e Bachelor Degree holders in commerce can join MBA in any university in developed countries like England. The USA, Australia
and so on.
2. Th
 e commerce graduates with ‘Tally’ Accounting package can get employed in any part of world as Accountants in business
enterprises.
3. Th
 e Master Degree holders in commerce can join Ph.D. Programmes in any foreign University with fellowships abroad.
4. B
 .Ed/M.Ed/M.Phil/Ph.D holders in commerce can gain teaching jobs abroad both in schools and colleges (This is not only for younger
but also those who are retired from service in India)
5. C
 ommerce graduates are permitted by foreign governments to start-up export business ventures in their respective Nations, If their
projects are valid.
6. C
 ommerce graduates can become foreign exchange dealers through proper and authorised certification by the respective National
Governments in various countries.
7. C
 ommerce graduates can become bank employees abroad after a formal selection by them. Based on required qualification.
8. C
 ommerce graduates have great scope for Management consultancy/Export and Import consultancy/ Clearing and Forwarding
agencies/Economic Advisories/ Project consultancies/planning divisions/ share market speculators/security brokers/portfolio advisors/
Insurance advisors/ Advertisement agencies/ Secretariats of Business Tycoons/ Board personnel /Financial Advisors/Associates of Tax
consultancies/Treasury Management/Scrap Dealers/ Bullion Trader/ Advisors to various purchase committees.

SCOPE OF AREA OF
RESEARCH
• Marketing
• Management
• Finance
• Human Resource Management
• Entrepreneurship
• Retailing
• Supply Chain Mangement
• Logistic Mangement
• Financial Services
• Financial Markets
• Services Industries
• International Business
• Organisational Behaviour
• Digital Marketing
• Taxation

Institute of Chartered
Accountants Of India

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Chapter page
Unit No Contents
No No
PRINCIPLES OF MANAGEMENT
1.01 Concept of Management 1
1.02 Definitions of Management 2
1 1.03 Management Vs. Administration 4
1.04 Management Process 5
1.05 Principles of Scientific Management 7
1.06 Principles of Modern Management 9
FUNCTIONS OF MANAGEMENT
13
2 2.01 Main Functions
14
2.02 Subsidiary Functions
MANAGEMENT
MANAGEMENT BY OBJECTIVES (MBO) and
PROCESS MANAGEMENT BY EXCEPTION (MBE)
3.01 Meaning and Definition of MBO 17
3.02 Objectives of MBO 18
3.03 Features of MBO 18
3.04 Process of MBO 18
3 20
3.05 Advantages of MBO
3.06 Disadvantages of MBO 20
3.07 Meaning of MBE 20
3.08 Process of MBE 21
3.09 Advantages of MBE 21
3.10 Disadvantages of MBE 21
INTRODUCTION TO FINANCIAL MARKETS
4.01 Meaning and Definition of Financial Market 24
4.02 Scope of Indian Financial Market 25
4.03 Types of Financial Markets 25
4
4.04 Role of Financial Market 25
4.05 Functions of Financial Market 26
4.06 
New Issue Market (NIM) Vs. Secondary 27
Market
CAPITAL MARKET
30
5.01 Meaning and Definition
31
5.02 Characteristics of Capital Market
31
5 5.03 Kinds of Capital Market
32
FINANCIAL 5.04 Functions and Importance of Capital Market
5.05 
Indian Capital Market – Evolution and
MARKETS – I 33
Growth 5.06 New Financial Institutions
MONEY MARKET
37
6.01 Meaning and Definition
38
6.02 Characteristics
6.03 
Difference between Capital Market and
39
Money Market
6.04 Participants in Money Market
6 41
6.05 Money Market Instruments
41
6.05.01 Treasury Bills
42
6.05.02 Certificate of Deposit
42
6.05.03 Commercial Bills
6.05.04 Government or Gilt-Edged Securities
43
Market.
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STOCK EXCHANGE
7.01 
Stock Exchange – Origin, Meaning and
Definition 48
7.02 Functions of Stock Exchange 49
7.03 Features of Stock Exchange 50
7
7.04 Benefits and Limitations of Stock Exchange 51
7.05 Stock Exchanges in India 52
7.06 Types of Speculators 54
FINANCIAL 7.07 Stock Exchange Vs. Commodity Exchange 55
MARKETS – II 7.08 Recent Development in Stock Exchange 56
SECURITIES EXCHANGE BOARD OF INDIA
(SEBI)
8.01 Introduction of SEBI 65
8.02 Objectives of SEBI 67
8
8.03 Functions of SEBI 67
8.04 Powers of SEBI 68
8.05 Dematerialization 69
8.06 Benefits of Dematerialization 69
HUMAN RESOURCE MANAGEMENT
9.01 Meaning and Definition of Human Resource 76
9.02 Characteristics of Human Resource 76
9.03 Significance of Human Resource 76
9.04 Meaning and Definition of Human Resource
9
Management 77
9.05 Nature and Features of Human Resource
Management
9.06 Significance of Human Resource Management 77
9.07 Functions of Human Resource Management 79
RECRUITMENT METHODS
10.01 Meaning and Definition of Recruitment 82
10 10.02 Recruitment Process 82
10.03 Sources of Recruitment 83
10.04 Recent Trends in Recruitment 85
EMPLOYEE SELECTION PROCESS
HUMAN RESOURCE 11.01 Steps in Employee Selection Process 89
MANAGEMENT 11.02 Factors influencing Selection Process 94
11.03 Importance of Selection 95
11
11.04 Selection differs from Recruitment 95
11.05 Placement 96
11.06 Significance of Placement 96
11.07 Principles of Placement 97
EMPLOYEE TRAINING METHOD
12.01 Purpose of Training or Need for Training 101
12.02 Steps in Designing a Training Programme 102
12.03 Training Method 102
12.03 (i) On the Job Training 103
12.03 (ii) Off the Job Training 105
12
12.04 Differences Between on the Job Training and
off the Job Training 108
12.05 Benefits of Training 108
12.05 (i) Benefits to the Organization 108
12.05 (ii) Benefits to the Employees 109
12.05 (iii)Benefits to Customer 109
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CONCEPT OF MARKET AND MARKETER

13.01. Meaning and Definition of Market 111
13.02. Need for Market 112
13.03. Classification of Markets 112
13
13.04. Meaning and Definition of Marketer 115
13.05. What can be Marketed? 116
13.06. Role of a Marketer 117
13.07. Functions of Marketer 117
MARKETING AND MARKETING MIX
14.01. Introduction 120
14.02 Evolution of Marketing 121
14.03. Marketing Concepts 121
14.04. Definition of Marketing 122
14.05. Objectives of Marketing 122
14 14.06. Importance of Marketing to the Society 122
14.07. Importance of Marketing to the Individual
Firms 122
14.08. Functions of Marketing 122
14.09. Meaning and Definition of Marketing Mix 125
14.10. Elements of Marketing Mix 125
14.11. Marketing Mix Matrix 126

ELEMENTS OF RECENT TRENDS IN MARKETING

15.01 Recent Trends in Marketing 128
MARKETING 15.01 (i) Electronic Commerce
(E-Commerce) 129
15.01 (ii) E-Business 129
15.01 (iii)E-Commerce VS E-Business 129
15.02 E-Marketing 129
15.02.(i) E-Marketing – Definition 130
15.02.(ii) Objectives of E-Marketing 130
15.02.(iii) Advantages of E-Marketing 130
15.02.(iv) Disadvantages of E-Marketing 130
15.02.(v) E-Market Vs. Traditional Market 131
15 15.03 E-Tailing 131
15.04 Green Marketing 131
15.05 Social Marketing 132
15.06 Rural Marketing 132
15.07 Services Marketing 132
15.08 Commodity Exchanges 133
15.09 Niche Marketing 133
15.09 Viral Marketing 133
15.10 Ambush Marketing 134
15.11 Guerrilla Marketing 134
15.12 Multilevel Marketing 134
15.13 Referral Marketing 135
15.14 Content Marketing 135
CONSUMERISM
16.01 Consumer 139
16.02 Consumer Exploitation 139
CONSUMER 16.03 Consumerism and Need for Consumerism 141
16
PROTECTION 16.04 Importance of Consumerism 142
16.05 
Origin, Evolution and Growth of
Consumerism 142
16.06 Consumer Protection 144
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16.07 Need for Consumer Protection 144

16.08 Consume Legislation 147
16.09 The Consumer Protection Act, 1986 148
16.10 Caveat Emptor 149
16.11 Caveat Venditor 150

CONSUMER PROTECTION
17.01 Duties of Consumers 153
17
17.02 Consumer Responsibilities 156
17.03 Consumer Rights 157

GRIEVANCE REDRESSAL MECHANISM

18.01 Grievance and Need for Redressal Mechanism 161
18.02 Consumer Councils 162
18.03 Three Tier Courts or Quasi Judiciary 162
18.04 District Forum 162
18.05 State Consumer Disputes Redressal
18
Commission or State Commission 163
18.06 National Consumer Disputes Redressal
Commission (NCDRC) or National
Commission 164
18.07 Voluntary Organizations for Consumer
Awareness 164

ENVIRONMENTAL FACTORS
19.01 
Meaning and Definition of Business
Environment 171
19.02 Types of Business Environment 171
19.02.01 Internal Environment 172
19 19.02.02 External environment: 173
19.02.03 Micro Environment; 173
19.02.04 Macro Environment: 174
19.03 Future Environment of Business-VUCA 176
19.04 Corporate Governance 176
19.05 Goods and Services Tax – GST 177

LIBERALIZATION, PRIVATIZATION AND

BUSINESS GLOBALIZATION
ENVIRONMENT 20.01 Dimensions of New Economic Policy 182
20.02 Meaning and forms of Liberalisation 182
20.03 Advantages and disadvantages of 183
Liberalisation
20.04 Impact of Liberalisation 183
20.05 Meaning and Forms of Privatisation 184
20
20.06 Advantages and disadvantages of 184
Privatisation
20.07 Impact of Privatisation 185
20.08 Meaning and Forms of Globalisation 185
20.09 Advantages and disadvantages of 186
Globalisation
20.10 Impact of Globalisation 187
20.11 Highlights of LPG policy 187

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THE SALE OF GOODS ACT, 1930

21.01 Formation of Contract of Sale 190
21.02 Difference between Sale and Agreement to
Sell 191
21
21.03 Types of Goods 192
THE SALE OF GOODS 21.04 Transfer of Ownership 194
ACT, 1930 21.05 Conditions and Warranties 197
AND THE 21.06 Rights of an Unpaid Seller 199
NEGOTIABLE THE NEGOTIABLE INSTRUMENTS ACT, 1881
INSTRUMENTS ACT, 22.01 Negotiable Instruments – Meaning,
1881 Characteristics, Assumptions 206
22.02 Negotiability and Assignability 207
22
22.03 Bills of Exchange, Cheque, Promissory Note
– A Comparison 207
22.04 Crossing of Cheque 212
22.05 Endorsements 214
ELEMENTS OF ENTREPRENEURSHIP
23.01 Entrepreneurship – Concept, Meaning and
Definition
223
23.02 Characteristics of Entrepreneur
224
23.03 Importance of Entrepreneurship
23 225
23.04 Entrepreneur, Intrapreneur and Manager –
A Comparison
226
23.05 Women Entrepreneurs – Opportunities and
Challenges
228
23.06 Entrepreneurial Functions
TYPES OF ENTREPRENEURS
24.01 Types of Entrepreneurs 240
24.02 Classification According to Function 240
ENTREPRENEURSHIP 24.03 Classification According to Type Of Business 241
DEVELOPMENT 24 24.04 Classification Based on Technology Adopted 242
24.05 Classification in terms of Motivation 243
24.06 Classification Based on Development Stage 244
24.07 Classification According to Area 244
24.08 Classification According to Owner- ship 244
GOVERNMENT SCHEMES FOR
ENTREPRENEURIAL DEVELOPMENT
25.01 India’s Efforts at Promoting Entrepreneurship 250
and Innovations
25 25.02 Specific Entrepreneurship Schemes 252
25.03 Steps in Promoting an Entrepreneurial
Venture 253
25.04 Entrepreneurial Schemes of Government of
Tamilnadu 256
COMPANIES ACT, 2013
26.01 Evolution and History of Company Law in India 259
COMPANY LAW 26.02 The Companies Act 2013 259
AND SECRETARIAL 26 26.03 Meaning and Definition of Body Corporate
PRACTICE (Company) 261
26.04 Formation / Incorporation of Company 261
26.05 Promoter 261

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26.06 Procedural Aspects of Company Formation 262

26.07 Share and Share Capital 264
26.08 Issue of Shares, Bonus Shares and Rights
Shares 266
26.09 Share Certificate and Share Warrant 267
26.10 Share and Stock 268
26.11 Debentures 268

E-Book COMPANY MANAGEMENT

27.01 Introduction, Meaning and Definition of 275
Director
27.02 Key – Managerial Personnel of a Company 276
27.03 Board of Directors 276
27.04 Types of Directors as per Companies Act
2013 277
27.05 Number of Directors 278
27.06 Legal position of Director 279
27.07 Appointment of Director 280
27 27.08 Qualification of Director 282
27.09 Disqualification of Director 282
27.10 Removal of Director 282
27.11 Remuneration of Director 283
27.12 Power of Director 284
27.13 Rights of Director 285
27.14 Duties of Director 285
27.15 Liabilities of Director 286
27.16 Directorial Register 287
E-Assessment 27.17 Manager Vs. Director 289
27.18 Managing Director Vs. Whole time Director 289

COMPANY SECRETARY
25.01 Company Secretary 293
25.02 Qualifications of Company Secretary 293
25.02.01 Statutory Qualifications 293
25.02.02 Other Qualifications 294
25.03 Appointment of Company Secretary 294
25.04 Functions/ Duties of Company Secretary 295
25.04.01 Statutory Functions 295
25.04.02 Non-Statutory Functions 296
25.05 Powers and Rights of Company Secretary 296
28 25.06 Removal / Dismissal of Company Secretary 297
25.07 Company Meetings 297
25.08 Kinds of Company Meetings 297
25.08.01 Shareholders Meetings 297
25.08.02 Meeting of the Board of Directors 298
25.08.03 Special Meeting 298
Digi-Link 25.09 Resolution 299
25.09.01 Kinds of Resolution 299
25.10 Voting 300
25.11 Procedures of Voting 300

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UNIT MANAGEMENT PROCESS

II

1
CHAPTER
PRINCIPLES OF MANAGEMENT

எப்ெபாருள் யார்யார்வாய்க் ேகட்பினும் அப்ெபாருள்

ெமய்ப்ெபாருள் காண்ப தறிவு.
-குறள் 423
COUPLET
To discern the truth in every thing, by whomsoever spoken,
is wisdom.

Management is part and parcel of our day

Learning Objectives to day life. The practice of management could be
found in our entire endeavour whether we are in
To enable the students to understand the
a play ground or library or class room or hostel
■ Concept of Management
and so on wherein we plan many of our actions
■ Definitions of Management
and execute them in a systematic manner to
■ Management an Art or Science
arrive at the desired results. So management is
■ Management Vs. Administration
goal oriented and it is an art of getting things
■ Management Process or Functions
done with and through others. The practice of
■ Principles of Scientific Management
management helps to achieve the organizational
■ Principles of Modern Management
mission and determines the future of the
■ Span of Management
business enterprises. In a way the success or
otherwise of an organization or an individual
is more decided by the way they manage their
Chapter Synopsis functions, duties and responsibilities. So it goes
1.01 Concept of Management without saying that management is all the more
important in organizational life in any part of
1.02 Definitions of Management the world. It is a global and universal concept.
1.03 Management Vs. Administration
1.04 Management Process 1.01 Concept of Management
1.05 Principles of Scientific Management The management concept can be
understood from its profound characteristic
1.06 Principles of Modern Management features as follows:
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1. Body of Knowledge: and it has social responsibilities to be fulfilled —

Management has now developed into towards customers, employees, and the public
a specialised body of management theory or community. Corporations have now social
and philosophy. Management literature is conscience and awareness.
growing in all countries. In fact, management Consumer-oriented marketing concept
knowledge is the best passport to enter the is the reflection of a corporate code of conduct.
world of employment either in business world Pressure of consumerism, trade unionism,
or government or private. public opinion, and legislation are definitely
inducing the management to evolve a code of
2. Management Tools: ethics. No longer ‘buyer beware’ is ruling the
Tools of management have been developed exchange relations in the market. At present
such as, accounting, business law, psychology, ‘seller beware’ in place of ‘buyer beware’
statistics, econometrics, data processing, etc. influencing market practices.
These branches of management profession have
6. Professional Association:
enhanced the practical utility of the science of
management. The Business Management Associations
in many countries to promote the spread of
3. Separate Discipline: knowledge in all management areas and to
build up the bright public image of managerial
Management studies in many
profession.
universities and institutions of higher learning
are recognised as a separate discipline. Since
1.02  Definitions of Management
1951, many specialised schools of management
offering master‘s degree in business (i) Generalized Definition of
management and administration. Management:
Seminars, special courses, training Management is a distinct ongoing process
programmes are becoming fashionable and of allocating inputs of an organisation (human
popular for orientation and retraining in and economic resources) by typical managerial
management areas, e.g., export management, functions (planning, organising, directing and
personnel management, general management, controlling) for the purpose of achieving stated
production management, marketing objectives, viz., output of goods and services
management, financial management, etc. desired by its customers (environment).
In the process, work is performed with
4. Specialisation: and through personnel of the organisation in an
There is a growing tendency to select ever-changing business environment.
and appoint highly qualified, trained and
experienced persons to manage the business in This definition includes principal
each functional areas of management. Thus we ideas of any school of management
have today an increasing tendency in favour of thought:
management by experts or professionals. 1. Functional school sees management as a
process of planning, organising, directing
5. Code of Conduct: and controlling.
Enlightened businessmen have recognised 2. Behavioural school is not interested in
that business management is a social institution the process only but rather in the way the
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process affects the organisation, i.e., with Drucker stresses three jobs of
and through personnel or human resources. management:
3. Quantitative school wants to improve the (i) Managing a business;
quality of decision making, i.e., fulfilling the (ii) Managing manager; and
stated objectives of the enterprise.
(iii) Managing workers and work.
4. Systems approach concentrates on the entire
Even if one is omitted, It would not have
organisation, i.e., inputs-process- outputs.
management anymore and it also would not
5. Contingency approach emphasises dynamic have a business enterprise or an industrial
nature of management process in an ever- society. According to P. Drucker, the manager
changing business environment. has to balance and integrate three major jobs of
a business enterprise as mentioned above.
(ii) Precise Definition of
Hence, a manager is a dynamic and life-
Management:
giving element in every business. Without
Let us discuss the definition of efficient management it cannot be secure
management. It should be the basis of our study the best allocation and utilisation of human,
of the principles of management. The substance material and financial resources.
of management should be identified as a process.
A process is something that a person does. Management is an Art or Science
A process also implies ongoing and There is always a discussion about the
unceasing cyclical operations. In management nature of management whether it is an Art of
we have planning-action-control cycle. Our doing things or it is a pure Science of getting
definition must incorporate this management things done. It would be useful to explain the
cycle. A process indicates the dynamic nature of nature of management in brief as under:
management. Management is an in-exact science,
It also implies that change is a constant because in pure science, the principles are put
reality of organisational life and management is into test in a laboratory and they are either proved
the management of change. Lastly, management or disproved exactly and precisely. For example,
is regarded as a social process because it is plant leaves have starch in them which can be
directly concerned with management of human proved or disproved in a Botany lab. Similarly
resources in order to secure cooperation and the management principles can be put to test in
teamwork from the people in their performance, an organization where men, machine, money
and materials (4 Ms) are practically integrated
1. “To manage is to forecast, to plan, to
towards achieving some chosen organizational
organise, to command, to co-ordinate and
goals. These principles cannot be exactly proved
to control.”  —Henry Fayol. It attempts to
or disproved either as they tend to be flexible to
describe management in terms of what a
changing environment, policies and practical
manager does, and not what management is.
difficulties while synchronizing them together.
2. “Management is a multipurpose organ So, management can be described as an inexact
that manages a business and manages science.
manager, and manages worker and
Everyone believes that management is
work.”— Peter F. Drucker: The Practice of
an art. No, it is not an art in Toto. Because, the
Management
concept of art denotes the learning of skills

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and practicing them in the day to day life like a and displaying popular managerial skills to
mason or carpenter or mechanic or a musician accomplish the organizational goals as efficiently
being able to perform their respective art they and as quickly as possible so as to be competitive
learnt by way of skill display before anybody in the globalised environment of business.
under any circumstances.
1.03 Management is differ from
Music composer and singer Mr. A.R. Administration
Rahman can display his skills at any point One should be able to distinguish between
of time anywhere in any country and any management and administration as the concepts
number of times which he composed and are interchangeably used in the world of business
sang before on silver screen, so also is Mr. today. While management is more ‘executive’ in
Ilayaraja or Mr. T. M. Soundararajan or nature the concept of administration denotes
Mrs. P. Suseela. the art of ‘decision making’ at the top and
‘evolving policies’ of the business undertakings
But the concept of management involves either by the governments of various countries
a set of required skills for any one designated or the respective promoters of such business
as a manager, but the level or span of their enterprises. Management is all about plans and
managerial skills would vary from person to actions, but the administration is concerned
person and individual to individual irrespective with framing policies and setting objectives.
of the countries they belonged to. The nature The manager looks after the management
of the administrative and managerial skills of the organization, whereas administrator
of our former Prime Minister Pt.Jawaharlal is responsible for the administration of
Nehru cannot be compared to his counterpart the organization. Management focuses on
and his own daughter Mrs.Indira Gandhi. So managing people and their work.
management is not an exact art of doing things.
The art of management is fully reflected
in the decision making capacity of a manager. Board of Directors
Judgment and imagination are essential even in
en n
em o

Managing Director
a computerised economy. A computer cannot
t
ag tra
an is
M min

replace a manager in decision making. Manager

Ad

“A professional manager is one who Supervisor

specialises in the work of planning, organising,
leading and controlling the efforts of others
and does so through systematic use of classified
knowledge, a common vocabulary and So it is concluded that the administration
principles and who subscribes to the standards is ought to take business decisions while the
of practice and code of ethics established by management need to execute them to get things
recognised body.” — Louis A. Allen. done with and through other functional staff
To conclude, Management is neither a working under them who are called employees
science nor an art, but a combination of both of the same organization(s). For example, the
requiring people holding managerial positions
Board of Directors with the CEO/MD may be
to apply the scientific management principles

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called Administration, while the Managers by his or her immediate higher authority.
of various units like Production, Marketing, A process also implies ongoing and
Finance, Accounting, Distribution and Research unceasing cyclical operations. In management
& Development may be called Management of there is planning-action-control cycle. Defining
the concept must incorporate this management
the said organization.
cycle. A process indicates the dynamic nature of
Theoretically, it can be said that both are management.NITISH.....
different terms, but practically, it is found that
It also implies that change is a constant
the terms are more or less same. A manager
reality of organisational life and management is
performs both administrative and functional
the management of change. Lastly, management
activities. Although the managers who are
is regarded as a social process because it is
working on the top most level are said to
directly concerned with management of human
be the part of administration, the managers
resources in order to secure cooperation and
working on the middle or lower level represents
teamwork from the people in their performance.
management. So, it could be concluded that
administration is above management.
There are twin purposes of the
1.04  Management Process management process:
The substance of management should be (1) Maximum productivity or profitability and
identified as a process. A process is something (2) Maximum human welfare and satisfaction.
that what a person does in the context of his
There are five parts of management as a
individual duties and responsibilities assigned
process: first, the co-ordination of resources;

BASIS FOR
MANAGEMENT ADMINISTRATION
COMPARISON

An organized way of managing

The process of administering an
people and things of a business
Meaning organization by a group of people is
organization is called the
known as the Administration.
Management.

Authority Middle and Lower Level Top level

Role Executive Decisive

Concerned with Policy Implementation Policy Formulation

It has full control over the

Area of operation It works under administration.
activities of the organization.
Profit making Government offices, military, clubs,
Applicable to organizations, i.e. business business enterprises, hospitals, religious
organizations. and educational organizations.

Who will do the work? What should be done? And

Decides
And How will it be done? When is should be done?

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Putting plans and policies Formulation of plans, framing policies

Work
into actions. and setting objectives

Making best possible allocation

Focus on Managing work
of limited resources.

Key person Manager Administrator

Employees, who work Owners, who get a return on the

Represents
for remuneration capital invested by them.

Function Executive and Governing Legislative and Determinative

second, the performance of managerial and controlling.

functions as a means of achieving co-
ordination; the third, establishing the objective 3. Management is a Purposive Process:
or purpose of management process, i.e., it must It is directed toward the achievement of
be purposeful managerial activity; the fourth
predetermined goals or objectives. Without an
aspect is that management is a social process,
objective, we have no destination to reach or a
and the fifth is its cyclical nature.
path to follow to arrive at our destination, i.e., a
1. Management is Co-Ordination: goal, both management and organisation must
The manager of an enterprise must be purposive or goal-oriented.
effectively coordinate all activities and
resources of the organisation, namely, men, 4. Management is a Social Process:
machines, materials and money the four M‘s of It is the art of getting things done through
management. other people.
2. Management is a Process:
The manager achieves proper co-
5. Management is a Cyclical Process:
ordination of resources by means of the It represents planning-action-control-re-
managerial functions of planning, organising, planning cycle, i.e., an ongoing process to attain
staffing, directing (or leading and motivating)

Planning Direcng
Input End
Results
1. Men & Women
2.Machinery
3.Materials Process Goals
4.Money
5.Resources
Outputs
Organising Controlling
Inputs Outputs
Fundamental
Basic M. Funcons Stated
Resources (Process of Management) Objecves

Process of Management

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the planned goals. should be based on scientific enquiry with cause

and effect relationships.
1.05 Principles of Scientific This principle is concerned with selecting
Management the best way of performing a job through the
In the last century, organizations already application of scientific analysis and not by
had to deal with management in practice. intuition or hit and trial methods. The work
In the early 1900s, large organizations, such assigned to any employee should be observed
as production factories, had to be managed and analyzed with respect to each element or part
too. At the time there were only few external thereof and the time involved therein so as to
management tools, models and methods decide the best way of performing that work and
available. to determine the standard output for same.

At this juncture, Mr.Frederick Winslow 2. Harmony, Not Discord:

Taylor (F.W.Taylor) brought about a scientific
Taylor emphasized that there should be
approach to managing the workforce after
complete harmony between the workers and
his experiments with the African and South
the management since if there is any conflict
American slaves employed in a coal field in
between the two, it will not be beneficial either
England. His aim was absolute harmony in work
for the workers or the management. Both the
place for overall productivity of the organization
management and the workers should realize the
Principles of scientific management importance of each other. In order to achieve
propounded by Taylor are this state, Taylor suggested complete mental
1. Science, Not Rule of Thumb revolution on the part of both management and
workers.
2. Harmony, Not Discord
It means that there should be complete
3. Mental Revolution
change in the attitude and outlook of workers
4. Cooperation, Not Individualism and management towards each other. It should
5. Development of each and every person to always be kept in mind that prosperity for an
his or her greatest efficiency and prosperity. employer cannot exist for a long time unless
it is accompanied by the prosperity of the
They are explained in brief as follows:
employees of that organisation and vice versa.
It becomes possible by (a) sharing a part of
1. Science, Not Rule of Thumb: surplus with workers (b) training of employees,
In order to increase organisational (c) division of work (d) team spirit (e) positive
efficiency, the ‘Rule of Thumb’ method should attitude (f) sense of discipline (g) sincerity etc.
be substituted by the methods developed Management should always be ready to share
through scientific analysis of work. the gains of the company with the workers and
Rule of Thumb means decisions taken the latter should provide their full cooperation
by manager as per their personal judgments. and hard work for achieving organizational
According to Taylor, even a small production goals. Group action with mutual-trust and
activity like loading iron sheets into box cars understanding should be perfect understanding
can be scientifically planned. This will help in the focus of working. This principle requires that
saving time as well as human energy. Decisions there should be perfect understanding between
the management and workers and both should

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feel that they are part of same family. It helps to should always welcome their suggestions and
produce synergy effect since both management should also reward them if their suggestions
and workers work in unison. prove to be beneficial for the organisation viz.
For example, in most of the Japanese reduction of costs or increase in production etc.
companies, paternalistic style of management At the same time, workers should also resist
is in practice and there is complete openness from going on strike or making unnecessary
between workers and the management. Usually, demands from management. Workers should
workers don‘t go on strike but, if at all they do be treated as integral part of organisation and
so, they just wear a black badge and work even all important decisions should be taken after
more than the normal hours just to impress due consultation with workers. Both of them
upon the management that their focus is on their should visualize themselves as two pillars whose
soundness alone can ensure achievement of
demands as well as organisational objectives.
common goals of the organisation. Taylor also
suggested that there should be proper division
3. Mental Revolution:
of work and responsibility between the two.
The technique of Mental Revolution
Management should always guide, encourage
involves a change in the attitude of workers and
and help the workers.
management towards each other. Both should
realize the importance of each other and should
5. Development of each and every
work with full cooperation. Management as
person to his or her greatest efficiency
well as the workers should aim to increase
the profits of the organisation. For this, the and prosperity:
workers should put in their best efforts so that Efficiency of any organisation also depends
the company makes profit and on the other on the skills and capabilities of its employees to
hand management should share part of profits a great extent. Thus, providing training to the
with the workers. Thus, mental revolution workers was considered essential in order to
requires a complete change in the outlook of learn the best method developed through the use
both management and workers. There should of scientific approach. To attain the efficiency,
be a spirit of togetherness between workers and steps should be taken right from the process of
management. selection of employees. Employees should be
scientifically selected. The work assigned to each
4. Cooperation, Not Individualism: employee should suit his/her physical, mental
This principle is an extension of principle and intellectual capabilities. Efficient employees
of ‘Harmony, not discord’ and lays stress on produce more to earn more. This ultimately
mutual cooperation between workers and the helps to attain efficiency and prosperity for both
management. Cooperation, mutual confidence, organisation and the employees.
sense of goodwill should prevail among both, The Principles of Taylor’s Scientific
managers as well as workers. The intention is to Management Theory became widely practiced,
replace internal competition with cooperation. and the resulting cooperation between workers
Both ‘Management’ and ‘Workers’ should realize and managers eventually developed into the
the importance of each other. Workers should be teamwork we enjoy today. While Taylorism in a
considered as part of management and should pure sense isn’t practiced much today, scientific
be allowed to take part in decision making management did provide many significant
process of the management. Management contributions to the advancement of management
practice. It introduced systematic selection and
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training procedures, it provided a way to study 6. Subordination of Individual Interest to

workplace efficiency, and it encouraged the idea Mutual Interest: The management must
of systematic organizational design. put aside personal considerations and
put company objectives firstly. Therefore
1.06 Principles of Modern the interests of goals of the organization
Management must prevail over the personal interests of
individuals.
The Father of Modern Management is
Mr.Henry Fayol, and according to him there 7. Remuneration: Workers must be paid
are 14 major principles of management which sufficiently as this is a chief motivation of
every manager has to practice for the success of employees and therefore greatly influences
the organization. productivity. The quantum and methods
of remuneration payable should be fair,
1. Division of Work: According to this
reasonable and rewarding of effort.
principle the whole work is divided into
small tasks. The specialization of the 8. The Degree of Centralization: The
workforce according to the skills of a person, amount of power wielded with the central
creating specific personal and professional management depends on company size.
development within the labour force and Centralization implies the concentration
therefore increasing productivity; leads to of decision making authority at the top
specialization which increases the efficiency management.
of labour. 9. Line of Authority/Scalar Chain: This
2. Authority and Responsibility: This is the refers to the chain of superiors ranging
issue of commands followed by responsibility from top management to the lowest rank.
for their consequences. Authority means the The principle suggests that there should be
right of a superior to give the order to his a clear line of authority from top to bottom
subordinates whereas responsibility means linking all managers at all levels.
obligation for performance. 10. Order: Social order ensures the fluid
3. Discipline: It is obedience, proper conduct operation of a company through
in relation to others, respect of authority, etc. authoritative procedure. Material order
It is essential for the smooth functioning of ensures safety and efficiency in the
all organizations. workplace. Order should be acceptable and
under the rules of the company.
4. Unity of Command: This principle states
that each subordinate should receive orders 11. Equity: Employees must be treated kindly,
and be accountable to one and only one and justice must be enacted to ensure a just
superior. If an employee receives orders workplace. Managers should be fair and
from more than one superior, it is likely to impartial when dealing with employees,
create confusion and conflict. giving equal attention towards all employees.
5. Unity of Direction: All related activities 12. Stability of Tenure of Personnel: Stability
should be put under one group, there of tenure of personnel is a principle stating
should be one plan of action for them, and that in order for an organization to run
they should be under the control of one smoothly, personnel (especially managerial
manager. personnel) must not frequently enter and
exit the organization.

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13. Initiative: Using the initiative of employees to each senior.

can add strength and new ideas to an 3. With more levels in the hierarchy, the
organization. Initiative on the part of communication suffers drastically. It takes a
employees is a source of strength for lot of time to reach the appropriate points,
organization because it provides new and and hence the actions get delayed.
better ideas. Employees are likely to take
4. Lack of coordination and control because
greater interest in the functioning of the
the operating staff is far away from the top
organization.
management.
14. Esprit de Corps/Team Spirit: This refers to
The major advantage of using this
the need of managers to ensure and develop
structure is that the cross communication gets
morale in the workplace; individually and
facilitated, i.e., operative staff communicating
communally. Team spirit helps develop
with the top management. Also, the chance of
an atmosphere of mutual trust and
promotion increases with the availability of
understanding. Team spirit helps to finish
several job positions.
the task on time

1.07 Span of management

The Span of Management refers to the
number of subordinates who can be managed
efficiently by a superior. Simply, the manager
having the group of subordinates who report
him directly is called as the span of management.
The Span of Management has two implications:
1. Influences the complexities of the individual
manager‘s job
2. Determine the shape or configuration of the
Organization In the case of a flatter organizational
The span of management is related structure, where the span is wide leads to a more
to the horizontal levels of the organization complex supervisory relationship between the
structure. There is a wide and a narrow span manager and the subordinate. It will be very
of management. With the wider span, there difficult for a superior to manage a large number
will be less hierarchical levels, and thus, the of subordinates at a time and also may not listen
organizational structure would be flatter. to all efficiently.
Whereas, with the narrow span, the hierarchical However, the benefit of using the wider
levels increases, hence the organizational span of management is that the number of
structure would be tall. managers gets reduced in the hierarchy, and
1. Both these organizational structures have thus, the expense in terms of remuneration is
their advantages and the disadvantages. But saved. Also, the subordinates feel relaxed and
however the tall organizational structure develop their independent spirits in a free work
imposes more challenges environment, where the strict supervision is
absent.
2. Since the span is narrow, which means less
number of subordinates under one superior,
Key Terms
requires more managers to be employed in
Management, Administration,
the organization. Thus, it would be very
Span, Scalar chain
expensive in terms of the salaries to be paid
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For own thinking 4. Dividing the work into small tasks is known
1. Imagine yourself to be a manager and chart as
down the functions to be performed. a) Discipline b) Unity
2. Formulate a new policy relating to timing of c) Division of work d) Equity
employees. 5. With a wider span, there will be _______
hierarchical levels.
For Future learning a) More b) Less
1. The changes in management and c) Multiple d) Additional
administration of a school growing into a
Answers:
college.
1 a 2 c 3 b 4 c 5 b
2. Application of management process in
accomplishing work life balance. II. Very short answer questions:
1. What is Management?
TOP RANKED INDIAN 2. List out the management tools.
MANAGEMENT THINKERS:
3. Who is a manager?
Nirmalya kumar, Professor,
4. State the meaning of Authority.
London Business school
5. What do you mean by Span of management?
Vijay Govindarajan, Professor, Tuck School
of Business @ Dart mouth college, III. Short answer questions:
1. Define the term management.
New Hampshire.
2. Is management an Art or Science?
Pankaj ghemawat, Professor, IESE Business
school, Spain. 3. Differentiate management from
Administration.
4. What are the principles of Taylor?
5. What determines the span of management?
Exercise
IV. Long answer questions:
1. Write about the contribution of Drucker to
management.
2. Explain the management process in detail.
I. Choose the Correct answers
1. Management is what a _______ does? 3. Describe the principles of scientific
management.
a) Manager b) Subordinate
4. Explain the principles of modern
c) Supervisor d) Superior
management.
2. Management is an ________
5. Discuss the implications of span of
a) Art b) Science
management.
c) Art and Science d) Art or Science
3. Scientific management is developed by References
a) Fayol b) Taylor Management - Koontz O'Donnel

c) Mayo d) Jacob Principles of management - S S Chatterjee

Management - Rustom S Davor.

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UNIT MANAGEMENT PROCESS

I

CHAPTER
2 FUNCTIONS OF MANAGEMENT

இதைன இதனால் இவன்முடிக்கும் என்றாய்ந்து

அதைன அவன்கண் விடல்.
-குறள் 517
COUPLET After having considered, "this man can accomplish this, by
these means", let (the king) leave with him the discharge of
that duty.

FUNCTIONS OF MANAGEMENT
Learning Objectives Managerial functions are time specific,
institution specific and country specific.
To enable the students to understand the
The management functions of industrial
■ Various functions of management
revoluvation may differ from the management
■ Significance of functions of management functions of 19th century and followed by 20th
century. This chapter is an attempt to explain
the management functions of 20th century and
after.
Chapter Synopsis Management functions are called as
Managerial process. This process is 24 hours
2.01 Main Functions
non stop process for attaining the objectives
2.02 Subsidiary Functions again and again for reaching the highest level.
Functions of management can be classified
into two catogories, they are A. Main functions

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01 Planning

Organising
02
MAIN FUNCTIONS
Staffing
03
Direcng
04
Movaon
05
Controlling
06
Co-ordinaon
07

and B. Subsidiary functions. All functions of of management. Nothing can be performed

management are briefly discussed below: without planning. (For eg., Writing a book
starts with planning). In short, planning
refers to deciding in advance. Planning is a
For Own Thinking
constructive reviewing of future needs so that
1. How to conduct a three days tour present actions can be adjusted in view of the
program from your place to nearest established goal. Planning should take place
state? before doing; most individual or group efforts
are made by determining before any operative
2. C
ollect the information about the action takes place, what shall be done, where,
functions of management concepts how and who shall do it.
given by various authors.
2. Organising
Organising is the process of establishing
2.01  Main Functions harmonious relationship among the members
Planning, Organising, Staffing, Directing, of an organisation and the creation of network
Motivating, Controlling and Co-ordination are of relationship among them. Organising
the main functions of management. function work is assigned to employees who are
given authority to carry out the work assigned
1. Planning and made accountable for it.
Think Before you Act‘ or 'Look Before
you Leap' are some of the usual traditional 3. Staffing
proverbs; which provide a basis or logic for Staffing function comprises the activities
planning. Planning is the primary function of selection and placement of competent
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personnel. In other words, staffing refers to All the activities are divided groupwise
placement of right persons in the right jobs. or sectionwise under organising function.
Staffing includes selection of right persons, Now, such grouped activities are co-ordinated
training to those needy persons, promotion towards the accomplishment of objectives of
of best persons, retirement of old persons, an organisation. The difficulty of co-ordination
performance appraisal of all the personnel, depends upon the size of organisation. The
and adequate remuneration of personnel. The difficulty of co-ordination is increased with the
success of any enterprise depends upon the increasing size of the organisation.
successful performance of staffing function.
7. Motivating
4. Directing
The goals are achieved with the help of
Directing denotes motivating, leading, motivation. Motivation includes increasing the
guiding and communicating with subordinates speed of performance of a work and developing
on an ongoing basis in order to accomblish a willingness on the part of workers. This is
pre-set goals. Employees are kept informed of done by a resourceful leader. The workers
all necessary matters by circulars, instructions expect, favourable climate conditions to work,
manuals, newsletters, notice-boards, meeting, fair treatment, monetary or non-monetary
participative mechanism etc., in order to enable incentive, effective communication and
the employees to accomplish the organizational gentleman approach.
goals.
“ Passing the buck, the
5. Controlling buck stops here”
Controlling is performed to evaluate To shift or reassign the blame or
the performance of employees and deciding responsibility (for something) to another
increments and promotion decisions. The person, group, or thing.
control function helps in identifying under
performers and arranging remedial training for
them. It is the control function which facilitates 2.02  Subsidiary Functions
synchronization of actual performance with
Innovation, Representation, Decision-
predetermined standards.
making, and Communication are the subsidiary
functions of management.
6. Co-ordination
Co-ordination is the synchronization 1. Innovation
(or unification or integration) of the actions Innovation refers to the preparation of
of all individuals, working in the enterprise in personnel and organisation to face the changes
different capacities; so as to lead to the most made in the business world. Continuous
successful attainment of the common objectives. changes are being made in the business.
Co-ordination is included in every managerial Consumers are satisfied through innovation.
function; Eg (i) Planning and co-ordination, Innovation includes developing new material,
(ii).Organising and co-ordination, (iii) Staffing new products, new techniques in production,
and co-ordination, (iv) Directing and co- new package, new design of a product and cost
ordination, (v) Motivation and co-ordination reduction.
and (iv) Controlling and co-ordination.

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02
03
REPRESENTATION DECISION
MAKING

01
04
INNOVATION
COMMUNICATION

SUBSIDIARY FUNCTIONS

2. Representation Scholars in the field of management

A manager has to act as representative of a have their own classification of functions of
company. Manager has dealings with customers, management. Some scholars add few functions
suppliers, government officials, banks, financial and delete some other functions.
institutions, trade unions and the like. It is the Key Terms
duty of every manager to have good relation
with others. Motivation Control Co-ordination
Innovation Decision - making Change
3. Decision-making
Every employee of an organisation has to For own Thinking
take a number of decisions every day. Decision-
1. Check for the criterias that add cost in
making helps in the smooth functioning of an
the absence of planning.
organisation.
2. Design a communication network that
speeds up the work.
4. Communication
Communication is the transmission of
human thoughts, views or opinions from one For Future learning
person to another person. Workers are informed
1. Identify the need for financial and
about what should be done, where it is to be
non-financial motivators relating to
done, how it is do be done and when it is to be
Gen Z.
done. Communication helps the regulation of
2. What kind of control measures can be
job and co-ordinates the activities.
planned for minimal waste for future
organisations.

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(a) Planning (b) Organising

The generation Z workers
(c) Staffing (d) Controlling
motivators are as follows:
Answers:
• Flexible schedule
• Skip annual performance review 1 c 2 a 3 d 4 d 5 d
• Embrace tech centered work place
II. Very Short Answer Questions:
• Plan for in-person intraction
1. Write a short note about Planning.
• Expect to provide more structure and
direction 2. What is meant by Motivation?

• Re-evaluate formal education 3. What is meant by Controlling?

• Have a plan for professional growth 4. How do you coordinate your classroom
with peace?
• Set clear expectations
5. What is meant by Innovation?
• Make them feel valued
• Be transparent. III. Short Answer Questions:
1. List out the main functions of management?
2. State the importance of staffing.

Exercise 3. Bring out the subsidiary functions of

management.
4. State the importance of Motivation.
5. What are the main duties of a manager?
I. Choose the Correct Answers:
1. Which is the primary function of IV. Long Answer Questions:
management? 1. Explain the various functions of
(a) Innovating (b) Controlling management.
(c) Planning (d) Decision-making
References
2. Which of the following is not a main 1. Gupta C. B., 2006, “Management Theory
function? and Practice”, Reprint. ed., Sultan Chand &
Sons Pvt. Ltd., New Delhi-110 002.
(a) Decision-making (b) Planning
(c) Organising (d) Staffing 2. Gupta R. N. and others, 2009, “ Principles
of Management, ”, Reprint.ed, S. Chand &
3. Distribution of work in groupwise or Company Pvt. Ltd., New Delhi-110 055.
sectionwise is called as _________ 3. Ramasamy T, 2007, “Principles of
(a) Co-ordinating (b) Controlling Management,”, Reprint. ed., Himalaya
(c) Staffing (d) Organising Publishing House Private Limited,
Mumbai-400 004.
4. Which of the following is verification 4. Sundar K, 2018, Principles of Management,
function? Vijay Nichole Imprints Pvt. Ltd., Chennai.
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UNIT MANAGEMENT PROCESS

I

3
CHAPTER
MANAGEMENT BY OBJECTIVES (MBO)
MANAGEMENT BY EXCEPTION (MBE)

ெசயற்ைக அறிந்துக் கைடத்தும் உலகத்து

இயற்ைக அறிந்து ெசயல்.
-குறள் 637
COUPLET Though you are acquainted with the (theoretical) methods (of
performing an act), understand the ways of the world and act
accordingly.

MANAGEMENT BY
Learning Objectives OBJECTIVES (MBO)
To enable the students to 3.01 Meaning and Definition
■ understand the meaning and definition Management By Objectives (MBO) is a
of MBO and MBE management system in which each member
■ understand the concept of Management of the organisation effectively participates and
by Objectives (MBO) involves himself. This system gives full scope
■ understand the concept of Management to the individual strength and responsibility.
by Exception (MBE) MBO harmonises the goal of an individual with
the organisation’s goal. It creates self-control
and motivates the manager into action before
Chapter Synopsis somebody tells his to do something.
MBO is popularised in the USA by George
3.01 Meaning and Definition of MBO
Odiorne. According to him, “MBO is a system
3.02 Objectives of MBO wherein the superior and the sub-ordinate
3.03 Features of MBO managers of an organisation jointly identify
3.04 Process of MBO its common goals, define each individual’s
major area of responsibility in terms of the
3.05 Advantages of MBO
result expected of him and use these measures
3.06 Disadvantages of MBO
guides for operating the unit and assessing the
3.07 Meaning of MBE contribution of each of its members”.
3.08 Process of MBE Prof. Reddin defines MBO as, “the
3.09 Advantages of MBE establishment of effective standards for
3.10 Disadvantages of MBE managerial positions and the periodic
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conversion of those into measurable time bound 7. A high degree of motivation and satisfaction
objectives linked vertically and horizontally and is available to employees through MBO.
with future planning”. 8. Recognises the participation of employees
in goal setting process.
3.02  Objectives of MBO
9. Aims at replacing the exercise of authority
Management by objectives is intended primarily: with consultations.
i. to measure and judge performance
10. Encourages a climate of trust, goodwill and
ii. 
to relate individual performance to a will to perform.
organisational goals
iii. to clarify both the job to be done and the 3.04  Process of MBO
expectations of accomplishment The MBO process is characterised by the
iv. to foster the increasing competence and balance of objectives of the organisation and
growth of the subordinates individual. The process of MBO is explained
below:
v. 
to enhance communications between
superiors and subordinates 1. Defining Organisational Objectives
vi. to serve as a basis for judgements about Initially, organisational objectives
salary and promotion are framed by the top level employees of an
organisation. Then, it moves downwards.
vii. to stimulate the subordinates’ motivation
The definition of organisational objectives
viii. 
to serve as a device for organisational states why the business is started and exists.
control and integration. First, long-term objectives are frames. Then,
Short-term objectives are framed taking into
3.03  Features of MBO account the feasibility of achieving the long-
1. An attempt is made by the management term objectives.
to integrate the goals of an organisation
2. Goals of Each Section
and individuals. This will lead to effective
management. Objectives for each section, department
or division are framed on the basis of overall
2. MBO tries to combine the long run goals of objectives of the organisation. Period within
organisation with short run goals. which these objectives should be achieved is
3. Management tries to relate the organisation also fixed. Goals or objectives are expressed in a
goals with society goals. meaningful manner.
4. MBO’s emphasis is not only on goals but
3. Fixing Key Result Areas
also on effective performance.
Key result areas are fixed on the basis of
5. 
It pays constant attention to refining, organisational objectives premises. Key Result
modifying and improving the goals and Areas (KRA) are arranged on a priority basis.
changing the approaches to achieve the KRA indicates the strength of an organisation.
goals on the basis of experience. The examples of KRA are profitability, market
6. It increases the organisational capability of standing, innovation etc.
achieving goals at all levels.

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08 01 Defining
Reappraisal of
Organisaonal
Objecves
Objecves

07 02
Appraisal of Goals of
Acvies Each Secon

06 03
Periodical Review PROCESS OF MBO Fixing Key
Result Areas
Meeng Acvies

05 04
Matching Resources Seng Subordinates
with Objecves Objecves or Targets

4. Setting Subordinate Objectives or 6. Periodical Review Meetings

Targets The superior and subordinates should
The objectives of each subordinate or hold meetings periodically in which they
individual are fixed. It is preferable to fix the discuss the progress in the accomplishment of
objectives at lower level in quantitative units. objectives. The fixed standards may be changed
There should be a free and frank discussion in the light of progress. But the basic conditions
between the superior and his subordinates. do not change. The periodical review meeting
Subordinates are induced to set standards is held during the period set for achieving the
themselves by giving an opportunity. If objectives.
subordinates are allowed to do so, they may
set high standards and the chances of their 7. Appraisal of Activities
accomplishment are higher. In this way, the At the end of the fixed period for achieving
objectives or targets of the subordinates are the objectives, there should be a discussion
fixed. between the superior and subordinates.
The discussion is related with subordinates’
5. Matching Resources with Objective performance against the specified standards.
The objectives are framed on the basis The superior should take corrective action.
of availability of resources. If certain resources The superior should identify the reasons
(technical personnel or scarce raw material) are for failure of achieving objectives. The problems
not adequately available, the objectives of an faced by the subordinates should be identified
organisation are changes accordingly. So, there and steps should be taken to tackle such
is a need for matching resources with objectives. problems.
Next, the available resources should be properly
allocated and utilized.

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8. Reappraisal of Objectives 11. Decision is taken by the management very

An organisation is a part of the dynamic quickly. The reason is that each worker
world. There are a lot of changes within short knows the purpose of taking a decision and
period. The survival and growth of a modern does not oppose the decision.
business organisation largely depends upon
putting up with the changing conditions. So, the 3.06  Disadvantages of MBO
top management executive should review the The disadvantages of MBO arise due to
organisation’s objectives to frame the objectives the application of the MBO which are discussed
according to the changing situation. below:
1. MBO fails to explain the philosophy; most of
3.05  Advantages of MBO the executives do not know how MBO works?
The advantages of MBO are explained below: what is MBO? and why is MBO necessary?
1. Managers are involved in objectives setting and how participants can benefit by MBO?
at various levels of management under 2. MBO is a time consuming process. Much
MBO and this commitment ensures hard time is needed by senior people for framing
work to achieve them. the MBO. Next,it leads to heavy expenditure
2. 
MBO process helps the managers and also requires heavy paper work.
to understand their role in the total 3. 
MBO emphasises only on short-term
organisation. objectives and does not consider the long-
3. Manager recognises the need for planning term objectives.
and appreciates the planning. 4. The status of subordinates is necessary for
4. MBO provides a foundation for participative proper objectives setting. But, this is not
management. Sub-ordinates are also possible in the process of MBO.
involved in goal setting. 5. 
MBO is rigid one. Objectives should
5. 
A department does not work at cross be changed according to the changed
purpose with another department. In other circumstances, external or internal. If it is not
words, each department’s objectives are done, the planned results cannot be obtained.
consistent with the objectives of the whole
organisation. MANAGEMENT BY
6. 
Systematic evaluation of performance is EXCEPTION (MBE)
made with the help of MBO. 3.07  Meaning of MBE
7. MBO gives the criteria of performance. It Management by exception is an important
helps to take corrective action. principle of managerial control suggested by the
8. Delegation of authority is easily done with classical writers on management. It is based on
the help of MBO. the belief that an attempt to control everything
9. 
MBO motivates the workers by job results in controlling nothing. Management by
enrichment and makes the jobs meaningful. exception is a style of business management
that focuses on identifying and handling cases
10. 
The responsibility of a worker is fixed that deviate from the norm.
through MBO.

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For example, the production manager ii. It focuses managerial attention on major
establishes quality control standards wherein five problems. As a result, there is better
defects per 100 units produced are permissible. utilisation of managerial talents and energy.
So long as the number of defects does not exceed iii. It facilitates delegation of authority. Top
5, the supervisors/foremen (subordinates) will management concentrates on strategic
handle the problem. Whenever there are more decisions and operational decisions are left
than 5 defects, the matter will be reported to the to the lower levels. There is increase in span
production manager. of control. This leads to motivation and
Management by exception (MBE) has development of subordinates.
both a general business application and a iv. It is a technique of separating important
business intelligence application. General information from unimportant one. It
business exceptions are cases that deviate the forces managers to review past history and
normal behavior in a business process and need study related business data for identifying
to be cared for in a unique manner, typically by deviations. There is better use of knowledge
human intervention. Their cause might include: of trends, history and available business data.
process deviation, infrastructure or connectivity
issues, external deviation, poor quality business v. MBE keeps management alert to
rules, malformed data, etc. opportunities and threats by identifying
critical problems. It can avoid uninformed
and impulsive action.
3.08 Process of MBE
vi. Management by exception provides better
Primarily, it is necessary to set objectives
yardsticks for judging results. It is helpful in
or norms with predictable or estimated results.
objective performance appraisal.
These performances are assessed and get
equated to the actual performance.  Next, the
deviation gets analysed. With an insignificant 3.10 Disadvantages of MBE
or no deviation, no action is required and senior i. The main disadvantage of MBE is, only
managers can concentrate on other matters. If managers have the power over really
actual performances deviates significantly, the important decisions, which can be
issue needs to be passed to the senior managers, demotivating for employees at a lower level.
as an “exception has occurred”. Finally, the aim
ii. Furthermore, it takes time to pass the
is to solve this “exception” immediately.
issues to managers. Managing employees
who deviate from the normal procedures.
3.09 Advantages of MBE Because of compliance failures are
Management by exception provides the considered difficult to manage and typically
following benefits: find themselves with limited job duties and
ultimately dismissed/terminated.
i. It saves the time of managers because they
deal only with exceptional matters. Routine
problems are left to subordinates. Key words
Harmonise Appraisal Terminated

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4. Delegation of Authority is Easily Done with

For Own Thinking the Help of __________ .
1. Discussion on the various functions of (a) MBM (b) MBE
management, how it helps to MBE? (c) MBO (d) MBA
2. State your own view about MBO and Answers:
MBE need to the management.
1 a 2 d 3 b 4 c
3. Make your own project about MBO
and MBE with some examples. II. Very Short Answer Questions:
1. Define - MBO
2. What are the objectives of MBO?
Case Study 3. Bring out the meaning of MBE.
4. Mention any two advantages of MBO?
1. The company gets 30% of marginal profit
for every year, but not increasing the salary 5. Wrtie any two importance of MBE.
of the employees for last three years. The 6. What is known as KRA?
employees conduct the indefinite strike
against the company. Assume you are the III. Short Answer Questions:
manager of the company. How to solve the 1. Write the features of MBO.
problem with using MBO or MBE? 2. What are the process involved in MBO?
3. What are the Process of MBE?

Exercise 4. List out any Four process of MBO.

IV. Long Answer Questions:

1. What are the major advantages of MBO?
I. Choose the Correct Answers: 2. What are the advantages of MBE?
1. ___________ System gives full Scope to the 3. Explain the various disadvantages of MBO.
Individual Strength and Responsibility.
4. Discuss the disadvantages of MBE.
(a) MBO (b) MBE
(c) MBM (d) MBA References
1. Gupta. C. B, 2006, “Management Theory
2. Which is the First step in Process of MBO?.
and Practice”, Reprint. ed., Sultan Chand &
(a) Fixing Key Result Area Sons Pvt. Ltd., New Delhi-110 002.
(b) Appraisal of Activities
2. Gupta R. N. and others, 2009, “Principles
(c) Matching Resources with Activities of Management,” Reprint.ed, S. Chand &
(d) Defining Organisational Objectives Company Pvt. Ltd., New Delhi-110 055.
3. __________ keeps Management Alert to 3. Ramasamy. T, 2007, “Principles of Management,”
Opportunities and Threats by Identifying Reprint. ed., Himalaya Publishing House
Critical Problems. Private Limited, Mumbai-400 004.
(a) MBA (b) MBE 4. h t t p s : / / e n . w i k i p e d i a . o r g / w i k i /
(c) MBM (d) MBO Management_by_exception
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UNIT FINANCIAL MARKETS - I

II
INTRODUCTION TO
4
CHAPTER
FINANCIAL MARKETS

வாரி ெபருக்கி வளம்படுத் துற்றைவ

ஆராய்வான் ெசய்க விைன.
-குறள் 512
COUPLET
Let him do (the king's) work who can enlarge the sources
(of revenue), increase wealth and considerately prevent the
accidents (Which world destroy it)

in a reasonable period of time. Governments

Learning Objectives
need funds to provide goods and services
To enable the students to understand the to the people. Financial market facilitates
■ Meaning and definition of financial business firms as well as governments to
market raise the needed funds by issuing and selling
■ Scope of Indian Financial Market different instruments. Financial market also
■ Types of Financial market helps investors to facilitate them to invest
■ Role of financial market surplus funds and earn a return. With the
■ Functions of financial market help of financial market, all kinds of business,
■ New Issue Market Vs Secondary Market Government and the financial institutions can
get financial assistance in terms of both short
term finance and long term finance.
Chapter Synopsis
Before going into the details, let us have an
4.01 Meaning and Definition of Financial understanding of the Indian financial system.
Market The Indian financial system can be broadly
4.02 Scope of Indian Financial Market classified into organized sector and unorganized
4.03 Types of Financial Markets sector. Organized sector consist of Regulators,
4.04 Role of Financial Market Financial Institutions, Financial Markets and
4.05 Functions of Financial Market Financial Services. The unorganized sector
4.06 New Issue Market (NIM) Vs. consists of Money Lenders, Indigenous Bankers
Secondary Market etc. The financial system facilitates the flow
of funds from the suppliers to the users. The
Business firms need large funds to following diagram explains the Indian Financial
undertake a desired project. Accumulation System.
of these funds may be beyond their capacity

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4.01 Meaning and Definition of Financial Market is a market for creation

Financial Market and exchange of financial assets from household
A market wherein financial instruments savers to business firms or financial institutions
such as financial claims, assets and securities as in the following picture.
are traded is known as a ‘financial market’.

In another words, financial markets may

BUSINESS FIRMS
be channels through which flow loanable funds
directed from a  supplier  who has an excess of
assets toward a  demander  who experiences a
deficit of funds. FINANCIAL MARKETS
BANKS

Financial Financial
instruments instruments

HOUSEHOLD SAVERS
Financial
Markets

Savers/ Lenders/ A financial market is an institution or

Creditors Debtors
arrangement that facilitates the exchange of
financial instruments such as equity shares,
According to Brigham, Eugene F, “The preference shares, debentures, deposits and
place where people and organizations wanting loans, corporate stocks and bonds, government
to borrow money are brought together with bonds, and more exotic instruments such as
those having surplus funds is called a financial options and futures contracts.
market.”
A financial market, unlike the other Financial market transactions may take
markets, is more of an intangible concept and place either at a specific place or location, e.g.
basically refers to a market place where buyers stock exchange, or through other mechanisms
and sellers usually participate in an exchange of such as telephone, telex, or other electronic
assets such as equities, bonds, derivatives and media.
currencies.

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4.02 Scope of Indian Financial c. On the Basis of Time of Issue of

Market Financial Claim
The financial market provides financial (i) Primary Market is a term used to include
all the institutions that are involved in the
assistance to individuals, agricultural sectors,
sale of securities for the first time by the
industrial sectors, service sectors, financial
issuers (companies). Here the money from
institutions like banks, insurance sectors,
investors goes directly to the issuers.
provident funds and the government as a
whole. With the help of the financial market (ii) Secondary Market is the market for
all the above stated individuals, institutions securities that are already issued. Stock
and the Government can get their required Exchange is an important institution in
funds in time. Through the financial market the secondary market.
the institutions get their short term as well d. On the Basis of Timing of
as long term financial assistance. It leads to Delivery of Financial Claim
the overall economic development.
(i) Cash/Spot Market is a market where the
delivery of the financial instrument and
4.03  Types of Financial Markets payment of cash occurs immediately. i.e.
Financial Markets can be classified in settlement is completed immediately.
different ways. They are as follows:
(ii) Forward or Futures Market is a market
where the delivery of asset and payment of
a. On the Basis of Type of Financial
cash takes place at a pre-determined time
Claim frame in future.
(i) Debt Market is the financial market
for trading in Debt Instrument (i.e. e. On the Basis of the Organizational
Government Bonds or Securities, Structure of the Financial Market
Corporate Debentures or Bonds) (i) Exchange Traded Market is a centralized
organization (stock exchange) with
(ii) Equity Market is the financial market for
standardized procedures.
trading in Equity Shares of Companies.
(ii) Over–the–Counter Market is a
decentralized market (outside the stock
b. On the Basis of Maturity of exchange) with customized procedures.
Financial Claim
The above classification is not rigid. One
(i) Money Market is the market for short term
market may come under more than one
financial claim (usually one year or less)
category.
E.g. Treasury Bills, Commercial Paper,
Certificates of Deposit 4.04  Role of Financial Market
(ii) Capital Market is the market for long One of the important requisites for the
term financial claim more than a year E.g. accelerated development of an economy is the
Shares, Debentures existence of a dynamic and a resilient financial
market. A financial market is of great use for a
country as it helps the economy in the following
manner:

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(i) Savings Mobilization (ii) Enhancing Income: Financial markets

Obtaining funds from the savers or allow lenders earn interest/dividend on
‘surplus’ units such as household individuals, their surplus investible funds and thus
business firms, public sector units, Government contributing to the enhancement of the
is an important role played by financial markets. individual and the national income.

(iii) Productive Usage: Financial markets

(ii) Investment allow for the productive use of the funds
Financial market plays a key role in borrowed and thus enhancing the income
arranging the investment of funds thus collected, and the gross national production.
in those units which are in need of the same.
(iv) Capital Formation: Financial markets
(iii) National Growth provide a channel through which new
Financial markets contribute to a nation’s savings flow to aid capital formation of a
growth by ensuring an unfettered flow of country.
surplus funds to deficit units. Flow of funds for
(v) Price Determination: Financial markets
productive purposes is also made possible. It
allow for the determination of the price
leads to overall economic growth.
of the traded financial asset through the
interaction of buyers and sellers. They
(iv) Entrepreneurship Growth
provide a signal for the allocation of funds
Financial markets contribute to the in the economy, based on the demand and
development of the entrepreneurial class supply, through the mechanism called price
by making available the necessary financial discovery processes.
resources.
(vi) Sale Mechanism: Financial market provides
(v) Industrial Development a mechanism for selling of a financial asset
The different components of financial by an investor so as to offer the benefits of
markets help an accelerated growth of industrial marketability and liquidity of such assets.
and economic development of a country and
(vii) Information: The activities of the
thus contributing to raising the standard of
participants in the financial market result
living and the society’s well-being.
in the generation and the consequent
dissemination of information to the
4.05 Functions of Financial Markets
various segments of the markets, so as to
A financial market renders the following reduce the cost of transaction of financial
functions: assets.

I. Intermediary Functions II. Financial Functions

The intermediary functions of a financial The financial functions of a financial
market include the following: market include the following:
(i) Transfer of Resources: Financial markets (i) Providing the borrowers with funds so as to
facilitate the transfer of real economic enable them to carry out their investment
resource from lenders to ultimate borrowers. plans

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(ii) Providing the lenders with earning assets so as to enable them to earn wealth by deploying the
assets in productive ventures

(iii) Providing liquidity in the market so as to facilitate trading of funds.

4.06 New Issue Market (NIM) Vs. Secondary Market

Since his private properties are held liable for satisfying business debts, he can get more financial
assistance from others.

BASIS FOR
NEW ISSUE MARKET SECONDARY MARKET
COMPARISON

The place where formerly issued

The market place for new shares
securities are traded is known as
Meaning is called primary market.
Secondary Market.
(Initial Issues Market)
(Resale Market)

Buying Direct Indirect

It supplies funds to budding

enterprises and also to existing It does not provide funding to
Financing
companies for expansion and companies
diversification

How can securities be sold? Only once Multiple times

Buying and Selling between Company and Investors Investors

Gained person Company Investors

Intermediary Underwriters Brokers

Price Fixed price Fluctuates, depends on the

demand and supply force

Organizational Not rooted to any specific spot or It has physical existence

difference geographical location

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Classification of Financial Assets

Financial Assets
Financial assets can be classified
differently under different circumstances. One In any financial transaction, there
such classification is: should be a creation or transfer of
financial asset. Hence, the basic product of
(i) Marketable assets any financial system is the financial asset.
(ii) Non-marketable assets A financial asset is one which is used for
production or consumption or for further
Marketable Assets
creation of assets. For instance, a buys equity
Marketable assets are those which can be shares and these shares are financial assets
easily transferred from one person to another since they earn income in future.
without much hindrance. Example: Shares of
In this context, one must know the distinction
Listed Companies, Government Securities,
between financial assets and physical assets.
Bonds of Public Sector Undertakings etc.
Unlike financial assets, physical assets are not
Non-Marketable Assets useful for further production of goods or for
On the other hand, if the assets cannot be earning income. For example X purchases
transferred easily, they come under this category. land and buildings or gold and silver. These
Example: Bank Deposits, Provident Funds, are physical assets since they cannot be used
Pension Funds, National Savings Certificates, for further production. Many physical assets
are useful for consumption only.
Insurance Policies etc. This classification is
shown in the following chart. It is interesting to note that the objective of
investment decides the nature of the asset.
Key words For instance if a building is bought for
Financial Market Debt Market residence purposes, it becomes a physical
Equity Market New Issue Market asset. If the same is bought for hiring, it
becomes a financial asset.

  Exercise 3. Primary market is also called as

a) Secondary market b) Money market
c) New Issue Market d) Indirect Market
I. Choose the Correct Answers:
4. Spot Market is a market where the delivery
1. Financial market facilitates business firms
of the financial instrument and payment of
a) To rise funds cash occurs
b) To recruit workers
a) Immediately
c) To make more sales
b) In the future
d) To minimize fund requirement
c) Uncertain
2. Capital market is a market for
d) After one month
a) Short Term Finance
5. How many times a security can be sold in a
b) Medium Term Finance
secondary market?
c) Long Term Finance
a) Only one time b) Two time
d) Both Short Term and Medium Term Finance
c) Three times d) Multiple times
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Answers: 3. Discuss the role of financial market.

1 a 2 c 3 c 4 a 5 d 4. What are the functions of Financial Markets?
5. Discuss the various types of Financial
II. Very Short Answer Questions:
markets.
1. 
What are the components of organized
sectors? References
2. Write a note on financial market. 1.
BhallaV.K, (2013), “Investment
Management Security Analysis and Portfolio
3. What is equity market?
Management”, S. Chand & Company Pvt.
4. What is debt market? Ltd., Ram Nagar, New Delhi.
5. How is prize decided in a secondary market?
2. Ranganatham. M et.al., (2006) “.Investment
III. Short Answer Questions: Analysis and Portfolio Management”,
1. Give the meaning and definition of financial ISBN 978-81-7758-229-1, Dorling
market. Kindersley(India) Pvt.Ltd., licensees of
Pearson Education in South Asia.
2. Differentiate spot market from future
market. 3.
Rustagi.R.P, (2005), “Investment
3. Write a note on Secondary Market. Management Theory and Practice”,
Published Sultan Chand & Sons, 23,
4. Bring out the scope of financial market in
Daryaganj, New Delhi.
india.
4. www.keydifferences.com/difference-
IV. Long Answer Questions: between-primary-market-and-secondary-
1. Distinguish between new issue market and market.html#Definition
secondary market.
2. Enumerate the different kinds of financial
markets.

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UNIT FINANCIAL MARKETS - I

II
CAPITAL MARKET
5
CHAPTER

முதலிலார்க் ஊதிய மில்ைல மதைலயாஞ்

சார்பிலாக் கில்ைல நிைல.
-குறள் 449
COUPLET
The There can be no gain to those who have no capital; and
in like manner there can be no permanence to those who are
without the support of adherents.

The term capital market refers to the

Learning Objectives facilities and institutional arrangements
through which long-term funds, both debt
To enable the students to understand the and equity are raised and invested. It consists
■ Meaning and definition of Capital of a series of channels through which savings
Market of the community are made available for
■ Characteristics of Capital Market industrial and commercial enterprises and for
the public in general. It directs these savings
■ Functions of Capital Market
into their most productive use leading to the
■ Indian Capital Market Evolution and growth and development of the economy. The
Growth capital market consists of development banks,
■ New Financial Institutions commercial banks and stock exchanges. An
ideal capital market is one where finance is
Chapter Synopsis available at reasonable cost. The process of
economic development is facilitated by the
5.01 Meaning and Definition existence of a well functioning capital market.
5.02 Characteristics of Capital Market
5.03 Kinds of Capital Market 5.01 Meaning and Definition
5.04 Functions and Importance of Capital Capital market is a market where buyers
Market and sellers engage in trade of financial securities
5.05 Indian Capital Market – Evolution and like bonds, and stocks. The buying/selling is
Growth undertaken by participants such as individuals
and institutions.Capital market forms an
5.06 New Financial Institutions
important core of a country’s financial system.

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Capital market can be defined as “a market for (iii) Participants

borrowing and lending of long-term capital There are many players in the capital
funds required by business enterprises”. Capital market. The participants of the capital market
market offers an ideal source of external finance. include individuals, corporate sectors, Govt.,
It refers to all the facilities and the institutional banks and other financial institutions.
arrangements for borrowing and lending
medium-term and long-term funds. Like any (iv) Location
market, the capital market is also composed Capital market is not confined to certain
of those who demand funds (borrowers) and specific locations, although it is true that parts
those who supply funds (lenders). of the market are concentrated in certain well-
known centers known as Stock Exchanges. It
has its impact in the overall economy, wherever
suppliers and users of capital get together and
do business.

(v) Market for Financial Assets

Capital market provides a transaction
platform for long term financial assets.

5.03  Kinds of Capital Market

The capital market is divided into two
Stock Exchange i.e., primary market and secondary market as
According to Arun K. Datta, capital shown in the following chart.
market may be defined as “a complex of insti-
tutions investment and practices with estab-
Kinds of Capital Market
lished links between the demand for and sup-
ply of different types of capital gains”.

5.02. Characteristics of Capital Primary Market Secondary Markets

Market
Following are the nature/characteristic of
I Primary Market
a capital market:
Primary market is a market for new issues
(i) Securities Market or new financial claims. Hence, it is also called
New Issue Market. The primary market deals
The dealings in a capital market are done
with those securities which are issued to the
through the securities like shares, debentures,
public for the first time. In the primary market,
etc. The capital market is thus called securities
borrowers exchange new financial securities
market.
for long term funds. Thus, primary market
(ii) Price facilitates capital formations.
The price of the securities is determined There are three ways by which a company
based on the demand and supply prevailing in may raise capital in a primary market. They are:
the capital market for securities.

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(i) Public Issue: exchange enables companies to raise permanent

The most common method of raising capital. The investors cannot commit their funds for
capital by new companies is through sale of a permanent period but companies require funds
securities to the public. It is called public issue. permanently. The stock exchange resolves this dash
of interests by offering an opportunity to investors
(ii) Rights Issue: to buy or sell their securities, while permanent
When an existing company wants to raise capital with the company remains unaffected.
additional capital, securities are first offered
to the existing shareholders on a pre-emptive
(iii) Industrial Growth
basis. It is called rights issue. The stock exchange is a central market
through which resources are transferred to the
(iii) Private Placement: industrial sector of the economy. The existence
Private placement is a way of selling of such an institution encourages people to
securities privately to a small group of investors. invest in productive channels. Thus it stimulates
industrial growth and economic development of
II Secondary Market the country by mobilizing funds for investment
Secondary Market may be defined as in the corporate securities.
the market for old securities, in the sense that
securities which are previously issued in the (iv) Ready and Continuous Market
primary market are traded here. The trading takes The stock exchange provides a central
place between investors who follow the original convenient place where buyers and sellers
issue in the primary market. It covers both stock can easily purchase and sell securities. Easy
exchange and over-the counter market. marketability makes investment in securities
more liquid as compared to other assets.
5.04 Functions and Importance
(v) Reliable Guide to Performance
of Capital Market
The capital market serves as a reliable
Capital market has a crucial significance
guide to the performance and financial position
to capital formation. For a speedy economic
of corporate, and thereby promotes efficiency.
development adequate capital formation is
necessary. The significance of capital market in (vi) Proper Channelizationof Funds
economic development is explained below:- The prevailing market price of a security
(i) Savings and Capital Formation and relative yield are the guiding factors for the
people to channelize their funds in a particular
In capital market, various types of
company. This ensures effective utilisation of
securities help to mobilize savings from various
funds in the public interest.
sectors of population (Individuals, Corporate,
Govt., etc.). The twin features of reasonable (vii) Provision of Variety of Services
return and liquidity in stock exchange are
The financial institutions functioning
definite incentives to the people to invest in
in the capital market provide a variety of
securities. This accelerates the capital formation
services such as grant of long term and medium
in the country.
term loans to entrepreneurs, provision of
(ii) Permanent Capital underwriting facilities, assistance in promotion
The existence of a capital market/stock of companies, participation in equity capital,

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giving expert advice etc. SEBI emerged as an effective regulatory

body for the primary and secondary markets
(viii) Development of Backward Areas and afford a measure of protection to small
Capital Markets provide funds for investors. New financial services such as credit
projects in backward areas. This facilitates rating was introduced.
economic development of backward areas. Long A number of committees were constituted
term funds are also provided for development in order to suggest measures to revamp and
projects in backward and rural areas. restructure the working of the secondary market
and cause buoyancy in the primary market.
(ix) Foreign Capital Some of these committees were: Committee
Capital markets makes possible to generate on Organization and Management of Stock
foreign capital. Indian firms are able to generate Exchange, Working group on the Development
capital funds from overseas markets by way of of the Capital Market, A Study Group for
bonds and other securities. Government has Guidelines Relating to Valuation and New
liberalised Foreign Direct Investment (FDI) in Instruments, A High Powered Study Group
on Establishment of New Stock Exchange, A
the country. This not only brings in foreign capital
Committee on Trading in Public Sector Bonds
but also foreign technology which is important
and Units of Mutual Funds.
for economic development of the country.

(x) Easy Liquidity 5.06  New Financial Institutions

With the help of secondary market A number of institutions of finance have
investors can sell off their holdings and convert been established to cater to the credit requirements
them into liquid cash. Commercial banks also of various segments of industry and needs. A brief
outline of these institutions is presented below;
allow investors to withdraw their deposits, as
and when they are in need of funds.
(i) Venture Fund Institutions
Venture capital financing is a form of
5.05 Indian Capital Market – equity financing designed especially for funding
Evolution and Growth new and innovative project ideas. Venture capital
The period between 1947 and 1973 funds bring into force the hi-technology projects
marked the development of infrastructure for which are converted into commercial production.
capital market. During this period, a network Many specialized financial institutions have
of development financial institutions such as promoted their own venture capital funds.
IFCI, ICICI, IDBI and UTI, SFCs and SIDCs They include Risk Capital Foundation of IFCI,
were established. These financial institutions Venture Fund of IDBI, SIDBI, Technology
strengthened the capital market. Development and Infrastructure Corporation of
India (TDICI), and others.
During the period between 1980 and
(ii) Mutual Funds
1992, debenture emerged as a powerful
instrument of resource mobilization in the Financial institutions that provide facilities
primary market. The public sector bonds were for channeling savings of small investors into
introduced. A number of stock exchanges came avenues of productive investments are called
into existence. There was a momentous growth ‘Mutual Funds’. A mutual fund company invests
in the secondary market. the funds pooled from shareholders and gives

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them the benefit of diversified investment (vi) National Clearance and

portfolio and a reasonable return. Depository System (NCDS)
Specialized financial institution like LIC, UTI, Under the scripless trading system, settlement
etc., beside commercial banks such as SBI, and of transactions relating to securities takes place
Canara Bank are carrying out the business through a book entry. The entire scripless
of mutual funds. The benefits of mutual fund trading system comprises the following three
are high return, easy liquidity, safety and tax segments:
benefits to the investors.
a. National Trade Comparison and Reporting
(iii) Factoring Institutions System which prescribes the terms and
“Factoring” is an arrangement whereby conditions of contract for the securities
a financial institution provides financial market
accommodation on the basis of assignment/ b. National Clearing System which aims at
sale of account receivables. The factoring determining the net cash and stock liability
institutions collect the book debts for and of each broker on a settlement date
on behalf of its clients. Some of the factoring
c. National Depository System which arranges
institutions operating in India are SBI Factors
to provide for the transfer of ownership of
and Commercial Services Private Limited, a
securities in exchange on payment by book
subsidiary of State Bank of India and Canbank
entry on electronic ledgers without any
Factors Limited, a subsidiary of Canara Bank.
physical movement of transfer deed
(iv) Over the Counter Exchange of
(vii) National Securities Depositories
India (OTCEI)
Limited
The OTCEI was set up by a premier financial
The NSDL was set up in the year 1996 for
institution to allow the trading of securities
achieving a time bound dematerialization
across the electronic counters throughout the
as well as rematerialization of shares. The
country. It addresses some specific problems
establishment of NSDL is expected to alleviate
of both investors and medium-size companies.
the problems of post trade transactions in the
Some of the greatest strengths of OTCEI are
secondary market.
transparency of transactions, quick deals, faster
settlements and better liquidity. (viii) Stock Holding Corporation of
(v) National Stock Exchange of India India Limited (SHCIL)
Limited (NSEI) Stock Holding Corporation of India Limited
(SHCIL) aims at serving as a central securities
NSEI was established in 1992 to function
depository in respect of transactions on stock
as a model stock exchange. The Exchange
exchanges. The Corporation also takes up
aims at providing the advantage of nation-
the administration of clearing functions at a
wide electronic screen based “scripless” and
national level.
“floorless” trading system in securities. The
institution is expected to allow for an efficient
and transparent system of securities trading.

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Hard Commodities Market

Gilt-Edged Market also known as
Government Securities market is
the market for Government and
semi-Government securities. An important
feature of the securities traded in this market
is that they are stable in value and are much
sought after by banks.
• Guaranteed return on investments
• No speculation in securities
• Institutional based investors which are
compelled by law to invest a portion of Hard commodities are raw materials typically
their funds in these securities. mined, such as gold, oil, rubber, iron, and ore.
• 
Predominated by such institutions as Soft commodities are typically grown
LIC, GIC, PFs and the commercial banks agricultural primary products such as wheat,
• 
Heavy volume of transactions cotton, coffee, and sugar.
necessitating negotiation of each
Derivatives Market
transaction

Foreign Exchange Market

The foreign exchange market abets the foreign

exchange trading. It is the largest, most liquid
Derivatives market facilitates the trading in
market in the world with an average traded value
financial instruments such as futures contracts
of more than $5 trillion per day. It includes all of
and options used to help control financial risk.
the currencies in the world and any individual,
The instruments derive their value mostly from
company or country can participate in it.
the value of an underlying asset that can come
Commodity Market in many forms – stocks, bonds, commodities,
The commodity market manages the trading currencies or mortgages.
in primary products which takes place in
about 50 major commodity markets where
financial transactions increasingly outstrip
physical purchases which are to be delivered.
Commodities are commonly classified in two
subgroups.

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2. Explain any two functions of Capital Market.

3. Write a note on National Clearance and
Depository System (NCDS).
Exercise
4.Discuss about evolution and growth of
Indian Capital Market.
I. Choose the Correct Answers: 5. Explain about Factoring and Venture Capital
1. Capital market do not provide Institutions.
a) Short term Funds IV. Long Answer Questions:
b) Debenture Funds 1. Discuss the characters of a Capital Market.
c) Equity Funds 2. Briefly explain the functions of capital
d) Long term Funds market.
2. When the NSEI was established 3. Explain the various types of New Financial
a) 1990 b) 1992 Institutions.
c) 1998 d) 1997
References
3. Primary market is a Market where securities
1. Dr.SUNDAR,K 2017, Business
are traded in the
Organisation, Vijay Nicole Imprints Pvt
a) First Time b) Second Time Ltd., Chennai.
c) Three Time d) Several Times 2. Dr.S.GURUSAMY 2012, Financial Markets
4. Participants in the capital market includes and Institutions
a) Individuals b) Corporate 3. Ranganatham.M et.al.,(2006). “Investment
c) Financial Institutions d) All of the above Analysis and Portfolio Management”,
ISBN 978-81-7758-229-1, Dorling
5. How many times a security can be sold in a
Kindersley(India) Pvt.Ltd., licensees of
secondary market?
Pearson Education in South Asia.
a) Only One Time b) Two Time 4. BhallaV.K, (2013), “Investment
c) Three Times d) Multiple Times Management Security Analysis and
Portfolio Management”, S. Chand &
Answers:
Company Pvt. Ltd., Ram Nagar, New Delhi.
1 a 2 b 3 a 4 d 5 d
5. www.economictimes.indiatimes.com/
II. Very Short Answer Questions: definition/capital-market
1. What is Capital Market? 6. www.shodhganga.inflibnet.ac.in/
2. Write a note on OTCEI. bitstream/10603/33042/11/
3. What is Mutual Fund? 11_chapter%201.pdf
4. Who are the participants in a Capital Market? 7. https://dollarsandsense.sg/10-biggest-
5. How is price determined in a Capital Market? stock-exchanges-world-heres-much-
theyve-gained-2017/
III. Short Answer Questions:
1. What are the various kinds of Capital
Market? Explain.
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UNIT FINANCIAL MARKETS -I

II
MONEY MARKET
6
CHAPTER

சிறப்ஈனும் ெசல்வமும் ஈனும் அறத்தினூஉங்கு

ஆக்கம் எவேனா உயிர்க்கு.
-குறள் 31
COUPLET
Virtue will confer heaven and wealth; what greater source of
happiness can man possess?

Money Market
Learning Objectives
Money Market is a market for purely
To enable the students to understand the short-term funds. It deals with the financial
assets and securities whose maturity period
■ Characteristics of Money Market
does not exceed one year.
■ The Difference between Capital Market
and Money Market 6.01 Meaning and Definition
■ The Money Market Instruments Money Market is the segment of financial
markets where in financial instruments having
Chapter Synopsis maturities of less than one year are traded.
Examples: Treasury Bills, Commercial Bills,
6.01 Meaning and Definition Certificate of Deposits, Government Securities,
6.02 Characteristics etc.,
6.03 Difference between Capital Market According to Crowther, ”the money
and Money Market market is the collective name given to the
6.04 Participants in Money Markets various firms and institutions that deal in the
6.05 Money Market Instruments various grades of near money”.
6.05.01 Treasury Bills The RBI defines the money market as,
6.05.02 Certificate of Deposit “a market for short-term financial assets that
6.05.03 Commercial Bills are close substitutes for money facilitates the
exchange of money for new financial claims in
6.05.04 Government or Gilt-Edged
the primary market as also for financial claims,
Securities Market.
already issued, in the secondary market”.

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Objectives 6. Role of Market

A well-developed Money Market serves The components of a money market

the following objectives: are the Central Bank, Commercial Banks,
Non-Banking Financial Companies, Discount
1. Providing
 an equilibrium mechanism for Houses and Acceptance House. Commercial
ironing out short-term surplus and deficits. banks generally play a dominant role in this
2. Providing
 a focal point for Central Bank market.
intervention for influencing liquidity in 7. Highly Organized Banking System
the company.
The Commercial Banks are the nerve
3. Providing
 access in uses to users of short- centre of the whole money market. They are the
term money to meet their requirements at principal suppliers of short-term funds. The
a reasonable price. commercial banks serve as vital link between
6.02 Characteristics the Central Bank and the various segments of
the money market.
1. Short-term Funds
8. Existence of Secondary Market
It is a market purely for short-term funds
or financial assets called near money. There should be an active secondary
market for these instruments.
2. Maturity Period
9. Demand and Supply of Funds
It deals with financial assets having a
maturity period upto one year only. There should be a large demand and
supply of short-term funds. It presupposes the
3. Conversion of Cash existence of a large domestic and foreign trade.
It deals with only those assets which can 10. Wholesale Market
be converted into cash readily without loss and
with minimum transaction cost. It is a wholesale market and the volume of
funds or financial assets traded in the market is
4. No Formal Place very large.
Generally, transactions take place through 11. Flexibility
phone, i.e., oral communication. Relevant
documents and written communications can Due to greater flexibility in the regulatory
be exchanged subsequently. There is no formal framework, there are constant endeavours for
place like stock exchange as in the case of a introducing new instruments.
capital market. 12. Presence of a Central Bank
5. Sub-markets The central bank keeps their cash reserves
It is not a single homogeneous market. and provides them financial accommodation
It comprises of several sub-markets each in difficulties by discounting their eligible
specialising in a particular type of financing. securities. Through its open market operations
E.g., Call Money Market, Acceptance Market, the central bank absorbs surplus cash during
Bill Market. off-seasons and provides additional liquidity in
the busy seasons.

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6.03 Money Market vs. Capital Market

The difference between a money market and capital market is briefly stated in the following table.

Sl. No Features Money Market Capital Market

It is a market for short-

It is a market for long-term
term loanable funds
1 Duration of Funds funds exceeding period of one
for a period of not
year.
exceeding one year.

This market supplies

funds for financing This market supplies funds
current business for financing the fixed capital
operations working requirements of trade and
2 Supply of Funds
capital requirements commerce as well as the long-
of industries and short term requirements of the
period requirements of government.
the government.

It deals with instruments

Deals with like commercial bills (bill It deals with instruments
3 of exchange, treasury like shares, debentures,
Instruments bill, commercial papers Government bonds, etc.,
etc.).

Each single money

market instrument
is of large amount.
Each single capital market
A treasury bill is of
instrument is of small amount.
4 Money Value minimum for one
Each share value is Rs 10. Each
lakh. Each certificate of
debenture value is Rs 100.
deposits or commercial
paper is for minimum
of Rs 25 lakh.

The central bank and Development banks and

Role of Major commercial banks are Insurance companies play a
5
Institution the major institutions dominant role in the capital
in the money market. market.

Money Market
Availability of Capital market instruments
instruments generally
6 generally have secondary
Instruments do not have secondary
markets.
market.

In capital market there is a

In money market there
7 Subdivision division of primary market and
is no such subdivision.
secondary market.

Transactions mostly
Transactions take place at
take place over the
8 Place of Transaction a formal place. Eg. stock
phone and there is no
exchange.
formal place.

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9 Transactions have to Transactions have to be

be conducted without conducted only through
the help of brokers authorized dealers i.e., Brokers,
Participants i.e., Bankers, RBI and Investors, Merchant Bankers,
Government. Underwriters and Commercial
Banks.

10 The number of The number of instruments

instruments dealt in in capital market is very few
money market are namely, shares and debentures.
include 1) Inter-bank
call money, 2) Notice
Number of money upto 14 days,
Instruments Dealt 3) Short-term deposits
upto 3months 4) 91
days Treasury bill, 5)
182 days Treasury bill
6) Commercial papers
etc.,

11 Financial claims, assets Bonds and shares are dealt in

and securities are dealt the Capital Market
Claims
in the Money Market.

12 Low credit and market High credit and market risk

Risk risk.

13 High liquidity in Low liquidity in Capital Market

Liquidity Money Market

14 No price discovery Price discovery mechanism

Price Discovery mechanism and exists exists in Capital Market
in this Market.

15 Central Bank is the Besides Central Bank, Special

Regulator Regulator of Money regulatory authority like SEBI,
Market. etc.,

16 Underwriting is not a It is a primary function.

Underwriting primary function.

17 Commercial Banks Non-banking financial

Dominant Institutions are the dominant companies and special financial
institutions. institutions.

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6.04 Participants in Money 6.05.01  Treasury Bills

Markets Treasury bills are very popular and enjoy a
There are many participants operating in higher degree of liquidity since they are issued by
the Money Market. The participants deal with the Government. A Treasury bill is nothing but
the money market instruments like Treasury a promissory note issued for a specified period
Bills, Commercial Bills, Commercial Papers, stated therein. The Government promises to
etc., pay the specified amount mentioned therein to
the bearer of the instrument on the due date.
1. Government of different countries The period does not exceed a period of one year.
2. Central Banks of different countries
3. Private and Public Banks General Features
4. Mutual Funds Institutions Treasury Bills incorporate the following
5. Insurance Companies general features.
6. Non-Banking Financial Institutions
1. Issuer
7. RBI and SBI
8. Commercial Banks 2. Finance Bills
9. State Governments 3. Liquidity
10. Public 4. Vital Source
5. Monetary Management
6.05  Money Market Instruments
There are many kinds of Instruments available Types of Treasury Bills
in Money Market. In India, till 1986, only a Treasury Bills are issued to the public
few instruments were available. They were as and other financial institutions for meeting the
follows: short-term financial requirements of the Central
i. Treasury Bills in the Treasury Market Government. These bills are freely marketable
ii. Money
 at Call and Short Notice in the and they can be bought and sold at any time and
Call Loan Market these bill are tradable in secondary market as
well.
iii. C
 ommercial Bills and Promissory Notes
in the Bill Market On the basis of periodicity, Treasury Bills
Now in addition to the above, the following may be classified into three. They are:
new instruments come into existence:
1) 91 days Treasury Bills
i. Commercial Papers 2) 182 days Treasury Bills and
ii. Certificate of Deposits 3) 364 days Treasury Bills
iii. Inter-Bank participation Certificates.
Ninety one days Treasury Bills are issued
iv. Repo Instruments. at a fixed discount rate of 4 per cent as well as
These instruments are brieflty highlighted in through auctions. The RBI holds 91 days and
this chapter. 182 Treasury Bills and they are issued on tap
basis throughout the week. 364 days Treasury
Treasury Bill Market Bills do not carry any fixed rate. The discount
A market for the purchase and sale of Treasury rate on these bills are quoted in auction by the
Bills is known as a “Treasury Bills Market”. participants and accepted by the authorities.
Such a rate is called cut off rate.

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6.05.02  Certificate of Deposits 6.05.03  Commercial Bills

A bill of exchange issued by a commercial
organization to raise money for short- term
needs. These bills are of 30 days, 60 days and 90
days maturity.

The Commercial Bill is an instrument

drawn by a seller of goods on a buyer of goods.
It possesses the advantages like self-liquidating
in nature, recourse to two parties, knowing
exact date of transactions, transparency of
Specimen Copy of Certificate of Deposit transactions etc.,
Certificate of Deposits are short-term
deposit instruments issued by banks and
financial institutions to raise large sums of
money. Certificate of Deposits are issued in
the form of usance promissory notes. They
are easily convertible in nature and are in
marketable form having particular face value
and maturity. The Certificate of Deposit is
transferable from one party to another. Due to
their negotiable feature, they are also known as
negotiable certificate of deposit.

Issuers
The Issuers of Certificate of Deposits are Specimen Copy of Commercial Bill
Commercial Banks, Financial Institutions, etc., Features
Subscribers The features of the Commercial Bills are
Certificate of Deposits are available for as follows:
subscription by individuals, corporations, 1. Drawer
trusts, associations and NRIs. It is a document 2. Acceptor
of title to a time deposit. It is a bearer certificate 3. Payee
and is negotiable in the market. 4. Discounter
5. Endorser
Features of Certificate of Deposit 6. Assessment
1. Document of title to time deposit 7. Maturity
2. It is unsecured negotiable instruments. 8. Credit Rating
3. It is freely transferable by endorsement Types
and delivery.
a. Demand and Usance Bills
4. It is issued at discount to face value.
A demand bill is one wherein no specific
5. It is repayable on a fixed date without time of payment is mentioned. So, demand
grace days. bills are payable immediately when they are
presented to the drawee.

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b. Clean bills and documentary Bills Characteristics

Bills that are accompanied by documents
Government Securities plays a significant
of title to goods are called documentary bills. role in the Indian Money Market. The
Clean bills are drawn without accompanying characteristics of Government Securities are
any document. discussed below:
E.g. Railway Receipt and Lorry Receipt
1. Agencies
c. Inland bills and Foreign Bills Government securities are issued by
Bills that are drawn and payable in India agencies such as Central Government, State
on a person who is resident in India are called Governments, semi-government authorities
inland bills. Bills that are drawn outside India like local Government authorities, e.g.
and are payable either in India or outside India municipalities, autonomous institution such as
are called foreign bills. metropolitan authorities, port trusts etc.,

d. Indigeneous Bills 2. RBI Special Role

The drawing and acceptance of indigenous RBI takes a special and an active role in
bills are governed by native custom or usage of the purchase and sale of these securities as part
trade. of its monetary management exercise.
3. Nature of Securities
e. Accommodation and supply Bills
Accommodation bills are those which do Securities offer a safe avenue of investment
not arise out of genuine trade of transactions. through guaranteed payment of interest and
repayment of principal by the Government.
6.05.04 Government or Gilt-Edged 4. Liquidity Profile
Securities Market
The liquidity profile of gilt-edged
A market whereby the Government or securities varies. Accordingly liquidity profile
gilt-edged securities can be bought and sold is of securities issued by Central Government is
called ‘Government Securities Market’. high.
Government or Gilt-Edged Securities 5. Tax Rebate
Government securities are issued for the A striking feature of these securities is
purposes of refunding the maturing securities, that they offer wide-range of tax incentives to
for advance refunding securities, which have investors. This has made these securities very
popular for this benefit.
not yet matured and for cash financing, i.e.,
raising fresh cash resources. 6. Market
As each sale and purchase has to be
negotiated separately, the Gilt-Edged Market is
an Over-The-Counter Market. The Government
securities market in India has two segments
namely primary market and secondary market.
7. Forms
The securities of Central and State
Specimen Copy of Government or
Government take such forms as inscribed stock or
Gilt-Edged Securities
stock certificate, promissory note and bearer bond.

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8. Participants
The participants in Government securities London Money Market is the
market include the Government sector oldest, most developed and leading
comprising Central and State Governments Money Market in the world.
whose holdings represent governmental New York Money Market is ranked as
transfer of resources. the second well-developed Money Market in
9. Trading the world next only to the London Money
Market.
Although the secondary market for
Government securities is narrow, small and
less active, banks and corporate holders who
  For Future Learning
purchase and sell Government securities on the
stock exchanges participate in trading. How to Invest Money in Money Market
10. Issue Mechanism Funds?
The Public Debt Office (PDO) of the RBI Gathering information about Money
undertakes to issue government securities. Market Funds
11. Issue opening Learn about money market
A notification for the issue of the Understand the goal of money market
securities is made a few days before the public funds. 
subscription is open. Learn the disadvantages of money market
12. Grooming Gradual funds. 
Acquisition of securities nearing maturity Investing in Money Market Funds
through the stock exchanges by the RBI in Understand the different types of Money
order to facilitate redemption is described as Market Funds
‘grooming’. Understand the purpose of Money Market
14. Switching Funds
The purchase of one security against the Compare past yields
sale of another security carried out by the RBI in Buying and Tracking of Money Market
the secondary market as part of its open market Funds
operations is described as ‘Switching’.
15. Auctioning
Buy at Money Market Fund
A method of trading whereby merchants
Track the Investment
bid against one another and where the securities
are sold to the highest bidder is known as Use records for tax filing
‘auctioning’.

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4. Money Market Institutions are __________.

For Own Thinking a) Investment Houses
If you earn money, which investment plan b) Mortgage Banks
would you like? c) Reserve Bank of India
1. Mutual Funds d) Commercial Banks and Discount Houses.
2. Shares 5. Risk in the Money Market is __________.
3. Debentures
a) High
4. Treasury Bill
5. Commercial Bill b) Market Risk
6. Certificate of Deposit c) Low Credit and Market Risk
Why? Give reasons. d) Medium Risk
6. Debt Instruments are issued by Corporate
Key words Houses are raising short-term financial
Treasury Bills Commercial Bills resources from the money market are called
Commercial Papers Government Bonds __________.
Money Market Capital Markets
a) Treasury Bills
Certificate of Deposits Auctioning
b) Commercial Paper
c) Certificate of Deposit
d) Government Securities

  Exercise 7. 
The market for buying and selling of
Commercial Bills of Exchange is known as a
__________.
I. Choose the Correct Answers:
a) Commercial Paper Market
1. 
The money invested in the call money b) Treasury Bill Market
market provides high liquidity with c) Commercial Bill Market
_________________.
d) Capital Market
a) Low Profitability
b) High Profitability 8. A marketable document of title to a time
c) Limited Profitability deposit for a specified period may be referred
d) Medium Profitability to as a __________.
2. A major player in the money market is the a) Treasury Bill
_________________. b) Certificate of Deposit
a) Commercial Bank c) Commercial Bill
b) Reserve Bank of India d) Government. Securities
c) State Bank of India
d) Central Bank. 9. Treasury Bills commands ___________.
a) High Liquidity
3. Money Market provides_______________.
b) Low Liquidity
a) Medium-term Funds
b) Short-term Funds c) Medium Liquidity
c) Long-term Funds d) Limited Liquidity
d) Shares
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10. 
Government Securities are issued by IV. Long Answer Questions:
agencies such as __________ 1. Define Money Market and Capital Market.
a) Central Government Explain the difference between the Money
b) State Governments Market and Capital Market.
c) Semi-government Authorities 2. Explain the characteristics of Money Market?
d) All of the above.
3. Explain the Instruments of Money Market?
Answers: 4. Explain the features and types of Commercial
Bills?
Q A Q A Q A Q A Q A
1 A 2 A 3 B 4 D 5 C 5. 
What are the features of Government
Q A Q A Q A Q A Q A Securities?
6 B 7 C 8 B 9 A 10 D
References
II. Very Short Answer Questions:
1. Financial Markets and Services – E.Gordon
1. Define the term “Money Market”.
and Natarajan,
2. What is commercial bill market?
2. Investment Management Security Analysis
3. What is a CD market? and Portfolio Management – Dr. L Natarajan,
4. What is Government Securities Market? 3. Financial Services (Indian Financial System) –
5. What are the Instruments of Money Market? Prof. B. Santhanam, Financial Marketing –
Dr. Gurusamy
6. Explain the two oldest money markets.
7. What do you meant by Auctioning?
8. What do you meant by Switching?

III. Short Answer Questions:

1. What are the features of Treasury Bills?
2. Who are the participants of Money Market?
3. Explain the types of Treasury Bills?
4. What are the features of Certificate of Deposit?
5. What are the types of Commercial Bill?

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UNIT FINANCIAL
MANAGEMENTMARKETS
PROCESS
- II
III
I

71
CHAPTER
PRINCIPLES
STOCKOF
EXCHANGE
MANAGEMENT

ெபாருெளன்னும் ெபாய்யா விளக்கம் இருளறுக்கும்

எண்ணிய ேதயத்துச் ெசன்று .
-குறள் 753
COUPLET
The imperishable light of wealth goes into regions desired
(by its owner) and destroys the darkness (of enmity therein).

Learning Objectives Chapter Synopsis

To enable the students to understand the 7.01 Stock Exchange – Origin, Meaning and
■ Origin, Meaning and Definition of Definition
Stock Exchange
7.02 Functions of Stock Exchange
■ Functions and Features of Stock
Exchange 7.03 Features of Stock Exchange
■ Benefits and Limitations of Stock 7.04 Benefits and Limitations of Stock
Exchange Exchange
■ Stock Exchanges in India
7.05 Stock Exchanges in India
■ Stock Exchange Traders
■ Types of Speculators 7.06 Types of Speculators
■ Difference between Stock Exchange and 7.07 Stock Exchange Vs Commodity
Commodity Exchange Exchange
■ Recent Development in Stock Exchange
7.08 Recent Development in Stock Exchange
Stock exchanges contribute in a huge
measure to the growth and expansion of national
business and to the ultimate benefit and well-
being of the national economy and its people.
They provide an ideal conduit through which
enormous amounts of capital flows through
the interconnected network of financial
organizations to all corporate enterprises in the
country. Thus, stock exchanges ensure liquidity
and transferability of financial assets that are
dealt with.

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Stock exchanges and organized market first stock exchange in India was“The Native
provide a place for the investors to buy and sell Shares and Stock Brokers Association”. It was
securities freely. The market offers perfectly recognized by Government of India on Aug 31,
competitive conditions where a large number 1957 under Securities Contract (Regulation)
of sellers and buyers participate. Further, stock Act, 1956. It became The Bombay Stock
exchanges provide an auction market in which Exchange subsequently.
members of the exchange participate to ensure
continuity of price and liquidity to investors. Meaning
The efficient functioning of the Stock Exchange (also called  Stock
stock exchange is responsible for creating a Market or Share Market) is one of the important
conductive climate for an active and growing constituents of Capital market. Stock Exchange
primary market for new issues. Moreover, is an organized market for the purchase and
an active and a healthy secondary market in sale of industrial and financial security. It is a
existing securities leads to a better psychology convenient place where trading in securities is
of expectations, considerably broadening the conducted in a systematic manner i.e. as per
investment enquiries and thereby, rendering the certain rules and regulations. It performs various
task of raising resources by entrepreneurs easier. functions and offers useful services to investors
Good performance and outlook for equities in and borrowing companies. It is an investment
the stock exchanges imparts buoyancy to the intermediary and facilitates economic and
new issue market. industrial development of a country.
Stock exchange is an organized market
7.01 Stock Exchange – Origin, for buying and selling corporate and other
Meaning, Definition securities. Here, securities are purchased and
sold out as per certain well-defined rules
Origin and regulations. It provides a convenient and
secured mechanism or platform for transactions
in different securities. Such securities include
shares and debentures issued by public
companies which are duly listed at the stock
exchange, and bonds and debentures issued by
government, public corporations and municipal
and port trust bodies.
Stock exchanges are indispensable for the
smooth and orderly functioning of corporate
sector in a free market economy. A stock
exchange need not be treated as a place for
Amsterdam Stock Exchange is considered speculation or a gambling den. It should act as
as the oldest stock exchange in the world. It a place for safe and profitable investment, for
was established in the year 1602 by Dutch this, effective control on the working of stock
East India company called VerenigdeOost- exchange is necessary. This will avoid misuse of
IndischeCompagnie called ‘VOC’. It was later this platform for excessive speculation, scams
rechristended as “Amsterdam Bourse”. The and other undesirable and anti-social activities.

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London stock exchange (LSE) is the cash easily and quickly) and consequently raises
most popular stock exchange in the world. their value.
While Bombay stock exchange (BSE) is the
2. Correct Evaluation of Securities
oldest stock exchange in India. Similar Stock
exchanges exist and operate in other parts of the The prices at which securities are bought
world. (Tokyo Stock Exchange, Bankgaco Stock and sold are recorded and made public. These
Exchange, Singapore Stock Exchange, Dubai prices are called “market quotations”. One can
Stock Exchange, Newyork Stock Exchange) easily evaluate the worth of one’s securities on the
basis of these quotations. The lender can easily
Definition assess the worth of security offered for loan.

According to Hastings, "Stock exchange 3. Protection to Investors

or securities market comprises all the places All dealings in a stock exchange are
where buyers and sellers of stocks and bonds in accordance with well-defined rules and
or their representatives undertake transactions regulations. For example, brokers cannot charge
involving the sale of securities.” higher rate of commission for their services.
According to Husband and Dockerary, Any malpractice will be severely punished. Thus
"Stock exchanges are privately organized stock exchange provides reasonable measure of
markets which are used to facilitate trading in safety and fair dealing in buying and selling of
securities." securities.

The Indian Securities Contracts 4. Proper Chanalisation of Capital

(Regulation) Act of 1956, defines Stock People like to invest in the shares of such
Exchange as,"An association, organization or companies which yield good profits. The savings
body of individuals, whether incorporated or of individuals are directed towards promising
not, established for the purpose of assisting, companies which declare good dividends over
regulating and controlling business in buying, a period of time. But for the stock exchanges,
selling and dealing in securities." these savings are likely to be wasted on the
shares of unprofitable units.
7.02 Functions of Stock Exchange: 5. Aid to Capital Formation
The various functions of a Stock The publicity which the stock exchange
Exchange are explained below. gives to various industrial securities and their
The various functions of a Stock Exchange prices and the facilities provided by it for their
are explained below. purchase and sale induce people to save and
invest. Stock exchanges thus ensure a steady flow
1. Ready and Continuous Market
of capital into industry and assists industrial
Stock Exchange is, in fact, a market for development.
existing securities. If an investor wants to sell
6. Facilities for Speculation
his securities, he can easily and quickly dispose
them off on a stock exchange. In other words, Speculation is an integral part of stock
he can convert his shares into cash and with the exchange operations. As a result of speculation,
same ease he can convert his cash into securities. demand for and supply of securities are
This easy marketability of securities increases equalized. Similarly, price movements are
their liquidity (conversion of securities into rendered smoothly.

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7. Seasoning of Securities and sold on its floor. Securities which do not

Speculators and underwriters hold for figure in the official list of stock exchange
a temporary period, securities issued by new are called unlisted securities. Such unlisted
companies. They unlock them when the market securities cannot be traded in the stock
is prepared to absorb the new issues. exchange.

8. Clearing House of Business Information 5. 

Transactions Effected only through
Members 
Listed companies are required to furnish
all important information relating to capital All the transactions in securities at the
management, dividend distribution etc, and stock exchange are effected only through its
forward copies of financial statements, annual authorised brokers and members. Outsiders or
reports etc, to the stock exchange. They publish direct investors are not allowed to enter in the
every year, books detailing the financial position trading circles of the stock exchange. Investors
of companies. Thus, it gives vital information to have to buy or sell the securities at the stock
the investing public for deciding on investment. exchange through the authorised brokers only.
6. Association of Persons 
7.03  Features of Stock Exchange:
A stock exchange is an association of
These are various qualities of a
Stock Exchange. Such qualities are persons or body of individuals which may be
enumerated below: registered or unregistered.
1. Market for Securities  7. Recognition from Central Government 
Stock exchange is a market, where Stock exchange is an organised market.
securities of corporate bodies, government and It requires recognition from the Central
semi-government bodies are bought and sold. Government.
2. Deals in Second Hand Securities  8. Working as per Rules 
It deals with shares, debentures bonds and Buying and selling transactions in
such securities already issued by the companies. securities at the stock exchange are governed by
In short, it deals with existing or second hand the rules and regulations of stock exchange as
securities and hence it is called secondary well as SEBI Guidelines. No deviation from the
market. rules and guidelines is allowed in any case.
3. Regulates Trade in Securities 
9. Specific Location 
Stock exchange does not buy or sell any
Stock exchange is a particular market place
securities on its own account. It merely provides
where authorised brokers come together daily
the necessary infrastructure and facilities for
(i.e. on working days) on the floor of market
trade in securities to its members and brokers
called trading circles and conduct trading
who trade in securities. It regulates the trade
activities. The prices of different securities
activities so as to ensure free and fair trade.
traded are shown on electronic boards. After the
4. Allows Dealings only in Listed Securities  working hours market is closed. All the working
In fact, stock exchanges maintain an of stock exchanges is conducted and controlled
official list of securities that could be purchased through computers and electronic system.

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10. Financial Barometers  iii. Raises huge funds

Stock exchanges are the financial Stock Exchange can raise huge funds
barometers and development indicators of easily by issue of shares and debentures.
national economy of the country. Industrial iv. Increases bargaining strength
growth and stability is reflected in the index of Companies whose shares rise in the stock
stock exchange. exchange command higher bargaining power
in the event of further expansion, merger or
7.04 
Benefits and Limitations of amalgamation.
Stock Exchange
C. Benefits to Investors
The Benefits of Stock Exchange
are classified into Benefits to the i. Liquidity
Community, Company and Investors. Stock exchange helps an investors to
convert his shares into cash quickly and thus
A. Benefits to the Community increases the liquidity of his investments.
i. Economic Development
ii. Adding collateral value of security
It accelerates the economic development
The fact that a security is dealt on a stock
by ensuring steady flow of savings into
exchange makes it a good collateral security for
productive purposes.
obtaining loan from banks.
ii. Fund Raising Platform
iii. Investor protection
It enables the well-managed, profit-
The stock exchange safeguards, investor’s
making companies to raise limitless funds by
interest and ensures fair dealing by strictly
fresh issue of shares from time to time.
enforcing its rules and regulations.
iii. Tools to Divert Resources
iv. Assessing real worth of security
Scarce resources are thus diverted to
An investor can easily assess the real worth
efficiently run enterprises for better utilization.
of securities in his hands, as market quotations
iv. Capital Formation are published daily in the newspapers and in
It encourages capital formation. websites.
v. Fund Raiser for Government v. Mechanism to trade security
It enables Government to raise funds for Stock Exchange provides a mechanism by
undertaking projects through sale of securities which purchase and sale of listed securities take
on the stock exchange. Thus stock exchange place in a matter of few minutes.
serves as a platform for raising public debt.
Limitations of Stock Exchange:
B. Benefits to the Company The limitations of stock exchange are as
i. Enhances Goodwill or Reputation follows
Companies whose shares are quoted on
i.  Lack of uniformity and control of stock
a stock exchange enjoy greater goodwill and
exchanges.
credit standing.
ii. Absence of restriction on the membership
ii. Wide Market of stock exchanges.
There is a wide and ready market for such iii. Failure to control unhealthy speculation.
securities. iv. Allowing more than one charge in the place.

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v. Non-insistence of margin requirement in automated and modern facilities for trading in

stock exchange or in the case of produce a transparent, fair and open manner with access
exchanges. to investors across the country.
vi. No proper regulation of listing of securities
Following are the names of the
on the stock exchange.
various stock exchanges in India:
7.05  Stock Exchanges In India: i. The Bombay Stock Exchange
STOCK EXCHANGES IN INDIA ii. 
The Ahmedabad Stock Exchange
(23 RECOGNIZED STOCK EXCHANGES)
Association Ltd.
N
W
S
E
iii. Bangalore Stock Exchange Ltd.
Jammu &Kashmir
iv. Bhubaneshwar Stock Exchange
LUDHIANA
Punjab

Himachal Pradesh

 CHANDIGARH
v. 
The Calcutta Stock Exchange
Punjab U rakhand
Urakhand

Haryana
Delhi  NEW DELHI
rad
esh
Association Ltd.
lP
cha
na
JAIPUR
Rajasthan 
KANPUR

U ar Pradesh
Sikkim

Assam 
GUWAHATI
Aru
As
sa
m
Nagaland
vi. The Cochin Stock Exchange Ltd.
Rajasthan Uar Pradesh
Bihar
PATNA
Mehalaya
Gujarat
Gujarat
Bihar

Jharkhand West
Bengal Tripura
Manipur
vii. The Delhi Stock Exchange Association
AHMADABAD
West Mizoram

STOCK
EXCHANGE 

 VADODARA
Madhya pradesh
Bengal
KOLKATA  Ltd.
Odisha
h

Daman & Diu

ar

viii. The Guwahati Stock Exchange Ltd.

Maharashtra Odisha
sg
a


BHUBANESHWAR 
ch

MUMBAI  Maharashtra
 PUNE
VASHI 
Telungana
 HYDERABAD
Telungana
ix. The Hydrabad Stock Exchange Ltd.
x. The Jaipur Stock Exchange Ltd.
a

Goa
tak
rna

Andra Pradesh
Ka

MANGALORE 
BENGALURU 

TamilNadu
 CHENNAI
xi. The Kanara Stock Exchange Ltd.
 TamilNadu

xii. 
The Ludhiana Stock Exchange
Ker

KOCHI
 COIMBATORE
alaKe

Andaman Nichobar Islands

rala

lakshadweep Island
Srilanka
LEGEND Association Ltd.
Interna‰onal Boundary

xiii. The Madras Stock Exchange Ltd.

State Boundary
Not to Scale  Stock Exchange

xiv. The Madhya Pradesh Stock Exchange

There are 24 stock exchanges in the Ltd.
country, with 21 of them being regional in xv. The Magadh Stock Exchange Ltd.
nature. Three others that have been set up in
xvi. The Mangalore Stock Exchange Ltd.
the reforms era, viz., National Stock Exchange
xvii. The Pune Stock Exchange Ltd.
(NSE), the Over the Counter Exchange of India
Limited (OTCEI), and Interconnected Stock xviii. The Saurashtra Kutch Stock Exchange
Exchange of India Limited (ISE) have mandate Ltd.
to nationwide trading network. The ISE has xix. The Vadodara Stock Exchange Ltd.
been promoted by 15 regional stock exchanges xx. 
The Coimbatore Stock Exchange
in the country and is based at Mumbai. The Ltd.
ISE provides a member-broker of any of these xxi. The Meerut Stock Exchange Ltd.
stock exchanges an access into the national
xxii. The Over The Counter Exchange of
market segment, which would be in addition to
India (OTCEI)
the local trading segment available at present.
The NSE, OTCEI, ISE, and majority of the xxiii. 
The National Stock Exchange of
regional stock exchanges have adopted the India (NSE) Ltd.
Screen Based Trading System (SBTS) to provide xxiv. The Interconnected Stock Exchange
of India Ltd.

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Top 10 Stock Exchanges in the World.

Remisers
As on January 31st, 2017, the ten biggest He acts as an agent of a member
stock exchanges in the world by market of a stock exchange. He obtains
capitalisation of listed securities are: businessfor his principal ie., the
member and gets a commission for that service.
i. The New York Stock Exchange - Located
in New York City; $19.223 trillion in listed Authorized Clerks
market capitalization. The authorised clerks are mere employees
of the members, appointed by themember
ii. NASDAQ - Short for the "National of stock exchange. The authorised clerks
Association of Securities Dealers Automated transact business on behalf of their employers
Quotation", this electronic stock exchange on the floor of the stock exchange. They are
is located in New York City; $6.831 trillion paid a salary, plus acommission.
in listed market capitalization. Brokers
iii. 
London Stock Exchange - Located in Brokers are commission agents, who act as
London, England; $6.187 trillion in listed intermediaries between buyers and sellers
of securities. They do not purchase or sell
market capitalization.
securities on their behalf. They bring together
iv. Tokyo Stock Exchange - Formally known the buyers and sellers and help them in
as the Japan Exchange Group, located making a deal. Brokers charge a commission
in Tokyo, Japan; $4.485 trillion in listed from both the parties for their service.
market capitalization. Brokers are experts in estimating trends of
price and can effectively advice their clients
v. 
Shanghai Stock Exchange - Located in in getting a fruitful gain. Brokers get orders
Shanghai, China; $3.986 trillion in listed from investing public and execute the orders
market capitalization. through Jobbers and they are entitled to a
prescribed sale of brokerage.
vi. Euronext - Located throughout Europe
(France, Portugal, The Netherlands, and Jobbers
Belgium); $3.321 trillion in listed market Jobbers are security merchants dealing in
shares, debentures as independent operators.
capitalization.
They buy and sell securities on their own behalf
vii. Hong Kong Stock Exchange - Located in and try to earn through price changes. Jobbers
Hong Kong, Hong Kong; $3.325 trillion in cannot deal on behalf of public and are barred
listed market capitalization. from taking commission. In India, they are
called Taravaniwalas.
viii. Shenzhen Stock Exchange - Located in
Shenzhen, China; $2.285 trillion in listed SPECULATION
Speculation involves trading a financial
market capitalization.
instrument involving high risk, in expectation
ix. TMX Group - The Canadian stock of significant returns. The motive is to take
exchange is located in Toronto, Canada; maximum advantage from fluctuations in
$1.939 trillion in market capitalization. the market. Speculators are prevalent in the
markets where price movements of securities
x. 
Bombay Stock Exchange - Located in are highly frequent and volatile.
Mumbai, India; $1.682 trillion in market
GAMBLING
capitalization.
There is no reasoning involved in gambling.
It accentuates fluctuations in price and it is
unethical and illegal. It does not perform
economic function.

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7.06   Types of Speculators by purchasing at lower prices in future. A bear

usually presses its victim down to ground.
Speculators in a stock market are of
Similarly the bear speculator tends to force down
different types. They carry their names
the prices of securities. A bear is a pessimistic
depending on their motive of trading in the
speculator.
stock exchange. They are named after animals
as their behavior could be compared best with Stag
the behavior of animals.

Bull

A Bull or Tejiwala is an operator who

expects a rise in prices of securities in the future. A stag is a cautious speculator in the stock
In anticipation of price rise he makes purchases exchange. He applies for shares in new companies
of shares at present and other securities with the and expects to sell them at a premium, if he
intention to sell at higher prices in future. He is gets an allotment. He selects those companies
called bull because just like a bull tends to throw whose shares are in more demand and are likely
his victim up in the air, the bull speculator to carry a premium. He sells the shares before
stimulates the price to rise. He is an optimistic being called to pay the allotment money. He is
speculator. also called a premium hunter.

Bear Lame Duck

A bear or Mandiwala speculator expects

prices to fall in future and sells securities When a bear finds it difficult to fulfill his
at present with a view to purchase them at commitment, he is said to be struggling like a
lower prices in future. A bear does not have lame duck. A bear speculator contracts to sell
securities at present but sells them at higher securities at a later date. On the appointed
prices in anticipation that he will supply them time he is not able to get the securities as the
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holders are not willing to part with them. In are traded whereas stock exchange is an
such situations, he feels concerned. Moreover, exchange where stock brokers and investors
the buyer is not willing to carry over the buy and / or sell stocks, bonds, and other
transactions. securities. Both types of exchanges are driven
by the demand and supply for commodities or
7.07 Stock Exchange Vs financial instruments. An exchange facilitates a
Commodity Exchange trading platform for buyers and sellers to meet
and conduct transactions. With the increase in
The key difference between commodity the opportunities provided by the commodity
exchange and stock exchange is that a commodity and exchange markets, they are able to attract a
exchange is an exchange where commodities growing customer base.

Stock Exchange Vs Commodity Exchange.

Sl.No Feature Stock Exchange Commodity Exchange

Stock Exchange (also called Stock

Market or Share Market) is one A commodity exchange is an exchange
important constituent of capital where commodities are traded. Tradable
market. Stock Exchange is an commodities fall into the following
organized market for the purchase categories.
1. Meaning and sale of industrial and financial Metals (e.g. gold, silver,copper) Energy
security. It is convenient place (e.g. crude oil, natural gas)
where trading in securities is Agricultural (e.g. rice, wheat, cocoa)
conducted in a systematic manner Livestock and meat
i.e. as per certain rules and (e.g. live cattle, lean hog)
regulations.

Offering hedging or price insurance

2. Function Providing easy marketability
services and liquidity to securities.

Object is facilitating capital

Object is facilitating goods
3. Object formation and making best
flow through risk reduction
use of capital resources

Producers, dealers, traders and a

4. Participants Investors and Speculators
body of speculators.

Instant cash dealings and a settlement

Period of Cash, ready delivery and dealings
5. period of 2 or 3 months for Future
dealings for account for a fortnight
Market dealings

Industrial securities such as Only durable, graded and goods having

Articles
6. stocks and bonds and government large volume of trade, price uncertainty
Traded
securities. and uncontrolled supply

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Sl.No Feature Stock Exchange Commodity Exchange

Speculation ensures saleability of

securities affording a broad, ready, Speculation ensures assumption
7. Speculation
liquid and continuous market of and absorption of price risk.
securities.

Forward Forward dealings are simplified as Standards are to be fixed for deliverable
8.
contract securities are fully standardized grades to facilitate futures contract

Cornering is difficult as the seller has

As seller has to deliver the agreed
9. Cornering option to deliver standard or other
securities, cornering is easy
deliverable goods.

Price As regards forward dealings, only For future dealings, multiple

10.
Quotation one quotation is possible quotations are possible

7.08 Recent Development in Stock 1. National Stock Exchange (NSE)

Exchange
The structure of stock market in India has
undergone a vast change due to the liberalization
process initiated by the Government. A number
of new structures have been added to the
existing structure of the Indian stock exchange.
A brief description of these structures in the
Indian stock market system is presented below:

National Stock Market System (NSMS) NSE was incorporated in November,

1992. It is a country wide, screen based, online
National stock market system was
and order driven trading system. It uses satellite
advocated by the - High Powered Group on the
link to spread trading throughout the country
Establishment of New Stock Exchanges headed
thereby connecting members scattered all over
by Shri.M.J.Pherwani (popularly known as
the India. Through computer network, member‘s
Pherwani Committee). At present the National
orders for buying and selling within prescribed
Stock Market in India comprises the following:
price are matched by central computer with
1. National Stock Exchange of India Limited each other and instantly communicate to the
(NSE) trading member. NSE has two segments, i.e.,
2. 
Stock Holding Corporation of India Debt segment and Capital segment. It has
Limited (SHCIL) ushered in transparent, screen based and user
friendly trading of global standards. It has
3. National Clearing and Depository System
revolutionised stock trading in India
(NCDS)
4. Securities Trading Corporation of India
(STCI)
5. 
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2. Stock Holding Corporation of India 4. Securities Trading Corporation of

Limited (SHCIL) India (STCI)

The Reserve Bank of India set up Securities

Trading Corporation of India Limited (STCI) in
May 1994, under the provisions of the Indian
Companies Act, 1956, jointly with public sector
banks and All-India financial institutions. The
main objective of establishing the Corporation
The Stock Holding Corporation of India was to foster the development of an active
Ltd (SHCIL) is committed to speed up trading, secondary market for Government securities
clearance and settlement services for securities and bonds issued by public sector undertakings.
and monetary instruments. SHCIL came into It had an authorized and paid-up capital of
being in 1986. SHCIL is the first depository Rs. 500 crores of which, RBI contributed 50.18
participant registered with SEBI and acts as an percent. The RBI in December 1997 divested
agent of the National Securities Depository. It part of its equity in STCI in favor of the Bank of
started its actual operations in 1988. It has its India, an existing shareholder of the Company.
head office in Bombay, and its branch network
covers Kolkatta, Delhi and Chennai. 5. National Securities Depository
Limited (NSDL)
3. National Clearance and Depository
System (NCDS)

This system was created chiefly to

help overcome the problem of settlement
and clearance of transactions consequent to
enormous workload on the clearing agencies
and share transfer agencies. The problems The Government of India enacted the
mainly arose out of systematic risk like counter Depositories Act in August 1996, paving the
party risk, credit risk, bad deliveries, long way for setting up o f depositories in India.
delayed delivery, counterfeit scrips, and forged Thus, pioneering the concept of depositories
scrips. and ushering in an era of paperless settlement
of securities. National Securities Depository Ltd
(NSDL) was inaugurated as the first depository
in India on November 8, 1996. Trading in
dematerialized securities on the National Stock

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Exchange (NSE) commenced in December 26,

1996. The Bombay Stock Exchange, (BSE) also SENSEX
extended the facility of trading in dematerialized Sensex is an index of the stocks in
securities from December 29, 1997. BSE (Bombay Stock Exchange).
Sensex has a list of 30 stocks. BSE decides
the stocks that are to be listed on Sensex.
NIFTY
The criteria for picking a stock to be listed
The word Nifty originates from 2 on Sensex is volume of the trade of that
words, `National' and 'Fifty'. Nifty stock and total volume of the stock in BSE.
basically means the index of the 50 most  
actively traded stocks from across all sectors.
Nifty represents the top stocks of the NSE
and when we talk about Nifty going up, it
means that all the heavyweight stocks of NSE
across all sectors are moving up. Most of the
stock trading in the country is done through

Based on the above said factors, BSE regularly

prepares a set of 30 stocks which will be
together called as SENSEX. BTW Sensex
means sensitive Index Now each stock is
NSE and BSE. There are other stock allotted a weight-age according to a criteria
exchanges as well, like the Calcutta stock and the criteria also keeps on changing with
time. So now stocks are normally traded in
exchange, but they are not that popular.
BSE each day and price of stocks is
Nifty consists of top 50 companies from 24
determined according to demand and supply
different sectors. Nifty is computed from the
performance of top stocks from different
Stock Trading Timings in India
sectors. Some mutual funds use Nifty as a
benchmark. The performance of the mutual There are two major stock
funds is assessed against the performance exchanges in India- Bombay
of the Nifty. On NSE, futures and options stock exchange (BSE) and National stock
exchange (NSE). However, the timing of
are available for trading with the Nifty as an
both BSE & NSE is the same. First of all,
underlying index. Nifty is calculated by using
you need to know that the stock market in
the market capitalization weighted method
India is closed on weekends i.e. Saturday
according to which weights are assigned
and Sunday. It is also closed on the national
according to the size of the company. Larger holidays. The normal trading time for equity
the size, larger the weightage market is between 9:15 a.m to 03:30 p.m,
Monday to Friday.

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The trading time for commodity (MCX) They can be used as:
market is between 10:00 a.m. to 11:30 a.m. Leverage: Options help you profit from
Monday to Friday. changes in share prices without putting
The normal trading time for Agri- down the full price of the share. You get
community (NCDEX) market is between control over the shares without buying them
10:00 a.m. to 05:00 p.m. Monday to Friday. outright.
In addition, there is no lunch break or tea Hedging: They can also be used to protect
break in the Indian stock market timings. yourself from fluctuations in the price of a
The timings of the Indian stock market are share and letting you buy or sell the shares
divided into three sessions: at a pre-determined price for a specified
1. Normal session (also called continuous period of time
session)
2. Pre-opening session
3. Post-closing session
Dalal Street

Future Market Dalal Street is an area in

downtown Mumbai, India, that
A Future market is an auction
market in which participants buy houses the Bombay Stock Exchange (BSE)
and sell commodity and futures contracts – the largest stock exchange in India – and
for delivery on a specified future date. other reputable financial institutions. It
Examples of futures markets are the New received the name Dalal Street after the
York Mercantile Exchange, the Kansas City Bombay Stock Exchange moved to the area
Board of Trade, the Chicago Mercantile
in 1874 and became the first stock exchange
Exchange, the Chicago Board of Options
Exchange and the Minneapolis Grain recognized by the Indian Government.
Exchange. Originally, trading was carried
on through open yelling and hand signals in
a trading pit, though in the 21st century, like
most other markets, futures exchanges are
mostly electronic.

Options Market
An 'Option' is a type of security
that can be bought or sold at a
specified price within a specified
period of time, in exchange for a non-
refundable upfront deposit. An options The literal translation of Dalal in Marathi is
contract offers the buyer the right to buy, not a broker or intermediary. Today, Dalal Street
the obligation to buy at the specified price is a metonym for the entire Indian financial
or date. Options are a type of derivative
sector much like Wall Street in the United
product. The right to sell a security is called
States.
a ‘Put Option', while the right to buy is called
the ‘Call Option‘.

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Lombard Street banks, brokerages, securities and underwriting

Lombard Street, London, is firms, and big businesses. Today, brokerages
a street notable for its are geographically diverse, allowing investors
connections with the City of London's free access to the same information available
merchant, banking and insurance industries, to Wall Street's tycoons.
stretching back to medieval times.

Key words
Stock Exchange Commodity Exchange
From Bank junction, where nine streets Rechristended Brokers
converge by the Bank of England, Lombard Jobbers Clearing House
Street runs southeast for a short distance before Investors Speculators
bearing left into a more easterly direction, and Optimistic Pessimistic
terminates at a junction with  Grace church
Street and Fenchurch Street. Its overall length
is 260 metresIt has often been compared For Own Thinking
with Wall Street in New York City
1. Identify any two persons in your vicinity
who are associated with the financial
market/stock exchanges, either as an
investor or as a stockbroker. Talk to them
Wall Street and find out (i) how sale and purchase
of securities takes place; (ii) what are
Wall Street is a street in lower
the popular instruments traded in the
Manhattan that is the original market; and (iii) about recent SEBI/
home of the New York Stock Exchange and government guidelines that may have
the historic headquarters of the largest U.S. affected their transactions.
brokerages and investment banks. The term
Wall Street is also used as a collective name
for the financial and investment community,
which includes stock exchanges and large

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Clues to the Crossword

For Own Thinking
Across
2. Read the Business Section of a daily
newspaper or a specialised Business 1. Commission Agent who transacts in
Newspaper. Locate the segment securities on behalf of non members or
where share prices of important stock members (6).
exchanges are given. Select any five 2. Changes in the price of securities in the
companies and record their share prices stock market. (12)
everyday for a period of three weeks.
Observe their price movement and 3. Inclusion of securities in the official trade
see how major events in the economic, list of securities in stock market (7)
political or social environment affect 4. Place of trade I securities (6)
the prices of these shares. You may
even get information about these share 5. Result of selling shares at a price lower
prices from the television. than the purchase price. (4)
6. An independent dealer in securities (6)
7. Includes shares, scripts, bonds, debentures
For Future Learning
(10)
1. Study the website of Mumbai Stock 8. Speculator who expects the prices to go
Exchange, i.e., www.bseindia.com and down (4)
compile information which you find
useful. Discuss it in your class and find 9. Buying and selling of securities to
out how it can help you to invest in the manipulate the market (7)
stock market. Prepare a report on your 10. Speculator who deals in new securities
findings with the help of your teacher. only (4)

Case Study

1. Ramesh and Asaladeepesh are good friends. Ramesh is very god-fearing kind, while Asaladeepesh
was an enterprising person, having practical in approach. Read the following conversation.
Ramesh : Hi, Deepesh! What are you doing?
Asaladeepesh : Hi, I am reading the newspaper - financial market page that gives us information
about the shares price.
Ramesh : Shares, that is an area of big gambles.
Asaladeepesh : No, not really! You must understand how it works.
Ramesh : Frankly speaking, I think this Capital market is all a gambling game and I don’t
see any use of them.
Asaladeepesh : No, you are seriously mistaken; you do not know the importance of capital
market. I will tell how it is needed for an individual and an economy.
You are required to play the role of Asaladeepesh and continue the conversation.

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Down 7. Those who buy and sell securities with

1. Speculator expecting a rise in the prices (4) objective of profit (10)
2. Means ‘with’ (3) 8. Money invested in business (7)
3. Means a part or fraction of capital (6) 9. Return on shares out of profits (8)
4. Fraction of profit paid to government (3) 10. Instrument acknowledging a debt (9)
5. Illegal, game based on chance (8) 11. Govt. document acknowledging a debt (5)
6. Official statement of securities in the stock 12. Profit or yield (4)
market (5)

Answers to the Crossword Down

Across
1. Bull 3. Cum
1. Broker 2. Fluctuations
5.Stocks 6.Tax
4.Listing 8.Market
7. Gambling 9. Lists
9. Loss 13. Jobber
10. Speculator 11. Capital
15. Securities 16. Bear
12. Dividend 14. Debenture
17. Rigging 18. Stag
16. Bonds 19. Gain

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8. A bull operator believes in

  Exercise a) Increase in Prices
b) Decrease in Prices
c) Stability in Prices
d) No change in Prices
I. Choose the Correct Answers: 9. ______ means the price at which securities
1. ____ is the oldest stock exchange in the world. are bought and sold are recorded and made
a) London Stock Exchange public.
b) Bombay Stock Exchange a) Market Quotations
c) National Stock Exchange b) Trade Quotations
d) Amsterdam Stock Exchange c) Business Quotations
2. 
There are _____ stock exchange in the d) Buyers Quotations
country. 10. The rules and regulations of Stock
a) 21 b) 24 exchange is framed by ________ guide lines.
c) 20 d) 25
a) RBI
3. Stock exchanges deal in
b) Central Government
a) Goods c) SEBI
b) Services d) BSE
c) Financial Securities
d) Country’s Currency
Answers:
1 a 2 a 3 c 4 C 5 b 6 b 7 a
4. Stock exchange allow trading in 8 a 9 a 10 c
a) All types of Shares of any Company
b) Bonds issued by the Govt II. Very Short Answer Questions:
c) Listed Securities 1. What is meant Stock Exchange?
d) Unlisted Securities 2. Define Stock Exchange.
5. Jobbers transact in a stock exchange 3. Write any 5 Stock Exchanges in India.
a) For their Clients 4. What is meant by Remisier?
b) For their Own Transactions
5. Who is called a Broker?
c) For other Brokers
d) For other Members 6. What are the types of Speculator?
6. A pessimistic speculator is 7. What is meant by Commodity Exchange?
a) Stag 8. Mention the Recent Development in Stock
b) Bear Exchange?
c) Bull 9. What is the stock trading time in India?
d) Lame Duck
10. Explain Dalal Street.
7. An optimistic speculator is
a) Bull b) Bear
c) Stag d) Lame duck

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III. Short Answer Questions: References

1. What are the limitations of Stock exchange? 1. Dr.SUNDAR,K 2017, Business Organisation,
2. Explain Bull and Bear. Vijay Nicble Imprints Pvt Ltd.,Chennai.

3. Explain Stag and Lame Duck. 2. Dr.S.GURUSAMY 2012, Financial Markets

and Institutions
4. 
Explain National Stock Market System.
(NSMS) 3. https://dollarsandsense.sg/10-biggest-stock-
exchanges-world-heres-much-theyve-
5. Explain National Stock Exchange. (NSE) gained-2017/

IV. Long Answer Questions:

1. Explain the functions of Stock Exchange.
(Any 5)
2. 
Explain the features of Stock Exchange.
(Any 5)
3. Explain the Benefits of Stock Exchange.
4. Distinguish between Stock Exchange and
Commodity Exchange.
5. Explain Lombard street and Wall street.

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UNIT FINANCIAL
MANAGEMENTMARKETS
PROCESS
- II
III
I
SECURITIES EXCHANGE
81
CHAPTER
PRINCIPLES OF MANAGEMENT
BOARD OF INDIA (SEBI)

அறன்ஈனும் இன்பமும் ஈனும் திறனறிந்து

தீதின்றி வந்த ெபாருள்.
-குறள் 754
COUPLET
The wealth acquired with a knowledge of the proper means
and without foul practices will yield virtue and happiness.

8.01 Introduction
Learning Objectives

To enable the students to understand the

■ Meaning and Origin of SEBI
■ Objectives, Features, Functions and
Powers of SEBI
■ Dematerialization
■ Demat account
■ Working of Demat account

Chapter Synopsis Securities and exchange Board of India

(SEBI) was first established in the year 1988 as a
8.01 Introduction of SEBI non-statutory body for regulating the securities
market. It was made as an autonomous body
8.02 Objectives of SEBI by The Government of India on 12 May 1992
8.03 Functions of SEBI and given statutory powers in 1992 with
SEBI Act 1992 being passed by the Indian
8.04 Powers of SEBI
Parliament. SEBI has its headquarters at the
8.05 Dematerialization business district of BandraKurla Complex in
8.06 Benefits of Dematerialization Mumbai, and has Northern, Eastern, Southern
and Western Regional Offices in New Delhi,
Kolkata, Chennai and Ahmedabad respectively.

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Initially SEBI was a non statutory body without any statutory power. However, in 1992, SEBI was given
additional statutory power by the Government of India through an amendment to the Securities and
Exchange Board of India Act, 1992
The SEBI is managed by its members, which consists of following:
Organization Structure of SEBI

Director

Addional Directors/ Addional Director Technical Director /

Joint Directors (Administraon) Joint Directors(System)

Deputy Directors / Deputy Director Deputy Directors

Assitant Directors (Administraon) (System)

Assitant Director Assitant Director

(Administraon) (System)

Secon Officers
(Administraon) Technical Assistants

Securities and exchange board of India( SEBI)

is an apex body that maintains and regulates
our capital market. It was established in 1988 by
Indian government but got the statutory powers
in 1992. Well it plays a great role in Indian
economy such as it...

1. Monitor's the working 2. Restricts illegal 3. Plays a great role in

of mutual funds practices of firms protecting investors interest

4. Regulates working 5. Conducts audit, 6. Prohibits insider

of stock exchanges inspection activity

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8.02  Objectives of SEBI SEBI performs three key functions: quasi-

The various objectives of a Stock legislative, quasi-judicial and quasi-
Exchange are explained below executive. It drafts regulations, conducts
1. Regulation of Stock Exchanges
investigation & enforcement action and it
passes rulings and orders.
The first objective of SEBI is to regulate stock
exchanges so that efficient services may be i. 
Safeguarding the interests of investors by
provided to all the parties operating there. means of adequate education and guidance.
2. Protection to the Investors SEBI makes rules and regulation that must
be followed by the financial intermediaries
The capital market is meaningless in the like portfolio exchanges, underwriters
absence of the investors. Therefore, it is and merchant bankers, etc. It takes care of
important to protect the interests of the the complaints received from investors .
investors. The protection of the interests of Additionally, it issues notices and booklets for
the investors means protecting them from the the information, assistance and protection of
wrong information given by the companies in small investors.
their prospectus, reducing the risk of delivery
and payment, etc. Hence, the foremost ii. Regulating and controlling the business on
objective of the SEBI is to provide security to stock markets. Registration of brokers and
the investors. sub-brokers is made mandatory and they
3. Checking the Insider Trading have to abide by certain regulations and rules.

Insider trading means the buying and iii. 

Conduct inspection and inquiries of
selling of securities by directors Promoters, stock exchanges, intermediaries and
etc. who have access to some confidential self-regulating organizations and to
information about the company and who take appropriate measures wherever
wish to take advantage of this confidential required. This function is carried out for
information. This affects the interests of the organized working of stock exchanges and
general investors and is essential to check intermediaries.
this tendency. Many steps have been taken to
check insider trading through the medium of iv. Barring insider trading in securities.
the SEBI. v. 
Prohibiting deceptive and unfair methods
4. Control over Brokers used by financial intermediaries operating in
securities markets.
It is important to supervise/check the
activities of the brokers and other middlemen vi. Registering and controlling the functioning
in order to control the capital market. To of stock brokers, sub-brokers, share
regulate their activities, it was necessary to transfer agents, bankers, trustees, registrars,
establish the SEBI. merchant bankers, underwriters, portfolio
managers, investment advisers and various
8.03  Functions of SEBI other intermediaries who might be linked to
Securities and Exchange Board of India securities markets in any manner.
(frequently abbreviated SEBI) is the nodal
vii. 
SEBI issues Guidelines and Instructions
agency which safeguards the interests of
to businesses concerning capital issues.
an investor in the Indian Financial market.
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Separate guidelines are provided for initial 8.04  Powers of SEBI

public issue made by listed companies,
The various powers of a Stock Exchange
etc. It conducts research and publishes
information beneficial to all market players
are explained below
(i.e. all buyers and sellers). 1. 
Powers Relating to Stock Exchanges &
Intermediaries
viii. SEBI regulates mergers and acquisitions as
SEBI has wide powers regarding the
a way to protect the interest of investors.
stock exchanges and intermediaries dealing in
For this, SEBI has released appropriate
securities. It can ask information from the stock
guidelines with the intention that such
exchanges and intermediaries regarding their
mergers and takeovers won‘t be at the
business transactions for inspection or scrutiny
expense of small investors.
and other purpose.
ix. Registering and controlling the functioning 2. Power to Impose Monetary Penalties
of collective investment schemes such as
SEBI has been empowered to impose
mutual funds. SEBI has created regulations
monetary penalties on capital market
and guidelines that should be followed
intermediaries and other participants for a range
by mutual funds. The aim is to maintain
of violations. It can even impose suspension of
effective supervision and avoid any unfair
their registration for a short period.
and anti-investor actions.
3. 
Power to Initiate Actions in Functions
x. 
Promoting self-regulatory organization of Assigned
intermediaries. It has extensive legal powers.
Having said that, self-regulation is preferable SEBI has a power to initiate actions in
to external regulation. The function of SEBI regard to functions assigned. For example, it
is to motivate financial intermediaries to can issue guidelines to different intermediaries
create their professional associations and or can introduce specific rules for the protection
manage harmful actions of their members. It of interests of investors.
can also make use of its powers when needed 4. Power to Regulate Insider Trading
for protection of investors.
SEBI has power to regulate insider trading
xi. Carrying out steps in order to develop the or can regulate the functions of merchant
capital markets by having an accommodating bankers.
approach. 5. Powers Under Securities Contracts Act
xii. 
Provide appropriate training to financial For effective regulation of stock exchange,
intermediaries. This function is great for the Ministry of Finance issued a Notification
healthy environment in the stock markets on 13 September, 1994 delegating several of
and also for the protection of investors. its powers under the Securities Contracts
(Regulations) Act to SEBI.
xiii. Levying fee or any other type of charges to
SEBI is also empowered by the Finance
carry out the purpose of the Act.
Ministry to nominate three members on the
xiv. Performing functions that may be assigned Governing Body of every stock exchange.
to it by the Central Government of India.

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6. 
Power to Regulate Business of Stock iii. Trading has become more convenient as one
Exchanges can trade through computers at any location,
SEBI is also empowered to regulate the without the need of visiting a broker.
business of stock exchanges, intermediaries iv. The shares that are created through mergers
associated with the securities market as well and consolidation of companies are credited
as mutual funds, fraudulent and unfair trade automatically in the DEMAT account.
practices relating to securities and regulation v. 
As all the transactions occur through the
of acquisition of shares and takeovers of depository participant, a trader does not have
companies. to communicate individually with each and
8.05  Dematerialization (DEMAT) every company.
Dematerialization is the process by which vi There is no need for stamp duty for transfer
physical share certificates of an investor are taken of securities; this brings down the cost of
back by the company/registrar and destroyed. transaction significantly.
Then an equivalent number of securities in the
vii. Certain banks also permit holding of both
electronic form are credited to the investors
equity and debt securities in a single account.
account with his Depository Participant.
viii. Banks also provide dedicated and trained
Dematerialization is done at the request of
customer care officers to assist through all
the investor. Investors will first have to open an
the procedures.
account with a DP (Depository Participant) and
then request for dematerialization of certificates ix. 
A DEMAT account holder can
through the DP. buy or sell any amount of shares.
However, there is limit on the number of
Purchases made by an investor are
transactions done using physical securities.
credited to his account and sales are debited.
The securities held in dematerialized form are x. One can also choose to take a loan against
fungible. In other words they do not have any securities which are held in a DEMAT account
distinguishing features. Dematerialized shares by offering it as a collateral to the lender.
do not have any distinctive numbers. All the
holdings of a particular security will be identical
and interchangeable.
Trading in dematerialized shares
commenced on the NSE in December 1996 Common Low risk of
Bank BENEFITS OF Delivery
where Reliance Industries was the first company DEMATERIALIZATION
to trade its 100 shares in demat form. In case of
the BSE, dematerialization of shares commenced
in the year December 1997.
Automa c Reduces
8.06  Benefits of Dematerialization Update Costs

i. The risks pertaining to physical certificates like

loss, theft, forgery and damage are eliminated
completely with a DEMAT account.
No Odd-lot Easy
ii. 
The lack of paperwork enables quicker Problem to Hold
transactions and higher efficiency in trading.

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What is Demat Account? iii. 

During the process, an In-Person
A demat account holds all the shares that Verification would be carried out. A
are purchased in electronic or dematerialized member of the DP’s staff would contact you
form. Basically, a demat account is to shares to check the details provided in the account
what a bank account is to money. Like the bank opening form.
account, a demat account holds the certificates iv. Once the application is processed, the DP
of financial instruments like shares, bonds, will provide you with an account number or
government securities, mutual funds and client ID. You can use the details to access
exchange traded funds (ETFs). your demat account online.
Understand How Does Demat Account v. As a demat account holder, you would need
Works: to pay some fees like the annual maintenance
fee levied for maintenance of account and the
CENTRAL DEPOSITORY
CDSL, NDSL transaction fee levied for debiting securities
to and from the account on a monthly basis.
These fees differ from every service provider
(called a Depository Participant or DP). While
some DPs charge a flat fee per transaction,
others peg the fee to the transaction value, and
are subject to a minimum amount. The fee
DEPOSITORY
also differs based on the kind of transaction
INVESTOR’S BO/
DEMAT ACCOUNTS PARTICIPANTS (buying or selling). In addition to the other
fees, the DP also charges a fee for converting
How to Open a Demat Account? the shares from the physical to the electronic
form or vice-versa.
Select vi. Minimum shares: A demat account can be
DP Submit
Documents Account Number/
ID Provided
opened with no balance of shares. It also
does not require that a minimum balance be
In-person
Fill up account
opening form Verificaon maintained.
vii. 
What are the documents required for a
i. Fill up an account opening form and submit Demat Account?
along with copies of the required documents
viii. 
You need to submit proof of identity
and a passport-sized photograph. You also
and address along with a passport size
need to have a PAN card. Also carry the
photograph and the account opening form.
original documents for verification.
Only photocopies of the documents are
ii. You will be provided with a copy of the rules required for submission, but originals are
and regulations, the terms of the agreement also required for verification.
and the charges that you will incur. ix. Here is a broad list of documents that can be
used as proofs:

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Format of DEMAT APPLICATION FORM

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Proof of identity: PAN card, voter's ID,

passport, driver's license, bank attestation, IT
returns, electricity bill, telephone bill, ID cards Case Study
with applicant's photo issued by the central
or state government and its departments, a. Koushikaa’s father has gifted her the shares
statutory or regulatory authorities, public sector of a large cement company with which he
undertakings (PSUs), scheduled commercial had been working. The securities were
banks, public financial institutions, colleges in physical form. She already has a bank
affiliated to universities, or professional bodies account and does not possess any other
such as ICAI, ICWAI, ICSI, bar council etc. forms of securities.
Proof of address: Ration card, passport, voter She wishes to sell the shares and
ID card, driving license, bank passbook or approached a registered broker for the
purpose. Mention one mandatory detail
bank statement, verified copies of electricity
which she will have to provide with the
bills, residence telephone bills, leave and license
broker.
agreement or agreement for sale, self-declaration
b. Mr.Kulandaivel was the Chairman of
by High Court or Supreme Court judges, identity
Thangam Bank. The bank was earning
card or a document with address issued by the
good profits. Shareholders were happy as
central or state government and its departments,
the bank was paying regular dividends.
statutory or regulatory authorities, public sector The market price of their share was also
undertakings (PSUs), scheduled commercial steadily rising. The bank was about to
banks, public financial institutions, colleges announce taking over the ‘Trinity Bank’.
affiliated to universities and professional bodies Mr.Kulandaivel knew that the share price
such as ICAI, ICWAI, Bar Council etc. of Thangam Bank would rise on this
announcement. Being a part of the bank,
he was not allowed to buy shares of the
bank. He called one of the his rich friends
Mr.Chandrasekaran and asked him to
invest ₹5 crores in shares of his bank
promising him the capital gains.
As expected, the share prices went
up by 40% and the market price of
Chandrasekaran’s shares was now
₹7 crores. He earned a profit of ₹2 crores.
PAN, or permanent account number, is
He gave ₹1 crore to Mr.Kulandaivel and
a unique 10-digit alphanumeric identity
kept ₹1 crore with himself. On regular
allotted to each taxpayer by the Income
inspection and by conducting enquires of
Tax Department under the supervision of the brokers involved, the Securities and
the Central Board of Direct Taxes. It also Exchange Board of India (SEBI) was able to
serves as an identity proof. detect this irregularity. The SEBI imposed
a heavy penality on Mr.Kulandaivel.
Key Terms By quoting the lines from the above
Quasi-Legislative Quasi-Judicial paragraph, identify and state any two
Quasi-executive Dematerialization functions that were performed by SEBI in
Demat-account Depository the above case.

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For Own Thinking For Own Thinking

1. Collect the information on various v. Investors can lodge their complaints with
measures taken by SEBI to protect the SEBI at: investorcomplaints@sebi.gov.in
interests of investors since its inception. vi. Investors can approach SEBI for any
2. Send a group of students to a trading assistance at: asksebi@sebi.gov.in
terminal in your city to gain first hand
information on securities trading and
prepare a report.
Exercise
3. Collect information about SEBI action
for Investor Protection taken duringlast
two years.

I. Choose the Correct Answers:

For Own Thinking
1. Securities Exchange Board of India was first
1. Prepare a report on the role of SEBI in established in the year ____
regulating the Indian stock market. a) 1988 b) 1992
You can get this information on its c) 1995 d) 1998
website namely www.sebi.gov.in. Do you
think something else should be done to 2. The headquarters of SEBI is _______
increase the number of investors in the a) Calcutta b) Bombay
stock market? c) Chennai d) Delhi
2. Investors’ Grievances Redressal 3. In which year SEBI was constituted as the
i. SEBI and Stock Exchanges have set up regulator of capital markets in India?
investor grievance redressal cells for fast a) 1988 b) 1992
redressal of investor complaints relating
c) 2014 d) 2013
to securities markets
ii. SEBI has directed all the stock exchanges, 4. Registering and controlling the functioning
registered brokers, sub-brokers, of collective investment schemes as _______
depositories and listed companies to a) Mutual Funds
make a provision for a special email b) Listing
ID of the grievance redressal division/
c) Rematerialisation
compliance officer for the purpose of
d) Dematerialization
registering complaints by the investors
iii. SEBI has set up a mechanism for redressal 5. SEBI is empowered by the Finance ministry
of investor grievances arising from the to nominate ______ members on the
issue process Governing body of every stock exchange.
iv. SEBI provides “walk-in” service at its a) 5 b) 3
head office at Mumbai and its regional c) 6 d) 7
offices at New Delhi, Chennai, Kolkatta
and Ahmedabad on all working days. 6. The process of converting physical shares
Investors can meet the officials and get into electronic form is called ________
guidance relating to the grievances that a) Dematerialisation
they may have against issuers. Investors c) Delisting
can also meet the higher officials of SEBI
c) Materialisation
on specified working days
d) Debarring
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7.
Trading is dematerialized shares III. Short Answer Questions:
commenced on the NSE is ________ 1. What is meant by Dematerialization?
a) January 1996 b) June 1998
2. What are the documents required for a
c) December 1996 d) December 1998
Demat account?
8. ________ was the first company to trade its
3. What is the power of SEBI under Securities
shares in Demat form.
Contract Act?
a) Tata Industries
4. What is meant by Insiders trading?
b) Reliance Industries
c) Infosys 5. Draw the organization structure of SEBI.
d) Birla Industries
9. _________ enables small investors to IV. Long Answer Questions:
participate in the investment on share 1. What are the functions of SEBI?
capital of large companies. 2. Explain the powers of SEBI.
a) Mutual Funds b) Shares 3. What are the benefits of Dematerialisation?
c) Debentures d) Fixed deposits
10. PAN stands for _____
References
a) Permanent Amount Number
1. Sundar K. Business Organisation,
b) Primary Account Number
Vijay Nichole Imprints Private Ltd.,
c) Permanent Account Number
Chennai, 2017.
d) Permanent Account Nominee
2. Gurusamy S. Financial Markets and
Answers: Institutions, Vijay Nichole Imprints Private
1 a 2 b 3 a 4 d 5 b Ltd., Chennai, 2012.
6 a 7 c 8 b 9 a 10 c

II. Very Short Answer Questions:

1. Write a short notes on SEBI.
2. Write any two objectives of SEBI.
3. What is Demat account?
4. Mention the headquarters of SEBI.
5. What are the various ID proofs?

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UNIT HUMAN
MANAGEMENT
RESOURCE MANAGEMENT
PROCESS
IV
I
FUNDAMENTALS OF HUMAN
91
CHAPTER
PRINCIPLES OF MANAGEMENT
RESOURCE MANAGEMENT

கருமம் சிைதயாமல் கண்ேணாட வல்லார்க்கு

உரிைம உைடத்திவ் வுலகு.
-குறள் 578
COUPLET
The world is theirs (kings) who are able to show kindness,
without injury to their affairs, (administration of justice).

Learning Objectives Chapter Synopsis

To enable the students to understand the 9.01 Meaning and Definition of Human
■ Meaning and definition of Human Resource
Resource 9.02 Characteristics of Human Resource
■ Characteristics of Human Resource 9.03 Significance of Human Resource
■ Significance of Human Resource 9.04 Meaning and Definition of Human
■ Meaning and definition of Human Resource Management
Resource Management 9.05 Nature and Features of Human
■ Features of Human Resource Resource Management
Management 9.06 Significance of Human Resource
■ Significance of Human Resource Management
Management 9.07 Functions of Human Resource
■ Functions of Human Resource Management
Management
The human resource is the most
important element in any organisation.
The success, growth and development of
organisations depend on the quality of work
force they possess. It is only through the human
resource all other resources are actively utilised
leading to the efficient and effective running of
an establishment. The significance of human
resource is gaining momentum in recent years
because of the growing global business leading
to demand for quality workforce.
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9.01 Meaning and Definition of 9.02 

Characteristics of Human
Human Resource Resources
With the advent of globalisation, The unique, peculiar and distinctive
liberalisation and privatisation leading to features of human resources are as under:
advancement in information, communication i. 
Human resource is the only factor of
and technology paved way for exhibiting production that lives
the high level of innovation and creativity in ii. Human resource created all other resources
human resource. In the current scenario unless iii. It is only the labour of employees that is
the organisation recruits, selects and utilises hired and not the employee himself
high quality human resource the sustainability iv. Human resource exhibits innovation and
remains a question. In order to accomplish creativity
personal and organisational objectives the v. 
Human resource alone can think, act,
unique asset called human resource has to analyse and interpret
be appropriately placed and appreciated. In
vi. Human resources are emotional beings
an organisation the human resource are the
vii. Human resources can be motivated either
employees who are inevitable for the survival
financially or non financially
and success of the enterprise.
viii. 
The behaviour of human resources are
According to Peter.F.Drucker “Man, of unpredictable
all resources available to him, can grow and ix. Over years human resources gains value
develop” and appreciates
In the words of Leon C Megginson, x. Human resources are movable
Human Resources refers to “the total xi. Human resource can work as a team
knowledge, skills, creative abilities, talents
and aptitudes of an orgnisation’s workforce,
as well as the values, attitudes and beliefs of
the individuals involved.

As per the views of Michael J Jucius

Human Resource is a “Whole consisting of
interrelated, interdependent and interacting
physiological, sociological and ethical
components”.

It is clear from the definitions that

not all human beings are considered to be
9.03 Significance of Human
human resources but only those individuals
Resources
who acquired the required skill sets, talents, The vital resource namely human resource
knowledge, competencies and capabilities in is significant because of the following reasons :
the accomplishment of both individual and i. It is only through human resource all other
organisational objectives. resources are effectively used

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ii. The sustainable growth of an organisation In the words of E.F.L.Brech HRM as

depends on the important resource human that part of management process which
resource is primarily concerned with the human
iii. 
Industrial relations depend on human constituents of an organisation.
resource Flippo defines Human Resource
iv. Human relations is possible only through Management as “the personnel function
human resource that is concerned with the procurement,
v. Human resource manages all other factors development, compensation, integration and
of production maintenance of personnel of an organisation
vi. 
The skill sets of the Human resources for the purpose of contributing towards the
can be improved through training and accomplishment of that organisation’s major
development programmes goals or objectives”
vii. Human resource can be utilised at all levels
of management 9.05 
Features of Human
viii. 
Human resources are well protected by Resource Management
legislative frameworks. The following are the characteristics of human
resource management :
9.04 
Meaning and Definition
i. Universally relevant : Human Resource
of Human Resource
Management has universal relevance. The
Management approach and style varies depending the
The branch of management that deals with nature of organisation structure and is
managing human resource is known as Human applicable at all levels.
Resource Management. In order to achieve the
ii. 
Goal oriented : The accomplishment
personal and organisational objectives human
of organisational goals is made possible
resources are to be trainedup and managed. In
through best utilisation of human resource
short, it is managing people of different strata
in an organisation.
for the accomplishment of the organisational
goals. It includes the overall progress of the iii. A systematic approach : Human resource
employee and the enterprise. management lays emphasis on a systematic
approach in managing the tasks performed
Human Resource Management is a
by human resource of an organisation.
function of management concerned with
The two sets of functions performed are
hiring, motivating and maintaining people
managerial and operative functions.
in an organisation. It focuses on people in an
organisation. iv. 
It is all pervasive : Wherever there is
existence of human resource the effective
According to Dale Yoder Human management of the available human
Resource Management as “the effective resource is very important especially in
process of planning and directing the functional areas.
application, development and utilisation of
v. It is a continuous process : As long as
human resources in employment”.
there is human resource in the running of
an organisation, the activities relating to
managing human resource exists.

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vi. It is a dynamic activity : Human resource

management is not the same as that of other
factors of production, as they have feelings
and emotions which are to be handled
with care and diligence to maximise its
utilisation.
vii. It is an integrative tool : The main idea
behind managing the human resource is to
motivate, participate and coordinate the
available work force.
viii. 
Focuses on development : Human
resource management focuses on the
development of manpower through
training and development programmes.
Honing of skills through training increases
the effective use of the resource procured.
ix. 
Human resource management is both
science as well as art : As it relies on
experiments and observations as well as
effective handling of manpower it is both
science and art.
x. It is interdisciplinary : Human resource
management makes use of concepts
of different disciplines like sociology,
psychology, economics etc. making it
interdisciplinary.
xi. 
It is intangible : Human resource
management is a intangible function which
can be measured only by results.

9.06 
Significance of Human
Resource Management
The strategic role of human resource i. 
To identify manpower needs :
management is the process of acquiring, training, Determination of manpower needs in an
appraising, and compensating employees, and organisation is very important as it is a
attending to their labour relation, health, safety form of investment. The number of men
and fariness concerns. required are to be identified accurately to
There are various reasons why human optimise the cost.
resource management is important. They are as ii. 
To incorporate change : Change is
follows: constant in any organisation and this
change has to be introduced in such a way

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that the human resource management acts viii. 

To determine employee commitment:
as an agent to make the change effective. Human resource management determines
iii. 
To ensure the correct requirement of the level of commitment of employees
manpower: At any time the organisation to their work either through interview
should not suffer from shortage or surplus or questionnaire. The higher the level of
manpower which is made possible through commitment the higher the possibility
human resource management. of the organisation to be successful. This
can be carried out through appropriate
iv. To select right man for right job: Human policies.
resource management ensures the right
talent available for the right job, so that no ix. 
To emphasise socialisation: Human
employee is either under qualified or over beings are social animals and they should
qualified. be ensured that they are comfortable in
the work place by maintaining cordial
v. 
To update the skill and knowledge: relationship with peers, subordinates and
Managing human resource plays a managers so as to contribute maximum to
significant role in the process of employee the organisation.
skill and knowledge enhancement to
enable the employees to remain up to x. To promote favourable employee attitude:
date through training and development Organisations are expected to provide
programmes. a good work environment to secure
favourable employee attitude towards the
vi. 
To appraise the performance of management. This can be accomplished
employees: Periodical appraisal of through conflict resolution, counselling,
performance of employees through human grievance reprisals etc.
resource management activities boosts
up good performers and motivates slow xi. 
To provide scope for collective
performers. It helps the workforce to bargaining: Human resource management
identify their level of performance. encourages workforce to form a union to
represent their grievances and find early
vii. 
To improve competitive advantage: solution for their problems by collective
Organisations with capable and competent representation.
employees can truly gain competitive
advantage in the globalised market. Higher 9.07 
Functions of Human
the level of good performers greater the
Resource Management
possibility of fast paced growth of the
enterprise. The functions of human resource
management may be classified as under :
vii. 
To provide incentives and bonus to
I Managerial function - Planning, Organising,
best performers: It is the role of human
Directing, Controlling
resource management to recognise the best
performers and to provide them with bonus II Operative function – Procurement,
and incentives as a form of appreciation for Development, Compensation, Retention,
their work. This motivation can be either Integration, Maintenance
financial or non financial.

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Managerial Functions  ii. Development – Development includes

i. Planning – Planning is deciding in performance appraisal, training, executive
development, career planning and
advance what to do, how to do and who is
development, organisational development
to do it. It bridges the gap between where
we are and where we want to go. It helps iii. Compensation – It deals with job evaluation,
in the systematic operation of business. It wage and salary administration, incentives,
involves determination objectives, policies, bonus, fringe benefits and social security
procedures, rules, strategies, programmes schemes
and budgets. It ensures maintenance of iv. Retention – This is made possible through
correct number of employees to carry health and safety, welfare, social security, job
out activities and also to formulate timely satisfaction and quality of work life
employee policies.
v. Integration – It is concerned with the
ii. Organising – It includes division of those activities that aim to bring about
work among employees by assigning reconciliation between personal interest and
each employee their duties, delegation organisational interest
of authority as required and creation
vi. Maintenance – This encourages employees
of accountability to make employees
to work with job satisfaction, reducing labour
responsible.
turnover, accounting for human resource
iii. Directing – It involves issue of orders and carrying out audit and research.
and instructions along with supervision,
guidance and motivation to get the best out Key Terms
of employees. This reduces waste of time Human resource Workforce Management
energy and money and early attainment of Training Development Contribution
organisational objectives.
System Turnover Conflict
iv. Controlling – It is comparing the actuals
with the standards and to check whether
activities are going on as per plan and For Future learning
rectify deviations. The control process
includes fixing of standards, measuring 1. Ensuring the quality of work force
actual performance, comparing actual with through quality assurance.
standard laid down, measuring deviations 2. Describe two management techniques
and taking corrective actions. This is made to improve job satisfaction.
possible through observation, supervision, 3. To prepare Human Resource Planning
reports, records and audit. Schedule.
Operating Functions 4. Analyse the ways of forecasting Human
resource requirements.
i. Procurement – Acquisition deals with
job analysis, human resource planning, 5. Evaluate the shortfalls of Human
recruitment, selection, placement, transfer resource management and its
and promotion consequence.

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5. Labour turnover is the rate at which employees

For Own Thinking ---------- the organisation
a) enter
1. Identify points of differences between
b) leave
HRM and HRD.
c) Salary
2. Analyse the impact of Change d) None of the above
Mangement.
Answers:
3. Prescribe ways of resolving Conflict
Management. 1 b 2 a 3 b 4 b 5 b
4. Project ways of having a control over II. Very Short Answer Questions:
the operation of Trade Unions.
1. Give the meaning of Human Resource.
5. Clearly specify the available Competency
Mapping Process. 2. What is Human Resource Management ?
3. State two features of HRM.
4. Mention two characteristics of Human
Resource.
Exercise
5. List the functions of HRM.

III. Short Answer Questions:

I. Choose the Correct Answers: 1. Define the term Human Resource
1. Human resource is a -------- asset. Management.
a) Tangible 2. What are the features of Human resources ?
b) Intangible
3. Give two points of differences between HR
c) Fixed
and HRM.
d) Current
4. What is the importance of Human resource?
2. Human Resource management is both -------
----- and -----------. 5. State the functions of Human Resource
a) Science and art Management.
b) Theory and practice
IV. Long Answer Questions:
c) History and Geography
d) None of the above 1. Explain the unique features of Human
Resource.
3. Planning is a -------------- function.
a) selective 2. Describe the significance of Human
b) pervasive Resource Management.
c) both a and b 3. Elaborate on the Managerial functions of
d) none of the above Human Resource Management.
4. Human resource management determines 4. Differentiate HR from HRM.
the --------------------- relationship.
5. Discuss the Operating functions HRM.
a) internal, external
b) employer, employee
c) Owner, Servant
d) Principle, Agent

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UNIT HUMAN
MANAGEMENT
RESOURCE MANAGEMENT
PROCESS
IV
I

10
1
CHAPTER
PRINCIPLES
RECRUITMENT
OF MANAGEMENT
METHODS

இதைன இதனால் இவன்முடிக்கும் என்றாய்ந்து

அதைன அவன்கண் விடல்.
-குறள் 517
COUPLET
After having considered, "this man can accomplish this, by these
means", let (the king) leave with him the discharge of that duty.

to apply for the job. Then the organisation

Learning Objectives scrutinises the applications received and the
suitable candidates are shortlisted for selection.
To enable the students to understand the The following are some of the definitions of
■ Meaning and definition of Recruitment Recruitment.
■ Recruitment Process
According to Edwin B. Flippo, “It
■ Sources of Recruitment/Recruitment
is a process of searching for prospective
Methods
employees and stimulating and encouraging
■ Recent Trends in Recruitment
them to apply for jobs in an organisation.”

Chapter Synopsis Reasons Behind Recruitment :

There are different reasons why vacancy
10.01 Meaning and definition of Recruitment
arises and they are
10.02 Recruitment Process
i. Retirement of an employee
10.03 Sources of Recruitment
ii. Death of an employee
10.04 Recent Trends in Recruitment iii. Resignation of job by an employee
10.01 Meaning And Definiton of iv. Disablement of an employee
Recruitment v. Dismissal of an employee

Recruitment is the process of finding 10.02 Recruitment Process

suitable candidates for the various posts in an Recruitment process includes the
organisation. It is a process of attracting potential following steps :
people to apply for a job in an organisation.
i. Planning recruitment
It acts as a link between job provider and job
ii. Determining vacancies
seeker. It encourages the prospective employees

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iii. Identifying the sources 10.03  Sources of Recruitment

iv. Drafting information for advertisement
v. Selecting the suitable mode of advertisement
vi. Facilitating selection process
vii. Evaluation and control

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There are basically two ways by which an vi. 

Job rotation – One single employee
organisation can recruit its employees namely managing to learn how to perform in more
Internal and External sources. External sources can than one job on rotation. This familiarises
further be classified into Direct and Indirect sources. the employees with all kind of jobs
Internal Sources – Transfer, Upgrading, performed and becomes a source.
Promotion, Demotion, Recommendation vii. Retention – The retiring employees can
by existing Employees, Job rotation, Retired be used to meet the requirement after
employees, Dependants, Previous applicants, superannuation as per management
Acquisitions and Mergers discretion

External Sources viii. Retired employees - The employees who

have already retired can be called to fill
i. Direct – Advertisements, Unsolicited the vacancy as they have the required
applicants, Walk ins, Campus Recruitment, qualification and experience
Recruitment at Factory gate, Rival firms, e
ix. Dependants – The legal heir or the
Recruitment
dependent employee may be given a chance
ii. Indirect – Employee referral, Government/ to replace the deceased.
Public Employment Exchanges, Employment
x. Previous applicants – The applicants who
Agencies, Employment Consultancies,
have already applied for any job advertised
Professional Associations, Deputation,
in the past whose name appears in the data
Word of mouth, Labour Contractors, Job
base but not selected at that point of time
Portals, Outsourcing, Poaching
can be utilised
i. Internal Sources xi. Acquisitions and Mergers – This is
The following are the internal sources of another way by which the organisation
Recruitment acquires another business unit or merging
with another establishment.
i. Transfer - The simplest way by which an
ii. External Sources
employee requirement can be filled is
through transfer of employee from one A. Direct
department with surplus staff to that of i. Advertisements – The employer can
another with deficit staff. advertise in dailies, journals, magazines
ii. Upgrading – Performance appraisal helps etc. about the vacancies in the organisation
in the process of moving employees from a specifying the nature of work, nature of
lower position to a higher position vacancy, qualification and experience
iii. Promotion – Based on seniority and merits required, salary offered, mode of applying
of the employees they are given opportunity and the time limit within which the
to move up in the organisational hierarchy candidate has to apply.
iv. Demotion – Movement of employee from a ii. 
Unsolicited applicants – These are the
higher position to a lower position because applications of job seekers who voluntarily
of poor performance continuously to make apply for the vacancies not yet notified by
him realise the significance of performance the organisations.
v. Recommendation by existing Employees – iii. Walkins– Walk-in applicants with suitable
A family member, relative or friend of an qualification and requirement can be
existing employee can be recruited and another source of requirement.
placed
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iv. CampusRecruitment – The organisations iv. Employment Consultancies – These types

visit the educational institutions to identify of firms facilitate recruitment on behalf
and recruit suitable candidates. of client companies at cost. Usually they
v. 
Recruitment at Factory gate – Usually provide data relating to executives and
casual or temporary unskilled employees top level personnel for which service they
are recruited by this way. They are recruited charge consultation fees also known as
at factory gate and paid on hourly or daily Recruitment Process Outsourcing.
basis. v. Professional Associations – Organisations
vi. Rival firms – This is also called poaching seeking applicants of high calibre and
where the efficient employees of rival repute with technical knowledge approach
companies are drawn to the organisations professional associations like Institute of
by higher pay and benefits. For example Chartered Accounts, The Indian Medical
Salesmen, Chartered Accountants, Association, The Institute of Training and
Management professionals etc. Development, The Institute of Engineers,
vii. e-Recruitment – The organisations which All India Management Association etc. to
carry out recruitment online methods is said identify the right person.
to follow e recruitment. The advancement vi. Deputation – A person who is already an
in technology and communication has employee of an organisation can be deputed
made it possible to reach out prospective for a specific job for a specified period as a
applicants globally online. It has become short term solution.
inevitable external source of recruitment. vii. Word of mouth – The information relating
B. Indirect to job seekers is collected through people
of repute who pass on the message about
i. 
Employee referral – The existing
the vacancy to their known people.
employees of the organisation may
recommend some of their relatives or viii. 
Labour Contractors – Organisations
known people who will be suitable for recruit unskilled and manual labourers
the existing vacancies. Based on the through these contractors.
credibility of the employee the referrals ix. Job Portals – Using internet job portals
will be considered. organisations can screen for the prospective
ii. Government/Public Employment candidates and fill up their vacancies.
Exchanges – These are exchanges
established by Government which facilitates 10.04 Recent Trends in
recruitment throughout the country. It Recruitment
makes available the information required
The recent methods of recruiting by
through the data base for the employer as
organisations include the following methods :
well as the job seeker by bridging the gap
1. Outsourcing – There are outsourcing
between them.
firms that help in the process of recruiting
iii. Private Employment Agencies – These are through screening of applications and
similar to Public employment exchanges finding the right person for the job for
except that the ownership is the hands of which job they are paid service charges.
Private parties. It connects the job provider
and the job seeker by providing the relevant
and required information.

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Recruitment Process Outsourcing

For own thinking
Requirement
01 Understanding 1. Designing new ways of Recruitment
through internet.
02 Adverse & Source
2. Enhancing the role of HR department
in promoting work life balance.
03 Screening
3. Simplifying the process of registering in
Employment Exchanges.
R.P.O 04 Validaon
4. Reducing the time gap between search
for new jobs and availability of new jobs.
05 Profile submission
5. To formulate policies to enhance the job
Interview Process & opportunities in both Public and Private
06 Feedback sector.

07 Selecon & Follow-up

2. Poaching – Organisations instead of Exercise

training and developing their own
employees hire employees of other
competitive companies by paying them
I. Choose the Correct Answers:
more both financial and non financial
benefits. It is also called raiding. 1. Recruitment is the process of identifying ---
------------.
Key words a) right man for right job
Recruitment Selection Interview Tests b) good performer
Procurement Training Development c) Right job
Profession Unsolicited Poaching d) All of the above
2. Recruitment bridges gap between ------------
--- and -------------- .
For Future learning
a) job seeker and job provider
1. Students can be asked to identify four or b) job seeker and agent
five job portals with websites.
c) job provider and owner
2. Writing an advertisement for the
d) owner and servant
recruitment of Product Manager.
3. Advertisement is a --------------- source of
3. Write an assignment on the ways by
recruitment
which recruitment can be Outsourced.
a) internal b) external
4. Suggest suitable methods of Training
c) agent d) outsourcing
for middle and top level employees.
4. Transfer is an --------------- source of
5. Projecting the future methods of
recruitment.
recruitment that can save time and
money. a) internal b) external
c) outsourcing d) None of the above
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5. e recruitment is possible only through ------- III. Short Answer Questions:

------- facility. 1. Define the term Recruitment.
a) Computer b) internet 2. What are the features of internal source of
c) Broadband d) 4G recruitment?
3. 
Give two points of differences between
Answers: advertisement and unsolicited application.
1 a 2 a 3 b 4 a 5 b 4. What is the importance of job portals?
5. State the steps in Recruitment process.
II. Very Short Answer Questions:
1. Give the meaning of Recruitment. IV. Long Answer Questions:
2. What is promotion ? 1. 
Explain the different methods of
3. 
State two benefits of internal source of recruitment.
recruitment. 2. Describe the significance of External source
4. 
Mention any two features of campus of recruitment.
recruitment. 3. 
Elaborate on the factors affecting
5. 
List the benefits of external source of recruitment.
recruitment. 4. Differentiate Recruitment and Selection.
5. Discuss the importance of Recruitment.

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UNIT HUMAN RESOURCE MANAGEMENT

IV

11
CHAPTER
EMPLOYEE SELECTION PROCESS

அறிந்தாற்றிச் ெசய்கிற்பாற்கு அல்லால் விைனதான்

சிறந்தாெனன்று ஏவற்பாற் றன்று.
-குறள் 515
COUPLET
(A king’s) work can only be accomplished by a man of wisdom
and patient endurance; it is not of a nature to be given to one
from mere personal attachment.

Employee selection can range from a very

Learning Objectives simple process to a very complicated process.
There is no standard universally accepted
To enable the students to understand the selection process adopted by all organizations.
■ meaning and definition of selection The selection process may be adopted depending
■ standard steps for selection process upon the nature of jobs and organizations.
■ factors influencing the selection process The process may differ from organization to
■ importance of selection organization.
■ difference between selection and
recruitment
■ meaning and definition of placement
■ significance of placement
■ principles of placement

Chapter Synopsis
11.01 Steps in Employee Selection Process
A selection process includes a number
11.02 Factors influencing Selection Process
of steps – screening the application forms,
11.03 Importance of Selection
test, interview, checking of references, physical
11.04 Selection differs from Recruitment examination, and approval by appropriate
11.05 Placement authority, and handing over the selected
11.06 Significance of Placement candidates to orientation and placement section.
11.07 Principles of Placement These steps are not necessary for all types of
selection process. The main aim of selection

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process is to find out the suitable candidate Commissions, Recruitment Boards and Private
for specific job. Since there are various factors Sector Companies either supply pre-printed
which affect the seeking of such information, application form or direct the candidates
the same type of selection process cannot be to download the forms uploaded in their
applied in all types of selection. respective websites. In the case of voluntary
Selection is the process of differentiating applications submitted by the candidates, they
between applicants in order to identify and hire are issued application form afresh at the venue
those with a greater likelihood of success in a of the interview to collect complete information
job. Selection is the process of choosing the about the candidate in the standardized
most suitable person for the vacant position in format. Selector can collate different types of
the organization. information from the application blank namely
family background, educational qualification,
According to Dale Yoder: “Selection co-curricular activities, work experience,
is the process in which the candidates for exposure to related activities, scale of pay
employment are divided into two classes – drawn, academic distinction, area of expertise
those who are to be offered employment and and so on.
those who are not.”
II) Scrutinizing the Applications
David & Robbins: Selection is a
managerial decision making process is to Where the applications received in
predict which job applicants will be successful response to advertisement inviting applications
if hired.” for opening are more, it is not possible for
recruitment agency to call all the applicants
11.01 Steps in Employee Selection for interview. Hence, selection committee
Process has to evolve some criteria like age, length of
experience, level of education, percentage of
STEPS IN SELECTION PROCESS marks, higher qualification, level of exposure,
Applicaon Blank communal quotos, proficiency etc., to shortlist
Scrunizing the
Applicaons Selecon 01 the number of applicants for the interview.
Test
III) Selection Test
02 Interview

Physical Examinaon Several tests are conducted in the selection

Reference check 03
process to ensure whether the candidate
Approval of
04 Higher Authority
possesses the necessary qualification to fit into
Final Selecon 05 various positions in the organization.

06 Contract of Employment

A comprehensive selection process

involves the various steps as shown in figure
I) Application Blank
Most of public sector undertaking,
various ministries of Government, Selection

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A) Ability Test vi) Spatial Reasoning Test

A test designed to measure an individual’s The test measures the candidate’s ability
cognitive function in a specific area, to clearly manipulate and remember the shapes,
such as variety of skills, mental aptitude, still images, and find out pattern which govern
problem solving, knowledge of particular field, the sequence.
reasoning ability, intelligence etc. This test is vii) Situational Judgment Test
used to find the suitability of a candidate for a
This test measures the candidate’s ability
given job role.
to choose the most desirable action in critical
1. Aptitude test situations using his judging ability.
Aptitude test is a test to measure suitability viii) Mental Arithmetic Test
of the candidates for the post/role. It actually
measures whether the candidate possess a set of It tests the candidate’s basic numerical
skills required to perform a given job. It helps in ability like addition, subtraction, multiplication,
predicting the ability and future performance of division and fraction. It tests the speed of doing
the candidate. Aptitude test can be measured by calculation.
the following ways: ix) Vocabulary Test
i) Numerical Reasoning Test The test measures candidate’s ability to
Numerical reasoning test provides recognize the relationship among the ideas,
information about candidate’s numerical think methodically and fluency in English
aptitude. In other words this test measure the language.
candidate's ability to make correct decision
x) Number Sequence Test
from numerical data.
This measures the candidate’s ability to
ii) Verbal Reasoning Test
find a logic in a series or pattern. Under this test,
It measures the candidate's ability to candidates have to find out missing number in a
comprehend the written text and ability to arrive sequence to determine the pattern.
at factual conclusion from the written text.
2. Achievement Test
iii) Inductive Reasoning Test
This test measures a candidate’s capacity
Inductive Test is one of the psychometric to achieve in a particular field. In other words
tests conducted in the selection process to
this test measures a candidate’s level of skill in
measure the problem solving abilities and ability
certain areas, accomplishment and knowledge
to apply logical reasoning.
in a particular subject. The regular examination
iv) Mechanical Reasoning Test conducted in educational institution represents
This test measures the engineering achievement test. It is also called proficiency
student’s ability to apply engineering concepts test. This test is conducted before, during or
in actual practice. after a learning experience. In short it is a test
conducted to find out candidate’s mastery over
v) Diagrammatic Reasoning Test
the subject. Example,
This test measures the candidate’s ability
a) A driver may be asked to drive a vehicle to
to understand the shapes, abstract ideas and
test his driving efficiency
ability to observe and extract values from
illustrations and apply them to new samples. b) Music student may be asked to play a given
instrument
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c) Teacher candidate may be asked to give a 1. Interest Test

demonstration Interest test measures a candidate’s extent
3. Intelligence Tests of interest in a particular area chosen by him/
Intelligence tests are one of the her so that organization can assign the job
psychological tests, that is designed to measure suited to his/her in term.
a variety of mental ability, individual capacity 2. Personality Inventory Test
of a candidate. The main aim of these tests is Under this method standardised
to obtain an idea of the person’s intellectual questionnaire is administered to the candidate
potential. to find out traits like interpersonal rapport,
dominance, intravertness, extravertness, self
Mental age and Actual (age wise)
confidence, lower sign quality etc. This test
calculate the Flow of IQ level.
assesses the reliability and innate characters of
Formula for IQ : Mental
the candidate concerned.
Age X100
Actual Age ( Physical age 3. 
Projective Test / Thematic Appreciation
or current age) Test
Mental age: A person’s mental age is a This test measures the candidate’s values,
measurement of their ability to think when attitude apprehensive personality etc. out of
compared to the average person’s ability at the interpretation or narration given by the
that age. candidate to the pictures, figures etc. shown to
Example: Average intelligence or Average IQ = 100 him in the test situation.
If ten years old has a mental age 13,
4. Attitude Test
Therefore, IQ = 130, ie, Above average.
This test measures candidate’s tendencies
The first modern intelligence towards the people, situation, action and related
test in IQ history was developed things. For example, morale study, values study,
in 1904,by Alfred Binet (1857- social responsibility study expresses attitude
1911)and Theodore Simon (1873 test and the like are conducted to measure the
– 1961) attitude of the candidate.
IV) Interview
4. Judgment Test
Next step in selection process is interview.
This test is conducted to test the presence The term ‘interview’ has been derived from
of mind and reasoning capacity of the candidates French word enter voir that means to glimpse
B. Personality test or to see each other .

Personality test refers to the test In other words interview represents a face
conducted to find out the non-intellectual traits to face interaction between the interviewer and
of a candidate namely temperament, emotional interviewee. According to Scott and others “an
response, capability and stability. There is no interview is a purpose full exchange of ideas,
right or wrong answer in the test. It comprises the answering of questions and communication
of following tests. between two or more persons.”

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Various types of interview are shown in figure

i) Preliminary Interview interview helps the interviewers to learn about

This interview is conducted to know the the candidate’s expertise and practical exposure
general suitability of the candidates who have with respect to his/her area of specialization.
applied for the job. Team of experts conducts v) Panel Interview
their interview primarily to eliminate those Where a group of people interview the
who are unqualified and unfit candidates. This candidate, it is called panel interview. Usually
helps the employer organization to cut cost and panel comprises chair person, subject expert,
time in selection process. psychological experts, representatives of
ii) Structure/Guided/Planned Interview minorities/underprivileged groups, nominees
Under this method, a series of question of higher bodies and so on. All panel members
to be asked by the interviewer are pre-prepared ask different types of questions on general areas
by the interviewer and only these questions are of specialization of the candidate. Each an
asked in the interview. Ultimately interviewees every member awards marks for the candidate
are ranked on the basis of score earned by the separately. At the end, the marks awarded by all
candidate in the interview. the members are aggregated and the candidates
are ranked accordingly. This method eliminates
iii) Unstructured Interview bias in selection process. It ensures more
This is quite contrary to structured reliability in the selection of the candidate.
interview. An atmosphere for free and vi) Stress Interview
frank interaction is created in the interview
environment. There is no pre-prepared This type of interview is conducted to
questions. Interviewers determine the suitability test the temperament and emotional balance
of the candidate based on their response to the of the candidate interviewed. Interviewer
random questions raised in the interview. deliberately creates stressful situation by
directing the candidate to do irrational and
iv) In depth Interview irritating activities. They assess the suitability
This interview is conducted to test the of the candidate by observing the reaction
level of knowledge of the interviewee in a and response of the candidate to the stressful
particular field intensively and extensively. Thus situations. Mostly this type of interview is
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conducted for recruiting sales representatives

10 most common Interview
staff for defence and law enforcement agencies.
questions
vii) Telephone Interview
1. Tell me about (your self)
Where the candidates live far away from 2. Why do you want to work for this
organization and find it difficult to attend Organization?
preliminary interview for various reasons, 3. Why are you interested in this position?
telephone interview is conducted by some 4. Why should we select you?
organization to eliminate unfit and unsuitable
5. What is your greatest strength?
candidate at the preliminary stage itself.
6. Tell about the time, when you failed?
viii) Online Interview 7. What is your salary requirement?
Due to tremendous growth in information 8. What is your five year plan ?
and communication technology, these days 9. Why are you looking to leave your present job?
interviews are conducted by means of internet 10. Do you have any questions for me!
via Skype, Wechat, Google duo, Viber,
Whatsapp or Video chat applications. This V) 
Physical Examination or Medical
enables the interviewers to conduct interview Examination
with the candidates living in faraway places.
They saves a lot of time, money and energy both
for employer's organisation and the candidate.
ix) Group interview Sound Mind
is in Sound
A group interview is a screening process
Body
where multiple candidates are interviewed at
the same time. Group interview is a good time
saving type of interview. Instead of spending 5
hours interviewing 5 candidates individually,
one hour can be spent interviewing them in a The last technique used in selection
group. Some time particular topic is given to process is medical examination. This is the
the group, and they are asked to discuss it. The most important step in the selection because a
competency of members of group is assessed by person of poor health cannot work competently
keenly observing the participation of members and any investment on him may go waste, if he/
in the discussion. she is unable to discharge duties efficiently on
x) Video Conferencing Interview medical grounds. In other words, it determines
an applicant’s physical ability to perform a
Video conferences interview is similar
specific job. The main purpose of medical
to face to face interview. Video conferencing
examination is to find out
interview is a kind of conference call that connects
the candidate with companies located across 1. Physical fitness of the candidate under
various geographies. Just like telephone call a video selection to the job concerned
conferencing interview has multi point which 2. To protect the existing employees of business
allows two or more people in different locations organization from the infectious diseases
to participate in the interview process. Interview likely to be spread by the candidate selected
can be conducted from a desktop at work, a home 3. To check excessive expenditure in the treatment
computer or smart phone or a tablet. of selected employee after placement.
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VI) Reference Check contract of employment varies according to the

Reference check is done to know level of the job. Generally it contains details like
reliability and trustworthiness of the candidate. 1. Job Title 2. Duties & Responsibilities
Usually application blank contains a column for 3. Scale of Pay allowance, increments 4. Working
the candidate to furnish the list of persons to hours 5. Date when continuous employment
be contacted for reference purpose. Employer starts and basis for calculating service. 6. Work
organization used to send either standardized Rules 7. Grievance procedure 8. Disciplinary
form to referees or request them to write in detail procedure 9. Special terms and Conditions
about certain behavioral traits of candidate relating to rights etc.
under selection like conduct, character, attitude,
11.02 Factors influencing
behavior, value system etc., of the candidate
under selection process. The selector decides
Selection Process
the selection worthiness of the candidate based Factors influencing employee selection
on the reference and recommendation given by process are listed below
referees. 1. Nature of Post
VII) Approval by Higher Authority The process of selection of employee
varies according to type of personnel to be
Selection committee sends the list of
recruited. For instance, selection process of
candidates selected with some candidate kept in
probationary officer of a bank differs from that
waiting list for approval by higher authority like
of selection of officer for Indian Police Service.
chairman, HR director, CEO and the like. Once
the list is approved the selected candidate will 2. Number of Candidates
be called for final interview. Selection process depends on the
VIII) Final Selection response of candidates to the advertisement
inviting applications for the post. For instance,
The successful candidate who passed
for clerical and other physical jobs, more
through various stages of selection process will
candidate tend to apply. Hence short listing
be called for final interview. These candidates
needs to be done. The selection process would
are briefied about the rules and regulations
be longer if the number of applicants is lesser
of the organization, organizational culture,
and consequently selection process becomes
reporting relationship, dress code, expectations
shorter.
of employer, facilities available for career growth
etc. At the end of the final interview even the 3. Selection Policy
candidate under selection is allowed freedom to The selection policy and selection
seek clarification or make his own demands if process are inter-related. For example some
any. organizations put in place tougher selection
IX) Contract of Employment process involving several steps to identify the
best fit while certain other organizations just
After the final selection process is
conduct straight interview and thus cutting
completed, certain documents are expected
short the selection procedure.
to be signed both by the organization and the
candidate. Hence there is a need for preparing 4. Cost factor / Budget
a contract of employment. The following basic The longer selection process entails
information which need to be included in a written higher cost. Hence, organizations which cannot

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afford to spend a larger resource tend to shorten 4. Reduced Turnover

selection process while organizations with Proper selection of candidates contributes
sound financial condition can afford to adopt to low labour turnover. This will inturn help
lengthier selection process. the organisation to minimize recruitment cost.
5. 
Level of Educational Qualification and 5. Job Motivation
Experience and Exposure If the right person is selected for the right
The process of selection depends on the job, it tends to motivate the person to work
experience and educational qualification, and more effectively and efficiently. They feel that
exposure required for the post. For example their skills are properly used and they tend to
for selection of finance officer, treasurer, legal contribute more attention to the job.
adviser, designer, architecture, CEOs, scientist,
chairman etc. selection process is shorter 6. Other Benefits
as only few candidates compete with higher Proper selection of candidates reduces
educational qualification, and credentials. absenteeism. They would pay better attention to
their jobs and take safety precautions on their
11.03  Importance of Selection own accord would minimize the occurance of
1. Good Talent work place accidents.
Proper selection system enables the
organization to appoint talented persons Go for roles you really want
for various activities and thereby leading to Go for roles you can get
improved productivity and profitability of the Don’t dress to impress
organisation. Dress not to offend

2. Better Efficiency
Selection of right person to the right job
“The key for us number one,
is sure to produce better quality of work and
has always been hiring very
may facilitate faster achievement of objectives.
smart people.”
This will help in greater measure to tone up the
- Bill Gates
overall efficiency of organisation.
“ you cannot push anyone up the ladder
3. Reduced Cost of Training and Development unless he is willing to climb it”.
Better selection of candidates definitely
reduces the cost of training because qualified
11.04 Selection differs from
personnel have better grasping power. If they
select suitable candidates for suitable job, Recruitment
they can easily understand the techniques Recruitment and selection play a vital
of the work better in quick time. Besides, the role in the Human Resource Management.
organization can develop different training These are the two sides of the same coin but
programmes for different persons on the basis there exists some difference between the two.
of their individual differences, thus reducing The difference have been highlighted and the
the time and cost of training considerably. exhibit is given below.

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Recruitment v/s Selection

Basis of
S. No. Recruitment Selection
Comparison
Recruitment is an activity
Selection refers to the process of
of searching candidates and
1 Meaning selecting the suitable candidates and
encouraging them to apply for
offering them job.
it.
Approach under recruitment Approach under selection is negative
2 Approach
is positive one. one.
Inviting large number of
Picking up the most suitable
3 Objective candidates to apply for the
candidates and eliminating the rest
vacant post
4 Sequence First Second
5 Method It is an economical method It is an expensive method
It involves the communication
Contractual It creates contractual relation between
6 of vacancies. No contractual
relation employer and employee
relation is established
Recruitment process is very Selection process is very complex and
7 Process
simple complicated
Requires less time since It is more consuming as each and
it merely involves just every candidate has to be tested
8 Time identifying vacancies and on various aspects before selecting
advertising them. Hence less the candidates. Hence more time is
time is required required

11. 05  Placement According to Dale Yoder, Placement may

Introduction on Placement is an be defined as “the determination of
important human resource activity after a the job to which an accepted candidate is
candidate has been selected. He / she should to be assigned, and his assignment to that job”.
be placed on a particular job. In fact, placement
signifies placing the right person on the right 11.06  Significance of Placement
job in a good manner. The term ‘placement’ The significance of the placement is given
includes initial assignment of new employees below
and promotion, transfer or demotion of present i) It improves employee morale
employees.
ii) It helps in reducing employee turnover
The process of placing the right man on
the right job is called ‘Placement’. iii) It helps in reducing conflict rates or accidents

In other words, Placement is a process iv) It avoids misfit between the candidates and
of assigning a specific job to each and every the job.
candidate selected. v) It helps the candidate to work as per the
predetermined objectives of the organization

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vi) It involves assigning a specific rank and employee shows a better performance, he/she
responsibilities to an individual is confirmed at the job as a regular employee
vii) It helps to avoid short term staff shortage. of the organization.

11.07 Principles of Placement

For Future learning
Following principles are followed at the
time of placement of an employee: 1. Know the job selection methods in
TamilNadu government
1. Job First, Man Next
2. Collection of job application related to
Man should be placed on the job
different types job.
according to the requirements of the job. There
is no compromise on the requirements or 3. Student should know about the skilled
qualifications of the man with respect to job. and unskilled workers.
“Job first Man next” should be principles of 4. Students should know how to apply and
Placement. fill up the job application

2. Job Offer
The job should be offered to the man Qualities required to success in
based on his qualification. campus placement: confidence,
Enthusiasm,communication
3. Terms and conditions skill, leader team player
The employee should be made conversant ,leadership, Honesty
with the conditions and culture prevailing in
the organization and all those things relating to
the job. Key words
Application Blank Structured
4. Aware about the Penalties Turnover Placement Job Offer
The employee should also be made aware Loyalty Recruitment Evaluation
of the penalties if he / she commits a wrong or Relocation Aptitude Attitude
lapse. Personality
5. Loyalty and Co-operation
When placing new recruit on the job,
For own Thinking
an effort should be made to develop a sense
of loyalty and co-operation in him, so that he/ 1. How will you prepare your Resume and
she may realise his/her responsibilities better Application?
towards the job and the organization. 2. Find out any 5 Selection interview
Placement is not an easy process. It questions.
is very difficult for an new employee, who 3. Student should arrange face to face
cannot be expected to be not familiar with interview
the job and environment. For this reason, the 4. To Identify the Placement process
employee is generally put on a probation/trial
5. Student should visit a nearby organization
period ranging from one year to two years.
and observe the selection interview.
After completion of the probation period, if the

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7. The purpose of an application blank is to

  Exercise gather information about the
a) Company
b) Candidate
I. Choose the Correct c) Questionnaire or Interview Schedule
Answers:
d) Competitors
1. 
The recruitment and
8. Identify the test that acts as an instrument to
Selection Process aimed at right kind of
discover the inherent ability of a candidate.
people.
a) At right people a) Aptitude Test
b) Attitude Test
b) At right time
c) Proficiency Test
c) To do right things d) Physical Test
d) All of the above 9. 
The process of eliminating unsuitable
candidate is called
2. The poor quality of selection will mean extra
cost on ----------------- and supervision a) Selection
a) Training b)Recruitment b) Recruitment
c) work quality d) None of these c) Interview
d) Induction
3. 
-------------- refers to the process of 10. Scrutiny of application process is the
identifying and attracting job seekers so as to
build a pool of qualified job applicants. a) Last step in Selection process
a) Selection b) Training b) First step in Selection process
c) Recruitment d) Induction c) Third step in Selection Process
d) None of the above
4. Selection is usually considered as a-----------
------ process 11. Selection process helps in

a) Positive b) Negative a) Locating candidates

c) Natural d) None of these b) 
Determining the suitability of the
candidates.
5. Which of the following test is used to measure
the various characteristics of the candidate? c) preparing employees for training
d) None of these
a) physical Test b) Psychological Test
12. The process of placing the right man on the
c) attitude Test d) Proficiency tests
right job is called ----------
6. Which of the following orders is followed in a
typical selection process. a) Training b) Placement
c) Promotion d) Transfer
a) 
application form test and or interview,
13. Probation/Trial period signifies
reference check and physical examination
a) one year to two years
b) 
Application form test and or interview, b) one year to three years
reference check, and physical examination c) Two years to four years
c) Reference check, application form, test and d) None of the above
interview and physical examination 14. Job first man next is one of the principles of
d) physical examination test and on interview -----------
application term and reference check. a) Test b) Interview
c) Training d) placement
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Answers: 2. Explain the important methods of interview.

3. Explain the principles of placement.
1 d 2 a 3 c 4 b 5 b 6 b 7 B
8 a 9 a 10 b 11 b 12 b 13 a 14 d

II. Very Short Answer Questions:

1. What is selection? References
2. What is an interview?
3. What is intelligence test? 1. 
Aswathappa. K. Human Resource
management. McGraw Hill
4. What do you mean by test?
Education(media) private Ltd., New Delhi
5. What do you understand about bio data? 2013.
6. What do you mean by placement?
2. Balaji C.D Human Resource Management,
III. Short Answer Questions: Margham Publications , Chennai, 2018.
3. Sharma R.K and Shashi K.Gupta Business
1. What is stress interview?
Organisation and management, Kalyani
2. What is structured interview? Publications New Delhi, 2011.
3. Name the types of selection test?
4. 
Varma M.M and Aggarwal Personnel
4. What do you mean by achievement test? Management and Industrial Relations Manu
5. Why do you think the medical examinations Rastogi , New Delhi, 2005.
of a candidate is necessary?
5. WebSources.
6. What is aptitude test? www.mgtstudyguide.com, www.mbakno1,
7. How is panel interview conducted? www.learnbywatch.com
8. List out the various selection interviews. 6. Bhattacharyya D.K. Human Resource
9. List out the significance of placement. Development, Himalaya Publishing
House,Girgaon, Mumbai, 2012.
IV. Long answer questions: 7. 
Sundar K. and Srinivasan J. Elements of
1. Briefly explain the various types of tests. Organisational Behaviour, Vijai Nicole
Imprints Private Limited , Chennai, 2015.

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UNIT HUMAN RESOURCE MANAGEMENT

IV

12
CHAPTER
EMPLOYEE TRAINING METHOD

அன்பறிவு ேதற்றம் அவாவின்ைம இந்நான்கும்

நன்குைடயான் கட்ேட ெதறிவு.
- குறள் 513
COUPLET
Let the choice (of a king) fall upon him who largely possesses
these four things, love, knowledge, a clear mind and freedom
from covetousness.

Each and every organization needs the

Learning Objectives services of trained persons for performing
the better activities in a systematic way. After
To enable the students to understand the having selected the most suitable persons for
■ Meaning and definition of training the various suitable jobs in the organization by
■ Purpose of training or Need for training way of application of scientific techniques,the
■ Steps in designing a training programme next task of management should arrange for
■ Training methods their proper training. Some employees already
have some previous knowledge regarding
■ Difference between on the job training
the jobs, while others may be entirely new
and Off the job training
to the jobs. Both types of employees need
■ Benefits of training
some different kinds of training to acquaint
themselves with the jobs.
Chapter Synopsis
12.01 Purpose of Training or Need for Training
12.02 Steps in Designing a Training
Programme
12.03 Training Method
12.03 (i) On the Job Training
12.03 (ii) Off the Job Training
12. 04 Difference Between on the Job Training
and off the Job Training
12.05 Benefits of Training
Training is the act of increasing /
12.05 (i) Benefits to the Organization
enhancing the new skill of problem solving
12.05 (ii) Benefits to the Employees
activity and technical knowledge of an employee
12.05 (iii)Benefits of Customer

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for doing the jobs them self. Training enables iv) Enlightening New Recruits
the employees to guide their behavior. Training New employee can learn the methods
refers to the teaching and learning activities of working, techniques, reporting, related
carried on for the primary purpose of helping tools and equipment used in the job, the work
members of an organization to acquire and to culture of the company etc. with the help of
apply the required knowledge, skill and attitudes training.
to perform their jobs effectively and efficiently.
v) Improved Safety Measures:
According to Edwin B. Flippo” Training
Employees gain awareness about the
is the act of increasing the Knowledge and
risks involved in job and safety measure to be
skills of an employee for doing particular jobs”.
adopted through a proper training program.
According to Mathis and Jackson This helps to improve safety in the work place
“Training is a learning process whereby people and avoid accidents.
learn skills, concepts, attitudes and knowledge
to aid in the achievement of goals. vi) Motivating Employees:
An employee needs continuous
According to Dale S Bean defined
development to move along the career path
training as “the organized procedure by which
as per the career planning. Training motivates
people learn knowledge and skill for a definite
and instils organizational commitment.
purpose”
vii) Higher Productivity and Profits
12.01 
Purpose of Training or Efficient training improves higher
Need for Training productivity and more profits as the trained
The purpose of Training can be explained employee can apply more skills and techniques
as follows at works. It helps them do work at faster rate
and complete it with high perfection.
i) Improved Quality of Work
Training helps to focus on specific viii) Cost Reduction
area and develop employee skills. It enables Trained employees can utilize the
employee to increase the quality of work resources in an efficient manner. There is no
carried out by them. possibility of wastages of resources and all
facilities are used at an optimum level. This
ii) Enhance Employee Growth
will lead to cost reduction.
Employees who undergo training
becomes good at their job. Imparting new ix) Reduced Supervision
skills helps in performance enhancement of Trained employees need minimum
the employees. supervision as they are educated about
various aspect of job in detail at the training
iii) Prevention of Obsolence:
programme.
Training helps to learn more knowledge
regarding the latest technologies and x) Better Adaptability
techniques. The employee gets updated with Employees are able to adapt themselves
the latest technology and trend. The major to new technologies and new methods of work
purpose of training is to avoid obsolence. which constantly undergoes changes.

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12.02 Steps in Designing a Training Programme

Training is one of the planned activities to transfer or modify knowledge, skills and attitude.
Every training programme must address certain vital issues listed below.
Steps in
Designing a
Training Steps in Designing a Training Programme
Programme

Whom to Train Who is the Trainee Who is the Trainer

Where to What should be What Method

conduct the the level of will be used
Training Programme Training for Training

1. Whom to Train? 5. What should be Level the Training?

Training department has to determine Training department should decide
the candidates for whom the training should the level of training to be imparted to the
be imparted. In other words it should identify employees. Usually introductory training is
whether it is needed for operational level given to new recruit to sensitize item to various
employees or supervisory level employees or aspects of the work. Middle level employees
executive level. are given skill development training while
higher level training is given for enhancing the
2. Who is the Trainee?
functional efficiency of executives.
A person who is learning and practising
the skills of particular job is called trainee. 6. Where to Conduct the Training Programme?
Trainees should be selected on the basis of self- The venue of training and duration
interest and recommendation by the supervisor of training should be fixed based on the
or by the human resource department itself. availability of other related factors.

3. Who are Trainers? 12.03  Training Methods

Trainer is a person who teaches skills to Various methods of training are used
employee and prepare them for a job activity. to train the employees. It is varying from
Trainers may be supervisor, coworkers, one organization to another. Various factors
HR staffs, specialists in the other parts of like skill requirement, qualification of the
the company, outside consultants, industry candidates, cost and time availability and
association,faculty members of Educational indepth knowledge should be considered
Institutions like University etc. The trainers is before adopting any given method. There are
otherwise called Instructor, Coach, Teacher, two principal methods of employee training
Mentor, Adviser, Counsellor, Guide, Guru, which are used by the organization as given in
Manager, Handler, Tutor and Educator etc,. the figure.
4. What Method will be used for Training?
Training segment should decide the
appropriate method of training among the
various methods of training available.
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TRAINING METHODS
ON THE JOB TRAINING OFF THE JOB TRAINING

01 Coaching Mentoring Lectures 01

The group discussion method &
02 Job rotaon
The case study method 02

03 Job instrucon Technique Role play 03

04 Apprenceship
Seminar / Conference Field Trip
04
Vesbule training Programmed
05 Commiee Assignment Instrucon E learning 05
Demonstraon

On the Job Training and Off the Job Training the role of coach or guide and an instructor.
Under this method the superior should point
My employees are my most important out mistakes/lapses committed by the new
assets. When they go home in the evening worker and also advise the remedial measures,
networth drops to Zero - A software to trainees. The trainees can clear their doubts
Billionaire in Silicon Vally (USA) then and there.

12.03 (I) On the Job Training EDUCATION

TRAINING
On the job training refers to the training
which is given to the employee at the work
place by his immediate supervisor. In an other
words the employee learns the job in the actual SUPPORT POTENTIAL
work environment. It is based on the principle
of “Learning by Doing and Learning While
MOTIVATION KNOWLEDGE
Earning”. On the job training is suitable for
imparting skills that can be learnt in a relatively
short period of time. The following are the on
the job training methods.
COACHING
i) Coaching Method
In the coaching method of training, the
superior teaches or guides the new employee ii) Mentoring method
about the knowledge and skills relevant to Mentoring is the process of sharing
a given job. In this method superior plays knowledge and experience of an employee.

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The focus in this training is on the development v) Apprenticeship Training Method:

of attitude of trainees. It is mostly used for
managerial employees. Mentoring is always
done by senior person, it is also one-to-one
interaction ,like coaching. Besides the mentor
is responsible for the providing necessary
support to trainees, and feedback on the
performance of trainee.

iii) Job Rotation Method

Job rotation is an important method
for broadening the knowledge of executives.
Under this method a trainee is periodically
shifted from one work to another work and The apprentice or trainee learns the
from one department / division to another job knowledge and skills from the trainer
department / division for a particular period of or superior or senior worker. Generally the
time. The main aim of job rotation is to expose apprenticeship training is given to the technical
the employee to various inter related jobs. cader like that Mechanics, Electricians,
The main aim of job rotaon is to Craftsmen, Welders, Fitter etc., This duration
expose the employee to various of this training programme ranges from one to
inter related jobs.
five years. The trainee gets the stipend during
the training period.
JOB ROTATION
vi) Committee Assignment:
When employees are assigned to
committee to address a particular issue, they
are able to work closely with other members
and committee leader. They gain more
knowledge by observing and participating in
decision making process.
iv) Job Instruction Techniques (JIT) Method:

In this method, a trainer at the

supervisory level gives some instructions to an
employees to how to perform his job and its
purpose.
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vii) Understudy/Internship Training

Method:
A superior gives training to a subordinates
or understudy like an assistant to a manager
or director. The subordinates learn through
experience and observation by participating in
handling day to day problems. Basic purpose of
internship training is to prepare subordinate
for assuming the full responsibilities and
duties.
ii) Group Discussion Method

EXPERIENCE
PRACTICE

LEARNING SUCCESS

12.03  (II) Off the Job Training Group of people participate and discuss
particular subject or one topic. Under this
Off the job training is the training method participants are divided into various
method where in the workers/employees learn groups. They were provided a particular issue
the job role away from the actual work floor. for deliberation. Each groups has to prepare
In other words training which is carried out solution after deep discussion with their group
away from your normal place of work. Off-the- members. The group leader has to present the
job training comprises of a place specifically solution to the audience,which will be discussed
allotted for the training purpose which may be or deliberated by other groups. Moderator will
near the actual work place, where the workers give final solution after listening to divergent
are required to learn the skills and get well view points.
equipped with the tools and techniques that
are to be used at the actual work floor. iii) Case Study Method

i) Lecture Method Trainees are described a situations which

stimulate their interest to find solution. They
Under this method trainees are educated have to use their theoretical knowledge and
about concepts, theories, principles and practical knowledge to find solution to the
application of knowledge in any particular area. problem presented. There is no single solution
Trainer may be generally drawn from Colleges, to the problem. It may vary depending upon
Universities, Consultancies, Institutions, view points of trainees. In short, the purpose
Manufacturing concern, Union etc., They of case study method is, to make trainee apply
impart training effectively by their oratorical their knowledge.
skill, knowledge and practical knowledge
using audio visual tools.
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interact with the speaker and get their doubts

clarified or select participants may be allowed
to present papers with the audio visual aids as
delegates. They share their rich experience
at the seminar through their papers. Thus
participants can widen and deepen their
knowledge by their active participation at the
conference. e.g. Doctors conference, Salesman
Conference etc., This is one of the oldest
method, but still a favorite training method.

iv) Role Play Method

Under this method trainees are explained
the situation and assigned roles. They have to
act out the roles assigned to them without any
rehearsal. There are no pre-prepared dialogues.
Thus they have to assume role and play the role
without any preparation. For example the role vi) Field Trip Method
of customer and salesman, management and
union leader, foreman and worker etc. may
be played in the training arrangements. The
moderator after observing the role played gives
his views to the role players.

A field trip or field work or training in the field

is a journey undertake by a group of employees/
trainees to a place away from their actual work
site. In other words, trainees are taken to
actual workplace/ site/facility to gain exposure
and knowledge. They are explained the process
of work by supervisor/ manager of the facility
visisted by the partipants. They are free to clarity
v) Seminar/Conference Method their doubts from the organization experts.
This method enables the trainees to listen This method helps the trainees to strengthen
to the lectures / talk delivered on specific topics their theoretical knowledge obtained in a class
and provides opportunities to participate, to room evironment by practical exposure.
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vii) Vestibule Training Method seminar to improve employees skills. Under

this type of web based training is anywhere
and any time information can pass over the
internet.
ix) Demonstration Training Method
This method is a visual display of how
something works or how to do something.
Demonstration involves showing by reason
or proof explaining or making clear by use
of examples or experiments. As an example,
trainer shows the trainees how to perform or
how to do the task of the job.
Vestibule training is training of employees
in an environment similar to actual work
environment artificially created for training
purpose. This type of training is given to avoid
any damage or loss to machinery in the actual
place by trainees and avoid disturbing the
normal workflow in the actual workplace. It is
given to Drivers, Pilots, Space Scientists etc.,
viii) E-learning Method

x) Programmed Instruction Method

Under this method, the subject matter to
be learnt is presented in a series of units. These
units are arranged from simple to complex level.
It consists of three parts: Presenting facts, New
knowledge and Question and Answer. Trainee
has to read the unit understand the concept and
take part in self-evaluation exercise. The system
provides feedback on the accuracy of response
given by trainee. On the successful completion of
each and every unit, he/she will go to subsequent
level. If hey forget, they should go back to original
information. If they do not forget the information
E learning is the use of technological they are allowed to go to the next step for learning.
process to access of a traditional classroom Programmed instructions is made available in
or office. E learning is also often referred to printed form i.e books, table, interactive video and
us online learning or web based training. E other formats. Besides there are number of other
learning training courses can save lakhs and advanced methods of training of the employees
lakhs of rupees to an organizations as they which will be taught to students in their higher
no longer have to pay for over time or costly studies
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12. 04  Difference Between on the Job Training and off the Job Training
The major differences between these two training method is listed below.

Basis for
On the Job Training Off the Job Training
comparison
The employee learns the job in the Off the Job training involves the training
Meaning actual work environment. of employees out side the actual work
location
It is cheapest to carry out It requires expenses like separate
Cost training rooms, specialist, resources
like projectors.
Location At the work place Away from the work place
Generally imparted in case of Mostly imparted for managerial andnon
Suitable for Manufacturing for production production related jobs.
related Jobs
Approach Practical approach Theoretical approach
Principle Learning by performing Learning by acquiring knowledge
It is carried out by the experienced Training which is provided by the
Carried out
employee experts.
Training is very relevant and It can more easily deal with groups of
Deals with practical dealing with day –to –day workers at the same time.
requirement of job
The scope for distractions is There is no distraction because trainees
more, as there may be noise and are away from the actual working
Work disturbance
disturbances because of working environment.
machines, tools and gadgets.
Coaching, job rotation, Role –plays , seminar, lectures, case
apprenticeship, mentoring, under studies, vestibule field trip programmed
Methods study, job instruction, committee instruction demonstration e-learning
assignment are some of the avenues are some of the off – the job training
of on-the job training methods methods.

12.05  Benefits of Training iii) It exposes employees to latest trends.

iv) It minimizes the time for supervision.
(i) Benefits to the Organization
v) It reduces the frequency of accidents
i) It improves the skill of employees and at workplace and consequent
enhances productivity and profitability compensation payment.
of the entity. vi) It reduces labour turnover of employee
ii) It reduces wastages of materials and idle vii) 
It improves union and management
time relation.
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(ii) Benefits to the Employees

i) It adds to the knowledge skill and PMKVY?
competency of employee Pradhan mantra Kaushal Vikas
Yojana is a unique initiative by the
ii) It enables him to gain promotion or
Government of India that aims
achieve career advancement in quick
to offer 24 lakh Indian Youth meaningful
time.
,industry relevant skill based training.
iii) It improves the employees productivity Under this scheme, the trainees will be
iv) It enhances the morale of the employee. offered a financial reward and a government
certification on successful completion of
v) Employees get higher earnings through training and assessment, which will help
incentives and rewards. them in securing a job for a better future.
v) It builds up the confidence of employee ICA (Infotech Private Ltd.) offers skill
by changing his attitude positively based training, under this initiative ,in the
towards to work following sectors:
vi) It enables him to observe safety practices ✓ Agriculture
voluntarily during his engagement in ✓ Apparel, Maufacturing Made Ups and
dangerous operation Furnishing
✓ Leather products
(iii)Benefits of Customer ✓ Media and Entertainment
✓ Handicrafts
i) Customers get better quality of product/
✓ Telecom
service.
“Success is 80% Attitude and 20% aptitude”
ii) Customers get innovative products or (Funmiwale – Adegbite)
value added or feature rich products.
Key words
Vestibule training, Mentoring, Job instruction,
Field trip, Demonstration, E learning, Exercise
Off the job training, On the job training,

Case Study I. Choose the Correct Answers:

1. Off the Job training is given
Hemalatha is the MD of Aravindh Textile
manufacturing company. Her company a) In the class room
produces textiles which has a good sales b) On off days
record in Indian marketas well as foreign c) Outside the factory
market. Hemalatha plans to buy new tech d) In the playground
machineries for his company. But she first 2. Vestibule training is provided
decides to give a training program to his
a) On the job
employees about the new machineries.
b) In the class room
i) What kind of training program should she
c) In a situation similar to actual working
provide to his employees and
environment
ii) What are the benefits does the employees
d) By the committee
gain from that training program.

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3. Improves Skill Levels of employees to ensure II. Very Short Answer Questions:
better job performance
1. What is meant by training?
a) Training 2. What is Mentoring training method?
b) Selection
3. What is Role play?
c) Recruitment
d) Performance appraisal 4. State e-learning method?

4. When trainees are trained by supervisor or by III. Short Answer Questions:

superior at the job is called
1. What is vestibule training?
a) Vestibule training
2. What do you mean by on the job Training?
b) Refresher training
c) Role play 3. 
Write down various steps in a training
d) Apprenticeship training programme.
4. Write short note on trainer and trainee.
5. 
------------- is useful to prevent skill
obsolescence of employees
IV. Long Answer Questions:
a) Training b) Job analysis 1. Define training. Discuss various types of
c) Selection d) Recruitment training.
6. 
Training methods can be classified into 2. What are the difference between on the job
training ------------training training and off the job training?
a) Job rotation and Job enrichment 3. Explain the benifits of training.
b) On the Job and Off the Job
c) Job analysis and Job design References
d) Physical and mental 1. 
J. R. Hinrichs, “ Personal Training “.
7. Case study method is --------------- type of Hand Book of Industrial / Organizational
trainee. Psychology, Rand \McNally, Chicago, 1976,
a) Only theoritical training P.856.
b) Both theory and practical training 2. 
Randall S. Schwerr, et. 91. effective
c) Hands on training personal Management Third Edition, West
d) Abservation Training publishing, New York, 1989 P.389
8. Elaborate discussion on specific topic comes 3. B.R. Virmani and Premila Seth, Evaluating
under --------------- method of training.
management. Training and Development,
a) Under study b) Coaching Vision Books, New Delhi 1985, P.170
c) Conferences d) Counseling
4. 
K. Aswathappa ‘HRM’ Text and Cases,
Answers: Mcgraw Hill Education (India) Private
Limited New Delhi. 2013 p.278 & 288
1 c 2 c 3 a 4 d 5 a 6 b 7 b 8 c
5. Dr. Sundar and Dr. J. Srinivasan, Elements of
OrganisationalBehaviour 2015, Vijai Nicole
Imprints Private Limited , Chennai

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UNIT ELEMENTS
MANAGEMENT
OF MARKETING
PROCESS
V
I
CONCEPT OF MARKETING
13
1
CHAPTER
PRINCIPLES OF MANAGEMENT
AND MARKETER

ெசய்விைன ெசய்வான் ெசயல்முைற அவ்விைன

உள்ளறிவான் உள்ளம் ெகாளல்.
-குறள் 677
COUPLET
Who would succeed must thus begin; first let him ask The
thoughts of them who thoroughly know the task.

13.01. Meaning and Definition

Learning Objectives of Market
To enable the students to understand the Meaning of Market
■ Understand the Meaning and Definition The word market is derived from the
of Market and Marketer Latin word ‘Marcatus’ which means trade,
■ Know the Need of Markets commerce, merchandise, a place where
■ Classification of markets business is transacted. The common usage of
■ Things which can be Marketed market means a place where goods are bought
■ Understand the Role and Functions of or sold. It is a medium or place to interact and
Marketer exchange goods and services. In simple words,
the meeting place of buyers and sellers in an
area is called Market.
Chapter Synopsis
The term market defined by different
13.01. Meaning and Definition of Market authors in different ways among them the most
13.02. Need for Market important are given below.
13.03. Classification of Markets Definition of Market
13.04. Meaning and Definition of Marketer i. According to Pyle “Market includes both
13.05. What can be Marketed? place and region in which buyers and sellers
13.06. Role of a Marketer are in free competition with one another.”
13.07. Functions of Marketer ii. In the words of Clark and Clark “A market
is a centre or an area in which the forces
leading to exchange title to a particular

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product operate and towards which the iv. To introduce new modes of life.
actual goods tend to travel.” v. To develop product by enhancing market
From the above definition it is observed that segment.
i. Market may mean a Place; where buying
and selling take place. 13.03.  Classification of Markets
ii. 
Buyers and sellers come together for On the basis of different approaches
transactions. markets have been classified on the basis of
Area, Nature of Goods, and Economic view,
iii. An organisation through which exchange
Transaction, Regulation, Time, Volume and
of goods takes place.
importance. The detailed classification is
iv. The act of buying and selling of goods (to presented in the following chart.
satisfy human wants).
I. On the Basis of Geographical Area
v. 
An area of operation of commercial
a. Family Market: When exchange of goods or
demand for commodities.
services are confined within a family or close
members of the family, such a market can be
13.02.  Need for Market called as family market.
i. To exchange (barter) goods and services. b. Local Market: Participation of both the
ii. To adjust demand and supply by price buyers and sellers belonging to a local
mechanism. area or areas, may be a town or village, is
called as local market. The demands are
iii. To improve the quality of life of the society.

CLASSIFICATION OF MARKETS
CLASSIFICATION

On the basis of On the basis ofGOODS On the basis of On the basis of

AREA Economics TRANSACTION

Perfect Spot
Family Commodity Capital

Imperfect Future
Produce Money
Local

Manufactured Foreign
National

Bullion Stock
World

On the basis of On the basis of On the basis of On the basis of

REGULATION TIME IMPORTANCE
VOLUME

Regulated Very short Wholesale Primary

Unregulated Short Retail Secondary

Long Terminal

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limited in this type of market. For example,

perishable goods like fruits, fish, vegetables
etc. But strictly speaking such markets are
disappearing because of the efficient system
of transportation and communication. Even,
then, in many villages such markets exist
even today.

Horse Market
c. National Market: a. Certain type of
commodities has demand throughout the
country. Hence it is called as a national
market. Today the goods from one corner
Flower Market
can reach another corner with ease as the
communication and transportation facilities
are developed well in India. This creates
national markets for almost all the products.
d. 
International Market or World Market:
World or international market is one where
the buyers and sellers of goods are from
different countries i.e., involvement of buyers
and sellers beyond the boundaries of a nation.
II. On the Basis of Commodities/Goods
Goat Market a. Commodity Market:
A commodity market is a place where
produced goods or consumption goods are
bought and sold. Commodity markets are sub-
divided into:
i. Produce Exchange Market: It is an organised
market where commodities or agricultural
produce are bought and sold on wholesale basis.
Generally it deals with a single commodity. It is
regulated and controlled by certain rules. e.g.
Wheat Exchange Market of Hapur, the Cotton
Exchange Market of Bombay etc.
Cattle Market

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ii. Manufactured Goods Market: This another without restrictions.

market deals with manufactured goods. e.g., v. The goods are identical or homogenous.
Leather goods, Manufactured machinery etc.
The Leather Exchange Market at Kanpur is an It should be remembered that such types
example of the same. of markets are rarely found.

iii. Bullion Market: This type of market b. Imperfect Market: A market is said to be
deals with the purchase or sale of gold and silver. imperfect when
Bullion markets of Mumbai, Kolkata, Kanpur i. Products are similar but not identical.
etc., are examples of such markets.
ii. Prices are not uniform.
b. Capital Markets:
iii. There is lack of communication.
New or going concerns need finance at
iv. There are restrictions on the movement of
every stage. Their financial needs are met by
goods.
capital markets. They are of three types:
i. Money Market: It is a type of market IV. On the Basis of Transaction
where short term seurities are exchanged. It i. Spot Market: In such markets, goods are
provides short term and very short term finance exchanged and the physical delivery of goods
to industries, banks, governments agencies and takes place immediately.
financial intermediates. ii. Future Market: In such markets, contracts
ii. Foreign Exchange Market: It is an are made over the price for future delivery. The
international market. This type of markets dealing and settlement take place on different
helps exporters and importers, in converting dates.
their currencies into foreign currencies and vice
versa. V. On the Basis of Regulation
i. Regulated Market: These are types of
iii. The Stock Market: This is a market
markets which are organised, controlled and
where sales and purchases of shares, debentures,
regulated by statutory measures.
bonds etc., of companies are dealt with. It is also
known as Securities market. Stock Exchanges of Example: Stock Exchanges of Mumbai,
Mumbai, Kolkata, Chennai etc., are examples Chennai, Kolkata etc.
for this type of market. ii. Unregulated Market: A market which is
III. On the Basis of Economics not regulated by statutory measures is called
unregulated market. This is a free market,
a. Perfect Market: A market is said to be a
where there is no control with regard to price,
perfect market, if it satisfies the following
quality, commission etc. Demand and supply
conditions:
determine the price of goods.
i. 
Large number of buyers and sellers are
there. VI. On the Basis of Time
i. Very Short Period Market: Markets
ii. Prices should be uniform throughout the
which deal in perishable goods like, fruits,
market.
milk, vegetables etc., are called as very short
iii. Buyers and sellers have a perfect knowledge period market. There is no change in the supply
of market. of goods. Price is determined on the basis of
iv. Goods can be moved from one place to demand.

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Village market City market Local market

Retail market Wholesale market

ii. Short Period Market: i. In certain goods, type of markets to wholesalers or consumers.
supply is adjusted to meet the demand. The Such markets can be found in villages and
demand is greater than supply. Such markets are mostly the products arrive from villages.
known as Short Period Market. ii. Secondary Market: In this market,
iii. Long Period Market: This type of market the semi finished goods are marketed. Here
deals in durable goods, where the goods and finished goods are not sold. The commodities
services are dealt for longer period usages. arrive from other markets. The dealings are
commonly between wholesalers or between
VII. On the Basis of Volume of Business
wholesalers and retailers.
i. Wholesale Market: In wholesale market
iii. Terminal Market: It is a central site
goods are supplied in bulk quantity to dealers/
that serves as an assembly and trading place
retailers. The goods and services are not sold to
for commodities in a metropolitan area. For
customers directly.
agricultural commodities, these are usually at
ii. Retail Market: In retail market the goods or near major transportation hubs.
are purchased from producer or wholesales
and sold to customers in small quantities by
13.04 Meaning and Definition
retailers.
of Marketer
VIII. On the Basis of Importance
Meaning of marketer
i. Primary Market: The Primary producers
1. One who deals in a market; specifically,
of farm sell their output or products through this
one who promotes or sells a product or service
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2. A marketer is someone whose job formula for creating a brand relationship with
involves marketing the consumers. The endorsement for the brand
3. Someone who promotes or exchanges of a company can be carried down by Cinema
goods or exchanges goods or services for money. Stars, Sports Stars, Musicians and eminent
personalities.
Definition of marketer
vi. Places: Under place marketing, tourist
“A person whose duties include the business prospects, new residents and land are
identification of the goods and services appealed to visit and particular geography by
desired by a set of consumers, as well as the promoting special characteristics of places like
marketing of those goods and services on infrastructural facilities, amusement, climatic
behalf of a company”. conditions, entertainment, culture etc.,
- Business Dictionary vii. Properties: Properties include both real
property and financial property which involve
13.05.  What can be Marketed? transfer of ownership on sale or purchase of the
Marketing is a comprehensive concept same. For eg. Constructed house, Land, Plot,
which starts from the point of creation, Building, Shares, Debentures, Mutual funds
promotion and ultimately delivering the goods etc.,
and services to consumers and businesses. The viii. Organisations: An organisation can
dynamic items that can be marketed are listed market itself in order to build an image for it
below: by sponsoring events, adoption of villages,
i. Goods: Manufactured Goods are the donations for charitable causes, corporate social
main constituent of marketing endeavor in responsibility activities etc.,
all the countries across the world. Companies ix. Information: Information is the most
and individuals market goods like consumer valuable product that can be marketed today.
durables, electronic products, machineries, The data collected by an organisation can be
Computers and its software and hardware etc., used as a product for this purpose. For eg.,
ii. Services: Not only physical goods Information collected by libraries, research
can be marketed. Even the services of many agencies, educational institutions, book
organisations can be marketed to the consumers publishers, broadcasting companies, internet,
namely banking, insurance, finance, hospitality, etc.
tourism, professional consultations etc., x. Ideas: An idea may change the world.
iii. Experiences: The unique and varied Innovative and attractive ideas are the desirable
experiences pertaining to a place or a park or products for the marketers to sell. Social media
an event can be marketed under this concept. marketing thrives on new ideas in a consistent
For eg. Amusement Park, Theme Park, manner.
Mountaineering etc.,
iv. Events: The event marketing aims at
promoting and marketing of special events,
shows, exhibitions, fairs, performances, sports
events like World Cup, Olympics, T20 etc.,
v. Persons: The marketing of goods and
services through celebrities is a successful
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13.06.  Role of a Marketer

Inte
v ator grat
o or
Inn

Imp
tor

lem
tiga

ent
Ins

r o
Role of a Marketer

The marketer plays four roles as iii. Integrator

follows Marketer plays a role of integrator in
i. Instigator the sense that he collects feedback or vital
As an instigator, marketer keenly watches inputs from channel members and consumers
the developments taking place in the market and and provides products/service solutions
identifies marketing opportunities emerging in to customers/consumers by co-ordinating
the ever changing market. He/she puts in place multiple functions of organisation.
appropriate marketing mix to capitalize the iv. Implementer
opportunity. In such a case, marketer plays as
Marketer plays a role of implementer
an instigator and leads the business toward new
when he/she actually converts marketing
directions.
opportunities into marketable product with the
ii. Innovator help of several functional teams put in place in
Marketer seeks to distinguish his the organisation.
products/services by adding additional features
or functionalities to the existing product, 13.07.  Functions of Marketer
modifying the pricing structure, introducing i. 
Gathering and Analysing market
new delivery pattern, creating new business information
models, introducing change in production
ii. Market planning
process and so on.
iii. Product Designing and development
iv. Standardisation and Grading

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v. Packaging and Labelling

Key words
vi. Branding
vii. Customer Support Services Satisfaction, Utility, Innovations,
viii. Pricing of Products Stabilizing, Distribution Preservation,
ix. Promotion and Selling Anticipated, Demand Wrapping
x. Physical Distribution
xi. Transportation
For Future learning
xii. Storage and Warehousing
To learn about:
1. - Co-operative Market
2. - Farmers Market

i. 
There is a Goat market in
Aathur in Tamil Nadu.
STORAGE WAREHOUSE
ii. There is a daily flower market
in Hosur in Tamil Nadu.

For own thinking

Mention any two Types of Markets on the

basis of Goods
Mention any two Markets on the basis of
WAREHOUSE Time

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II. Very Short Answer Questions:

Exercise 1. What is Market?
2. Define Marketer.
I. Choose the Correct 3. What is mean by Regulated Market?
Answers: 4. Mention any four differences between
1. One who promotes (or) Exchange of Wholesale Market and Retail market?
goods or services for money is called as
5. What is meant by Commodity Market?
.
a) Seller b) Marketer II. Short Answer Questions:
c) Customer d) Manager 1. What can be marketed in the Market?

2. The marketer initially wants to know in the 2. Mention any three Role of Marketer?
marketing is . 3. Marketer is an innovator? Do you agree?
a) Qualification of the customer 4. Why Customer support is needed to
b) Quality of the product Market?
c) Background of the customers 5. Explain the types of market on the basis of
d) Needs of the customers time.

3. The Spot market is classified on the basis of 6. List down the functions of Marketer?
. III. Long Answer Questions:
a) Commodity b) Transaction 1. How the market can be classified?
c) Regulation d) Time
2. How the market can be classified on the
4. Which one of the market deals in the basis of Economics?
purchase and sale of shares and debentures? 3. What is your contribution to promote the
a) Stock Exchange Market market in the modern society?
b) Manufactured Goods Market
c) Local Market
References
d) Family Market 1. Pillai, R.S.N., and Bagavathi, Modern
Marketing, S. Chand & Company Lt., New
5. Stock Exchange Market is also called Delhi, 2010.
...........................
2. Philip Kotler, Principles of Marketing,
a) Spot Market b) Local Market Prentice Hall of Indian (P) Ltd., New Delhi
c) Security Market d)National Market 2002.
Answers: 3. Sundar K. Elements of Marketing, Vijay
1 b 2 d 3 b 4 a 5 c Nicole Imprints Private Ltd., chennai, 2017.
4. www.yourarticlelibrary.com/marketing/
market-definition-and-classification-of-
markets/48772

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UNIT ELEMENTS OF MARKETING

V
MARKETING AND
14
CHAPTER
MARKETING MIX

ெபாருள் கருவிகாலம் விைனயிடெனாடு ஐந்தும்

இருள்தீர எண்ணிச் ெசயல்.
குறள் 675
COUPLET
Treasure and instrument and time and deed and place of act;
These five, till every doubt remove, think o’er with care exact.

Chapter Synopsis
Learning Objectives
14.01. Introduction
To enable the students to understand the 14.02 Evolution of Marketing
■ Introduction to marketing 14.03. Marketing Concepts
■ Evolution of marketing 14.04. Definition of Marketing
■ Marketing concept
14.05. Objectives of Marketing
■ Definition of marketing
14.06. Importance of Marketing to the
■ Objectives of marketing
Society
■ Importance of marketing to the society
14.07. Importance of Marketing to the
■ Importance of marketing to the
Individual Firms
individual firms
14.08. Functions of Marketing
■ Functions of marketing
■ Meaning and definition of marketing mix 14.09. Meaning and Definition of Marketing Mix
■ Elements of marketing mix 14.10. Elements of Marketing Mix
■ Marketing mix matrix 14.11. Marketing Mix Matrix

14.01 Introduction concerned with putting the goods into the hands of
the buyers for a price, but marketing is much wider
Marketing is one of the business functions
than selling.
that all activities that take place in relation to markets
for actualise potential exchanges for the purpose of The development of marketing is evolutionary
satisfying human needs and wants. In other words rather than revolutionary. There is no single answer
marketing is the performance of buying activities to the question of what is marketing? To understand,
that facilitate to more flow of goods and services it may be explained in brief, as “Marketing is what
from producer to ultimate user. Selling is basically a marketer does,” But this meaning lacks clarity

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in understanding the subject. The evolution of concerned with the consumer preferences,
marketing is as old as the Himalayas. It is one of the concentrated on the mass production of goods
oldest professions in the world. for the purpose of profit. They cared very little
Marketing is indeed an ancient art; it has been about the customers.
practiced in one form or the other since the days iii. Sales Orientation: The stage
of Adam and Eve. The word, marketing has been witnessed major changes in all the spheres of
defined differently by authorities in different ways. economic life. The selling became the dominant
The traditional objective of marketing had been to factor, without any efforts for the satisfaction of
make the goods available at places where they are the consumer needs.
needed. This idea was later on changed by shifting iv. Marketing Orientation: Customers’
the emphasis from “exchange” to “satisfaction importance was realised but only as a means
of human wants”. Different authors tried to give of disposing of goods produced. Competition
suitable definition from their viewpoint. Some are became more stiff. Aggressive advertising,
very broad; others are rather too narrow. Some personal selling, large scale sales promotion etc.
emphasise on the traditional view of producing are used as tools to boost sales.
goods and finding out customers, others emphasise
on the modern view that marketing must first find v. Consumer Orientation: Under this
out what customers want and then plan a product stage only such products are brought forward
to satisfy the wants. As any other subject, it has its to the markets which are capable of satisfying
own origin, growth and development. the tastes, preferences and expectations of the
consumers-consumer satisfaction.
14.02  Evolution of Marketing vi. Management Orientation: The
i. Barter System: The goods are marketing function assumes a managerial role to
exchanged against goods, without any other co-ordinate all interactions of business activities
medium of exchange, like money. with the objective of planning, promoting
and distributing want-satisfying products and
ii. Production Orientation: This was
services to the present and potential customers.
a stage where producers, instead of being

14.03.  Marketing Concepts

What I can sell?
MAKE WHAT YOU CAN SELL, BUT DO NOT TRY TO SELL WHAT
YOU CAN MAKE.
Shall I first create products?
NO, FIRST CREATE A CUSTOMER, THEN CREATE PRODUCTS.
Marketing Shall I love my products?
Concepts NO, LOVE YOUR CUSTOMERS AND NOT THE PRODUCTS.
Who is supreme in markets?
CUSTOMER IS SUPREME OR KING.
Who will shape my decisions?
CUSTOMER’S PREFERENCES SHAPE YOUR DECISIONS.

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14.04  Definition of Marketing 14.06.  Importance of Marketing

“Marketing is concerned with the people a) To the Society
and the activities involved in the flow of i. Marketing is a connecting link between
goods and services from the producer to the the consumer and the producer.
consumer”.
ii. Marketing helps in increasing the living
–American Marketing Association.
standard of people.
“Marketing is a total system of business iii. Marketing helps to increase the nation’s
activities designed to plan, price, promote and income.
distribute want-satisfying goods and services iv. Marketing process increases employment
to present and potential customers.” opportunities.
– WJ. Stanton. v. Marketing creates modern cultivators.
vi.  Marketing removes the imbalances of
“Marketing includes those business supply by transferring the surplus to deficit
activities which are involved in the flow of goods areas, through better transport facilities.
and services from production to consumption.”
vii. Marketing helps to maintain economic
- Converse
stability and rapid development in
underdeveloped or developing countries.
14.05.  Objectives of Marketing viii. 
Marketing includes all activities in the
Baker and Anshen say, “The end of all the creation of utilities-form, place, time and
marketing activities is the satisfaction of human possession.
wants”. Through the satisfaction of human ix. A reduction in the cost of marketing is a
wants, profits are rewarded to the business and direct benefit to society.
the reward is inducement for marketing. Now x. Marketing adds value of goods by changing
the time has changed and object of marketing is their ownership and by changing their
more than securing profits. time and place of consumption.
The following are the objectives of b) To the Individual Firms
marketing:
i. Marketing generates revenue to firms.
i. 
Intelligent and capable application of ii. Marketing section of a firm is the source
modern marketing policies. of information to the top management for
ii. To develop the marketing field. taking overall decisions on production.
iii. 
To develop guiding policies and their iii. 
Marketing and innovation are the two
implementation for a good result. basic functions of all businesses. The
world is dynamic.
iv. 
To suggest solutions by studying the
iv. Marketing facilities the development
problems relating to marketing.
of business and creates employment
v. To find sources for further information opportunities for people.
concerning the market problems.
vi. To revive existing marketing function, if 14.07.  Functions of Marketing
shortcomings are found. Some of the most important functions
of marketing are as follows:
vii. To take appropriate actions in the course The delivery of goods and services from
of action. producers to their ultimate consumers or

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users includes many different activities. These Functions of Physical Supply

different activities are known as marketing There are two important functions under
functions. Different scholars have described this classification: i. Transportation ii. Storage
different functions of marketing as under: and ware housing.
i. G.B. Giles described seven functions
of marketing: a. Marketing research
b. Marketing planning, c. Product development
d. Advertisement and sales promotion e. Selling
and distribution f. After sale services and
g. Public relations.
Another classification of marketing
functions is given by professors Clark and
Clark, which is widely accepted by one and all.
Functions of marketing are classified into three
types 1. Functions of Exchange 2. Functions of
i. Transportation:
Physical Supply 3. Facilitating Functions.
Transport means carrying of goods,
materials and men from one place to another.
FUNCTIONS OF MARKETING
It plays an important role in the marketing.
FUNCTIONS OF FUNCTIONS OF
It creates place utility by moving goods from
EXCHANGE PHYSICAL SUPPLY the place where they are available in plenty, to
places where they are needed. Various types
FACILITATING of transport are used for carrying goods like
FUNCTIONS
a. Land transport, b. Water transport and c. Air
transport.
Functions of Exchange: Exchange refers Innovation, Representation, Decision-
to transfer of goods and services for money’s making, and Communication are the subsidiary
worth. This process can be divided into (a) functions of management.
Buying and assembling and (b) selling ii. Storage and Warehousing:
a. Storage
Storage is another function of marketing
process and it involves the holding and
preservation of goods from the time they are
produced to the time they are consumed.
Generally, there is a time gap between the
production and consumption of goods.
Therefore, there is need for storing so as to
make the goods available to the consumers and
when they are required.
b. Warehousing
Warehouses create time utility by storing
the goods throughout the year and releasing

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them as and when they are needed. Several ii. Risk Bearing:
types of warehouses are used for storage of RISK ARISING
FROM TIME RISK
goods, which are as follows. NATURAL
CALAMITIES
(i) Private warehouses
RISK PLACE RISK
(ii) Public warehouses POLITICAL BEARING

(iii) Bonded warehouses COMPETION RISK

HUMAN RISKS
Facilitating Functions
There are the functions which help or a. Time risk
facilitate in the transfer of goods and services b. Place risk
from the producer to the consumer. They are not c. Competition risk
directly connected with the transfer of goods. d. Risk of change in demand
Under this category the following functions are
e. Risk arising from natural calamities
included.
f. Human risks
g. Political risks
iii. Market Information: According to Clark
and Clark market information means “all the
facts, estimates, opinions and other information
used in marketing of goods”.
iv. Standardization: Standardization means
establishment of certain standards based on
intrinsic qualities of a commodity. The quality
may be determined on the basis of various factors
like size, colors, taste, appearance etc.
v. Grading: Grading means classification of
standardized products in to certain well defined
classes.
vi. Branding: Branding means giving a name or
symbol to a product in order to differentiate it
Facilitating Functions from competitive products.
i. Financing: vii. Packing: Packing means wrapping and
crating of goods before distribution. Goods are
packed in packages or containers in order to
protect them against breakage, leakage, spoilage
and damage of any kind.
viii. Pricing: Pricing is perhaps the most
a. Long-term finance important decision taken by a businessman. It
is the decision upon which the success or failure
b. Medium-term finance of an enterprise depends to a large extent.
c. Short-term finance Therefore, price must be determined only after
taking all the relevant factors into consideration.

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14.09. Meaning and Definition Let us discuss these 4 elements of

of Marketing Mix marketing mix in detail.

Marketing mix refers to two things. i. Product

i. A list of important elements or ingredients Product is the main element of marketing.

that make up the marketing programme and Without a product, there can be no marketing.
“A product is anything that can be offered
ii. The list of forces having bearing on to a market for attention, acquisition, use or
marketing operations. consumption that might satisfy a want or a need’’,
Definition of marketing mix says Philip Kotler.
“Marketing mix is a pack of four sets ii. Price
of variables namely product variable, price
variable, promotion variable, and place Price is the value of a product expressed
variable”. In simple words marketing mix in monetary terms. It is the amount charged for
means a marketing programme that is offered the product. According to Philip Kotler, “Price
by a firm to its target consumers to earn profits is the amount of money charged for a product or
through satisfaction of their wants. Such a service, or the sum of the values that consumers
marketing programme is a mixture of four exchange for the benefits of having or using the
ingredients, namely Product mix, Price mix, product or service”.
Place (Distribution)mix and Promotion mix. Factors affecting Price of product / service
- Mr. Jerome McCarthy, a. Internal Factors:
1. Marketing Objectives
14.10 Elements of Marketing of Mix 2. Marketing Mix Strategy
3. Organizational considerations
4. Costs
Channel List Price 5. Organization Objectives
Inventory Discount
Distribuon Terms & b. External Factors:
Logiscs Condions 1. The market and demand
PLACE PRICE 2. Competition
3. Customers
Markeng 4. Suppliers
Mix 5. Legal factors
6. Regulatory factors
PRODUCT PROMOTION iii. Place (Physical Distribution)
Future An excellent quality product, with a competitive
Adversment
Brand
Promoon price structure, backed up by efficient
Service
Sales Force promotional activities, will be a waste if it is not
Innovaon
Packaging moved from the place of production to the place
Style & Image
of consumption at an appropriate time. The
fourth element of product mix, namely place or

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physical distribution facilitates the movement of

products from the place of manufacture to the
PERFOR
place of consumption at the right time. MANCE
iv. Promotion PEOPLE

An excellent product with competitive

price cannot achieve a desired success and MODERN
acceptance in market, unless and until its special MARKETING
features and benefits are conveyed effectively to MIX
the potential consumers.
PROCESS
ADVERTISING
PROGRAMME
INTERNET
TELEVISION The principle of the 4P Matrix is that
marketing decisions usually fall into four
RADIO controllable categories: product, place, price
PRINT and promotion. Carefully positioning the
product in each category will generate a better
NEWSPAPER response from the target market.
BILLBOARD
MAGAZINE Key words
Assurance, Dominant, Potential,
Perishable, Completion,  Surplus,
Advertisement Media determined, consumption,   Unique,
Grading, Necessity
14.11.  Marketing Mix Matrix

i. There is a weekly market for

Fire wood in Karaikudi
PRICE PRODUCT ii. There is a Annual Market
for  Horse in Andhiyur in
Tamil Nadu.

TRADITIONAL
PROMOTION

MARKETING For own thinking

MIX
i. Mention any two man made risks in
Marketing
ii. 
Mention any two natural risks in
PLACE Marketing

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a) Education b) Mobiles
For Future learning
c) Garments d) Vehicles
i. To organise a Model Marketing
Answers:
Practices in your class with some kind
1 c 2 a 3 c 4 c 5 a
of goods and services
ii. To arrange and invite a marketing II. Very Short Answer Questions:
practitioner and good speakers for 1. Define Marketing Mix.
guest lectures about success and
2. Give any two internal factors affecting the
failures of market
price of product / service.
3. Define Product.

III. Short Answer Questions:

Exercise
1. What are the objectives of marketing?
2. What is need for market and explain the
I. Choose the Correct Answers: concept of marketing?

1. The initial stage of Marketing system 3. What are the factors affecting Price of
is……………………. Product?

a) Monopoly system 4. What do you mean by marketing mix?

b) Exchange to Money Describe any two elements.
c) Barter system IV. Long Answer Questions:
d) Self producing 1. Discuss about the Evolution of marketing.
2. Who is supreme in the Market? 2. Why the marketing is important to the
a) Customer b) Seller society and individual firm? Explain.
c) Wholesaler d) Retailer 3. Narrate the Elements of Marketing mix.

3. In the following variables which one is not 4. What is Marketing?

the variable of marketing mix? 5. State to advantages of warehousing.
a) Place Variable 6. How market information is helpful to
b) Product Variable invention of new product in the market?
c) Program Variable
d) Price Variable References
1. Pillai, R.S.N., and Bagavathi, Modern
4.
Marketing mix means a marketing
Marketing, Principles and Practices, S.
program that is offered by a firm to its Chand and Company Ltd., NewDelhi,
target……………………. to earn profits 2010.
through satisfaction of their wants.
2. Philip Kotler, Principles of Marketing.
a) Wholesaler b) Retailer
3. Sundar K. Elements of Marketing, Vijay
c) Consumer d) Seller
Nicole Imprints Private Ltd., chennai, 2017.
5. Which one is the example of Intangible
product?
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UNIT MARKETING
V
RECENT TRENDS IN
15
CHAPTER
MARKETING

ஞாலம் கருதினுங் ைககூடுங் காலம்

கருதி இடத்தாற் ெசயின்.
குறள் 484
COUPLET
Though (a man) should meditate (the conquest of) the world,
he may accomplish it if he acts in the right time, and at the
right place.

15.03 E-Tailing
Learning Objectives 15.04 Green Marketing
To enable the students to understand the 15.05 Social Marketing
■ Meaning and definition of E-Business 15.06 Rural Marketing
and E-Commerce 15.07 Service Marketing
■ Objectives , advantage and disadvantages 15.08 Commodity Exchanges
of E-Marketing 15.09 Niche Marketing
■ Concept of Green, Niche, Ambush and 15.09 Viral Marketing
Referral Marketing
15.10 Ambush Marketing
15.11 Guerrilla Marketing
Chapter Synopsis
15.12 Multilevel Marketing
15.01 Recent Trends in Marketing 15.13 Referral Marketing
15.01 (i) Electronic Commerce 15.14 Content Marketing
(E-Commerce)
15.01 (ii) E-Business
15.01 Recent Trends in Marketing
15.01 ( iii )E-Commerce VS E-Business The market scenario in the world today is
15.02 E-Marketing changing very rapidly. The boundaries of nations
are disappearing for exploiting the opportunities
15.02.(i) E-Marketing – Definition
of business. Today’s customers are global and
15.02.(ii) Objectives of E-Marketing
exhibit international characteristics. Because of
15.02.(iii) Advantages of E-Marketing developments of information technology, rapid
15.02.(iv) Disadvantages of E-Marketing means of transportation, liberalization, and
15.02.(v) E-Market v/s Traditional Market mobility of people across the world, their buying

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habits are fast varying and so are the fortunes of earning profit and acquiring wealth through
various organisations. In the Globalised business the satisfaction of human wants is known as
environment, the marketer must move goods business. Electronic business (e-business) via,
faster and quicker to satisfy the consumers’ needs web, internet, intranets, extranets or some
and wants by serving the best quality goods and combination thereof to conduct business. In
services. Therefore marketers are shifting from simple words, if all the business transaction
transaction thinking to relationship building and carried out through internet and other online
also focusing on life long customers. So, marketer tools is called E-business
has given more emphasis on the notion, “offer more
for less” and adopt different strategies to satisfy the
consumers. It is possible to carry out all the business
transactions over an electronic network, primarily
through the internet. The number of internet users
is increasing very rapidly. They use a variety of
tools like computers, laptops, tablet and smart or
android phone devices to access different websites.
Besides the social media networks have opened
new avenues of interacting with customers.

15.01  (i) Electronic Commerce

(E-Commerce) (iii ) E
 -Commerce Vs E-Business
E-commerce simply refers to the buying
and selling of products and services through
online but E-business goes a way beyond the
simple buying and selling, of goods and service
and much wider range of business processes,
such as supply chain management, electronic
order processing and customer relationship
management. E-Commerce and E-Business is
used interchangeably in its broader meaning
just as commerce and business.

It is well known that business is a branch of 15.02 E-Marketing

commerce. It looks after the distribution aspect
of the business and also is concerned with the
exchange of goods and services. If all activities,
which directly or indirectly facilitate that exchange
of goods done through internet and other online
environments is known as Electronic Commerce
(EC) or simply as E-Commerce.

(ii) E-Business
The regular production or purchase and
sale of goods undertaken with an objective of
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Electronic Marketing or E-Marketing (iii) Advantages of E-Marketing

is the process of marketing of products and
1. Any Time market: E - Marketing provides 24
services over internet and telecommunication
hours and 7 days “24/7” service to its users.
networks. In simple terms, marketing strategies
So consumer can shop or order the product
and techniques which are utilised to access target
anytime from anywhere.
customers through online mode are referred to
E-marketing. E-marketing includes use of internet 2. 
Direct contact of end consumer by the
for all the activities of advertising, promotion manufacturers cuts down the substantially
publicity, channel of distribution, marketing intermediation cost. Thus products bought
research to find out customers’ needs and wants. through e-marketing become cheaper.
Electronic marketing is interchangeably used to 3. Customer can buy whatever they want/ need
mean online marketing, web marketing, internet just by browsing the various sites.
marketing and digital marketing
(iv) Disadvantages of
15.02.  (i) E-Marketing - Definition E-Marketing
According to Judy Strauss, “E-marketing 1. High Cost for E- marketing which requires
refers to application of broad range of information a strong online advertising campaign a for
technology for creating more customer value which company has to spend large amount.
through more effective segmentation, targeting, The cost of web site design, software,
differentiation and positioning strategies, hardware, maintenance of business site,
planning more efficiently and executing the online distribution costs and invested time,
conception, distribution, promotion and pricing all must be factored into the cost of providing
of goods, services and ideas; and creating service or product online.
exchanges that satisfy individual consumer and 2. It is not suitable for small size business and
organization's consumer objectives”. also deters customers from buying who lives
“E-Marketing is achieving marketing on long distances.
objectives through use of digital technologies
3. 
While the number of customers are
like Internet, word wide web, email, wireless
continuously growing, companies hardly
media, and management of digital customer data
update the information on website.
and electronic customer management systems
(E-CRM)” 4. 
Many buyers are suspicious about the
security of the internet. As a result, many
(ii) Objectives of E-Marketing visitors of business web sites, do not like to
The following are the objectives of use their credit card to make a purchase. So
E-Marketing there is a fear of their cards being misused by
fraudulent practitioners.
1. Expansion of market share
2. Reduction of distribution and promotional
expenses.
3. Achieving higher brand awareness.
4. Strengthening database.

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(v) E-Market Vs Traditional Market

E-Marketing Traditional Marketing
It is very economical and faster way to promote It is very expensive and takes more time to
the products. promote product.
It is quiet easier for promoting product globally It is very expensive and time consuming to
in the short time. promote product/ service under traditional
marketing.
E-Business enterprises can expand their It needs more man power.
operation with minimum manpower.
In this marketing product can be sold or bought That is not possible in traditional marketing.
24 x 7, round the year with minimum manpower

15.03 E-Tailing 15.04  Green Marketing

Green marketing implies marketing

E-tailing or electronic retailing refers
environmentally friendly products. Green
to selling of goods and services through a
marketing involves developing and promoting
shopping website (internet) or through virtual
products and services which satisfy customers’
store to the ultimate consumer. Just as a physical
wants and needs for quality, performance,
store displays its products in windows and
affordable pricing and convenience – all without
attracts the customer towards it, the shopping
causing a detrimental impact on the environment.
website displays the images of the products
It refers to holistic marketing concept with
and highlights features and benefits along with
growing awareness about the implications of
attractive offers and lures the customer to buy
global warming, non-biodegradable solid waste,
the product. The customer buys the product by
harmful impact of pollutants etc. Green marketing
paying through credit card or other methods
is also known as environmental marketing,
mentioned at the shopping website. The
ecological marketing eco-friendly marketing and
customer receives the product at their preferred
sustainable marketing. Consumers are beginning
address through courier service. E-tailing is a
to recognize that competition in the market place
business to consumer (B2C) transaction model.
should not be among companies harming the
E-tailing is also called online retailing
environment but among those making to save it
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15.05  Social Marketing exchange with rural customers to satisfy their

needs and wants. Rural marketing has got
a lot of untapped potential improvement in
infrastructure it is supposed to open great
opportunities for rural market. Rural marketing
is now a two-way marketing process. There
is inflow of products into rural markets for
production or consumption and there is also
outflow of products to urban areas. The urban
to rural flow consists of agricultural inputs,
Social marketing is a new marketing tool. fast-moving consumer goods (FMCG) such as
It is the systematic application of marketing soaps, detergents, cosmetics, textiles, and so on.
philosophy and techniques to achieve specific The rural to urban flow consists of agricultural
behavioural goals which ensure social good. For produce such as rice, wheat, sugar, and cotton.
example, this may include asking people not to There is also a movement of rural products
smoke in public areas, asking them to wear seat within rural areas for consumption
belts or persuading them to follow speed limits.
The primary aim of social marketing is ‘social 15.07  Service Marketing
good’ such as anti-tobacco, anti-drug, anti-
pollution, anti-dowry, road safety, protection
of girl child, against the use of plastic bags.
Social marketing promotes the consumption of
socially desirable products and develops health
consciousness. It helps to eradicate social evils
that affect the society and quality of life

15.06  Rural Marketing

A service is any activity or benefit

that one party can offer to another which
is essentially intangible and which does
not result in the ownership of anything like
business and professional services insurance,
legal service, medical service etc. Service
marketing is a specialized branch of marketing.
Rural marketing is a process of developing Service marketing denotes the processing of
pricing, promoting and distributing rural selling service goods like telecommunication,
specific goods and services leading to derived banking, insurance, car rentals, healthcare,
tourism, professional services, repairs etc.,

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The service products are mostly intangible, needs of niche market. A niche market does not
inseparable from service provider and service mean a small market, but it involves specific
variable depending on the mood swing of target audience with a specialized offering. It
service providers perishable in quick time, aimed at being a big fish in a small pond instead
unstandardisable and deliverable directly from of being a small fish in a big pond. For example,
service provider without inter-median. The there are various cinema halls across India,
unique characteristics of services marketing but there are few which have recliner seats to
warrant different strategies compared with the offer. Not everybody wants to watch a movie by
marketing of physical goods paying 5x-6x times the cost of a normal ticket.
The sports channels like STAR Sports, ESPN,
15.08  Commodity Exchanges STAR Cricket and Fox Sports target the niche
A commodity exchange is an organized market of sports enthusiasts.
and regulated market that facilitates the
purchase and sale of contracts whose values 15.09  Viral Marketing
are tied to the price of commodities (e.g. crude
oil, natural gas, copper and gold). Typically,
the buyers of these contracts agree to accept
delivery of a commodity, and the sellers agree
to deliver the commodity

15.09  Niche Marketing

Viral marketing is marketing technique

that impels the users to pass on a marketing
message to other users, creating a potentially
exponential growth in the message’s visibility
and effect. Viral marketing is able to generate
interest and the potential sale of a brand or
product through messages that spread quickly
like a virus from person to person. Messenger
message and the environment are vital element
indispensable in spreading message widely
across various distance Hotmail Company
Niche marketing denotes a strategy of owned by Microsoft promote the services and
directing all marketing efforts towards one well advertisement message instantly. The most
defined segment of the population. Actually widespread example in recent times is the
there is no market in niche market. It is found by creation of moving, surprising or spectacular
company, by identifying the need of customers videos on YouTube, which are then shared on
which are not served or under served by the Facebook, Twitter and other channels.
competitors. The company which identified
niche market develops solution to satisfy the

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15.10  Ambush Marketing to sales. It is suited to small companies which

cannot set apart big advertisement budget.

Ambush marketing technique is a new

technique whereby a particular advertiser
seeks to connect his product to the event in
the mind of potential customer without paying
sponsoring expenses to the event. In other
15.12  Multilevel Marketing
words it is a method of building brands in covert
ways. For example X has sponsored a football
event to promote his brand. Every time camera
zooms on reference, a group of people sitting
on the bench wearing ‘Y’ company brand name
imposed shirt comes into focuses. In this case
‘Y’ company promote its brand at X’s companies
expenses. Bigger companies engage in ambush
marketing tactics to undermine official event
sponsors.

15.11  Guerrilla Marketing

The concept of Guerrilla Marketing
was invented as an unconventional system Multilevel Marketing is the marketing
of promotions that relies on time, energy strategy wherein the direct sales companies
and imagination rather than a big marketing encourage its existing distributors to recruit
budget. Guerrilla marketing represents an new distributors to facilitate the sale of goods
advertisement strategy to promote products/ and services. The distributor is compensated
services on streets or other public places with not only for the sales generated by him but
monkey like shopping malls, parks beach etc., also gets a percentage on sales revenue of the
Consumers/ customers are taken by surprise to other distributor he recruits, thus; a multilevel
make a big impression about the brand which marketing is a type of direct selling wherein the
in turn creates buzz about the brand on shirts it distributor sells the product via relationship
create a memorable experience in the mind of referrals and word-of-mouth marketing.
target audience which triggers good responses The salespersons or distributor not only sell
the products but also encourage others to

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join the company. The recruits are called as

the participant’s “Downline” or distributor’s
“Downline”. Example, Tupperware, and Amway
are the direct sales companies that use the
multilevel marketing. The multilevel marketing
is also called as a network marketing, referral
marketing or pyramid selling. For instance
‘A’ sells to ‘B’ a product. In these sales ‘A’ gets
commission on sale to ‘B’ who in turn sells to ‘C’,
D, and E. A gets certain percentage commission
on B’s sales to C,D, and E.
Key words
15.13  Referral Marketing
Electronic Marketing  e-tailing
Green Marketing  Social Marketing
Rural Marketing  Services Marketing
Commodity Exchanges  Niche market
Guerrilla Marketing  Referral Marketing
Content Marketing

1. Major E-Tailers in India

The major e-tailers in India include
Referral marketing is the method Amazon. flipkart, snapdeal,
of promoting products or services to new paytm, eBay, jabong, myntra (now flipkart’s),
customers through referrals. Referral marketing shopclues, pepperfry, horneshop18, zovi,
is refer to spreading the word about a product or zomato, infibeam, firstcry, indiatimes shopping.
service through existing customers of business tradus, futurebazaar, koov, best stylish. zoomin,
enterprises rather than through traditional naaptol, shimply, olx and yebhi.corn.
advertising. Word-of-mouth marketing, which
2. Tools of E-Marketing: The followings
occurs when others tell each other about a
are some tools of E-marketers: Online
business, is also considered to be a form of
advertising, Affiliate marketing, Referrals,
referral marketing.
Viral marketing, Content marketing, Search
15.14  Content Marketing engine and E-mail marketing.
3. Pure Play e-retailers: Pure Play e-retailers
Content marketing is said to be the art of
sells products only online and do not have
communicating with customers and prospects
any physical outlet for the customers.
without selling. The Content Marketing institute
calls it non-interruption marketing. Under 4. Brick and click e-retailers: Some
this concept products/ services are presented E-retailers sells products through the
impressively to target market which respond to internet as well as has the physical store
the content delivered in the form of good sales front for the customers.
response and greater loyalty. 5. Manufacturer E-Tailers : Manufacturers
sell directly online.

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For Future learning For Future learning

1. Think about new methods of marketing www. Market. con

beyond electronic marketing method.
2. Design marketing model that over comes
the mall culture and virtual marketing.
Exercise
For own thinking (Green Practices)

1. Encourage family members, friends and

relatives to use "real" mugs, glasses, dishes
I. Choose the Correct Answers:
and cutlery rather than disposables. 1. Selling goods/ services through internet is
2. Practice sourcing and purchasing the a. Green marketing b. E- business
least or not environmentally damaging c. Social marketing d. Meta marketing
goods (green procurements). 2. Which is gateway to internet?
3. Look for and purchase green products a. Portal b. CPU
such as staple-less staplers and pens that c. Modem d. Webnaire
can be refilled repeatedly rather than
sent to a landfill. 3. Which one represents a cluster of
4. Save paper by avoid unnecessary manufacturers, content providers and online
printing, by printing on both sides of a retailers organised around an activity?
sheet of paper whenever possible. a. Virtual mall b. Association
5. Do not leave your home or school lights c. Metomediary d. Portal
on overnight Turn the lights off in rooms 4. Social marketing deals with:
when they're not in use. Replace bulbs a. Society b. Social Class
with compact fluorescent lamps (CFLs) c. Social change d. Social evil
or LED bulbs wherever possible. These
use 75 percent less energy. 5. Effective use of Social media marketing
increase conversion rates of -
a. Customer to buyers
WAYS TO REDUCE WATER USAGE IN b. Retailer to customers
SCHOOL/HOME PREMISES
c. One buyer to another buyer’s
Fixing dripping taps, plumbing d. Direct contact of marketer
leaks, and installing low-flow toilets and 6. A company’s products and prices is visually
low-flow faucet aerators in washrooms. represented by
uses a sprinkling system converting to a
a. Shopping cart b. Web portal
drip system will dramatically reduce water
c. Electronic catalogue d. Revenue model.
usage
Toyota's marketing of the Prius 7. Green Shelter concept was introduced by
hybrid. Volkswagen/Mercedes-Benz’ group:
marketing of its vehicles as "clean diesel" a. ACME b. Tata
"Earth Friendly" vehicles. c. Reliance d. ICI

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8. Pure play retailers are called 4. Elucidate how E-Commerce differs from
a. Market creators E-Business.
b. Transaction brokers 5. Explain in detail about Niche marketing.
c. Merchants
d. Agents IV. Long Answer Questions:
Answers: 1. Explain in detail how traditional marketing
differ from E-marketing
1 b 2 c 3 c 4 c 5 a 6 c
7 a 8 b 2. Explain advantages and disadvantages of
E-tailing.
II. Very Short Answer Questions: 3. Describe the various strategies pursued in
1. What is E business? recent day’s marketers.
2. What is green marketing? 4. Compare the concept of social marketing
3. What is service marketing? with service marketing.

4. Define E-Marketing. 5. Disscuss any two new methods of marketing

with it's advantages.
5. What is E-Tailing?
6. What is Social marketing? References
1. Essentials of Marketing –Dr.K.Sundar -
III. Short Answer Questions: Vijay Nicole publication
1. What is B2B and B2C type of E-Commerce?
2. Modern Marketing Principles and Practices-
2. Explain the importance of social marketing. by Pillai R.S.N. and Bagavathi – S.Chand
3. Discuss the objectives E-Marketing publication.

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UNIT MANAGEMENT
CONSUMER PROTECTION
PROCESS
VI
I

16
1
CHAPTER
PRINCIPLES
CONSUMERISM
OF MANAGEMENT

அழக்ெகாண்ட எல்லாம் அழப்ேபாம் இழப்பினும்

பிற்பயக்கும் நற்பாலைவ.
-குறள் 659
COUPLET All that has been obtained with tears (to the victim) will
depart with tears (to himself); but what has been by fair
means; though with loss at first, will after words yield fruit.

The nature of society was monoistic

Learning Objectives
and its needs were very limited. Before
To enable the students to understand the industrial revolution most of the people lived
■ Exploitation of consumers in rural areas and the farmers produced the
■ Meaning and definition of consumerism substantial portion of the goods consumed
■ Evolution of consumer movements by them. Businesses were small and the
■ Consumer Protection Act, 1986 manufacturers produced only those items
which could not be produced in agriculture.
As the nation became industrialised and the
Chapter Synopsis society becoming pluralistic, the raw materials
changed their characters through advanced
16.01 Consumer technology. New products appeared and
16.02 Consumer Exploitation consumers’ dependence of business increased.
16.03 Consumerism and Need for Consumer dependency and business
Consumerism responsibility are the two sides of a coin. The
16.04 Importance of Consumerism producer, the consumer and the government
16.05 Origin, Evolution and Growth of are the three constituent elements of business.
Consumerism The consumer is the most exploited constituent
16.06 Consumer Protection in the business world. This lesson explains
16.07 Need for Consumer Protection about the consumer exploitation and consumer
16.08 Consumer Legislation protection.
16.09 The Consumer Protection Act, 1986
16.10 Caveat Emptor
16.11 Caveat Venditor

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16.01 Consumer customer is worried, and harmed till buried

about the quality, quantity, price and the
A consumer is one who consumes goods
timeliness of the supply of goods and services
manufactured and sold by others or created they need.
(air, water, natural resources) by nature and
sold by others. One, who avails services such as
16.02  Consumer Exploitation
banking, transport, insurance, etc., is also called
a consumer. In other words, a consumer is an Some of the ways in which consumers are
being exploited are enumerated hereunder:
individual who consumes goods- manufactured
by firms or created by nature air, water etc. 1. Selling at Higher Price
and services offered by government or firms, The price charged by the seller for a product
hospitals, educational institutions etc., service may not be commensurate with the
quality but at times it is more than the fair price.
Meaning of Consumer under The Indian
Even though sellers have surplus or adequate
Consumer Protection Act, 1986
goods they create artificial scarcity in the market
A person who buys any goods or services with an intent to push up the prices. As a result,
for a consideration which has been paid or consumers are forced to buy the short supply of
promised or partly paid and partly promised goods at higher prices in the black market.
or under any system of deferred payment is a
consumer. 2. Adulteration

A person who obtains such goods for It refers to mixing or substituting undesirable
resale or for any commercial purposes will material in food. This causes heavy loss to the
not be a consumer. However, if such goods consumers. This will lead to monitory loss
are bought by a person exclusively for the and spoil the health. But adulterators make
purpose of earning his livelihood by means of illegitimate profit while prudent businessmen
self-employment then such a person will be aim at normal profit whenever unscrupulous
considered a consumer. traders seek to reap higher profit out of
greed, they seek to adulterate the products.
In theory, all business enterprises consider Adulteration is quite common in food articles.
consumer’s satisfaction as their main objective. It is a crime which cannot be pardoned as it
A consumer is said to be the king and the spoils the very health of consumers
businessmen are primarily supposed to serve
and satisfy customers. The consumer occupies
the central position in the entire scheme of free
economy; consumers have not always received FENNEL SEEDS CUMIN SEEDS PURE ADULTERATED

the attention they deserve. In reality consumers

are cheated and exploited in many ways. In the
practical world, a consumer is a ‘slave’ and not PURE ADULTERATED

the ‘sovereign’ as described.

The consumer’s well-being or the welfare
lies in the fulfilment of their normal, legitimate,
interests, expectations and aspirations as to
goods and services they need. Each and every

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Example: plenty of stock in the store. In such situations

1. Chemicals,
 detergent chalk, urea caustic consumers who are desperate to buy such goods
soda, etc. are added to make the milk dense have to pay hefty price to buy those goods and
and white. thus earning more profit unconscientiously.
Even in Cinema houses, board may hang in the
2. Mixing of stones with grains
main entrance ‘House Full’ while cinema tickets
3. Mixing of coconut oil with palmolein will be freely available at a higher price in the
4. Honey is adulterated with water and table black market.
sugar to enhance the quantity
5. Sub-standard
5. powdered
 rice/wheat is adulterated with
starch On opening a packet or sealed container
one may find the content to be of poor quality.
6. Coffee powder is adulterated with tamarind
If defective or damaged items are found in a
seed
pack, a consumer finds it difficult to exchange
7. Spices
 like turmeric powder is adulterated the defective one for good one and consumers
with methanol have to blame for lack of attention one cannot
8. Papayas seed is added to black pepper return it and the consumers have tendency
9. Chilli
 powder is adulterated with brick to blame their carelessness or fate for having
powder bought such sub-standard product. Whenever
goods are bought, seller try to avoid raising bill
or consumers do not demand bill as a matter
of right. This prevents the consumers from
escalating the complaint against the seller where
the product happens to be sub-standard. Some
seller give bills which contain a stipulation that
goods sold cannot be taken back. Thus gullible
consumers are easily and legally cheated.
6. Product Risk
3. Duplicate or Spurious goods
Duplicate products of popular products Factors Exploing Consumers

are illegally produced and sold. Duplicates Imposion of Unfair

Terms and Condisons
Underweight and
Under measurement

are available in plenty in the market for every Substandard Products Charging High Prices

original and genuine parts or components like Duplicate Arcles Adulteraon & Impurity

automobile spare parts, blades, pens, watches, Lack of Safety Devices Unsasfactory a‚er Sales Support

radios, medicines, jewellery, clothes and even

Arficial Scarcity False or Incomplete Informaon

for currency notes. Duplicate medicines are Rought Behaviour

sold in large measure, from Cape to Kashmir.

A consumer is not in a position to distinguish Whenever the usage of goods is likely
duplicate from the original. to cause danger or hurts to customers,
4. Artificial Scarcity manufactures have to forewarn the consumers
of various sources of dangers involved in the
There are certain situations where the products and the precautionary measures to
shop-keepers put up the board ‘No Stock” be taken by the consumers. In absence of such
in front of their shops, even though there is information or warnings consumers are more

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likely to encounter risks while using the risky

products.
7. Warranty and Services
In case of consumer durable goods like
televisions, washing machines, refrigerators,
cars, two wheelers and air conditioners etc. free
service is guaranteed only for few years called
warranty period. But in reality free service
Thus consumerism has emerged and
are denied on flimsy grounds even during the
evolved out of outcome of sufferings and
warranty period. Customer care service is likely
exploitation of consumers, whose sole aim
to be rendered the shorter warranty period only
is to secure protection from commercial
for select few items which the manufacturers
terrorism and exploitative practices and thereby
know pretty well that they do not get damaged
safeguarding their interest by establishing the
during such period .Warranty service may not
rights and powers against producers and sellers.
be extended to many parts/components of the
product sold. Thus consumers may be charged
exorbitant charges in the name of repair costs. 16.03 
Consumerism and Need
8. Unsuitability of Products
for Consumerism
Concept of Consumerism
The product quality, durability and
suitability may come under the category It is the social force protecting the
of product fitness. What is claimed by the consumer and aiding the consumer. In other
product advertiser must correspond to the words, it is an organised effort to fight against
products sold. But in actual practice, it is not the unfair marketing practices with a view to
so. Items unsuitable for human consumption secure consumer protection. Consumerism is
are sold in the market. Some items marked as the society’s attempt to bring back the balance
“unbreakable’’ break while using them. Battery in the exchange between the buyers and sellers
having a label ‘leak proof ’’ is more likely to as the strength of power is normally in favour of
leak. In all these eventualities users/consumers sellers rather than buyers.
have to bear the consequences while producers/ The term consumerism came into
manufacturers escape utilising the loopholes in existence in the early 1960s when it was coined
the legal system. by the business community in the western world
9. False Advertisements particularly in America. It is the social force
designed to protect the interest of consumers by
The main purpose of advertisement is to
organising the consumers to bring pressure on
educate the consuming public and customers of
the business community to ensure protection.
various aspects of the products/service. In reality,
advertisements convey very little information Producers, sellers and service providers
about the product. Many times it makes false give importance to the consumers. In a sense
representation about the quality, price, grade, every one of us is a consumer. It may be
composition, utility guaranteed, performance individuals, families and institutions. They
etc. Consumers who buy the products on the consume a variety of products and avail a
faith of claims made in advertisements are number of services almost every day. You buy
cheated.

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textbooks, notebooks, pen and other stationery stuffs its profits and guff the consumer
items for your studies. Sometimes one–quire satisfaction. To illustrate a few of this kind, these
notebooks you buy do not contain 192 pages can be – supply of unsafe products, adulteration,
and the pencil is not of a good quality. Have you fictitious pricing, defective and deceptive
not been dissatisfied and heated over these when packing and packaging, false and misleading
you have paid a fair price? Thus, a consumer is advertisements and sales literature, hoarding,
one who consumes goods manufactured and profiteering, black-marketing, price collusion,
sold by others misuse of brands, planned obsolescence, short
The term consumerism was first coined measures and weights, release of those goods
by businessmen in the mid 1960s as they which are not really wanted by the consumer
thought consumer movement as another “ism” nor can they afford, face lifting of products and
like socialism and communism threatening the like.
capitalism.
SIGNIFICANCE OF
“Consumerism is an attempt to enhance
the rights and powers by buyers in relation to
CONSUMERISM
sellers” 16.04  Importance of Consumerism
-L. Massie Importance of consumerism lies in
Consumerism means “the actions of
1. Awakening and uniting consumers.
individuals and organisations (consumer,
government, and business) in response to 2. Discouraging unfair trade practices.
consumer’s dissatisfaction arising in exchange 3. Protecting against exploitation.
relationship”.
4. Awakening the government.
– William Stanton 5. 
Effective implementation of consumer
“Consumerisms not limited to organised protection laws.
efforts only but, is a social movement seeking
6. Providing complete and latest information.
to augment the rights and powers of buyers in
relation to sellers”. 7. Discouraging anti-social activities

– Philip Kotler 16.05 Origin, Evolution, and

“Organised efforts of consumers Growth of Consumerism
seeking redress, restitution and remedy for Origin
dissatisfaction they have accumulated in the
In the beginning of 20th century industrial
acquisition of their standard of living”.
economy reached a boom state. The early
-Richard H Buskirk and James 20th century marked a period of reform and
In other words, consumerism refers to expansion in many areas as well. Advertising
protest against business injustices and to efforts and consumer consumption would become big
at correcting these injustices. Consumerism areas of reform and expansion with the growth
as a protest against unfair business practices of industry and consumer reform societies to
and injustices, aims at removing or uprooting the outcry for more truthful advertisement.
them or reducing them if not eliminating them Progressives, Women’s movements and Henry
totally. There are countless injustices and unfair Ford and his assembly line would become
practices on which the business community characteristic icons of the time. As consumers

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took a closer look into the products they were market,” but in fact he is not. The majority of
buying and working class persons began to the Indian problems relating to consumers are
demand better working conditions, America hit adulteration, artificial scarcity, unreasonable
a cross roads between industry and consumer prices etc.
satisfaction. Industrial reform for consumers There are different religious customs,
would be an answerable to inconsistencies that traditions, and languages in India; and about
existed between product, price, and consumer three fourth of population live in rural areas,
satisfaction. The first consumer wave marked where cultivation is the source of livelihood,
a shift toward recognition “the centrality of and there is wide disparity in the income of
consumers to the nation’s economy and polity people. Majority of the people are mostly
(Cohen)” The companies began to make efforts illiterate and have low income. In order to save
towards targeting consumers on a more massive or protect them, against exploitative practices of
scale. trade, consumerism has emerged and has been
Progressives, as well as other American accepted as a defensive force to safeguard the
citizens began to realise the value in fighting interest of the customers.
for better quality goods. Consumers should be Evolution of Consumerism
guaranteed for some type of accountability from
industries in their quality for food and goods The major causes of consumerism in
quality. Middle class progressive women began India have been identified as rising prices,
organisation like ‘The National Consumers poor product performance and service quality,
League’ (NCL) in response to the substandard product shortages and deceptive advertising
quality of goods and the lack of involvement by and inflation. Government has been very
the government in protecting consumers against responsive to the consumer needs through
terrible food and other goods conditions. legislative actions. Economic discontent has
been generated out of spiralling inflation. Thus
The majority of the consumers in it has become necessary for the consumers
advanced countries are well educated, well – to stand up for their rights through effective
informed and are in a position to protect them. organisation in order to redress the grievances.
But our Indian situation is entirely different The word consumerism came into existence in
from the western, where adequate production the year 1960.
and proper distribution of products exist. In
India, industries have not achieved the level of Growth
affluence of technology and the existing markets Consumerism or consumer movement is
of products run in shortages, adulteration, and an outcome of sufferings, and exploitations of
black market prices. Indian people have less consumers. It intends to shield the consumers
money at their disposal. The profit making from commercial terrorism and exploitative
attitude of the business failed to discharge practices. Its aim is to safeguard their interests
social responsibilities of maintaining fair by establishing their rights and powers in
price, quality of goods and providing services relation to products and sellers.
etc. In short, consumerism is an outcome of
Mr. Ralph Nader pioneered the fight
sufferings and exploitation of consumers and
against monopoly and unethical trade practices
some businessmen aim to make abnormal
of large companies in the United States. He is
profit, which is at the cost of consumer’s safety
considered to be the father of the Consumer
and health. However, it has been accepted
Movement. He initially fought against automobile
and agreed that “A consumer is a king of the
industry for violating safety standards and
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pollution control norms. But today, in almost Both voluntary measures and law serve
all countries the consumer movement is well as tools to protect consumer’s interest. Self-
developed. Countries like Britan, Sweden, regulation, Consumer Associations, Alert
Netherlands, Denmark and even in Kenya have consumer, and State Support are some of the
stringent laws against consumer exploitation in means of consumer protection. Individual
their respective countries. The United Nations consumer is considered more vulnerable, in the
General Assembly has adopted a set of general modern world, to exploitation and harassment
guidelines for consumer protection. by the manufacturers and distributors or sellers
because of environmental complexities of
business operations, technological changes,
application of mass production techniques,
vast resources, man-power and acrimonious
advertising, Hence it is necessary to protect and
promote the consumer interest. Satisfaction and
well being of the consumer should be the main
objective of all business units. In real practice,
consumer is not protected or safeguarded but,
consumer is cheated and looted. Thus, there is
a need for consumer movement to safeguard
16.06  Consumer Protection their interest.
Consumer protection is a form of social 16.07 Need for Consumer
action which is designed to attain the well-
Protection
being of the society namely consumers. A
consumer is said to be a king in a free market
economy. The earlier approach of caveat
emptor, which means “Let the buyer beware,’’
has now been changed to caveat venditor
(“Let the seller beware”). However, with
growing competition, manufacturers and
service providers may be tempted to engage
in unscrupulous, exploitative and unfair trade
practices like defective and unsafe products,
adulteration, false and misleading advertising,
hoarding, black-marketing etc in an attempt Though consumer is said to be the king
to expand their market share in a competitive of entire business sphere, his interests are
environment. As a consequence, consumers virtually neglected. Shortage of goods makes
may have to buy unsafe products, may have the consumers to be content with whatever is
to suffer from various health disorders, due to offered for sale. Quality is sacrificed: warranty of
adulteration; may have to pay higher price due performance has no meaning; health hazard is
to hoarding and have to get duped by misleading never considered; profit maximisation turns out
advertisement. In this situation there is a need to be sole consideration of business enterprises.
to provide adequate protection to consumers In such a context, consumer protection remains
against all such malpractices of sellers/vendors. a vital importance.

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There are three parties involved in the sphere of business transactions viz. the Government,
business and the consumers. Let us discuss what each party has to do in this regard

ROLE OF ROLE OF
BUSINESS GOVERNMENT

ROLE OF
CONSUMER

Role of Business in Consumer Protection

Business enterprises should do the 3. Guarantees for Good Quality
following towards protecting consumers. Business enterprises should not give false
1. Avoidance of Price Hike warranty for the products. It should ensure
Business enterprises should desist from supply of good quality.
hiking the price in the context of acute shortage 4. Product Information
of goods /articles. Business enterprises should disclose
2. Avoidance of Hoarding correct, complete and accurate information
Business enterprises should allow the about the product viz. size, quality, quantity,
business to flow normally. It should not indulge substances, use, side effects, precautions,
in hoarding and black marketing to earn weight, exchange, mode of application etc.
maximum possible profit in the short term at
the cost of consumers.

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5. Truth in advertising Role of Consumers

Business enterprises should not convey Ultimately it is the consumer who alone
false, untrue, bogus information relating to the can put an end to all their unethical trade
product through the advertisements in media practices. Business enterprises may break the
and thus mislead the consumers. codes and Government may rest content with
6. Protection from the Hazard mere enaction of laws and do little to protect
consumers. In this context consumers have
Business enterprises should not market to be vigilant and organise themselves into a
the product which is potentially hazardous and movement for concerted action.
harmful. It should test the safety of the product
before they are marketed. As regards food items, Activation of Consumer Action Councils
business enterprises should withdraw spoiled 1. Consumer
 action councils established at
and contaminated food items. village levels should educate consumers of
7. Money Refund Guarantee the right.

Where the product becomes defective, 2. Consumer

 protection agencies should take
business enterprises should replace it with necessary steps to investigate consumer
new one or refund the purchase price. If the complaints and grievances and arrange to
product causes injury or harm to consumers, it forward them to correct forum.
should reimburse the expenditures done by the 3. It
 should regulate business enterprises
consumers concerned. according to the rules of the industry.
8. Consumer Grievances 4. V
 oluntary consumer groups should provide
Where the business enterprises have information so as to educate consumers on
customer care department, it should handle the matters affecting them through media.
grievances’ of consumer immediately or within 5. It
 should organise movement against the
a definite time frame. malpractice of manufacturers and traders.
Role of Government 6. Consumer
 cooperatives need to be
Since most of consumers including strengthened.
academically educated are illiterate about 7. Consumer
 groups should contact the
their rights and hence passive. Government legislators to raise the consumer issues in
should assure an active role in safeguarding Assembly and Parliament.
the consumers. Government both the central 8. There
 should be testing laboratories at
and the state have brought out a number of each district to test the purity of goods.
legislations to protect the interest of consumers
across the country. Other statues have been 9. Voluntary
 consumer organisations should
listed out in the ‘Do you know’ segment of this publicise the malpractices of manufacturers
lesson. Despite the existence of legal system to and traders by media.
protect the consumers, consumers in India are 10. 
It should take initiation to report such
still illiterate and passive. Mere statue book will officials and authorities who let the offender
not address the problem. Law enforcement to go scot free to follow enforcement
authorities should see that penal clause is not agencies.
mere paper jaws-they should sting the offenders
mercilessly.

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vi. To
 further international co-operation in
the field of consumer protection
vii. To
 encourage the development of market
conditions which provide consumers with
greater choice at lower prices.

16.08  Consumer Legislation

i. The Indian Contract Act, 1982 was passed
to bind the people on the promise made
in the contract.
ii. The Sale of Goods Act, 1982: This Act
protects consumers against sellers not
United Nations Guidelines for Consumer complying with expressed and implied
Protection warranties in the sale contract.
The General Assembly of the United iii. 
The Essential Commodities Act, 1955
Nations passed a Resolution on April 9, 1985 protects the consumers against artificial
adopting a set of guidelines for consumer shortages created by the sellers by
protection to persuade the member countries to hoarding the goods and thus selling the
adopt policies and laws for better protection of goods at high prices in black market in
the interests of the consumers. The guidelines respect of essential commodities.
provided that the governments should develop iv. The Agricultural Products Grading and
or maintain a strong consumer protection Marketing Act, 1937 ensures the supply of
policy, taking into account the guidelines. agricultural commodities at high quality.
Objectives of United Nations Guidelines for v. 
The Prevention of Food Adulteration
Consumer Protection Act, 1954 checks the adulteration of
i. To
 assist countries in achieving or food articles and ensures purity of goods
maintaining adequate protection for their supplied and thus protects the health of
population as consumers consumers.
ii. To
 facilitate production and distribution vi. Weights and Measures Act, 1958 protects
patterns responsive to the needs and the consumer against malpractices of
desires of consumers underweight or under measurement.
iii. T
 o encourage high levels of ethical conduct This Act has been replaced as the Legal
for those engaged in the production and Metrology Act, 2009.
distribution of goods and services to vii. The Trademark Act, 1999 prevents the
consumers use of fraudulent marks on the product.
iv. To
 assist countries in curbing abusive
viii. The Competition Act, 2002 protects the
business practices by all enterprises at the
consumers against unhealthy competition.
national and international levels which
adversely affect consumers ix. Indian Standard Institution (Certification
marks) Act, 1952 (Now ISI is known as
v. To
 facilitate the developing of independent
Bureau of Indian Standards) provides
consumer groups

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special marks to products fulfilling 15.04.1987. This Act was further amended in
minimum quality standards and thus 1993. The Act is referred in short as ‘COPRA’.
ensures supply of quality products to
The Consumer Protection Act 1986
consumers.
seeks to protect and promote the interests of
x. 
The Drugs and Magic Remedies consumers. The act provides safeguards to
(advertisements) Act, 1954 prohibits consumers against defective goods, deficient
advertisement of drugs and remedies services, unfair trade practices, and other forms
claiming to have magical properties. of their exploitation. The object of the act is to
xi. 
The Drugs and Cosmetics Act, 1940 provide for the better protection of the interests
ensures the safety of drugs and cosmetics of the consumer courts for the settlement of
sold in India. consumer’s disputes and all matters connected
there with. The Consumer Protection Act is of
xii. 
The Food Safety Standard Act, 2006
great importance. It is the latest to be adopted.
regulates the manufacture, storage, and
It is applicable to public sector, financial, and
distribution of food in safe and wholesome
cooperative enterprises. Recently even medical
condition to consumers.
services have been brought under its scope. The
xiii. 
The Air (Prevention and Control of Act shall apply to all goods and services across
Pollution) Act, 1981 controls and prevents board.
pollution in India.
The Consumer Protection Act 1986 does
xiv. The Public Liability Insurance act, 1991 not create rights or liabilities, but it has emerged
provides immediate relief to persons as new forum for the settlement of disputes
affected by accidents securing while relating to the sale of goods or services. The
handling hazardous substance. loss claimed by the consumers must be a loss
xv. 
The Narcotic Drugs and Psychotropic resulting from on some “deficiency of service”
Substances Act, 1985 prevents the or “defect in the goods.” The Act provides for the
production of narcotic drugs except for setting up of a three tier-machinery, consisting
educational use. of District Forums, State Commissions, and the
National Commission. It also lays down rules
16.09 The Consumer Protection for formation of consumer protection councils
Act 1986 (COPRA) in every District and State and at the apex level.
Nowadays, the consumers’ grievances Salient features of The Indian Consumer
and dissatisfactions grow largely. Consumers Protection Act, 1986
themselves did not have any effective mechanism
The salient features of the Indian
or institutional arrangement for the speedy
Consumers Protection Act, 1986 are listed
redressal of their grievances. Lack of effective
below
popular movement isolated the consumer and
so his plight is increased. Sensing the pressure i. 
Protecting consumers against products
mounting from various consumer protection and services which are harmful to the
groups and consumers themselves, the Central health of consumers.
Government enacted a comprehensive law ii. Protecting consumers from the breach of
called the Consumer Protection Act in 1986. contract by sellers /manufacturers.
This Act came into force with effect from

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iii. Ensuring consumers with supply of goods iii. Protecting consumers from unfair trade
at fair quality. practices of traders.
iv. 
Safeguarding consumers against iv. Empowering consumers to seek redressal
misleading and untrue messages against exploitation
communicated through advertisement. v. Educating the consumer of their rights
v. Ensuring that consumers are charged fair and duties
price. vi. 
Ensuring better standard of living for
vi. Ensuring uninterrupted supply of goods. consumers by providing them with
vii. 
Ensuring the availability of goods in quality products at fair price.
correct quantity and right size. vii. 
Putting in place right mechanism like
viii. Protecting the consumers against unfair councils and other authorities to enable
trade practices of unscrupulous trader the consumers to enforce their rights.

xi. 
Protecting the consumers against 16.10  'Caveat Emptor'
pollution of various kinds
‘Caveat emptor’ is a Latin term that means
x. 
Protecting consumers against the evil "let the buyer beware." Similar to the phrase "sold
effect of competition. as is," this term means that the buyer assumes
Importance of Consumer Protection the risk that a product fails to meet expectations
or have defects. In other words, the principle of
Consumer protection has a wide agenda.
caveat emptor serves as a warning to the buyers
It not only purports to educate consumers
that they have no recourse with the seller if the
about their rights and responsibilities, but also
product does not meet their expectations.
helps in getting their grievances redressed. It
provides judicial machinery for protecting the The term actually means that ‘let a
interests of consumers to come together and purchaser beware’, for he ought not to be
organise themselves into consumer associations ignorant of the nature of the property which he
for protection and promotion of their interests. is buying from another party. The assumption
Consumer protection has a special significance is that buyers will inspect and otherwise ensure
for business too. that they are confident with the integrity of the
product before completing a transaction. This
Objectives of the Consumer Protection Act
does not, however, give sellers the green light to
1986
actively engage in fraudulent transactions.
Following are the objectives of Consumer
Protection act 1986 Caveat Emptor in Practice

i. 
Protection of consumers against Under the principle of caveat emptor,
marketing of goods which are hazardous a consumer purchases a coffee mug and later
and dangerous to life and property of discovers that it has a leak he has no choice
consumers. other than to keep it with him. According to
their principle, the buyer should have been
ii. 
Providing correct and complete
cautious and should have thoroughly examined
information about quality, quantity,
the product to check the defect if any.
purity, price and standard of goods
purchased by consumers.

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A more common example is a used car iii. Field visits to local markets / Consumer
transaction between two private parties (as Courts and door to door campaign
opposed to a dealership, in which the sale is in the local community etc., may be
subject to an implied warranty). The buyer organized for at least 4 days in a year.
must assume the responsibility of thoroughly It can be done on Saturdays with prior
researching and inspecting the car by taking it to arrangement.
a mechanic for a closer look before finalizing the iv. Minutes of each activity have to be
sale. If something comes up after the sale, maybe recorded by the Student and Teacher Co-
a transmission failure or something, it is not the ordinator jointly as properly document.
seller's responsibility. But ‘caveat emptor’ principle
cannot be applied where the car is bought afresh
as a brand new car from showroom as the deal in Mahatma Gandhi's quote about Consumerism
governed by warranty of certain years. “What is a man if he is not a thief who openly
charges as much as he can for the goods he sells?”
16.11 Caveat Venditor
Caveat emptor was the rule for most
purchases and land sales prior to the Industrial For own learning
Revolution, although sellers assume much more
Students should go to the nearest
responsibility for the integrity of their goods in
consumer court and watch the activities
the present day.
of the consumer court
Today, most sales in the U.S. fall under the
principle of caveat venditor, which means "let
the seller beware," by which goods are covered
For Future learning
by an implied warranty of merchantability. Students may collect further details
Unless otherwise advertised (for example, "sold regarding Consumer Protection. For this
as is") or negotiated with the buyer, nearly all purpose, they may contact their District
consumer products are guaranteed to work, if Collector and the Chairman, District
used for their intended purpose Consumer Protection Council and also
What are the functions of the the Voluntary Consumer Organisation
Consumer Clubs in schools? of locality with valid reputation to learn
The following basic structure of more about actual implementation of
functioning is recommended: Consumer Protection Act in practice,
i. Monthly meetings and demonstrations
for one hour after school hours on the
First Thursday of each month. Each Case Study
month a topic / activity may be scheduled
as in the model calendar. Mr.Narasimachary bought a refrigerator of a
familiar brand with a warranty for seven years.
ii. Days of National and International
He uses the fridge as per the guidelines given
importance to consumers may be by the manufacturer. After the completion
celebrated in the School / College. of two years the fridge went out of order.
Poster / Speech / Essay competitions He was shocked, and approached the dealer.
can be organised at school level by the But the dealer refused to service the fridge at
Consumer Club to sensitise the students free of cost. What is your suggestion to Mr.
on the importance of the day. Narasimachary to this grievance?

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Live example:
A Mumbai based consumer purchased a
pair of shoes from the dealer of a well-known Exercise
brand after going through its advertisement
assuming 50% off. Consumer paid Rs.1345/- for
the purchase. After the purchase, the consumer I. Choose the Correct Answers:
came to know that it had two price tags, one
printed at MRP Rs.1345/- and another sicker 1. The term ‘consumerism’ came into existence
for Rs.2690/-. On complaining by E-mail, in the year ---------.
the dealer gave reply that discount had been a) 1960
included in MRP, and the consumer was not b) 1957
satisfied. Then he came to show room and took c) 1954
refund from the dealer. d) 1958

Why is it Interesting- 2. Who is the father of Consumer Movement?

a) Mahatma Gandhi
i. Attracting consumers by misleading b) Mr. Jhon F. Kennedy
advertisement of 50% discount. c) Ralph Nader
ii. Putting another sticker, double of actual d) Jawaharlal Nehru
MRP which is illegal. 3. Sale of Goods Act was passed in the year?
iii. Wrong excuse that discount is included a) 1962
in MRP. Discount should be on MRP and b) 1972
as per the Legal Metrology (Packaged c) 1982
Commodities) Rules, 2011: “No wholesale d) 1985
dealer or retail dealer or other person shall 4. The main objective of all business enterprises
obliterate, smudge or alter the retail sale is ------------
price, indicated by manufacturer or the a) Providing service
packer or the importer, as the case may b) Providing better standard of life
be, on the package or on the label affixed c) Providing necessities to the society
thereto.” d) Earn profit
Key words 5. The Consumer Protection Act came into
Consumer Protection Consumerism Consumer force with effect from
Consumer movement Caveat Emptor a) 1.1.1986
Caveat Venditor Buyer Beware Consumer b) 1.4.1986
Grievances c) 15.4.1987
d) 15.4.1990
6. ------- of every year is declared as a Consumer
Protection Day to educate the public about
their rights and responsibilities.
a) August 15
b) April 15
c) March 15
d) September 15

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7. Any person who buys any goods or avails IV. Long Answer Questions:
services for personal use, for a consideration 1. How consumers are exploited?
is called as
a) Customer 2. Explain
 the role of business in consumer
b) Consumer protection.
c) Buyer 3. What are the needs for consumer protection?
d) User
4. Explain
 the role of consumers in Consumer
8. The General Assembly of United Nations Protection..
passed resolution of consumer protection guide
5. What
 are the objectives of Consumer
lines on
Protection Act, 1986?
a) 1985
b) 1958 6. Write
 about five important consumer
c) 1986 legislations.
d) 1988. 7. What
 are the salient features of the
Answers: Consumer Protection Act, 1986?

1 a 2 c 3 c 4 d 8. What
 are the objectives of United Nations
guidelines for consumer protection?
5 c 6 c 7 b 8 a
II. Very Short Answer Questions: References
1. Who is a consumer? 1. Modern Marketing - S.A. Sherlekar
2. Define Consumerism. 2. Modern
 Marketing - R.S. N. Pillai and
Bagavathi.
3. Give two examples of adulteration.
3. Marketing
 Management - Dr. C.B.Gupta
4. What is Caveat Emptor?
and Dr. N.Rajan Nair
5. What is Caveat Venditor?
4. Marketing management - S.A. Sherlaker
6. W
 rite a short notes on Consumer Protection
5. Marketing Management - R.S.N.Pillai and
Act, 1986.
Bagavathi
III. Short Answer Questions:
1. Which are the three constituent elements of
business?
2. What
 are the important legislations related
to consumerism in India?
3. What is meant by artificial scarcity?
4. Write the importance of consumerism.
5. W
 hat is the role of Government in consumer
protection?

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UNIT MANAGEMENT
CONSUMER PROTECTION
PROCESS
6I

17
1
CHAPTER
PRINCIPLES
CONSUMER OFPROTECTION
MANAGEMENT

சலத்தால் ெபாருள்ெசய்ேத மார்த்தல் பசுமட்

கலத்துள்நீர் ெபய்திரீ இயற்று.
-குறள் 660
COUPLET
(For a minister) to protect (his king) with wealth obtained by foul
means is like preserving a vessel of wet clay by filling it with water.

Learning Objectives
To enable the students to understand the
■ Rights of consumer
■ Duties of consumers
■ Responsibilities of the consumers

Chapter Synopsis
17.01 Rights of Consumer
17.01 Rights of Consumer
17.02 Duties of Consumer The modern marketing concept
17.03 Responsibilities of Consumer recognises the fact that the consumer is the
pivotal point around which the entire business
moves. Satisfaction of consumers wants and
needs is stated to be the prime and supreme
The modern marketing concept
objective of a business. But in reality consumer
recognises that the consumer is the pivotal point
feels he is supplied with adulterated stuff at a
around which the business moves. Satisfaction
price far above the cost price. In order to protect
of consumer needs/requirements is stated to be
their own interest, consumers must educate
supreme objective of a business. To protect their
themselves about their rights.
own interest, consumers must first be aware of
their rights as buyers. This chapter explains Consumer Right is interpreted as “the
about consumer duties, responsibilities as well right to have information about the quality,
as consumer rights. potency, quantity, purity, price, and standard of
goods or services”.
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The consumer is to be protected against relevant facts about the product so that they
any unfair practices of trade. It is mandatory for can take intelligent decisions on purchasing
the consumers to know these rights. However, the product. Advertising and labelling on the
there are strong and clear laws in India to defend package should provide objective information to
consumer rights. The most important law is the buyers. This implies that manufacturer and the
Consumer Protection Act, 1986. According to dealer are expected to disclose all the material
this law, everybody including individuals, a firm, facts relevant and relating to the product. The
a Hindu undivided family and a company, has package should contain the full details about the
the right towards the purchase of goods made name of the product, composition, dosage, date
by them. It is the significant that, as a consumer, of manufacturing, date of expiry, batch number,
everyone should know the basic rights as well warnings, antidote etc. In addition, it should
as about the courts and procedures that follow clarify as to the name of the manufacturer, price
with the infringement of one’s rights with or without tax. Such information goes a
John F. Kennedy’s view on Consumer Rights long way towards saving the consumer against
the possible deceit.
The former president of U.S.A Mr. John F.
Kennedy defined the basic consumer rights as iii) Right to choose
“The Right of Safety, the Right to be informed, Consumer satisfaction is the ultimate aim
the Right to choose and the Right to be heard.” of modern marketing and is the philosophy of
The consumer is the king of the modern marketing concept. A wise trader or dealer or
marketing, but in fact he is not. The various manufacturer is one who maximises his profits
rights of consumers guaranteed under the by maximising the consumer satisfaction.
Consumer Protection Act have been discussed Consumer satisfaction can be increased by
here under. giving the consumer the widest choice. The
term ‘Choice’ means offering the widest range
i) Right to Protection of Health and Right of
of products in quality and brand varieties at
Safety reasonable prices. In short consumers should
There may be few products that are more have access to varieties of goods in terms of
likely to cause physical danger to consumers’ colour, quality, design, size etc.
health, lives and property. They may contain
potentially harmful substances which are
dangerous from the consumer welfare point of
view. The best examples of this kind are Food
additives, colours, emulsifiers, preservatives.
The health hazards which are likely to arise have
to be eradicated or reduced altogether. In case
of food items and drugs both life saving and
life sustaining safety is to be guaranteed. One iv) Right to be Heard
thing that is encouraging to-day is that recent Consumers have every right to
legislations have shifted the responsibility for ventilate and register his/her dissatisfaction,
the production of such unsafe items onto the disagreements and get the complaint heard and
shoulders of sellers rather than on buyers. aired. This right is vital. Business enterprises
ii) Right to be Informed should lend a compassionate ear to complaints
or grievances of consumers. All business
Consumers should be given all the
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enterprises should have a separate department relation pollution, and legacies of on-going
or wing or segment for addressing consumer industrialisation take a heavy toll on the quality
grievances. of life of people and on the environment of their
inhabitation. The social cost of these pollutions
v) Right to Seek Redressal
far exeed their social benefits. In other words,
This step is one step ahead of the previous each kind of pollution is eating away the social
right. The complaints and protests are not just benefits resulting from the society. It is where
to be heard: but the aggrieved party is to be the social responsibilities of business enterprises
granted compensation within a reasonable time arise; there is nothing wrong in producing
period . There should be prompt settlement of the products/output for the mankind. But
complaints and claims lodged by the aggrieved the manufacturers have to safely dispose the
customers. This will boost consumer confidence inevitable sewage and effluent in such a way
and help render justice to buyers. There should that it does not cause any damage to human or
be fair and just settlement of deserving claims environment.
in a definite timeframe.
viii) Right to Consumer Protection
vi) Right to Consumer Education
The consumer has a right to be aware
The consumer has a right to acquire of his rights and remedies available to him,
knowledge and stay well-informed all through redress his grievances through publicity in
his life. He should be aware about his rights the mass media. Consumer has a right to be
and the reliefs granted to him where a product protected against goods and services which
or service falls short of his expectations. Many are hazardous to life and health. For instance,
consumer organisations and some enlightened electrical appliances which are manufactured
businesses are taking a pro active part in with substandard components or which do
educating consumers in this respect. not conform to the safety norms might cause
serious physical injury to the user. Therefore,
CONSUMERS RIGHTS IN INDIA consumers need to be educated that they should
On 24th December 1986,
Government of India enacted the
use electrical appliances with ISI mark which
CONSUMER PROTECTION ACT 1986 to stands testimony to the quality and standards
01. Ensure Rights of Consumers observed in the manufacturers.
02. Provide Remedies for
deceived Consumers ix) Right to Basic Needs
03. Check Unfair Business Pracces &
Restricve Trade Pracces.

This is a unique law in the WORLD.

Basic Needs Informed

Safety Heard
Rights of
vii) Right to Quality of Life Consumer
Healthy Environment Redressal
Quality of life refers to the perceived well-
Choose Consumer Educaon
being of people, in groups and individually, and
well-being of the environment in which these Every consumer has a right to get basic
people live. Consumerism has been defined necessities of life such as food, clothing and water,
as ‘an improved quality of life.” It means that and right to pure and healthy environment. It
the environmental problems affect the very life is the latest addition to consumer bill of rights.
of consumers and on the environment which Community life should be free from various
people live. In other words air pollution, water modes of pollution. This will enhance the
pollution, food pollution, noise pollution, and quality of human life.
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17.02 Duties of Consumers iv) 

Beware of False and Attractive
Advertisements
Apart from rights, there are certain duties
imposed on the consumer. Consumer should Often the products are not as attractive
be conscious of his duties. He should make as shown in the advertisement by the sellers.
purchases judiciously and should not misuse Hence, it is the prime duty of consumer not to
his rights. Following are source of the duties of get misled by such fraudulent advertisements.
consumers:
v) Misleading Schemes
i) 
Buying Quality Products at Reasonable Mostly advertisements are used to be
Price very attractive and appealing to the senses.
It is the responsibility of a consumer to They may be occasionally false and misleading.
purchase a product after gaining a thorough The consumer is supposed to be careful with
knowledge of its price, quality and other the attractive advertisements and avoid such
terms and conditions. The consumer should misleading and false advertisements. These days
enquire about the price from certain shops almost every product in the market is offered
and if possible from government stores to get for sale with a gift, discount, or a free product
an idea of its price. The consumer has to have to bait the consumer to buy. For example, a free
the knowledge about the quality from his own comb with soap, a discount off on the price of
experiences or from the experiences of other the soap or one free soap on buying one, and the
persons who used the product or by browsing like. Often a consumer is allured by such offers
the website. Hence it is the duty of the consumer and buys such a product even when it is not
to buy scrupulously. desperately in order, to avail them of free offer.
In this case consumers should not forget
ii) 
Ensure the Weights and Measurement
the fact that the seller has already inflated the
before Making Purchases
price of the product supplied with free offer and
The sellers often cheat consumer by using recovers its cost price under the scheme. Hence
unfair weights and measures. The consumer the consumer should be aware of the fact that he
should ensure that he/she is getting the product is not getting anything free and should not buy
of exact weight and measure. Consumer should unwanted things out of greed.
check the weights and balance of the product.
vi) Ensuring the Receipt of Cash Bill
Consumer should not buy a product which has
been weighed along with its packing. Therefore It is a legitimate duty of consumers to
the consumer should remain vigilant when the collect cash receipt and warranty card supplied
seller is naturally measuring or weighing the along with bills. This will help them in seeking
product. redressal for their grievances. Unscrupulous
sellers offer to reduce the final price of goods
iii) Reading the Label Carefully if they sell without bill. Often consumers get
It is the duty of the consumer to thoroughly allured by this trap. In this case, if the goods
read the label of the product. It should have bought without bill go out of order or turn
correct, complete and true information about defective, consumers cannot approach the
the product. consumer court without proof of purchase.
Hence it is the duty of the consumer to demand
and collect the cash receipt, and warranty card.

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vii) Buying from Reputed Shops xi) Knowledge of Consumer Rights

It is advisable for the consumer to make These days it is not uncommon to see a
purchase from the reputed shops or government seller trying to cheat the consumer in every
shops like super bazaar, cooperative stores, and possible way in order to earn quick profits. It
the like. The consumer by purchasing from is the duty of the consumer to be aware of his
such shops can escape from the malpractice of rights. If a consumer is cheated by a seller,
the manufacturers and shopkeepers or vendors. then he should immediately lodge a complaint
with the authorities designated for consumer
viii)Never Purchase from Black Market
grievance redressal rather than remaining a
The consumer should discharge his silent spectator.
duties as responsible citizen. He should not buy
things from black market and in excess of his 17.03 Responsibilities of Consumer
requirements. At times of scarcity consumer Consumer rights, by themselves, cannot be
should not resort to panic buying and stock effective in achieving the objective of consumer
things excessively. This practice prevents others protection. Consumer protection can, in effect,
from purchasing their share of requirement. be achieved only when the consumers also
ix) Buying Standardized Products understand their responsibilities. Consumers
should keep in mind their responsibilities while
Often the consumer buys cheap products
purchasing, using and consuming goods and
which are not durable or are not safe. Therefore,
services. Rights and responsibilities are two
it is the duty of the consumer to buy products
sides of the same coin. Just as consumers enjoy
with standardization marks which is supposed
certain rights, they owe certain responsibilities.
to be safe in every respect.
The responsibilities of consumer are listed
below;
1. The consumer must pay the price of the
goods according to the terms and conditions
of the sales contract.
2. The consumer has got a responsibility to
apply to the seller for the delivery of the
All India Consumer Council
goods. He/she has to take delivery of the
Govt.Regd. Organisaon engaged in implementaon of
Ministry of Consumer Affairs, Food & Distribuon's Consumer Rights Protecon Programme goods in time.
Mission: PROTECT Consumer - make BETTER INDIA
3. The consumer has to bear any loss, which
may arise to the seller when the consumer
x) Follow the Instruction of the Manufacturer
delays taking delivery of the goods as per the
It is the duty of the consumer to use the terms of contract.
product as per its instructions, e.g., if a medicine 4. The consumer is bound to pay any interest
carries an instruction regarding its storage, it and special damages caused to the seller in
should be stored in the fridge. This would help case if there is delay in the payment.
in prevention of any damage to the medicine
5. 
The consumer has to assiduously follow
and harm to the consumer’s health.
and keenly observe the instructions and
precautions while using the products.

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6. 
The consumer has the responsibility to 10. The consumer should never compromise
express unambiguously to the seller of his on the quality of goods. The consumers
requirements and expectations from the must watch for ISI, Agmark, FPO, the
product. standard quality certification marks and
7. The consumer must seek to collect complete the like in the label.
information about the quality, quantity, 11. 
The consumer should not be carried
price etc of the product before purchasing it. away by exaggerating the quality of the
8. The consumer must get cash receipt as a goods through advertisements. If there
proof of goods purchased from the seller. is any discrepancy between the features
If it carries any warranty, the buyer must advertised and the actual features observed
obtain the warranty card mentioning the in the product, it must be brought to the
date of purchase and period of warranty. It notice of the seller or advertiser.
must also bear the signature and stamp of 12. The consumer has every right to safety,
the seller organisation. right to be informed, right to choose, right
9. The consumer must file a complaint with to represent, and right to seek redressal and
the seller concerned about defects or right to seek information. If any of these
shortcomings noticed in their products and rights is violated, the consumer should
services. file a complaint with the appropriate legal
machinery under the Consumer Protection
Act, 1986.

Consumer’s Name: Mr.Shashi Bhushan, Delhi

Bank Complaint against: Punjab National Bank
He has a salary account in Punjab National Bank, ECE House, K.G. Marg New Delhi.
His complaint is that while trying to withdraw money from PNB's ATM on 25th August
2012, the machine hang. He had entered only two digits of the password.
He waited a few minutes for the ATM machine to function properly and again tried withdrawing
money but the machine hang again. Subsequently, he found out that `15000/- was debited
from his account. He called up customer care and filed a complaint in this regard. He was given
a complaint number. On 31st August 2012, the bank sent an sms to the customer rejecting his
complaint, saying that the transaction was done successfully. Why is it interesting? As Punjab
National Bank's ATM was not working, the customer could not even enter password. So there is
no question of withdrawing money. How the bank debited amount from his account is a mystery
Secondly, the bank agreed to show footage of the transaction which the bank claimed to be genuine
but later backed-out. This is a clear violation of RBI directive. Failed transaction in case of ATM
requires not only reversal of any excess debit within 7 days but also `100 per day as penalty needs
to be paid by the bank to the aggrieved customer after the specified period.
NCH Suggestions:- Customer must insist that PNB (which holds the recorded Footage of the ATM
transaction) show him the recorded footage to him to prove once and for all who is at fault. Here
if the customer has withdrawn the money bank is not required to do anything. But if the customer
has not withdrawn the money as claimed by him and the recorded footage proves it, The consumer
will not only get `15000 wrongly debited by the bank but also he is eligible to receive additional
`5000 or more @ ` 100 each day of delay from 31st August 2012.

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For Future learning

Case Study
Students should collect the
Mr. K.V.Chandran bought a branded L E information about consumer court
D Television set from a popular T.V showroom activities, learn further about consumer
with a warranty of five years and installed it rights through visit the following websites:
in his home. After 18 months of the purchase,
www.jagograhakjago.com
the audio system of the T.V developed trouble.
He approached the dealer and claimed service https://consumeraffairs .nic.in
to the T.V. but he refused to service the T.V.
What is your suggestion to Mr. K.V. Chandran
Key words
Live example; A restaurant owner in Consumer rights Consumer duties
East Delhi has been directed to pay a fine of Consumer responsibilities Cash receipt
`5,000 to a customer who asked to sell out Cash memo
`34 for a water bottle which had a maximum
retail price (MRP) of `12. The East District
Consumer Forum president and members
directing Zaikla Bazaar, Karkardooma Exercise
Complex to compensate for overcharging. The
forum said “The present complaint is covered
by the judgement of the state consumer
commission in case of Nirulas vs Ankit Jain in I. Choose the Correct Answers:
which it said no trader or service provider can
charge more price than item’s MRP printed 1. The final aim of modern marketing is ______
on the packed item, if delivered packed”. a. Maximum profit
Ordering the restaurant owner to discontinue b. Minimum profit
the malpractice, the forum said charging c. Consumer satisfaction
higher amount than MRP, if delivered in d. Service to the society
packed form, was against the law of land. The 2. --------- is the king of modern marketing.
customer had bought a bottle of aquafina a. Consumer b. Wholesaler
water from the restaurant and he was asked to c. Producer d. Reatailer
pay `34 for it, including a VAT of `4. when 3. As the consumer is having the rights, they are
the bottle had a MRP of `12 printed on it. also having -------.
--source: www.corecentre.org
a. Measures
b. Promotion
c. Responsibilities
d. Duties
4. Which of the following is not a consumer
For own Thinking right summed up by John F. Kennedy
Students should watch the activities of a. Right to safety
consumer council of their school. b. Right to choose
c. Right to consume
d. Right to be informed

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5. It is the responsibility of a consumer that IV. Long Answer Questions:

he must obtain----------- as a proof for the
1. What are the rights of consumers?
purchase of goods.
a. Cash receipt 2. Explain the duties of consumers.
b. Warranty card 3. What are the responsibilities of consumers?
c. Invoice
d. All of these References:
Answers: 1. Modern Marketing - S.A. Sherlekar
1 c 2 a 3 c 4 a 5 c 2. 
Modern Marketing - R.S. N. Pillai and
II. Very Short Answer Questions: Bagavathi.
3. Marketing Management - Dr. C.B.Gupta and
1. Write short notes on: “Right to be informed.”
Dr. N.Rajan Nair
2. 
What do you understand about “Right to
4. Marketing management - S.A. Sherlaker
Safety”?
5. Marketing Management - R.S.N.Pillai and
3. What are the rights of consumer according to
Bagavathi
John F. Kennedy?
4. Which is the supreme objective of business?
5. What are the important aspects to be kept in
mind by consumer while purchasing goods
related to the quality of goods?

III. Short Answer Questions:

1. 
What do you understand by “Right to
redressal”.
2. Define “Consumer Rights”.
3. 
What do you understand about” Right to
protection of health and safety”.

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UNIT CONSUMER PROTECTION

6
GRIEVANCE REDRESSAL
18
CHAPTER
MECHANISM

பிணியின்ைம ெசல்வம் விைளவின்பம் ஏமம்

அணிெயன்ப நாட்டிற்கில் ைவந்து.
-குறள் 738
COUPLET
Freedom from epidemics, wealth, produce, happiness and
protection (to subjects); these five, the learned, say, are the
ornaments of a kingdom.

are the vital part of the business. They decide

Learning Objectives the success or otherwise of the business.
However they are exploited by the sellers in
To enable the students to understand the many ways because, they are not aware of the
■ Grievance Redressal Mechanism products and services available. Government
■ Three Tier Consumer Councils has also taken necessary steps to save the
■ Voluntary Consumer Organisations Consumers. It is in this context grievance
redressal mechanism becomes important.
This chapter is an attempt to explain grievance
Chapter Synopsis redressal mechanism followed in India.
18.01 Grievance and Need for Redressal Mahatma Gandhi said about the Customer
Mechanism
18.02 Consumer Councils “A customer is the most important visitor
18.03 Three Tier Courts or Quasi Judiciary on our premises. He is not dependent on
18.04 District Forum us. We are dependent on him. He is not an
18-05 State Consumer Disputes Redressal Com-
mission or State Commission interruption of our work. He is the purpose
18-06 National Consumer Disputes Redressal of it. He is not an outsider of our business. He
Commission (NCDRC) or National Com- is part of it. We are not doing him a favour by
mission
18.07 Voluntary Organizations for Consumer serving him. He is doing us a favour by giving
Awareness us the opportunity to do so.”

18.01 Greivance and Redressal

Mechanism Under the modern philosophy of
marketing, consumer is supposed to be the
Exploitation is common where
king and business is expected to provide
consumers are unaware of their rights and
maximum possible satisfaction to consumers.
privileges. In this modern world, Consumers
But in reality, consumers are often exploited. In
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a country like India there is shortage of many Forum in a district if it deems fit to do so.
products. A few firms enjoy monopoly power in Complaints can be filed with the forum
the market place. A large majority of consumers by a consumer. Complaints can also be filed by
are ignorant and illiterate and do not know their the Central or State Government or by a group
rights. They are poor and there is lack of unity of consumers. Thus, it is not necessary that
among them. Due to these reasons, consumers complaint should be filed only by the affected
are often deprived of their rights. They are often person. Others can also take up the matter with
exploited through misleading advertisements, the District Forum.
poor quality goods, fractional weights and
measures, overcharging, etc. Members
1. A person who is or who has been or is
18.02  Consumer Councils
qualified to be, a District Judge as its
The Consumer Protection Act postulates President.
establishment of Consumer Protection
2. Two other members who shall be persons
Councils at the District, State and Central
of ability, integrity and standing and have
levels for the purpose of spreading consumer
adequate knowledge or experience of or
awareness. The objects of the Councils, as per
who have shown their capacity in dealing
the Act, shall be to promote and protect the
with problems relating to economics, law,
rights of the consumers.
commerce, accountancy, industry, public
18.03 
Three Tier Courts or affairs or administration. It is insisted in
Quasi Judiciary the Act that out of such two other members’
one shall be a woman.
NATIONAL Jurisdiction
COMMISSION
(Above One Crore)
The District Forum can entertain
complaints within the territory of genuine
district and where the value of goods or services
STATE and the compensation if any claimed is less than
COMMISSION Rs 20 Lakhs.
(Above 20Lakhs to
One Crore) Powers
Every proceedings before the District
Forum shall be deemed to be judicial
DISTRICT
proceedings within the meaning of sections
FORUM
(Below 20Lakhs) 193 and 228 of the Indian Penal Code and the
Forum shall be deemed to be Civil Court.
If the value of the complaint exceeds this
18.04  District Forum limit of Rs 20 Lakhs the complaint should be
made direct to the State Commission. Further
As per the Consumer Protection Act of
the District Forum also may pass orders against
1986 and Section 9 thereof the establishment of
traders indulging in unfair trade practices,
a District Forum by the State Government in each
sales of defective goods or rendering deficient
district is necessary today to protect the interest
services, the turnover of goods or value of
of aggrieved consumers in that district. The State
services does not exceed Rs 20 Lakhs.
Government can establish more than one District
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adequate knowledge or experience of or have

At present, there are more than
shown capacity in dealing with problems
620 District Forums and more
relating to economics, law, commerce,
than 30 State Commissions. The
industry, public affairs or administration of
National Consumer Disputes Redressal
them, one shall be a woman.
Commission (NCDRC) at the apex is
situated at New Delhi. Jurisdiction
Pecuniary Jurisdiction of Consumer The Jurisdiction of the State Commission
Forum is as follows.
1. For the District Consumer Forum
1. 
The State Commission can entertain
(Value upto Rupees twenty lakhs)
complaints within the territory of entire
2. For the State Commission (Value above
state and where the value of the goods
twenty Lakhs to Rupees one crore)
or services and the compensation, if any
3. For the National Commission (Value of claimed exceed Rs. 20 lakhs and below
above Rupees One Crore) Rupees One Crore.
2. 
The State Commission also has the
Appellate Forum
jurisdiction to entertain appeals against
The aggrieved party can prefer appeal the orders of any District Forum within the
against the order passed by the District Forum State.
to the State Commission.
Powers
18.05 State Consumer Disputes The following are the powers of the State
Redressal Commission or Commission.
State Commission 1. The State Commission also has the power
The State Commission is to be appointed to call for the records and pass appropriate
by the State Government in consultation with orders in any consumer dispute which is
the Centre. It has the same function as state pending before or has been decided by any
level. The state consumer protection council is District Forum within the State.
also known as “Consumer Disputes Redressal
2. To produce before and allow to be examined
Commission”. Both goods and services are
by an officer of any of these agencies,
included in the purview of the council. A
such books of accounts, documents or
consumer has to be protected against defects,
commodities as may be required and to
deficiencies and unfair and restrictive trade
keep such books, documents, etc., under
practices. The State Consumer Protection
his custody for the purposes of the Act.
Council is also called State Commission.
3. To furnish such information that may be
Members required for the purposes of the Act to any
Each State Commission shall consist of officer so specified.
the following members.
Appellate Forum
1. 
A person who is or has been a Judge
1. The State Commission’s jurisdiction may
of a High Court appointed by the State
be original, appellate or revision. The State
Government as its President.
Commission may reverse or confirm the
2. Two other members who shall be persons orders passed by the District Forum.
of ability, integrity and standing and have
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2. Any person aggrieved by an order of the

Appellate Forum
State Commission may prefer an appeal to
the National Commission within 30 days Any consumer dispute which
from the date of such order. is pending before or has been
decided by any State Commission where it
18.06 National Consumer appears to the National Commission that
Disputes Redressal such State Commission has exercised a
jurisdiction not vested in it by law, or has
Commission (NCDRC) or
failed to exercise a jurisdiction so vested or
National Commission has acted in the exercise of its jurisdiction
The National Consumer Disputes illegally or with material irregularity.
Redressal Commission (NCDRC), India is a Section 23 of Consumer Protection Act,
quasi-judicial commission in India which was 1986, provides that any person aggrieved
set up in 1988 under the Consumer Protection by an order of National Commission may
Act of 1986. Its head office is in New Delhi. prefer an Appeal against such order to
The Commission is headed by a serving or Supreme Court of India within a period of
retired judge of the Supreme Court of India. 30 days.
The National Consumer Disputes Redressal
Commission (NCDRC) is also called as National You can call to register your
Commission. complaint 1800-11-4000 or
14404
Members
Timing: All Days except National Holidays
The National Consumer Disputes (09:30 AM To 05:30 PM) or SMS on this
Redressal Commission has been constituted by Number 8130009809
a Notification.
1. The National Commission should have five 18.07 Voluntary Organizations
members. for Consumer Awareness
2. One should be from judiciary. Consumer is a broad label for any
individuals or households that use goods
3. Four other members of ability, knowledge
and services produced within the economy.
and experience from any other fields. Voluntary consumer organisations refer to
4. It should include a woman. the organisation formed voluntarily by the
consumers to protect their rights and interests.
Jurisdiction
Section 21 of The Consumer Protection Objectives
Act, 1986 describes, the National Commission 1. 
The Department of Consumer Affairs
shall have jurisdiction (DCA) operates the Consumer Welfare
Fund (CWF). The primary objective of
1. To entertain a complaint valued more than
the CWF is to strengthen the Consumer
1 Crore.
Advocacy Movement in India.
2. Revised the orders of State Commissions.
2. A
 wide network of Voluntary Consumer
3. To call for the records and pass appropriate Organisation (VCO) is doing
orders from the State Commission and commendable work to raise awareness
District Forum. amongst consumers.

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3. 
To strengthen consumer protection consumers, the consumers get a feeling that
and welfare and to provide counselling, they are not alone in their struggle.
guidance and mediation services. iii) O
 rganising Protests against Adulteration etc.
4. VCO’s supported through CWF provides The consumer’s organizations play
grants for diverse projects including a significant role in eliminating the evil of
comparative testing of products and adulteration, hoarding black-marketing and
services and dissemination of the findings under-weight selling.
5. 
Steps have been taken to enhance iv) Helping Educational Institutions
transparency and to digitalise the These organizations advice the
government’s interface with its citizens. educational institutions the way to prepare
Accelerating Consumer Awareness/Educating courses of study keeping in view the interests
Consumers of the consumers.
The first priority of a consumer v) 
Promoting Network of Consumer
organization is to accelerate consumer Association
awareness towards their rights. To accomplish Consumer organizations are trying to
this task the following efforts are made: grow their numbers. They want to cover all the
I. 
To publish brochures journals and regions of the country so that consumers of all
monographs. the regions are benefited by their services.
ii. 
To arrange conferences, seminars and vi) Extending Support to Government
workshops. Consumer organisations keep informing
iii. To educate consumers to help themselves. the government agencies about adulteration,
artificial scarcity, inferior quality produce etc.
iv. 
To provide special education to women
to help the government.
about consumerism.
To maintain desirable standards, the Procedures for Filing Complaint
following steps are followed: A complaint can be filed by a complainant
i) Collecting Data on Different Products against the seller, manufacturer, or dealer
and testing them of goods which are defective or against the
provider of services, if they are deficient in any
These organizations collect samples
manner whatsoever. An unfair trade practice
of different products from time to time and
or restrictive trade practice can also invite
test them. After that the results of the tests
complaint
are declared to public. In this way, these
organisations provide prior information to Steps involved in filing Complaint in
consumers about the authenticity of product Consumer Court
and protect them. The first step in filing a consumer
ii) Filing Suit on Behalf of Consumers complaint is to send a legal notice to the seller
Whenever a consumer fails to raise his or company. A legal notice must be drafted
voice of protest regarding his complaints, with the help of a consumer court lawyer and
these consumers’ organisations come to the include the following:
rescue and file a case in the court, on behalf 1. Details of the consumer like name, address,
of a consumer. By giving this service to the product or services purchase details of the
company, etc.
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2. Necessary details of the problem faced and How to register the complaints?
describe the deficiency in service. The complaint should be registered by
3. Action taken by the company in response the following ways:
to the customer complaint 1. 
Complaint can be registered within 2
4. Action expected from the company years from the date on which the cause of
action has arisen, to the date on which the
5. Time period given to the company to take
completion from the deficiency in service.
action
2. Stamp paper is not required for declaration
6. The legal action that will be taken upon
3. Complaint can be registered, in person, by
failure by the company in sending a reply
the complainant or through his authorised
to the legal notice.
agent or by post addressed to the Redressal
Who can make complaint? Agency.
1. A consumer as defined under Consumer 4. Advocates are not necessary.
Protection Act, 1986
What are the particulars that should be
2. 
A registered Voluntary Consumer furnished along with the complaint?
Association
The complaint should contain the
3. Central Government following particulars:
4. State Government / Union Territory
1. 
The name and complete address of the
5. 
One or more consumer representing complainant
numerous consumers having the same
2. 
The name and complete address of the
interest.
opposite party/parties
When the complaints can be made?
3. 
Date of purchase of goods or services
A complaint may be made in writing availed
under the following circumstances:
4. Amount paid for the above purpose
1. Loss or damage is caused to the consumer
5. 
Particulars of goods purchased with
due to unfair trade practice of a trader.
number or details of services availed
2. If the article purchased by a consumer is
6. 
The details of complaint, whether it is
defective.
against Unfair Trade Practices/supply
3. If the services availed of by a consumer of defective goods/deficiency in service
suffer from any deficiency. provided/collection of excess price, should
4. When the price paid by a consumer is in explicitly be mentioned in the complaint
excess of the price displayed on the goods petition.
or when the price is in excess of the price 7. 
Bills/receipts and copies of related
fixed under any law in force. correspondence, if any.
5. Goods, which will be hazardous to life and Relief to the Consumers
safety, when used are being offered for The District Forum / State Commission
sale to the public in contravention of the can order the following reliefs to the consumers:
provisions of any law.
1. To remove the defects in the goods pointed
out

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2. To replace the goods

The International Organisation
3. To return to the complainant the price of of Consumers Unions (IOCU)
the goods was first established in 1960
4. To pay such amount of compensation for to create cross-border campaigns and
the loss or injury suffered by the consumer share knowledge; it has over 250 member
organisations in 120 countries. Its head
5. To discontinue the unfair trade practice or
office is based in London, England, with
not to repeat it
regional officers in Latin America, Asia,
6. To withdraw the hazardous goods from Pacific, Middle East and Africa.
being offered for sale
7. To provide the cost of expenditure incurred
by the complainant
What is the appeal provision?
For Future Learning
1. Aggrieved by the orders issued by the STUDENTS CONSUMER CLUB
District Consumer Redressal Forum appeal, Students may create “Students
petition can be filed before State Consumer Consumer Club”. They may create
Dispute Redressal Commission within 30 awareness about the Products and Services.
days from the date of receipt of orders They can motivate the parents about the
consumer awareness of the following
2. Aggrieved by the orders issued by the State
Consumer Dispute Redressal Commission 1. MRP of the Product.
appeal petition can be filed before National 2. Expiry of the Product
Consumer Dispute Redressal Commission 3. Quality of the Product (ISI, ISO and
within 30 days from the date of receipt of orders Agmark, etc.)

3. Aggrieved by the orders issued by the

National Consumer Dispute Redressal
Commission appeal petition can be filed Key words
before Supreme Court of India within 30 Grievance Redressal Mechanism District Forum
days from the date of receipt of orders Consumer Voluntary Consumer Welfare Fund
4. No fee is charged for registering an appeal Organisation
petition before State / National Consumer Three Tier Court Consumer Awareness
Dispute Redressal Commissions
5. The appeal petition has to be filed with the
grounds for appeal with copies of orders of
the lower redressal agencies and registering
procedures are same, as is being done in
the case of registering complaint

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Case Study
Exercise
Case 1:
In The Supreme Court Of India Civil
Appellate Jurisdiction Civil Appeal No. 7335 I. Choose the Correct Answers:
of 2008 Chief Administrator, H.U.D.A. & Anr. 1. 
The Chairman of the National Consumer
Appellant(S) Versus Shakuntla Devi Disputes Redressal Council is ______
Respondent(S) Judgement by L. Nageswara a) Serving or Retired Judge of the Supreme
Rao, J. Court of India.
This Appeal is filed challenging the order b) Prime Minister
dated 25.09.2007 of the National Consumer c) President of India
Disputes Redressal Commission, New d) None of the above
Delhi (hereinafter referred to as ‘National 2. 
The Chairman of the State Consumer
Commission’) by which an order of the State Protection Council is _____
Consumer Disputes Redressal Commission, a) Judge of a High Court
Union Territory, Chandigarh b) Chief Minister
c) Finance Minister
There is No order as to costs in this appeal.
d) None of the above
The point that falls for our consideration 3. 
The Chairman of the District Forum is
in this case is whether the State Commission ________
was justified in awarding Rs. 15 lakhs
a) District Judge
towards the escalation in the cost of
b) High Court Judge
construction for compensation. We are of
c) Supreme Court Judge
the view that the Respondent is not entitled
d) None of the above
to such compensation awarded by the State
4. 
The State Commission can entertain
Commission and confirmed by the National
complaints where the value of the goods or
Commission. The Respondent suffered an
services and the compensation, if any claimed
injury due to the delay in handing over the
exceed
possession as there was definitely escalation
in the cost of construction. At the same time a)`2 lakhs but does not exceed `5 lakhs
the Respondent has surely benefited by the b) `20 lakhs but does not exceed `1 crore
increase in the cost of plot between 1989 to c) `3 lakhs but does not exceed `5 lakhs
2000. The National Commission orderdered d) `4 lakhs but does not exceed `20 lakhs
that the State Commission is vitiated for non 5. The National Consumer Disputes Redressal
application of mind to a vital and relevant Commission has jurisdiction to entertain
factor and hence, suffers from the vice of complaints where the value of goods/services
unreasonableness. For the aforementioned complained against and the compensation, if
reasons, the Order of the State Commission as any, claimed is
confirmed by the National Commission is set a) Exceeding `1 crore
aside and the Appeal is allowed. b) Exceeding ` 10 lakhs
c) Exceeding ` 5 lakhs
d) Exceeding ` 12 lakhs
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6. The District Forum can entertain complaints II. Very Short Answer Questions:
where the value of goods or services and the 1. What do you meant by Redressal Mechanism?
2. What do you know about National Commission?
compensation if any claimed is less than
3. State the meaning of the term State Commission.
a) Below `10,00,000 4. What is an term District Forum?
b) Below `20,00,000 5. How to register the complaints?
c) Below `40,00,000 III. Short Answer Questions:
d) Below `50,00,000 1. Is Consumer Protection necessary?
2. Who are the members of the National
7. The International Organisation of Consumers
Commission?
Unions (IOCU)was first established in 3. What is the Pecuniary Jurisdiction of the
a) 1960 b) 1965 State Commission?
4. Does District Forum exceeds the claim limit
c) 1967 d) 1987
of Rs 20 lakhs. Explain the condition.
8. Consumer awareness covers the following: 5. Write a note on the Voluntary Consumer
Organisation.
a) 
Consumer awareness about Maximum
IV. Long Answer Questions:
Retail Price (MRP)
1. What are the Functions of the National
b) 
Consumer awareness about Fair Price Commission?
Shop 2. Explain the overall performance of State
c) Consumer awareness about price, quality, Commission.
3. Explain the term District Forum and explain
and expiry date of the product
the functions of District Forum.
d) All of the above 4. What is Voluntary Consumer Organisations?
9. Complaints can also be filed by the Explain its Functions.
5. How to create consumer awareness?
a) Central Government
References
b) State Government
1. Consumer Protection Law and Practice by
c) A group of consumers Dr V.K.Agarwal, Universal Book Traders,
d) All of the above Delhi.
2. Consumer Behaviour Dr L. Natarajan,
10. A consumer has to be protected against
Margham Publications, Chennai
a) Defects of product 3. Marketing Management Dr. R.L.Varshney
b) Deficiencies of product and Dr S.L.Gupta, Sultan Chand&Sons,
NewDelhi.
c) Unfair and restrictive trade practices
4. Marketing Management Text & Cases
d) All of the above Dr.C.B.Gupta & Dr N. Rajan Nair Sultan
Chand & Sons, New Delhi
Answers:
5. Marketing Management R.S.N. Pillai &
1 a 2 a 3 a 4 b 5 a Bagavathi S.Chand & Company Pvt Limited,
6 b 7 a 8 d 9 d 10 d New Delhi

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UNIT BUSINESS
MANAGEMENT
ENVIRONMENT
PROCESS
7I

19
1
CHAPTER
PRINCIPLES
ENVIRONMENTAL
OF MANAGEMENT
FACTORS

ெதரிந்த இனத்ேதாடு ேதர்ந்ெதண்ணிச் ெசய்வார்க்கு

அரும்ெபாருள் யாெதன்றும் இல்.
-குறள் 462
COUPLET
There is nothing too difficult to (be attained by) those who,
before they act, reflect well themselves, and thoroughly
consider (the matter) with chosen friends.

Chapter Synopsis
Learning Objectives
19.01 Meaning and Definition of Business
To enable the students to understand the Environment
■ Meaning of Business environment 19.02 Types of Business Environment
■ differences between internal and 19.02.01 Internal Environment
external business environment 19.02.02 External environment:
■ various controllable and uncontrollable 19.02.03 Micro Environment;
factors affecting business 19.02.04 Macro Environment:
■ examples that impact economic, socio- 19.03 Future environment of business-VUCA
cultural, political and legal, geo-physical 19.04 Corporate Governance
and technological factors of business 19.05 GST- Goods and Services Tax

A business is an integral part of the It is dynamic in nature since it keeps

social system. The sum total of all factors both changing.Therefore any strategic decision relating
internal and external which has an impact on the to a business can be taken only after scanning the
functioning of a business can be termed as business environment for a SWOT analysis of the strengths,
environment. The aggregate of all factors, forces weaknesses, opportunities and threats. The
and institutions which are external to and beyond internal environment which is controllable yields
the control of an individual business enterprise the strengths and weaknesses of an organisation
but which exercises a significant influence on the while the external environment which is
functioning and growth of individual enterprises uncontrollable relates to two factors namely
business environment. opportunities and threats. The understanding
of business environment is essential for taking
important decisions, and ensuring success.

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19.01 Meaning and Definition For Example Japanese camera film making

of Business Environment company Fuji Films which had global
According to Bayard O ‘Wheeler presence for over 50 years was affected with
Business environment is “the total of all things the advent of digital cameras.
external to firms and industries which affect
their organisation and operations”. iv. 
Business aids: It stimulates systematic
monitoring of environment which helps
Arthur M. Weimer defines as follows” business in taking steps to cope with the
business environment encompasses the rapid changes
climate or set of conditions, economic, social.
Political, or institutional in which the business v. Public
 image: Environmental analysis helps
operations are conducted”. a business to enhance its image by being
sensitive and quickly responding to the
A business in order to remain successful changing environment and needs of people.
and competitive has to adapt to the constantly Example large scale Retail stores like Aditya
changing environment. The formulation of Birla’s “More” are now providing home
strategic decisions , policies and programmes delivery services.
requires an understanding of the environmental
factors impacting the business. Therefore
scanning of the environment for identifying
19.02 Types of Business
threats and opportunities is essential for any Environment
business. The significance of understanding the The Business Environment can be
business environment is as follows: classified as follows:
i. Helps
 in formulating Strategy and future
planning: The data relating to the business
environment are used as a record for devising
important business strategies and to plan
for the future development of the business
concerned.
ii. Enables to identify the opportunities available:
The analysis of business environment helps a
business to identify new opportunities .For
example in the 80’s Dr Reddy identified the
need for quality service in healthcare and
started Apollo Hospitals. He was a pioneer
in corporate hospital care and thus enjoys
the first ever advantage in offering world
class medical facilities in India. I)Internal Environment
iii. Environment scanning: It helps the firms
II)External Environment
to identify threats which may affect the
business. Thus measures can be taken by the Internal environment refers to those
firm to overcome the threats. factors within an organisation e.g Policies
and programmes, organisational structure,
employees, financial and physical resources.

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These factors can be changed or altered and culture of ethical standards and values.
hence are known as controllable factors. ii. Vision
 and objectives: The vision and
External environment refers to those objectives of a business guides its operations
factors outside the business These factors by and and strategic decisions. Example ‘Amul the
large are beyond the control of a business and taste of India’ Gujarat Co-operative Milk
hence uncontrollable .e.g economic, political Marketing Federation GCMMF
and socio-cultural factors. Vision: Liberate our farmers from economic
19.02.01  Internal Environment oppression and lead them to prosperity.
Internal Factors iii. Management
 structure and ature: The
structure of management/board and
their style of functioning, the level of
Vision and professionalism of management, the
Objecves composition of the board are the various
factors which affects the decision making.
Internal
Power Value System Since the board is the highest decision
Relaons making authority, it’s composition, degree
Internal of professionalism and style of operations
Environment plays a very critical role in the growth and
R&D development in an organisation.
Capital
Human
Structure iv. Internal
 power relations: This refers to the
Resources
Markeng & internal power relations that exist in an
Assets
Company organisation. The relations among board
Image members , between board members and
the CEO and the level of support enjoyed
by the board from its’ stakeholders namely
employees and shareholders are significant
The major internal factors affecting
factors which affects decision making and
business decisions are
its implementation in an organisation.
i Values system: The values of the founder/
i. Human resources : The success of an
owner of the business , percolates down to
enterprise is solely dependent on its
the entire organisation and has a profound
manpower. Therefore the quality,
effect on the organisation. The success of
skill competency, right attitude and
an organisation depends upon the sharing
commitment of its human resources
of value system by all members. External
is essential for the success of an
business associates like suppliers and
organisation.
distributors consider the value system
practised by an organisation with strong v. Company image: The image of an
organisation plays an important role
Two Indian companies TATA Steel and in introducing new products, selecting
WIPRO have been named as the world’s most agents and dealers for distribution, forging
ethical companies by American Think tank alliances with suppliers, expanding and
Ethisphere Institute. Infosys, Murugappa entering new markets both domestic and
group, TVS group international, raising finance etc.

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vi Other factors: The firm’s ability to innovate maintaining stock/inventory. Organisations

reflected by its research and development, generally obtain supplies from a panel of
the strength of its financial position and the suppliers instead of relying on a single
capital structure, the efficiency in managing source. Organisations have realised the
the marketing and distribution network ,and importance of nurturing and maintaining
the physical resources like plant, building good relationship with the suppliers.
technology are the other major factors on ii) Customers: The aim of any business is
which affects the success of a business. to satisfy the needs of its customers. The
customer is the king and the fulcrum
19.02.02  External environment around which the business revolves. Hence
All factors outside the business which have it is essential for any business to understand
a bearing on the working of a business can be the needs of its varied customers like
termed as the external environment. This is individuals, retailers, wholesalers,
subdivided into micro or task environment and industries and government sector.
macro or general environment. Customer relationship management aims
at creating and sustaining cordial relations
19.02.03  Micro Environment with customers.
Micro Environment Factors iii) Competitors: All organisations face
competition at all levels local, national
and global. Competitors may be for the
Financiers same product or for similar products. It
is important for a business to understand
Competors its competitors and modify their business
Suppliers
strategies in the face of competition.
iv) Financiers: The financiers of a business
Micro
Environment which includes the debenture holders and
financial institutions play a significant
Markeng part in the running of a business. Their
Customers Channel financial capability, policies strategies,
Members
attitude towards risk and ability to give
Public non–financial assistance are all important
to a business.
v) 
Marketing Channel members: The
This refers to those factors which are marketing inter-mediaries serve as a
in the immediate environment of a business connecting link between the business and
affecting its performance. These include the its customers .The middlemen like dealers,
following: wholesalers and retailers ensure transfer of
i) Suppliers: In any organisation the suppliers product to customers .physical distribution
of raw materials and other inputs play a is facilitated by transporters, and warehouses
very vital role. Timely procurement of help in storing goods. Market research
materials from suppliers enables continuity agencies help the firm to understand the
in production and reduces the cost of needs of the customers while advertising

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agencies help in promoting the products in the macro environment system which
and services. Insurance firm is another has a bearing on a business include
marketing intermediary which provides 1) The nature of economy based on the stage
coverage for risk in business. of development. The countries across the
vi) Public This refers to any group like media globe can be categorised on the basis of
group, citizen action group and local public growth and per capita income as developed
which has an impact on the business. The nations, developing nations and under
public group has the ability to make or mar a developed nations. The USA, Japan,
business. Many companies had to face closure Germany, Canada and Australia developed
due to actions by local public. economies generally have high degree of
technological advancement, very strong and
For example. the closure of Sterlite Copper robust industrial base, and high standard of
factory in Thoothukudi due to protests by living. Many of these developed nations have
environment protection group in 2018. successfully integrated the computer based
technologies with their existing business.
Developing nations like India, China, Brazil
19.02.04  Macro Environment:
Mexico are middle income economies are
Macro Environment Factors characterised by low to moderate industrial
growth, the inequality in the distribution of
Economic income, high population, a low standard of
living and slow absorption of technology.
Global Socio- Under developed nations are low income
Cultural economies with a very low degree of
technology adoption and a very poor
Macro standard of living.
Environment
2) 
The nature of economic system The
Polical economic systems can be classified as
Technology and Capitalistic, Socialistic and Mixed economy.
Legal
Capitalistic economy is a free enterprise
Geo- market where individual ownership of
Physical
wealth is predominant. Socialistic economy
is a state controlled with a lot of restrictions
on private sector. Mixed economy is a
This is the general or overall environment
combination of both state owned and
in which the business operates. The success of
private sector ownership.
a business is dependent on its ability to adapt
to the macro environment, since these are 3) T
 he economic policies of a nation Monetary
uncontrollable factors. They offer enormous policy, fiscal policy, Export-import policy,
opportunities to business and also poses serious Industrial policy Trade policy, Foreign
threats to business. The general or remote exchange policy etc are part of the economic
environment factors are as follows; environment.
i) Economic environment: The business is 4) The
 Economic indices like GDP, GNP
an integral part of the economic system national income, per-capita income,
prevalent in a nation. The multiple variables balance of payments, rate of savings and

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investments etc. form an important part of changes. The legislative, executive and
economic environment. judiciary are the three political institutions
5) Development
 of financial market The which directs and influences a business.The
organisation and development of money major elements of the legal and political
market, capital market securities market environment are
and, the banking system has a greater 1) Political stability is reflected by the following
impact. parameters like the election system, the law
6) The
 Economic structure includes capital and order situation, the role and structure
formation, investment pattern, composition of Military and Police force, the declaration
of trade balance, occupational distribution of President’s rule, civil war etc
of workforce, and the structure of national 2) Political
 organisation refers to the ideology
output. and philosophy of the political parties,
ii) Socio-Cultural environment - Business is the government, the role and degree of
a part of the society .Social environment authority of bureaucracy, the level of
refers to the sum total of factors of the political consciousness among citizens and
society in which the business is located. the funding of political parties by business
Social and cultural environment of society houses and the clout wielded by them.
affects the business. It is dynamic and 3) The image of the leader and the country in
includes the behaviour of individuals, the the inter-national arena.
role and importance of family, customs, 4) 
Legal framework of business and their
traditions, beliefs and values, religion and degree of flexibility.
languages, the ethical values. The literacy
5) The constitution of the nation.
level, and the social attitudes of the people of
the society. The socio-cultural environment 6) 
The Foreign policy of the country with
also includes the following; special reference to tariffs and free trade.

1) The social institutions and groups iv) Geo-physical

 environment – The natural,
geographical and ecological factors have a
2) Family structure prevalent in the society
bearing on the business. These are as follows;
3) Role of marriage as an institution
1) 
the availability of natural resources like
4) Caste system in the society minerals oil .etc, since setting up of industries
5) Customs , beliefs and values requires availability of raw materials

6) 
Demographic factors which includes 2) the weather and climatic conditions and
the size, composition, literacy level, availability of water and other natural resources
distribution and mobility of the population is essential for the agricultural sector .

7) 
The lifestyle of people and their tastes, 3) 
topographical factors like the terrain
likes and preferences. impacts type of business since the
demand and consumption pattern may
iii) Political
 and Legal environment – The vary in these regions. E.g in the the hilly
framework for running a business is given region mode of transport will have to be
by the political and legal environment. modified to tackle the terrain..
The success of a business lies in its ability
to adapt and sustain to political and legal 4) 
ecological factors are now gaining
momentum, since the governments
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across the globe are framing stringent 3) Differences in norms and practices
policies for ecological conservation and 4) Differences in tastes and preferences of
prevention of pollution. The ban on people
use of plastic bags imposed by the Ooty
corporation is an example. 5) The tax structure relating to import and
export.
5) location of certain industries is influenced
by the geographical conditions For e.g In 6) Differences in the degree of adoption of
Tamilnadu the concentration of cotton technology.
textile industry in Coimbatore is due to
conducive weather conditions. . 19.03 Future environment of
6) availability of natural harbours and port business-VUCA
facilities for transporting goods . The future environment of business in
v) 
Technological environment – this age of rapid technological advancement
The development in the IT and has been captured aptly in the acronym
telecommunications has created a VUCA – volatility, uncertainty, complexity
global market. Technology is widely and ambiguity, developed in the late 80’s by
used in conducting market research for the U.S military. Every business has to take
understanding the special needs of the strategic decisions.The dynamic ever changing
customer. Digital and social media are environment, the unpredictability of various
used as a platform for advertising and factors, the multiplicity of forces affecting
promoting the products/services. Data- business and the lack of clarity are the variables
mining and data analytics are used to which affects business.
know the customer better. Technology is It is now important for every business to
used in managing inventory, storing goods meet the challenges posed by the environment
in warehouses, in distributing goods and in order to remain competitive. The uncertain
in receiving payment. This dynamic conditions and situations requires a firm to be
environment also includes the following ; prepared to face the volatility by planning. The
1) the level of technology available within presence of complex variables impacting business
the country should be understood and alternative measures
for solving the issues should be developed. In an
2) rate of change in technology VUCA environment a firm has to be forward
3) technology adopted by competitors looking anticipating the change, adaptability will
remain essential for the success of any business
4) technological obsolescence
in an ambiguous, uncertain environment.
vi) Global environment With the rapid
growth of technology the physical
19.04  Corporate Governance
boundaries are fast disappearing and
the new global market is emerging. The Corporate governance is a set of rules and
international environmental factors which policies which governs a company. It provides
affects a business are as follows; a frame work for managing a company and
achieving its objectives. It gives guidelines for
1) Differences in language and culture
internal control, performance measurement
2) Differences in currencies and corporate disclosure. Corporate governance
lays down the rules and responsibilities of
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the stakeholders of a company primarily the norms laid down in Companies Act 2013 by
shareholders, the directors and the management. bringing in transparency in corporates have
The role of board of directors is very important raised the governing standards of Indian
in corporate governance. It is the board that companies as per International Standards.
provides the guidelines for the company and
its other stakeholders including employees, 19.05 GST Goods and Services
customers, suppliers and financiers. Corporate Tax
governance is based on the four fundamental
pillars of fairness, transparency, accountability GST is the indirect tax levied on
and responsibility. goods and services across the country. It is a
comprehensive, multi-stage, destination-based
In India the Kumara Mangalam tax that is levied on every value addition.
Birla Committee 2000, Narayana Murthy
There are 3 taxes applicable under this
Committee 2003 , Adi Godrej Committee
system.
2008, and presently Uday Kotak Committee
were constituted to give a comprehensive i) C
 GST: Collected by the Central
framework for Corporate Governance. Government on an intra-state sale (Eg:
The present corporate governance norms, transaction happening in TamilNadu)
included in the Companies Act 2013, ii) S
 GST: Collected by the State Government
SEBI listing regulations and Clause 49 of on an intra-state sale (Eg: transaction
the listing agreement are the outcome of happening within TamilNadu)
discussion by these committees.
iii) I GST: Collected by the Central
Government for inter-state sale (Eg:
The Indian Corporate Governance
Punjab to Tamil Nadu)
framework requires listed companies
Goods & Services Tax Council  is
i) to
 have independent directors on the board;
a constitutional body for making
At least one third of the directors have to be
recommendations to the Union and State
independent directors.
Government on issues related to Goods and
ii) to have at least one independent woman Service Tax. The GST Council is chaired by the
director , Union Finance Minister and other members are
iii) to disclose all deals and payments to related the Union State Minister of Revenue or Finance
parties. and Ministers in-charge of Finance or Taxation
of all the States.
iv) 
to disclose details of managerial
compensation The Goods and Services Tax Council
shall make recommendations to the Union and
v) 
CEO and CFO to sign stating that the
the States on
governance norms have been complied
with in the financial statements. a. the
 taxes, cesses and surcharges levied by
the Union, the States and the local bodies
It can thus be concluded that the presence
which may be subsumed in the goods and
of active governance norms in a company
services tax
enhances the image of the company, increases
investor confidence and safeguards the interests b. 
the goods and services that may be
of the shareholders and the society. The new subjected to, or exempted from the goods
and services tax

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c. 
model Goods and Services Tax Laws,
principles of levy, apportionment of Goods
Case Study
and Services Tax levied on supplies in the
course of inter-State trade or commerce
under article 269A and the principles that
govern the place of supply
d. the threshold limit of turnover below which
goods and services may be exempted from
goods and services tax
e. the rates including floor rates with bands Dr.VargheseKurien – Pioneer of White
of goods and services tax revolution in India
Amul meant different things to different people :
f. any special rate or rates for a specified
To a Milk Producer A life enriching experience
period, to raise additional resources
To a Consumer Assurance of having
during any natural calamity or disaster
wholesome milk
g. special provision with respect to the States To a Mother  A reliable source of
of Arunachal Pradesh, Assam, Jammu and nourishment for her child
Kashmir, Manipur, Meghalaya, Mizoram, To the Country Rural Development and
Nagaland, Sikkim, Tripura, Himachal Self Reliance
Pradesh and Uttarakhand and
h. any other matter relating to the goods and Purpose
services tax, as the Council may decide.
At the Tata group we are committed to
Key Terms improving the quality of life of the communities
we serve. We do this by striving for leadership
Environment, Micro and Macro
and global competitiveness in the business
Environment, Value system, Capitalistic
sectors in which we operate.
Economy, Socialistic Economy, Mixed
Our practice of returning to society
economy, Fiscal Policy, Monetary policy,
what we earn evokes trust among consumers,
Demography, VUCA GST employees, shareholders and the community.
We are committed to protecting this heritage
of leadership with trust through the manner in
For Future learning which we conduct our business.

1) Identify top five Indian companies Core values

and understand their vision , mission Tata has always been values-driven. These values
and core values.
continue to direct the growth and business
2) Examine how mobile phones are of Tata companies. The five core Tata values
replacing the existing technologies-
underpinning the way we do business are:
Radio, Music system, Camera etc.
Integrity: We will be fair, honest, transparent
and ethical in our conduct; everything we do
must stand the test of public scrutiny.

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Excellence: We will be passionate about

achieving the highest standards of quality,
always promoting meritocracy.
Exercise
Unity: We will invest in our people and partners,
enable continuous learning, and build caring
and collaborative relationships based on trust I. Choose the Correct Answers:
and mutual respect.
1. VUCA stands for ____, _____,_____,______.
Responsibility: We will integrate environmental
and social principles in our businesses, ensuring 2. GST stands for ______,______,______.
that what comes from the people goes back to 3. 
Factors within an organisation constitutes
the people many times over.
_________ environment.
Pioneering: We will be bold and agile, 4. 
Macro Environment of business is an
courageously taking on challenges, using
_________ factor.
deep customer insight to develop innovative
solutions. 5. The two major types of business environment
Mission are _______ and ___________.

To improve the quality of life of the communities 6. ________ environment includes weather
we serve globally through long-term stakeholder and climatic conditions.
value creation based on Leadership with Trust. 7. The size and composition of the population
is part of _________ environment.
Case Study Answers:
Apollo Hospitals 1 2 3 4 5 6 7

Our Vision II. Very Short Answer Questions:

Apollo’s vision for the next phase of 1 . Define Business environment
development is to ‘Touch a Billion Lives’.
2. What is internal environment?
Our Mission 3. Give the meaning of corporate governance.
“Our mission is to bring healthcare of 4. What is GST?
International standards within the reach of
5. Expand VUCA.
every individual. We are committed to the
achievement and maintenance of excellence 6. What is mixed economy?
in education, research and healthcare for the
benefit of humanity”. II. Very Short Answer Questions:
The TVS Group traces its origins to a rural 1. What is Market?
transport service, founded in 1911 in Tamil 2. What is mean by Commodity Market?
Nadu, India. Today, this renowned business
conglomerate remains faithful to its core 3. What is mean by Regulated Market?
ideals of trust, values, service and ethics. 4. Mention any four differences between
Wholesale Market and Retail market?

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5. Why Customer support is needed to

Market?

III. Short Answer Questions:

1. Explain the natural environment of business.
2. What are the political environment factors?
3 . Write about any three internal environmental
factors of business.
4. State the framework of Corporate
Governance in India.
5. What are the functions of the GST council?
6. Write a note on future environment of
business.
7. What do you know about Technological
environment?

IV. Long Answer Questions:

1. Discuss the role of macro environment of
business.
2. Describe the economic and socio cultural
environment of business.
3. Explain the micro environmental factors of
business.
4. Discuss the significance of understanding
business environment and the internal
factors affecting business.

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UNIT BUSINESS
MANAGEMENT
ENVIRONMENT
PROCESS
7I
LIBERALIZATION, PRIVATIZATION
20
1
CHAPTER
PRINCIPLES OF MANAGEMENT
AND GLOBALIZATION

ஊருணி நீர்நிைறந் தற்ேற உலகவாம்

ேபரறி வாளன் திரு,
-குறள் 215
COUPLET
The wealth of that man of eminent knowledge who desires to
exercise the benevolence approved of by the world, is like the
full waters of a city-tank.

Chapter Synopsis
Learning Objectives
20.01 Dimensions of New Economic Policy
To enable the students to understand the 20.02 Meaning and forms of Liberalisation
■ Meaning, measures, advantages, 20.03 Advantages and disadvantages of
disadvantages and impact of Liberalisation
Liberalisation 20.04 Impact of Liberalisation
■ Meaning, measures, advantages, 20.05 Meaning and Forms of Privatisation
disadvantages and impact of 20.06 Advantages and disadvantages of
Privatisation Privatisation
■ Meaning, measures, advantages, 20.07 Impact of Privatisation
disadvantages and impact of 20.08 Meaning and Forms of Globalisation
Globalisation 20.09 Advantages and disadvantages of
■ Highlights of LPG Globalisation
20.10 Impact of Globalisation
During 1991, India approached
20.11 Highlights of LPG policy
International Bank for Reconstruction and
India agreed to the conditions of World
Development (IBRD), popularly known as
Bank and IMF and announced New Economic
World Bank and International Monetary Fund
Policy (NEP) which consists of wide range of
(IMF) and received $ 7 million as loan to repay
economic reforms. This new set of economic reforms
the external borrowings. These international
is commonly known as the LPG or Liberalisation,
agencies expected India to liberalise and open
Privatisation and Globalisation model.
up economy by removing restrictions on private
sector and remove trade restrictions between
India and other countries.

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20.01 Dimensions of New tariff, subsidies and other restrictions on the

Economic Policy flow of goods and services between countries.
Liberalization is the result of New Industrial
There are three dimensions of New Policy which abolished the "License system" or
Economic Policy. They are explained below. “Licence Raj”.

New Forms of Liberalization

Economic The government of India has adopted
Policy
several measures of liberalization. Some of these
measures are as under:
Liberaliza on Priva za on Globaliza on
(a) Liberalization for industrial licensing:
In India, it was mandatory to obtain license
The base for New Economic Policy before liberalization for setting up certain
in various countries of the world is Dunkel industries. After liberalisation, all industries
Draft, which was all about the General except six specific industries were liberalized
Agreements on Trade and Tariff. Mr. Arthur i.e., free from obtaining license.
Dunkel (1932-2005) submitted a 22000 page
document for the World Trade Organisation Those Six non-liberalised industries
(WTO) and followed by many Nations were drugs and pharmaceuticals, hazardous
to adopt their respective New Economic chemicals, explosives, tobacco products,
Policies. India is one among such nations to alcoholic drinks, and electronic, aerospace
commit itself to the New Economic Policy in
and defence equipment. Currently, only five
1991.
industries are under compulsory licensing.
Drugs and Pharmaceuticals industry has
20.02 Meaning and forms of been liberalised.
Liberalization
(b) Freedom for expansion and production
to industries: Earlier government used to fix
the maximum limit of production capacity.
Now the industries are free to decide their
production limits by their own on the basis of
the requirement of the markets.
Economic Reforms
that changed (c) Increase in the investment limit of the
INDIA small industries: Investment limit of the small
scale industries has been raised to Rs. 1 cr. So
these companies can upgrade their machinery
Liberalization refers to laws or rules
and improve their efficiency.
being liberalized, or relaxed, by a government.
Liberalization means relaxation of various (d) Foreign Exchange reforms: The first
government restrictions in the areas of social and important reform in the external sector was
economic policies in order to make economies made in the foreign exchange market. In 1991, as
free to enter in the market and establish their an immediate measure to resolve the balance of
venture in the country. Liberalizing trade payments crisis, the rupee was devalued against
policy by the government includes removal of foreign currencies. This led to an increase in the

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inflow of foreign exchange. unemployment from certain industries closing.

(e) Liberalization of export and import (b) Loss to domestic units: With fewer
transactions: By simplifying procedures for entry restrictions, it has been possible for many
imports and exports the government wanted to entrants to make inroads into the country,
permit the international flow of goods, services, which poses a threat and competition to the
capital, human resources and technology, existing domestic units.
without many restrictions. (c) Increased dependence on foreign
20.03 Advantages and nations: Trade liberalisation means firms will
face greater competition from abroad. When
Disadvantages of
competition is not automatically enhanced, it
Liberlization can lead to domination by big institution that
Advantages has market controlling powers.

(a) Increase in foreign investment: If a (d) Unbalanced development: Trade

country liberalises its trade, it will make the liberalisation may be damaging for developing
country more attractive for inward investment. economies which cannot compete against free
Inward investment leads to capital inflows but trade. The trade liberalisation often benefits
also helps the economy through diffusion of developed countries rather than developing
more technology, management techniques and economies.
knowledge.
Financial Sector
(b) Increase the foreign exchange reserve:
Relaxation in the regulations covering foreign
investment and foreign exchange has paved way Reforms taken
Fiscal Sector during Industrial Sector
for easy access to foreign capital. liberalisa on
(c) Increase in consumption: Liberalization
increases the number of goods available for
Trade Sector
consumption within a country due to increase
in production.
(d) Control over price: The removal of tariff
barriers can lead to lower prices for consumers.
20.04  Impact of Liberalization
This would be particularly a benefit for countries (a) The impact of Liberalisation on Indian
who are importers. Economy was well afforeciable with the
phenominal growth by contributing $1.3
(e) Reduction  in external borrowings:
Trillion to the world GDP. So also the Indian
Liberalization reduces the dependence
Economy because the Seventh Largest among
on  external commercial borrowings by
the world leading economies.
attracting more foreign investments.
(b) Liberalization has opened up new
Disadvantages business opportunities abroad and increased
(a) Increase in unemployment: Trade foreign direct investment.
liberalisation often leads to a shift in the balance (c) New market for various goods came into
of an economy. Some industries grow, some existence and resulted not only in urban but
decline. Therefore, there may often be structural

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also in rural development. i. Bharat Aluminimum Co. Ltd., (BALCO)

(d) It became very easy to obtain loans from ii. Hindustan Zinc Ltd (HZL)
banks for business expansion. iii. Indian Petrochemicals Corporation Ltd
(e)"Foreign Collaboration" is the latest (IPCL)
outcome of liberalization. iv. Maruthi Udyog Ltd (MUl)
(f) A number of multinational companies v. Modern Food Industries Ltd (MFIL)
started operating world-wide including India. 
India Scooters Limited - The first ever
20.05 Meaning and forms of company Privatized in India
Privatization Forms of Privatization
Privatization is the incidence or process of (a) Contraction(minimisation) of public
transferring ownership of a business enterprise, sectors: The number of industries reserved
agency or public service from the government to for public sector was reduced from 17 (as per
the private sector. Simply speaking, privatisation 1956 policy) to only 8 industries viz, Arms and
means permitting the private sector to set up Ammunition, Atomic Energy, Coal and Lignite,
industries which were previously reserved for Mineral oils, Mining of ores, Mining of copper,
the public sector. Under this policy many Public lead, zinc etc., Minerals for atomic energyand
Sector Units (PSUs) were sold to private sector. Railways.
The main reason for privatisation was Currently only Atomic Energy,
that PSUs were running in losses due to Defence and Railways are Government
mismanagement and political interference.
monopoly industries i.e., Public sector
The managers could not work independently
industries in the country.
and the production capacity remained under-
utilized. To increase competition and efficiency
(b) Sales of shares of public sectors to
privatisation of PSUs was inevitable. Some
the private sector: Indian Govt. started
examples of Public Sector Enterprises recently
selling shares of PSUs to public and financial
privatlised are as follows.
institution. Now the private sector will acquire
ownership of these PSU’s. The share of private
sector has increased from 45 % to 55 % in the
year 2011 and after.
(c) Memorandum of Understanding:
MoU system was introduced in 1991to raise
the productivity and performances of PSUs. It
strengthens the relationship between PSUs and
administrative departments. The main work
of MoU is to judge the PSUs and level their
performance.
(d) Disinvestment in PSUs: The Govt. has
started the process of disinvestment in those
PSUs which had been running into loss. It
means that Govt. has been selling out these

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industries to private sector. So disinvestment is Disadvantages

a system of privatizing government enterprises. (a) Lack of welfare: Majority of private
companies whose main motive is profit-
20.06 Advantages and making, do not indulge in public interest or
Disadvantages of welfare services like free education to poor, free
Privatization medical treatment, etc.

Advantages (b) Political pressure: When private

companies fail to deliver, the public has no
(a) Increase in efficiency: Privatization is
powers to intervene and government does not
associated with improved efficiency due to the
always have time or expertise to force them to
profit incentive. Private companies will ensure
keep their promises.
they improve their operational efficiency in
order to reduce their costs and improve in (c) Ignores the weaker sections:
profits. Privatisation often goes hand in hand with
encouraging richer people to pay more and opt
(b) Professional management: Government
for best quality services. This leads to division,
owned enterprises make poor economic
making it harder to provide excellent public
management compared to private owned
services for weaker sections.
enterprises. This is because of the fear of
negative publicity. Private ownership makes
20.07  Impact of Privatization
bold management decisions due to their strong
foundation at international level. (a) P
 rivatization  has a positive  impact  on
the financial growth by decreasing the
(c) Increase in competition: Privatisation
deficits and debts.
of state-owned monopolies occurs alongside
deregulation i.e. policies to allow more (b) I ncrease in the efficiency of government
firms to enter the industry and increase the undertakings.
competitiveness of the market. It is this increase (c) P
 rovide better goods and services to the
in competition that can be the greatest spur to consumers.
improvements in efficiency.
(d) M
 aking way for Foreign Direct
(d) Reduction in economic burden of Investment (FDI)
Government: Since the ownership, control
and management of many PSUs are transferred 20.08 Meaning and Forms of
to private, the burden and responsibility of Globalization
government has comparatively reduced.

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Globalisation means the interaction and to send or bring money back to one’s own
integration of the domestic economy with country. Since globalisation has integrated many
the rest of the world with regard to foreign countries, repatriation has become very easy.
investment, trade, production and financial (d) Reduction in tariffs: Custom duties
matters. It is the process by which businesses and tariffs imposed on imports and exports
or other organizations develop international are reduced gradually to make Indian economy
influence or start operating on an international attractive to the global investors.
scale. Globalization stands for the consolidation
of the various economies of the world. (e) Encouraging open competition:
Globalisation brings an end to the difference
between domestic and international markets.
Domestic companies start their operations in
the international level and therefore there is an
open competition.

20.09 Advantages and
Disadvantages of
Globalization
Advantages
(a) Increase in foreign collaboration:
Globalisation increases foreign collaboration
GLOBALISATION through various modes such as joint venture,
merger, franchise, turn-key projects, etc.
Globalization results from the removal
of barriers between national economies to (b) Expansion of market: The size and
encourage the flow of goods, services, capital, operation of business moves from local to
and labour. While the lowering or removal of national and from national to international.
tariffs and quotas that restrict free and open (c) Technological development:
trade among nations has helped globalize the Technological advancement paves way for a
world economy. company to enter foreign market. Globalisation
of technology is done by Royalty or purchase of
Forms of Globalization
technology or by technology collaborations.
(a) Foreign trade policy: India has signed
(d) Reduction in brain drain: Brain drain is
a number of agreements in order to expand
a situation in which a country loses its most
Indian trade worldwide. Some of the agreement
educated and talented workers to other countries
includes TRIPS (Trade Related Intellectual
through migration. Globalisation paves way for
Property Rights), GATS (General Agreement
employment opportunities in the home country
on Trade in Service).
and utilise the man-power efficiently.
(b) Export promotion: Globalisation
promotes export by reducing quotes and Disadvantages
tariffs, by eliminating trade restrictions and by (a) Loss of domestic industries:
simplifying trade procedures. Globalisation causes decline in the demand of
(c) Freedom to repatriate: Repatriate means, domestic products which in turn vanishes the

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domestic business. (g) Tax reforms

(b) Increase in inequalities: Globalisation (h) Abolition of License
widens the gap between rich and poor. Also Globalization and liberalization are
developed countries exploit the resources of concepts closely related to one another, and
developing countries. both globalization and liberalization refer
(c) Dominance of foreign institutions: to relaxing social and economic policies
Economic power shifts from independent which results in better integration with an
industries to international organisations which economy and between nations. Globalization
is a threat to national sovereignty. and liberalization both occur as a result of
modernization. Globalization is the greater
201.10  Impact of Globalization integration among countries and economies for
trade, economic, social and political benefits.
(a) Corporations got a competitive advantage
Liberalization generally refers to removal of
from lower operating costs, and access to new
restrictions; usually government rules and
raw materials and additional markets.
regulations imposed on social, economic, or
(b) Multinational corporations (MNCs) can political matters.
manufacture, buy and sell goods worldwide.
Key Terms
(c) Globalisation has led to a boom in
consumer products market. FDI, TRIPS, TRYSEM, GATS

(d) The advent of foreign companies and

growth in economy has led to job creation. The former Prime Minister
(e) Globalisation has touched every aspect of India Dr.Manmohan Singh
of agriculture like technological advancement, is considered as the architect of
improved production techniques and quality Indian economic reforms who introduced the
policy of liberalisation in India in 1991.
based enhancement.

20.11 Highlights of the LPG

Policy
Given below are the salient highlights
of the Liberalisation, Privatisation and
Globalisation Policy in India:
(a) 
Introduction of new Foreign Trade
Agreements
(b) Foreign Investment (FDI & FII)
(c) MRTP Act, 1969 (Amended)
(d) Deregulation
(e) Opportunities for overseas trade
(f) Steps to regulate inflation

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(a) 1980 (b) 1991

For Future learning
(c) 2013 (d) 2015

Answers:
Financial Sector
1 c 2 b 3 a 4 c 5 b
Reforms taken
Fiscal Sector during
liberalisa on
Industrial Sector
II. Very Short Answer Questions:
1. State the branches of New Economic Policy.
Trade Sector
2. What is Privatisation?
3. Mention any three disadvantages of
Gather knowledge about these four Dimensions
Liberalisation.
4. Name the industries which are reserved for
Exercise
public sector.

I. Choose the Correct 5. Give any three advantages of Globalisation.

Answers:
III. Short Answer Questions:
1. __________ is the result of New Industrial
Policy which abolished the ‘License System’. 1. What do you mean by Liberalisation?
(a) Globalisation (b) Privatisation 2. Explain the concept of Privatisation.
(c) Liberalisation (d) None of these 3. What are advantages of disinvestment?
2. ___________ means permitting the private 4. State any three impacts on Globalisation.
sector to setup industries which were
5. Write a short note on New Economic Policy.
previously reserved for public sector.
(a) Liberalisation (b) Privatisation IV. Long Answer Questions:
(c) Globalisation (d) Public Enterprise
1. Explain the advantages and disadvantages
3. ____________ ownership makes bold
of liberalisation.
management decisions due to their strong
foundation in the international level. 2. Explain the impact of LPG on Indian
(a) Private (b) Public Economy.
(c) Corporate (d) MNC’s
References
4. __________ results from the removal of
www.gktoday.in
barriers between national economies to
encourage the flow of goods, services, www.indiastudychannel.com
capital and labour. www.economicshelp.org
(a) Privatisation (b) Liberalisation www.managementnote.com
(c) Globalisation (d) Foreign Trade
5. New
 Economic Policy was introduced in
the year _______.

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THE SALE OF GOODS ACT 1930

AND THE NEGOTIABLE
UNIT INSTRUMENTS ACT 1881
VIII
I

21
1
CHAPTER
PRINCIPLES
THE SALE OFOF
GOODS
MANAGEMENT
ACT 1930

அழிவதூஉம் ஆவதூஉம் ஆகிவழி பயக்கும்

ஊதிய முஞ்சூழ்ந்து ெசயல்.
-குறள் 461
COUPLET
Let a man reflect on what will be lost, what will be acquired
and (from these) what will be his ultimate gain, and (then, let
him) act.

Learning Objectives
To enable the students to understand the
■ Understand the contract of sale
■ Differentiate the sale and agreement to sell
■ Knows the types of Goods
■ Understand the transfer of ownership
■ Understand the conditions and
warranties
■ Knows the rights of unpaid seller

Sale of Goods is one of the most important

Chapter Synopsis Acts coming under special contract. This Act
was passed in the year 1930. Prior to this Act,
21.01 Formation of Contract of Sale it was governed by Chapter 7 of the Indian
21.02 Difference between Sale and Contract Act 1872. Contracts for the sale of
Agreement to Sell Goods are subjected to general legal principles
21.03 Types of Goods applicable to all contracts. Hence the general
provisions of Indian Contract Act continue to
21.04 Transfer of Ownership
apply to the Contract for the sale of goods
21.05 Conditions and Warranties
21.06 Rights of an Unpaid Seller
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21.01 Formation of Contract of could not be both sellers and buyers. However,

Sale there is one exception. When the goods of
a person are sold in execution of a decree, he
Contract of Sale of Goods himself may buy the goods to retain their
ownership.
Contract of sale of goods is a contract
whereby the seller transfers or agrees to transfer
(2) Transfer of Property
the property (ownership) of the goods to the
buyer for a price. The term ‘ownership’ is utmost To constitute sale, the seller must transfer
importance in the sale of goods. Students or agree to transfer the ownership in the good
have to understand that sale means selling the to the buyer. A mere transfer of possession does
ownership of the goods to the buyer for a price not amount to sale.
besides transferring the physical possession of
the goods. Mere possession of the goods does (3) Goods
not entitle a person to ownership. Similarly The subject matter of contract of sale
purchase means buying the ownership of the must be goods. It excludes money, actionable
goods from the seller for a price. The term claims and immovable property. The term
ownership or property confers on the buyer ‘goods’ includes every kind of movable property,
an absolute freedom to dispose of the assets in stocks and shares, growing crops etc. Goodwill,
any way as they like. Buyer has unlimited rights trademarks, copy rights, patent rights etc., are
of the property purchased against the whole all also regarded as goods.
world. In this context, it is essential to learn the
essential elements of a contract of sale. (4) Price
The monetary consideration for the goods
Essential Elements of a Contract of Sale
sold is called price. If goods are exchanged for
Following essential elements are necessary goods, it is only barter and not a sale. But if
for a contract of sale. goods are sold partly for goods and partly for
money, the contract is one of sale.
(1) Two Parties
A contract of sale involves two parties (5) Includes both ‘Sale’ and ‘Agreement
– the seller and the buyer. The buyer and the to Sell’
seller should be two different persons. If a The term contract of sale includes both
person buys his own goods, there is no sale. sale and agreement to sell. If the property in
On the dissolution of partnership when the goods is transferred immediately to the buyer it
surplus assets including goods were distributed is called a sale. On the other hand, if the transfer
among the partners, the court held that it was of property takes place at a future date or on
not a sale attracting sales tax. The partners were fulfilment of certain conditions, it is called ‘an
themselves joint owners of the goods and they agreement to sell’.

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21.02  Difference between Sale and Agreement to Sell

Sl. Particulars Sale Agreement to Sell
No.
The property (ownership or title) The property (ownership or title)
in the goods passes from the seller in the goods has to pass at a future
Ownership
1. to the buyer immediately so that time or after the fulfilment of
Transference
the seller is no more owner. certain conditions specified in the
contract.
Where the goods sold under the Where the goods under the
contract of sale are destroyed, the
agreement to sell are destroyed,
loss falls squarely on the buyer as
the loss falls squarely on the seller
2. Risk of Loss the ownership in the goods has as the ownership is still vested
already passed on to the latter. with the seller even though the
Even though the goods are in the possession of the goods is with the
possession of seller. buyer.
Where the buyer fails to pay the Where the buyer violates the
Consequences price, the seller cannot seize the contract, the seller can repossess
3. of violating the goods. The seller can only file a the goods from the former. He can
contract case against the buyer for violating sue for damages for violation of the
the contract. contract.
It is an executed contract i.e. It is an executory contract, i.e.
Nature of
4. completed contract contract yet to be performed by the
contract
party to the contract.
In a sale, if a buyer becomes If the buyer becomes insolvent
insolvent before he pays for the before the payment of the price,
goods even though the goods sold the seller can retain the goods if
are under the possession of the they are under his possession or
seller, the latter has to return them even he can repossess the goods
Insolvency of the to the Official Receiver or Assignee even if the possession of the goods
5.
Buyer as the ownership of goods has is transferred to the buyer. In other
already been transferred to the words, the seller is not bound to
buyer. The seller can claim only lose possession of the goods.
rateable dividend. The seller has to
inevitably part with the possession
of the goods under his custody.
If the seller become insolvent The buyer cannot do so. Further if
before delivering the goods to the the buyer has already paid the price
buyer, the buyer can claim the of the goods or made any advance,
Insolvency of the
6. delivery of the goods from the he can claim only rateable dividend
Seller
Official Receiver or Assignee as the and not the goods because the
ownership is already passed on to ownership in the goods is not yet
the buyer. passed to him.

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21.03  Types of Goods good includes shares, stocks, growing crops,

grass, things attached to the land or forming
The term goods mean every kind of part of the land agreed to be cut off from the land
movable property other than actionable claim before sale (eg. trees grown on the land agreed to
and money. The term actionable claim means be sold after harvest), goodwill, copyright, trade
debt secured by a mortgage of immovable mark, patents, water, gas, electricity, power etc.,
property, Fixed Deposit Receipt, Dividend Due under the contract of sale.
on Shares, Amount due under LIC policy, Claim The diagram given below exhibits the type
for rent which falls due in future etc., The term of goods covered under the sale of goods act.

1. Existing Goods

Existing goods are those owned or possessed by

the seller at the time of contract of sale. Goods
possessed even refer to sale by agents or by
pledgers.

Existing goods may be either

(i) Specific Goods
(ii) Ascertained Goods
(iii) Generic or Unascertained Goods

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Existing Goods
(i) Specific Goods (ii) Ascertained Goods
Specific goods denote goods identified and The term ‘ascertained goods’ is also used as
agreed upon at the time of contract of sale. For similar in meaning to specific goods. But this
eg. if a buyer selects a particular variety of saree term may even refer to goods which become
after examining several other sarees, the selected ascertained subsequent to the formation of the
one denotes specific goods. contract.

(iii) Unascertained or Generic Goods

These are goods which are not identified and

agreed upon at the time of contract of sale. For
eg. A wants to buy a car from a showroom where
different models at different prices have been
displayed. All these displayed models represents
unascertained goods.

2. Future Goods 3. Contingent Goods

These are goods which a seller does not Contingent goods are the goods, the
possess at the time of contract of sale but which acquisition of which by the seller depends upon
will be manufactured or produced or acquired a contingency (an event which may or may not
by him after entering into the contract of sale happen). Contingent goods are a part of future
agreement. Eg. ‘A’ contractor agrees to supply goods. Eg.‘A’ agrees to sell a particular painting
100 bags of rice to ‘B’ for giving marriage feast. work, provided he gets from ‘C’. In this case,
It is a case of future goods. Similarly where the the painting work represents contingent goods.
bus company agrees to buy spare parts from a Similarly a rice merchant agrees to supply 10
particular supplier, it is an example of future bags of basmathi rice from Pakistan if he get
contract. Future goods represents unascertained supplies. In this case, basmathi rice representing
goods. contingent goods may or may not be available
to the rice merchant.

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CONTINGET GOOD (Eg.Basumathi Rice)

21.04  Transfer of Ownership goods must be distinguished from possession of

goods. Property in goods means the ownership
of goods while possession of goods refers to the
custody of goods or control over the goods.
For eg. ‘A’ may possess a watch. Just
because ‘A’ possesses the watch, he cannot be
owner. He might have borrowed the watch from
his friend or stolen the watch from somebody
or found it on the highways. In this case, he
Transfer of property (ownership) in cannot be called owner. It is important to know
goods from the seller to the buyer is the main the precise movement of time at which the
object of a contract of sale. The term property in ownership in goods passes from seller to buyer.

Passing of Property
Transfer of title of a property is called as passing of property.

Passing of Property

Specific Goods Unascertained Goods sent

Goods on Approval

At the me of
Contract

Beyond the
date of Contract

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1. Specific Goods the ownership in the goods passes to the buyer

only after such activities are carried out and
(i) At the Time of Contract completed and the buyer has a knowledge of it.
Where there is an unconditional contract
eg. ‘A’ sold some quantity of wheat to ‘B’
for the sale of specific goods in a deliverable
at the rate of Rs. 10 per kg. However, ‘A’ had to
state, ownership in the goods passes to the
weigh the wheat in order to know the price of
buyer when the contract is made. The time of
the entire quantity of wheat sold to ‘B’. In this
payment of price or time of delivery of goods
case, the ownership of the wheat shall transfer
is immaterial in the matter of transferring the
to ‘B’ as soon as ‘A’ weighs the wheat ‘B’ comes
ownership of the goods.
to know about the completion of the weighing
eg. ‘B’ selects certain books in a bookshop. activity.
The price is settled. ‘B’ arranges to take delivery
of books next day through his servant and agrees 2. Unascertained Goods
to pay for the books on the 1st of next month. As already we studied that the
The books were destroyed by fire in the same unascertained goods are those which are not
evening. In this case, ‘B’ has to bear the loss and specifically identified at the time of contract of
pay for the books selected since the ownership sale. The ownership in the case of unascertained
has already passed on to ‘B’. goods, is transferred to the buyer subject to the
fulfilment of following conditions:
(ii) Beyond the Date of Contract
a. When the Goods are Ascertained
(a). Goods not in a Deliverable State
Ascertainment is a process by which the
Where there is a contract for sale of
goods to be delivered under the contract of sale
specific goods not in a deliverable condition
are identified and set apart. It is a unilateral
i.e. the seller has to do certain activities to
act of the seller alone to identify and isolate the
bring the goods into deliverable condition like
goods.
painting, quality checking, weighing etc., then
the ownership does not pass till such activities b. When the Goods are Appropriated to the
bringing them into deliverable condition are Contract
completed. eg. There was a contract for a sale Appropriation is a process by which the
of machine weighing 30 tonnes and installed goods to be delivered under the contract of sale
in a concrete floor. Some parts of the machine are identified and isolated with the consent of
were damaged during the process of removal. the seller as well as the buyer. It is a bilateral act
In this case, buyer is entitled to refuse to buy the of the seller and the buyer to identify and isolate
machine as it is not in a deliverable condition. the goods. In other words, where the goods
(b) 
When the Price of Goods is to be identified and isolated are put into boxes or any
Ascertained by Weighing or Testing or container with the consent of the buyer, it is
Doing Something called appropriation. eg. ‘A’ agrees to sell ‘B’ the
oil to be produced by him. The oil was filled by
Where there is a contract for the sale of
‘A’ into the bottles supplied by ‘B’. It is an effective
specific goods in a deliverable condition, but
appropriation and the ownership of oil goods
the seller is yet to weigh, measure, test or do
passes to the buyer when the oil is filled into the
some other act or think with reference to the
bottles. In this case, the buyer gave his consent to
goods for the purpose of fixing the price, then
the appropriation by supplying the bottles.

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c. Delivery to the Carrier presumption is that the seller has not reserved
Where the seller delivers the goods to a the right of disposal of the goods. The property
carrier for the purpose of transmission to the in such goods passes to the buyer immediately
buyer, he is deemed to have unconditionally on delivering them to the carrier.
appropriated the goods to the contract. But
the only condition is that the seller should
3. Goods Sent ‘On Approval’ or ‘On
not have reserved the right of disposal of the Sale or Return’ Basis
goods.Where the railway receipt or the bill of Goods sent on approval or on sale or
lading is made out in the name of the buyer, the return basis mean those goods in respect of
which the buyer has option either to return or
retain.

Time of Transfer of
Sl. No Rule Examples
Ownership

‘A’ offer to sell his scooter to ‘B’ and

Where the buyer Ownership passes
delivers it to ‘B’ for trial run for 2 days. ‘B’
communicates right from the time of
1. communicates his acceptance after 2 days.
his approval or communication of the
In this case, ownership passes right from the
acceptance approval
time of his communication of his approval.

‘A’ delivered some jewellery to ‘B’ on sale or

return basis. ‘B’ pledged the jewellery with
Where the buyer
‘C’. It was held that ownership of the jewellery
does some act When the act of
2. had transferred to ‘B’ as he had adopted the
adopting the adoption is done
transaction by pledging the jewellery with ‘C’.
transaction
In this case, A has no right against ‘C’. He can
only recover the price of the jewellery from ‘B’.

3. Where the buyer fails to return the goods

‘X’ delivers some goods to ‘Y’ on sale or return

for 7 days. ‘Y’ neither returns nor gives notice
of rejection of goods even after the expiry of 7
After the time fixed On the expiry of the
(i) days. The goods were destroyed by fire on 8th
for return fixed term
day. In this case, ‘Y’has to bear the loss as the
ownership has passed on 8th day after the lapse
of stipulated period i.e. 7 days.

S Ltd. Agreed to sell a Tractor to Municipality

on the condition that if the latter was not
satisfied with the tractor, it could reject it.
Where no time
On the expiry of the The municipality used the tractor for a month
(ii) has been fixed for
reasonable time and a half and then wanted to reject. In this
return
case the property in the tractor is deemed to
have passed to the municipality as reasonable
time elapsed.
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21.05  Conditions and Warranties (ii) Warranty: Warranty represents a stipulation

A stipulation in a contract of sale with which is collateral to the main purpose of
reference to goods may be a condition or a the contract. It is of secondary importance
warranty. to the contract. The violation of warranty
(i) Condition: A condition is a stipulation entitles the affected party to claim damages
which is essential to the main purpose of or compensation from the other party. But
the contract. It is core to the contract. The he cannot cancel the contract altogether.
non-fulfilment of the condition cancels the In the above example, preference of red
very contract. In other words, if a condition colour represents warranty. Mechanic ‘B’
is broken, it leads to cancellation of contract. breaks the warranty in the above contract
eg. ‘A’ intends to buy a motorbike from ‘B’. by acquiring a green colour bike. Hence,
‘A’ insists that the bike should give him a ‘A’ is entitled merely to demand just change
mileage of 50 kms per litter. He prefers to of colour by instructing ‘B’to repaint it
have red colour bike. ‘B’, a mechanicgets
with red colour and making him bear the
a bike which gives him 55 kms per litter.
cost of repainting.
But the colour is green. In this case, ‘A’
cannot cancel the contract. Since ‘A’ is In short, the stipulation or condition
very particular about the mileage, it is a is contract specific. In other words, it can be
condition to the contract. That part of determined with reference to the terms and
contract is fulfilled by ‘B’. However, ‘A’ can conditions of the contract. Let us further
ask the mechanic ‘B’ to bear the cost of examine the difference between conditions and
repainting it with red colour. warranties:

Sl. No Basic of Difference Condition Warranty

It is a stipulation which is It is a stipulation which is

1. Meaning essential to the main purpose collateral to the main purpose
of the contract of sale. of contract.

Condition is so essential to It is of subsidiary or inferior

the contract that the breaking character. The violation of
2. Significance
of which cancels out the warranty will not revoke the
contract. contract.

Ownership on goods cannot Ownership on goods can be

Transfer of
3. be transferred without transferred on the buyer without
Ownership
fulfilling the conditions. fulfilling the warranty.

In case of breach of contract, In the case of breach of warranty,

the affected party can cancel the affected party cannot cancel
4. Remedy
the contract and claim the contract but can claim
damages. damages only.

Breach of condition may be Breach of warranty cannot be

5. Treatment
treated as breach of warranty treated as breach of condition.

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Implied Conditions and Warranties 2. 

The buyer should have a reasonable
In every contract of sale, there are opportunity of comparing the bulk with the
certain expressed and implied conditions sample and
and warranties. The term implied conditions 3. The good must be free from any defect
means conditions which can be inferred from rendering them unsalable.
or guessed from the context of the contract.
Following are the implied conditions: 4. Conditions as to Quality or Fitness
There is no implied condition as to the
Implied Conditions quality or fitness for any particular purpose of
goods. But goods must be fit for a particular
1. Conditions as to Title purpose if
In the case of sale, seller has a right to sell
(i) The buyer has made known to the seller
the goods. The buyer can assume that the seller
the particular purpose for which he needs
has a right to sell the goods. eg. ‘R’ purchased
the goods
a motorcar from ‘D’ and used it for 4 months.
Later after six months, true owner came and (ii) The buyer relies on the seller’s skill or
proved that he is a true owner. In this case, ‘R’ judgement and
has to return the car to the true owner and claim (iii) The goods are of a description which is in
the full price paid by him from ‘D’. course of the seller’s business to supply

2. Conditions as to Description eg. ‘A’ bought set of false teeth from a

In a contract of sale by description, there dentist. The set did not fit into A’s mouth. Held
is an implied condition that goods supplied that he could reject the set as the purpose for
should agree with the descriptions made by the which it was bought was known to the dentist.
seller. eg. ‘A’ has bought a machinery from ‘B’
5. Conditions as to Merchantability
who described it to be just one year old. After
buying the machinery and using it for a month, If goods are bought by description and
‘A’ came to know that it is very old machinery. the seller is a dealer in goods of that description,
In this case, ‘A’ can return the machinery to ‘B’ the implied condition is that goods must be of
on the ground that machinery is not as per the merchantable quality. It only means that the
description i.e. not recent one. goods must be saleable in the market under that
denomination. “A watch that will not keep time,
3. Sale by Sample a pen that will not write and tobacco which will
Where goods are sold by showing samples not smoke, cannot be regarded as merchantable
by the seller eg. foodgrains, cloth, medicine, under such names.”
chemicals etc., the bulk of goods supplied by
6. Condition as to Wholesomeness
the seller should be similar to the sample shown
by the seller. In other words, where the goods In the case of eatables, the goods must be
supplied do not match with the samples; the wholesome besides being merchantable.
buyer can very well return the goods subject to eg. ‘F’ bought milk from ‘A’, a dairy
the following conditions: owner. The milk was contaminated with germs
1. The bulk of the goods must correspond of typhoid fever. F’s wife on taking the milk
with the sample in quality became infected and died of it. ‘A’ was held
liable in damages.

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7. Condition Implied by Trade Usage (ii) Free from Any Encumbrances

An implied condition as to quality or The goods bought must not have been
fitness for a particular purpose can also be fixed subject to any charge or right in favour of a third
by the usage of trade. party. If the buyer’s possession is disturbed by
Eg.‘X’ sold certain drugs by auction to reason of the existence of any encumbrance, he is
‘Y’. In the auction sale, there is a trade custom entitled to claim damages for breach of warranty.eg.
to declare any defect in the goods. But ‘X’ sold ‘X’ borrowed Rs. 50,000 from ‘Y’ and hypothecated
the goods without such declaration. Later, such his autorickshaw with ‘Y’ as security. Later on, ‘X’
goods were found to be defective. In this case, sold the autorickshaw to ‘Z’ who bought it in good
‘Y’ can claim refund of the price on the ground faith. In this case, ‘Z’ can claim damages from ‘X’
of breach of custom. because his possession is disturbed by ‘Y’ having a
encumbrance on the auto.
Implied Warranties
(iii) Warranty in the case of Dangerous
(i) Quiet Possession Goods
There is an implied warranty that the Where the seller knows that the goods he is
buyer shall have and enjoy quiet possession of selling are dangerous or likely to be dangerous to
the goods. If the buyer’s possession is disturbed the buyer and the buyer is ignorant of the danger,
by a person having a superior right to that of the the seller should warn the buyer of the probable
seller, the buyer is entitled to claim the damages. danger, otherwise he will be liable to compensate
eg. ‘X’ sold a second hand radio to ‘Y’ who the buyer in case of any injury.eg. ‘C’ bought from
spendsRs. 100 on the repairs of the radio. This ‘A’ a tin of disinfectant powder. ‘A’ knew that the lid
radio was seized by the police as it was a stolen of the tine was defective and that if it was opened
one. ‘Y’ filed a suit against ‘X’ for the recovery without special care, it might be dangerous. Yet ‘A’
of damages for breach of warranty of quiet did not warn ‘C’. ‘C’ opened the tine in the usual
possession including the cost of repair. ‘Y’ won way whereupon the powder flew into her eyes,
the case. In other words, he was held entitled to causing injury. Held that ‘A’ was liable in damage to
recover the damages. ‘C’ as he should warned ‘C’ of the probable danger.
21.06  Rights of an Unpaid Seller

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Unpaid Seller - Meaning Circumstances Under which the Right

A seller is deemed to be an unpaid seller of Lien is Lost
(a) when the whole of the price has not been (a) When he delivers the goods to a carrier
paid or (b) a bill of exchange or other negotiable or other bailee for the purpose of transmission to
instrument given to him has been dishonoured. the buyer without reserving the right of disposal
Thus it would be obvious that a seller who has of the goods. eg. ‘X’ of Delhi sold some goods
received only a part of the price is also an unpaid to ‘Y’ of Bombay and took the railway receipt in
seller. Seller includes not only the actual seller the name of ‘Y’ and sent the railway receipt to
but also an agent of a seller or a consignee. ‘Y’. In this case, ‘X’ has not reserved the right of
disposal of goods. (or)
Rights of an Unpaid Seller
(b) When the buyer or his agent lawfully
I. (a). Rights of an Unpaid Seller against the
obtains possession of them. In other words,
Goods
buyer took delivery from booking office (or)
(i) Where the Property in the Goods has Passed
(c) When the seller waives his right of lien
to the Buyer
b. Right of Stoppage in Transit
a. Right of Lien: An unpaid seller has a
right to retain the goods till he receives the price.
Where the seller has delivered the goods
But to exercise this lien
to a carrier or other bailee for the purpose of
i. He must be in possession of goods transmission to the buyer, but the buyer has
ii. The goods must have been sold without any not acquired them, then the seller can stop
stipulation as to credit or where goods have the goods and regain the possession. In other
been sold on credit, the terms of credit must words, goods must be neither with the seller nor
have expired. He can also exercise the right of with the buyer but should be in the hands of a
lien when the seller becomes insolvent. carrier. Further, the buyer must have become
iii. It must be remembered that the right of lien an insolvent.
depends on actual possession. Thus where
the seller has transferred to the buyer the Termination of Right of Stoppage
documents of title to the goods, his lien is This right to stop the goods comes to an end:
not affected so long as he continues to be in
(a) When the goods are delivered to the
possession of the goods.
buyer or his agent or
For eg.‘A’ has sold the 10 TV sets to ‘B’ and
(b) When, on arrival of the goods at the
transferred the documents of title to the goods to
appointed destination, the carrier communicates
‘B’ by courier service. But goods are under the
to the buyer or his agent that he is holding the
custody of ‘A’ ready for despatching to booking
goods on his behalf
office. Meantime, ‘B’ became insolvent. In this
case, ‘A’ can retain the goods. c. Right of Resale

Where an unpaid seller has made a part The unpaid seller can resell the goods
delivery of the goods, he has lien on the reminder. (i) Where they are of a perishable nature or
However, if delivery of a part is intended as a
(ii) After exercising his right of lien or stoppage
delivery of the whole, then this lien is lost.
in transit, even though he has given

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intimation to the buyer of his intention

to resell, buyer has not tendered the price
Case Study
within a reasonable time.
(iii) Where the seller has expressly reserved the
right of resale in the contract itself (i) X purchased a hot water bottle from Y, retail
chemist. X asked Y if it would stand boiling
I. (b). Where the Property in the Goods does water. The chemist told him that the bottle
not pass to the Buyer was meant to hold hot water. The bottle burst
when water was poured into it and injured his
II. Right of an Unpaid Seller against wife. State whether seller is liable for the injury
the Buyer Personally suffered by the buyer and the consequent
(i) Suit for price: Where the ownership in the compensation, give your reasons.
goods has passed to the buyer and the buyer (ii) X asked a car dealer to suggest him car suitable
for touring purposes. The dealer suggested a
refuses to pay for the goods, the seller can file
‘Buggati Car’. Accordingly, X purchased it but
case against the buyer for the price found it unsuitable for touring purpose. State
(ii) 
Suit for Damages for Non-acceptance: whether the car dealer is liable for breach of
condition?
Where the buyer wrongfully refuses to
accept the goods, the seller can sue him for (iii) X, a dealer sold a plastic catapult to B. While
using the catapult in the usual manner, it
damages for non-acceptance of the goods. broke due to the fact that the materials used in
(iii) 
Suit for Cancellation of the Contract its manufacture were unsuitable. As a result,
before the Due Date: Where the buyer the boy who was using it, blinded in one of his
eyes. State whether the seller is liable or not.
cancels the contract before the date of
(iv) X bought from Y a heap of wheat the weight of
delivery, the seller may either treat the
which is 1000 kg at the rate of Rs. 8 per kg. and
contract as continuing or wait till the due agrees to pay the price on the first day of the
date or he can file a case against buyer next month and the wheat is to be delivered
immediately. at X’s godown on the following day. A fire
broke out and the entire quantity of wheat was
(iv) Suit for Interest: Where there is a specific
destroyed. State whether X is liable to pay the
agreement between buyer and seller price or not. Why?
regarding charging interest on the price, the (v) X bought from Y a heap of wheat (weight
seller can recover interest from the buyer 100 kg) at the rate of Rs. 8 per kg. and Y had
from the due date of contract till the date to put the wheat in bags to deliver it to X. Y
of payment of purchase price. If there is filled some bags in X’s presence, but before the
no specific agreement, the seller can charge remainder could be filled, a fire broke out and
the entire quantity of wheat was destroyed.
interest from such day as he may notify to
State whether X is liable to pay the price or
the buyer. not. Why?
(vi) X bought from Y a heap of wheat at a rate of
Key Terms
Rs. 8 per kg and Y had to weigh the wheat.
Sale  Ownership Property Before weighing was completed, the wheat
Conditions Warranties Insolvency was destroyed by fire. State whether X is liable
Contingent Lien to pay the price or not. Why?
Clues: Students are advised to read thoroughly
the implied warranties and conditions for the
cases 1 to 3 and rules relating to transfer of
ownership for cases 4 to 6.

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For Own Thinking For Own Thinking

(a) 
Find out whether the following (c) State whether the seller is an unpaid
transactions can be included under the seller or not in the following cases:
Contract of Sale: i. X sold some goods to Y for Rs.
i. X agreed to sell 100 shares to Y for 10,000. Y paid Rs. 9,900 but failed to
Rs. 10,000. pay the balance
ii. X agreed to sell his building for Rs. ii. X sold some goods to Y for Rs.
1,00,000 to Y 10,000 and received a cheque for the
iii. X agreed to exchange with Y 100 kg full price as conditional payment.
of rice valued at Rs. 20 per kg for 200 On presentment, the cheque was
Kg of wheat valued at Rs. 12 per kg. dishonoured by the bank.
and pay the difference in cash. iii. X sold some goods to Y for Rs.
iv. X agreed to transfer some jewellery 10,000 on a credit of one month.
to his prospective wife out of love One month has not yet expired.
and affection. iv. X sold some goods to Y for Rs.
v. X agree to buy a painting from an 10,000 on a credit of one month and
artist one month has expired and the price
vi. X supplied a piece of cloth to a tailor remains unpaid.
to stitch a suit for him. The tailor v. X sold some goods to Y for Rs. 10,000
agreed to supply lining materials and on a credit of one month. Y became
buttons. insolvent during the period of credit.
vii. X agreed to pledge his goods valued
at Rs. 1,00,000 with Y (i) Mere possession of the goods
Clues: Students are advised to understand does not make the possessor the
the meaning for goods and the owner of the goods possessed. A
essential elements of contract of sale. person may possess the goods by borrowing
(b) 
Find out whether the following from others; or from finding it on the
contracts of sale amount to sale or highways or by mortgage or by pledge or
agreement to sell:
by bailment or by lease or by hire and
i. X entered into a contract for sale entire so on. These transactions do not confer
crop of rice cultivated in his farm.
ownership rights to the possessor. It is only
ii. A railway administration agreed to when the ownership is transferred that the
sell coal-ash that might accumulated
person becomes absolute owner. The owner
during the period of the contract.
possesses every right to hold the goods
iii. X entered into a contract for sale of
against the whole world. In this context,
some goods in a particular ship to be
you have to understand that purchase means
delivered on the arrival of the ship
buying the ownership of the goods bought
iv. X entered into a contract for sale of a
for consideration and sales means selling the
painting only if Z, its present owner
ownership over the goods for consideration.
sells it to him.

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(ii) If anyone finds any article c) Ownership of goods

or goods on the highways he or d) Both (a) and (b)
she is supposed to be bailee of 6. Specific goods denote goods identified upon
the goods and takes care of the goods as if the time of ______ of sale:
it were his own. If true owner is traced he a) Agreement b) Contract
or she must restore the goods to him. He c) Order d) Obligation
or she should not use the goods for his own
purpose. If he uses such goods he is found 7. 
In which of the following types, the
ownership is immediately transferred to
to be guilty of criminal misappropriation of
buyer?
the property under section 403 of the Indian
Penal Code. The finder of the lost goods a) When goods are ascertained
can recover all reasonable expenses from the b) When goods are appropriate
true owner. The finder can sell the goods if c) Delivery to the carrier
the true owner cannot be found out or if the d) Sale or return basis
true owner refuses to pay the lawful charges
8. ________ is a stipulation which is collateral
of the finder. to main purpose of contract:
a) Warranty b) Condition
c)Right d) Agreement
9. Unpaid seller can exercise his right of lien
Exercise over the goods, where he is in possession of
the goods as
a) Owner of goods b) Agent of buyer
I. Choose the Correct Answers:
c) Bailee for buyer d)All of these
1. Sale of Goods Act was passed in the year
10. The unpaid seller can exercise his right of
a) 1940 b) 1997
stoppage of goods in transit where the buyer
c) 1930 d) 1960
a) Becomes insolvent
2. Which
 of the below constitutes the essential
b)Refuses to pay price
element of contract of sale?
c) Payment of price
a) Two parties b) Transfer of property
d)Both (b) and (c)
c) Price d) All of the above
Answers:
3. Which of the below is not a good?
1 c 2 d 3 b 4 b 5 c
a) Stocks b) Dividend due 6 b 7 c 8 a 9 d 10 a
c) Crops d) Water
II. Very Short Answer Questions:
4. In
 case of the sale, the ____ has the right to
1. What is a contract of sale of goods?
sell
a) Buyer b) Seller 2. List
 down the essential elements of a
contract of sale.
c)Hirer d) Consignee
3. What is meant by goods?
5. The property in the goods means the
a) Possession of goods 4. What is a Contingent Goods?
b) Custody of goods 5. What do you understand by warranty?
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III. Short Answer Questions: References

1. Explain the meaning of Agreement to sell. (i) N.D. Kapoor, Elements of Mercantile Law,
2. Discuss in detail about existing goods. Sultan Chand & Sons Pvt. Ltd., New Delhi, 2014

3. Discuss the implied conditions and (ii) P.C. Tulsian& Bharat Tulsian, Business Law,
warranties in sale of goods contract. S. Chand publishing, New Delhi 2014
Balachandran V & Thothadri S, Business Law,
4. Discuss in detail the rights of an unpaid
Vijay Nicole Imprints Pvt. Ltd., Chennai, 2009
seller against the buyer personally.

IV. Long Answer Questions:

1. Explain in detail the elements of Contract of
sale.
2. Distinguish between sale and agreement to
sell
3. Classify goods under the Sale of Goods Act.
4. Distinguish between Conditions and
Warranty.
5. Discuss in detail the rights of an unpaid
seller against the goods.

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THE SALE OF GOODS ACT 1930

AND THE NEGOTIABLE
UNIT INSTRUMENTS ACT 1881
VIII

22
CHAPTER
THE NEGOTIABLE INSTRUMENTS ACT 1881

எைனத்தானும் நல்லைவ ேகட்க அைனத்தானும்

ஆன்ற ெபருைம தரும்.
-குறள் 416
COUPLET
Let a man listen, never so little, to good (instruction), even
that will bring him great dignity.

Learning Objectives
To enable the students to understand the
■ Negotiable Instruments
■ Meaning, characteristics and
Assumptions
■ Bills of Exchange, Cheque, Promissory
Note – comparison
■ Crossing of cheque – types –
endorsement types

Chapter Synopsis
22.01 Negotiable Instruments – Meaning, The word ‘Negotiable’ means transferable
Characteristics, Assumptions from one person to another in return for
22.02 Negotiability & Assignability consideration. The word ‘Instrument’ means
a written document by which a right is created
22.03 Bills of Exchange, Cheque, Promis- in favour of certain person. Thus, a negotiable
sory Note – A Comparison
instrument is a document which entitles a
22.04 Crossing of Cheque person to a certain sum of money and which
22.05 Endorsements is transferable from one person to another by
mere delivery or by endorsement and delivery.
The terms delivery and endorsement has been
explained subsequently in this chapter. The law
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relating to negotiable instruments is dealt in she need not return the bill to true owner.
the Negotiable Instruments Act 1881. This Act eg. A sold certain goods to B. B gives a Bills
speaks about promissory note, bills of exchange of Exchange to S for the price. Later B refuses
and cheques. to pay the Bills of Exchange on the ground that
the goods supplied are defective. Meantime,
22.01 Negotiable Instruments– A endorsed the bill to C. In this case, B’s defence
Meaning, Characteristics, is of no value. C is a holder in due course. His
title is not affected by certain defence like fraud
Assumptions
or misrepresentation or any mistake.
In the words of Justice K.C. Wills, a
negotiable instrument is one, the property in 3. Right of the transferee to sue
which is acquired by anyone who takes it bonafide
Though a bill, a promissory note or a
and for value, and withstanding any defect to title
cheque represents a debt, the transferee is
in the person from whom he took it.
entitled to sue on the instrument in his own
According to section 13 of the Negotiable name in case of dishonour, without giving notice
instruments Act 1881, a negotiable instrument to the debtor that he has become its holder.
means a promissory note, bill of exchange or
Presumptions to Negotiable Instrument
cheque payable either to order or to bearer.
Certain presumptions as briefly mentioned
Characteristics of a Negotiable below:
Instrument I. Every negotiable instrument is presumed
to have been drawn, accepted etc. for
1. Transferability consideration.
A negotiable instrument is transferable II. A negotiable instrument is presumed to
from one person to another without any have been accepted.
formality, such as affixing stamp, registration
III. Every negotiable instrument bearing, a
etc., In other words, the property (the right of
date is presumed to have been made or
ownership) in the instrument can be transferred
drawn on such a date.
by mere delivery (in case it is payable to bearer)
or by indorsement and delivery (in case it is IV. 
It is presumed to have been accepted
payable in order). within a reasonable time after the date
and before its maturity.
2. Title of the holder free from all V. The transfer of a negotiable instrument
defects is presumed to have been made before
A person taking the instrument in good maturity.
faith and for value is known as holder in due VI. 
The endorsements appearing upon a
course. When the instrument is held by holder negotiable instrument are presumed to
in due course in the process of negotiation, it have been made in the order to which
is cured of all defects in the instrument with they appear thereon.
respect to ownership. In other words, even VII. When a negotiable instrument has been
though the right of the person who transferred lost, it is presumed to have been duly
the instrument to holder in due course is stamped.
defective i.e. disentitled to transfer, the title VIII. The holder of a negotiable instrument is
of the holder in due course is superior. He/ presumed to be a holder in due course.

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22.02 Negotiability and Assignability

Assignability
Negotiability
Negotiability refers to the transferability Assignability refers to the transferability
of all the rights and titles on an instrument of personal properties and rights from one
by delivery or by endorsement and delivery, person to another as gift or sale or as security.
vesting with the bonafide transferee for value The transferee gets the same as much title as
even better title that what the transferor the transferor has. In short, transferability of
had. This is the unique characteristics of a ownership of any goods other than negotiable
negotiable instrument. In short, transferability
instruments is called Assignability.
of negotiable instruments is called negotiability.

Difference between Negotiability and Assignability

Sl. Basic of
Negotiability Assignability
No. Difference
1. Legal It passes to the transferee by mere An assignment can be made by
Ownership endorsement in the case of a bearer observing certain formalities.
instrument and by endorsement For instance, an instrument is to
and delivery in the case of an order be made in writing, duly stamped
instrument. and signed by the transferor or
his agent.
2. Notice Notice is not necessary for the In case of actionable claim,
holder of negotiable instrument to notice of the assignment by the
claim the payment from the debtor. transferee regarding the transfer
of debt to the debtor is necessary.
3. Nature of title Holder of negotiable instrument in The transferee’s title to the
due course gets a better title than instrument is subject to the
even the transferor. It means that the defects of the transferor’s title. In
transferee gets the instrument free other words, defects in the title
from any defect existing in the title of of the transferor pass on to the
the transferor or any prior party. transferee too.

4. Consideration Consideration is presumed The assignee has to prove the

consideration for the transfer.

22.03 Bills of Exchange, Cheque, unconditional order, signed by the maker,

directing a certain person to pay a certain sum
Promissory Note –
of money only to, or to the order of a certain
Comparison person or to the bearer of the instrument”.
Bill of Exchange – Definition
According to section 5 of the Negotiable
Instruments Act, “a bill of exchange is
an instrument in writing containing an

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Characteristics of a Bill of Exchange pencil, bankers never accept it because of risks

i. A bill of exchange is a document in writing. involved. Alternation is quite easy but detection
ii. The document must contain an order to pay. impossible in such cases.
iii. The order must be unconditional. (ii) Unconditional Orders
iv. 
The instrument must be signed by the The instrument must contain an order
person who draws it. to pay money. It is not necessary that the word
v. The name of the person on whom the bill is ‘order’ or its equivalent must be used to make
drawn must be specified in the bill itself. the document a cheque. It does not cease to be
a cheque just because the world ‘please’ is used
vi. The
 drawer, drawee and payee must all be
before the word pay. Further the order must
certain. A bill cannot be drawn on two or
be unconditional. In other words, payment of
more drawees in the alternative because where
money is made dependent on the happening of
liability lies, ‘no ambiguity must lie’. However,
an event or on a fulfilment of a condition, the
alternative payees are permitted in the law.
instrument loses the characteristics of a cheque.
vii. The amount that is required to be paid
must also be specified in the bill. (iii) Drawn on a Specified Banker Only
viii. The bill may be payable on demand or after The cheque is always drawn on a specified
a specified period. banker. A cheque vitally differs from a bill in
this respect as latter can be drawn on any person
ix. It must comply with formalities regarding
including a banker. The customer of a banker
date, consideration, stamps etc.,
can draw the cheque only on the particular
A bill of exchange can be made payable
branch of the bank where he has an account.
on demand to a person. It can be made payable
after a specified period. But it cannot be payable (iv) A Certain Sum of Money Only
to bearer on demand. The order must be for payment of only
money. If the banker is asked to deliver securities,
Cheque - Definition the document cannot be called a cheque. Further,
According to section 6 of the Negotiable the sum of money must be certain.
Instruments Act, 1881 defines a cheque as “a bill (v) Payee to be Certain
of exchange drawn on a specified banker and The cheque must be made payable to a
not expressed to be payable otherwise than on certain person or to the order of a certain person
demand”. or to the bearer of the instrument. The word,
person includes bodies corporate, local authorities,
IFSC Code associations, holders of office of an institution etc.,
(vii) Signed by the Drawer
The cheque is to be signed by the drawer.
Further, it should tally with specimen signature
furnished to the bank at the time of opening the
Cheque Number MICR Code account.
(vi) Payable Always on Demand
Features of a Cheque
A cheque is always payable on demand.
(i) Instrument in Writings The words on demand are not used when the
A cheque or a bill or a promissory note drawee bank is asked to pay and the time for its
must be an instrument in writing. Though the payment is not specified, it is considered to be
law does not prohibit a cheque being written in payable on demand.

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Difference between a Bill of Exchange and a Cheque

Sl. Basic of
Bill of Exchange Cheque
No. Difference
1. Drawn A bill of exchange can be drawn on any A cheque can be drawn only on a
person including a banker particular banker.
2. Payability It is payable on demand or on the It is payable on demand only.
expiry of a certain period.
3. Validity A bill made payable to bearer on demand A cheque drawn payable to
is void by virtue of section 31 of the RBI bearer on demand is perfectly
Act. valid.
4. Acceptance In case of time bill, acceptance by the drawee A cheque does not require any
is necessary before he can be made liable on acceptance.
it.
5. Grace Three days of grace are allowed while No days of grace are allowed in
period calculating the maturity date in the case the case of a cheque for the simple
of time bill. reason that is always payable on
demand.
6. Notice When a bill is dishonoured, notice of Notice is not necessary for a
dishonour is necessary. cheque.
7. Sets Foreign bills of exchange are drawn in It is not so in case of cheque.
sets of three.
8. Discounting A bill can be discounted with a bank. A cheque cannot be discounted.
9. Stamping Bills are to be sufficiently stamped Cheques need not be stamped
10. Currency A bill can be drawn and payable in any A cheque is payable only in home
currency. currency.
11. Crossing A bill cannot be crossed A cheque can be crossed either
generally or specially so as to
ensure payment to the rightful
owner.
12. Dishonour On dishonour of a bill there is a practice No such thing is done on the
of noting and protesting dishonour of a cheque.
13. Discharge The drawer of bills is discharged from The drawer of a cheque is not
from liability if it is not duty presented for discharged by delay of the
Liability payment. holder in presenting it for
payment unless because of the
delay his interest have been
damaged owing to bank’s failure
meanwhile.

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01.Number 04. Time of a Note 02. Date of a Note

PROMISSORY NOTE 03. Payee

Note No:_______
0002/16/12/2018 DATE:_______________
18/05/2018
NAME:______________________________________________________________________
Allimuthu and Co.
For value received, I or We, the signers, promise to pay to the order of Charter State Bank
of Chennai, Tamil Nadu, _____
90 days from date, the principal sum of _____________________
Rs.15,00,000/=
_________________________________________________________________with
Rupees Fifteen Lakh Only__________________________________ interest from date
at the rate of _______%
8 per year, due on __________________.
August 15, 2018
06. Interest Rate
Micheal Lawrence President
______________________________________
______________________________________
Allimuthu and Co.
07. Maturity Date

05. Principle 03. Maker

Promissory Note makers, they may bind themselves jointly

According to Section 4 of the Negotiable or jointly and severability. But alternative
Instruments Act, “a promissory note is an promissors are not permitted in law
instrument in writing (not being a bank note or because where liability lies no ambiguity
a currency note) containing an unconditional must lie.
undertaking singed by the maker, to pay a 6. The payee must be certain. A note is
certain sum of money only to or to the order valid even if the payee is misnamed or
of, a certain person or to the bearer of the indicated by his official designation only.
instrument. Alternative payees are permissible in law.
But is must be made payable to order
Characteristics of a Promissory Note originally.
1. A promissory note must be in writing. An
oral promise to pay does not constitute a 7. 
A promissory note originally made
promissory note. payable to bearer is illegal.

2. It must contain a promise or undertaking 8. 

The promise must be for payment of
to pay a mere acknowledgement of money only. For eg. a note containing a
indebtedness will not make it a promissory promise to deliver 50 bags of rice is not a
note. promissory note.

3. The promise to pay must be unconditional. 9. 

The sum payable must be certain and
In other words, the promise to pay must must be specified in the note itself.
not depend upon the happening of any 10. The amount payable must be in legal tender
uncertain event. money of India and a note containing
4. It must be signed by the maker. The a promise to pay a certain amount of
signature must be in any part of the foreign money is not a promissory note.
instrument and it need not be at the 11. A bank note or a currency note is not a
bottom. promissory note.
5. The maker of the note must be a certain 12. A promissory note must be sufficiently
person. Where there are two or more stamped.

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Distinction between a Cheque and Promissory note

Sl.
Basic of Difference Cheque Promissory Note
No.
1. Nature of order A cheque contains an order to A promissory note contains an
pay money undertaking to pay money.
2. No. of Parties There are three parties in a In a promissory note there are
cheque – drawer, drawee and only two parties – the maker and
payee the payee.
3. Creator of the The drawer of a cheque is a The maker of a note is a debtor
instrument creditor
4. Identity of the The drawer and the drawee This cannot be so in a promissory
parties to instrument can be one and same person note
5. Payableness A cheque is always payable on A promissory note, on the other
demand hand is payable either on demand
or after a specified period.
6. Crossing A cheque can be crossed A pronote cannot be crossed
7. Stamping A cheque need not be A promissory note has to be
stamped sufficiently stamped
8. Discounting A cheque cannot be A promissory note can be
discounted discounted with a banker
9. Grace Period No days of grace are allowed Three days of grace are allowed
for payment of a cheque for calculating the due date of
promissory note
10. Bearer A cheque is payable to order A promissory note cannot be
or to bearer made payable to bearer

Distinction between a Cheque and Promissory note

Sl. Basic of
Bill of Exchange Promissory Note
No. Difference
1. Nature of A bill of exchange contains an A promissory note contains an
Undertaking unconditional order to pay money. unconditional undertaking to pay
money.
2. No. of Parties There are three parties in a bill of In a promissory note there are only
exchange drawer ,drawee and payee. two parties the maker and the payee.
3. Drawer of the A creditor draws a bill on a debtor. A debtor executes a promissory
instrument note in favour of a creditor.
4. Identity of the In a bill of exchange, both the In a promissory note, the maker
parties drawer and the payee can be one himself cannot be the payee because
and the same person. the same person cannot be both the
promisor and the promisee.

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5. Order of The liability of the drawer of a The liability of the maker of a

Liability bill is secondary. In other words, pronote is primary.
when the acceptor dishonours
the bill, the liability of the drawer
arises as a surety.
6. Bearer A bill of exchange can be drawn A promissory note cannot be
Instrument payable to bearer drawn payable to bearer.
7. Acceptance A time bill must be accepted by No acceptance is necessary in the
the drawee. case of a promissory note as it is
made by the debtor himself.
8. No. of sets Foreign bills are drawn in sets of Promissory notes are not drawn so.
three.
9. Conditionality A bill may be accepted A note cannot be made conditional.
conditionally.
10. Notice of On dishonour of a bill, notice of No notice of dishonour is necessary
dishonour dishonour must be given to the in case of a promissory note.
drawer and other endorsers.

22.04  Crossing of Cheque Crossing is of two types

 General Crossing and

Speciments of General Crossing  Special Crossing

LY Types of Crossing
T ON E
UN BL
. O T IA  General Crossing
CO C
GO
& AC
ES NE
E T According to section 123 of the Negotiable
PA
Y NO
Instruments Act, 1881,
Speciments of Special or Restricve Crossing “Where a cheque bears across its face
an addition of the words “and company” or
DI
A any abbreviation thereof, between to parallel
IA A
IN ND EE DI E IA
K
OF
O. F I
PAY F IN I A BL IND transverse lines or of two paralleltransverse
C O C O T OF
BAN & NK A/ NK GO NK lines simply, either with or without the words
E A E
AT EB BA N BA
ST TAT TE N OT TE “not negotiable” that addition shall be deemed
S A A
ST ST
a crossing and the cheque shall be deemed to be
crossed generally”.
The lines should be drawn across the face of
Crossing a cheque refers to the practice of a cheque and not on the reverse thereof. Further,
drawing two parallel transverse lines across the they must by parallel and transverse. Cross marks
faceof a cheque with or without the words ‘and such as ‘X’ does not constitute crossing. The
Co’. The effect of this crossing is that the drawee words ‘and company’ or any abbreviation thereof
bank will pay the amount of a cheque only to are not an integral part of a crossing and their
the banker. omission does not affect the validity of crossing.

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Significance of General Crossing Not Negotiable Crossing

A crossed cheque should not be paid The words not negotiable are sometimes
across the counter. Even if the payee of a included in the general crossing or special
crossed cheque is well-know, the paying banker crossing. Even with these words, the cheques are
is directed to make payment only through transferable, but they are deprived of the special
another banker. If the payee does not have a feature of negotiability. “Such a cheque is like a
bank account, he can collect it only through stolen fountain pen or a watch, the transferee
someone who is having a bank account. As a of which does not get a better title than that of
result, even if a crossed cheque has been stolen their”. It must be clearly understood if there
and collected for party not entitled to it, the is no defect in the tile of the transferor, the
person for whom it has been collected can be transferee for value of a cheque with the words
easily traced. Thus crossing ensures safety and ‘not negotiable’ gets good title to it. The words
prevents payment intro wrong hands. ‘Not negotiable” have no effect unless they are
 Special Crossing put on a crossed cheque.

Section 124 defines special crossing as Account Payee Crossing

follows: Words such as “Account Payee” or Payee’s
“Where a cheque bears across its face an account are also added to general or special
addition of the name of a banker with or without crossing. Even though the addition of these
the words “not negotiable”, that addition shall words has not legal sanctity, it has gained
be deemed a crossing and the cheque shall be significance because of trade usage and banking
deemed to be crossed specially and to be crossed practice. These words constitute a direction to
to that banker”. the collecting banker to collect the amount of the
cheque for the benefit of the payee’s account only.
Here that parallel transverse lines are not
If he credits negligently proceeds of the cheque to
essential. But the name of banker to whom the
a wrong account he loses the statutory protection
payment should be made is to be necessarily
given to him as a collecting banker. Paying banker
written on the face of the cheque. Thus it must
need not satisify himself that it is collected only
be noted that while drawing of two parallel
for the payee’s account. Though usually a banker
transverse lines is a ‘must’ for a general crossing,
will not collect an “Account Payee” cheque for
the addition of the name of a banker constitutes
a person other than the payee, he does it in
the essential part of special crossing.
exceptional cases to trusted customers.
Significance of Special Crossing
Payee’s Position when Crossing is
Here the paying banker should make
obliterated
payment only to the particular banker named
Since crossing is a material part of
as a part of special crossing or to his agent for
the cheque, crossing cannot be obliterated
collection. Thus special crossing is safer than
(removed) by a holder. But if the obliteration
general crossing.
has been done by dishonest persons so skilfully

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that its detection is impossible and if payment 3. If the endorsee’s name is wrongly spelt, the
has been made in due course, though at the endorsee should sign the same as spelt in the
counter, the paying banker is discharged from instrument and write the correct spelling
liability. within brackets after his endorsement.
4. Endorsement for only a part of the amount
22.05 Endorsements of the instrument is invalid. It can be made
Section 15 of the Negotiable instruments only for the entire amount.
Act 1881 defines endorsement as follows:
5. Where, however, the instrument has been
“When the maker or holder of a negotiable partly paid, a note to that effect can be given
instrument signs the name, otherwise that as on the instrument and endorsement made
such maker for the purpose of negotiation, on for the balance amount.
the back or face thereof, or on a slip of paper
6. 
Endorsement is complete only when
annexed thereto or so signs for the same purpose
delivery of the instrument is made. On the
a stamped paper intended to be completed as a
death of the endorse who has endorsed
negotiable instrument, he is said to endorse the
an instrument but has not delivered it to
same and is called the endorsee”.
the endorsee, the endorsement becomes
In other words, when the person signs on invalid.
the back of (or face of) the instrument with a
7. 
It is presumed that the endorsements
view to transferring his interest therein, he is
appearing on a negotiable instrument were
said to be endorsing it. Though endorsement
made in the order in which they appear
can be made on the face of the instrument also,
thereon.
it is usually make on its back. If the space on
the back is insufficient, a piece of paper can be 8. Signing in block letters does not constitute
attached to the instrument for this purpose. regular endorsement.
This piece of paper is called Allonge. 9. The prefixes or suffixes added to the names
of the payees or endorsees must be omitted
Requisites of a Valid Endorsement
in the endorsement.
If an endorsement is to be valid, it must
possess the following requisites: 10. Endorsement must be in link

1. Endorsement is to be made on the face of the 11. If the payee is an illiterate person, he can
instrument or on its back. It is usually made endorse it by affixing his thumb impression
on the back of a negotiable instrument. on the instrument. But it must be duly
attested by somebody who should give his
2. When there is no space for making further
full address thereon.
endorsements a piece of paper can be
attached to the negotiable instrument for 12. A
 person duly authorised to endorse a cheque
this purpose. This piece of paper is called or a bill must indicate that he is signing in
‘Allonge’. it on behalf of his principal by using such
words as “for”, “on behalf of ” or “per pro”.

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Kinds of Endorsements
Types of
Meaning Specimen
Endorsement
1. When the endorser puts his mere signature on the “Pallavan “
Endorsement back of an instrument without mentioning the name
in blank of the person to whom the endorsement is made, it is
or general called Blank Endorsement or General Endorsement.
endorsement Eg. A cheque is drawn in favour of Pallavan and
Pallavan who is entitled to get the amount of the
cheque desires to transfer it to Paari. If Pallavan just
puts his signature without mentioning the name of
Paari to whom he wants to endorse it is called Blank
Endorsement.
2. Where the endorser, in addition to his signature,
Endorsement specifies the person to whom or to whose order the
in full or instrument is payable, the endorsement is called
special endorsement in full. In the above example, if Pallavan
endorsement writes as follows and puts his signature, it becomes a
full endorsement.
Any holder can convert a blank endorsement into Pay to Paari
special endorsement by writing above the signature of
“Pallavan”
the endorser a direction to pay to himself or to some
other person. When he makes it payable to some
other person and delivers it to that person, he does not
endorse it himself and therefore he assumes no liability
thereon as an endorser. When a cheque is drawn
payable to a bearer, even a subsequent endorsement in
full cannot make it payable to order.
3. Conditional Where the endorser of a negotiable instrument makes
or qualified his liability dependent upon the happening of an event
endorsement which may or may not happen, it is called conditional
endorsement.
Similarly where the right of the endorsee to receive
the amount is made dependent upon the happening Pay Paari, if he returns
of an event which may or may not happen, then also from Delhi within three
the endorsement is called conditional or qualified months.
endorsement. “Pallavan”
Here Paari, the endorsee is entitled to receive payment
only on the fulfilment of the specified condition,
namely his return from Delhi within three months.
Conditional endorsement does not affect negotiability.
Such endorsements are not usually made

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4. Restrictive When an endorsement restricts or prohibits further Pay Sundar only

endorsement negotiability of the instrument, it is called Restrictive
“Pallavan”
Endorsement.
Pay Sundar for my use
The omission of the words “or order” does not render
the endorsement restrictive. “Pallavan”
5. Sans Ordinarily the endorser becomes liable to subsequent Pay to Varsha or order
recourse parties in the event of dishonour of the instrument. sans recourse
endorsement But if he makes it clear that the subsequent holders “Pallavan”
should not look to him for payment in case it is
Pay to Shalini or order
dishonoured, the endorsement is called Sans Recourse
without recourse to me
Endorsement.
“Hemakumar”
6. Facultative To make an endorser liable on the instrument, notice
Endorsement of dishonour must be given to him. But if the endorser
Pay to Aruvi or order,
waives this right by a writing “Notice of dishonour
Notice of dishonour
waived” at the time of endorsing, it is called Facultative
waived
Endorsement.
“Radha”
Even though Radha gives up her right to receive notice
of dishonour he remains liability for non-payment.
7. Partial Where the endorsement seeks to transfer only a part “Pay Rs. 700 to Sanjay
Endorsement of the amount payable under the instrument, the or order out of the bill
endorsement is called Partial Endorsement. Partial originally drawn for Rs.
endorsement does not operate as a negotiation of the 1000”
instrument. (Rs. 300 has been settled
If however, part of the amount has already been paid out of Rs. 1000) Note: to
or settled, a note to that effect may be made on the the effect of settlement
instrument which may then be negotiated for the of Rs. 300 is to be given
balance. in the instrument
“Pay Rs. 700 to Sanjay
or order out of bill of
Rs. 1000 the whole
amount of which is
outstanding
(The above
endorsement is invalid)

Key Words

Negotiability Instrument Crossing Assignability Bill of exchange

Endorsement Promissory note Dishonour Cheque Bearer

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Types of Negotiable Instruments

Negotiable
Meaning Example
Instrument

Promissory Note, Bill of Exchange or

cheque is payable to bearer is called
bearer instrument subject to fulfilment
of either of the two conditions:
(i) It must be expressed to be
(i) Bearer payable “Pay to R or bearer”
Instrument (ii) The only or last endorsement
should be blank endorsement.
(Only cheque can be bearer instrument)
Bills and promissory notes can be made
payable to bearer only through blank
endorsement.

Promissory Note, Bill of Exchange or “Pay to R or order”

(ii) O
 rder
cheque is payable to order is called
Instrument
Order instrument. “Pay to the order of R”

Promissory Note, Bill of Exchange or (i)Bill drawn in Delhi on a

cheque is is an inland instrument subject merchant in Agra and accepted
to the following conditions: and payable in London”
(a) It must be drawn in India (ii)Bill drawn in Delhi on a
(iii) Inland (b) It must be payable in India merchant in Agra and accepted
Instrument (c) It must be drawn upon any and payable in Agra
person resident in India
Note: Inland instruments remains an
inland instrument even if it has been
endorsed in a foreign country.

(i)A Bill drawn in Delhi on a

An instrument which is not inland
merchant in London and accepted
instrument is called foreign instrument.
(iv) Foreign and payable in London.
i) Bill drawn outside India
Instrument (ii)A bill drawn in London on a
ii) Bill payable outside India
merchant in Agra and accepted
iii) Bill drawn upon foreign citizens.
and payable in Agra.

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A bill is drawn by A an agent

An ambiguous instrument means an within the scope of his authority
(v) Ambiguous instrument which can be construed upon his principle P.
Instrument either as a promissory note or a bill of A draws a Bill on B who is a
exchange. fictitious person and transfer it to
some other party.

Giving a blank cheque to a party

It means an incomplete instrument in

(vi) Inchoate X signs and delivers an
some respect.
Instrument unstamped blank promissory note
to Y.

I promise to pay ShaliniRs. 5000

(vii) Time It is defined as an instrument which is after 3 months
Instrument payable sometime in future. I promise to pay VarshaRs. 3000
on 1st January 2020

A who needs funds, draws a bill

on B who accepts the bills and
(viii) get the bill discounted with his
Bill which is drawn, accepted without
Accommodation banker and on due date remits the
consideration
Instrument requisite amount to B to enable
him to meet the bill, such a bill is
an accommodation bill.

Certain documents are accepted as Lorry receipt,

(xi)
negotiable instrument by custom or Bill of Lading,
Documentary
usage. The courts have accepted them as Railway Receipt etc.,
Bill
negotiable instruments by usage.

It means the bill to which no document

(x) Clean Bill
of title to the goods is attached.

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Why emergency holidays are MICR – Magnetic Ink

declared under Negotiable Character Recognition
Instruments Act? MICR code is a character -
Where the maturity date of the recognition technology used
negotiable instrument falls on notified public mainly by the banking industry to ease
holiday, it is to be paid on the preceeding processing and clearance of cheques and
working day. When emergency holidays are other documents. It is found at the bottom
declared for reasons like death of a leader of the cheque. It includes bank code, bank
in power, natural calamities, strike, election account number, cheque number, cheque
day and so on, day should be made a public amount and a control indicator. The
holiday. So that negotiable instruments MICR code helps the banker to ensure the
maturing on the day can be paid on the next legitimacy or originality of paper documents.
working day. In other words, it implies that The special ink used in the MICR code is
negotiable instruments maturing on the date sensitive to magnetic fields. It prevents the
of emergency holiday should be paid on the crime of printing counterfeit cheques or
next day. documents using technology. The magnetic
ink will help discover fake documents.
The Reserve Bank of India Act
1934 IFSC – Indian Financial System
The Negotiable Instruments Act Code
does not affect the provisions IFSC code is an alphanumeric
of Sec. 31 and 32 of Reserve Bank of India code which facilitates electronic
Act 1934. The object of section 31 is to fund transfer in India. This code uniquely
prevent private persons from violating the identifies each bank branch participating
monopoly of the government in note issue in the two main Payment and Settlement
(paper currency in India). According to the systems in India. The Real Time Gross
provisions of sec, 31, no person (other than Settlement(RTGS) and the National
the Reserve Bank of India or the Central Electronic Fund Transfer (NEFT) systems.
Government) can draw, accept make or issue IFSC is a 11 character code. The first 4
any bill of exchange, hundi or promissory alphabetic characters represent the bank
note payable to bearer on demand. name and the last 6 characters (usually
No person can make or issue any promissory numeric) represent the branch. The fifth
note payable to bearer of instrument. This character is 0 and reserved for future
renders the words “or to bearer” in the use. This code routes the messages to the
definition of promissory note in sec. 4 of destination banks or branch. The format of
the Negotiable Instruments Act in operative. IFSC code is given below:
However, a bill or a promissory note
1 2 3 4 5 6 7 8 9 10 11
endorsed in blank can be made payable to
Bank Code 0 Branch Code
bearer on demand. A cheque is also payable
to bearer on demand. These are exceptions
to rule contained in section 31. In short,
anybody issues a bill or a note originally
payable to bearer on demand is punishable
with fine according to sec. 31 of RBI Act.

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For own Thinking

I. Find out the type of instrument and the (ii) Mr. Y, I owe you Rs. 500
reason? (iii) I promise to pay Y Rs. 500 + some
(a) A bill is drawn payable to X or other charge
bearer (iv) I promise to pay Y Rs. 500 on Z’s
(b) Bill drawn in London upon a death
merchant in Chennai and accepted (v) I promise to pay Y (myself) Rs. 500
and payable in Bangalore
(vi) I promise to pay Y Rs. 500 and to
(c) Bill drawn in Delhi upon a deliver to him my black horse on
merchant in London and accepted first January next.
and payable in London
Clues: Answer should be given after reading
(d) Bill drawn in London on a merchant the characteristics of Promissory note
in Agra and endorsed in Delhi
(e) A Bill drawn by Bajaj Auto Agent III. Classify the following endorsement
on Bajaj Auto Ltd. with reasons
(f) Bill drawn by A on Y (an imaginary (i) No other words except B’s signature
person not in existence) and (ii) Pay C
endorsed to B (iii) Pay C or order
(g) X gives a blank cheque to Y or gives (iv) Pay C only
undated cheque to Y (v) Pay C or order for the account of B
(h) X signs stamped and blank (vi) Pay C or order being the unpaid
promissory note and keep it locked residue of the bill
in his drawer
(vii) Pay C or order on safe receipt of
II. Find out which of the following is a goods
promissory note? (viii) Pay C Sans Recourse
(i) X promises to pay a sum of Rs. 500 (ix) Pay C, notice of dishonour
on telephone. dispensed with

For own Thinking

Students may watch youtube videos relating to Negotiable Instruments

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9. A cheque will become stale after _____

months of its date:
a. 3 b. 4
c. 5 d. 1
  Exercise
10. Document of title to the goods exclude
I. Choose the Correct Answers: a. Lorry receipt b. Railway receipt
1. Negotiable Instrument Act was passed in c. Airway bill d. Invoice
the year ______. Answers:
a. 1981 b. 1881 1 b 2 b 3 b 4 c 5 c
c. 1994 d. 1818 6 a 7 a 8 b 9 a 10 d
2. Negotiable Instrument is freely transferable
II. Very Short Answer Questions:
by delivery if it is a ________ instrument.
1. What is meant by Negotiable Instrument?
a. Order b. Bearer
c. Both a & b d. None of the above 2. Define Bill of Exchange
3. List three characteristics of a Promissory Note.
3. The transferee of a Negotiable Instrument
is the one ___________ 4. What is meant by a cheque?
a. Who transfer the instrument 5. Define Endorsement
b. On whose name it is transferred III. Short Answer Questions:
c. Who enchases it
1. 
Explain the nature of a Negotiable
d. None of the above
Instrument.
4 . Number of parties in a bill of exchange are 2. 
Distinguish between Negotiability and
a. 2 b. 6 Assignability.
c. 3 d. 4 3. What are the characteristics of a bill of
5. Section 6 of Negotiable Instruments Act exchange?
1881 deals with 4. Distinguish between Bill of Exchange &
a. Promissory Note b. Bills of exchange Promissory Note.
c. Cheque d. None of the above 5. Discuss the two different types of crossing.
6. _______ cannot be a bearer instrument.
IV. Long Answer Questions:
a. Cheque b. Promissory Note
1. Mention the presumptions of Negotiable
c. Bills of exchange d. None of the above
Instruments.
7. When crossing restrict further negotiation 2. Distinguish a cheque and a bill of exchange.
a. Not negotiable crossing 3. Discuss in detail the features of a cheque.
b. General Crossing
4. What are the requisites for a valid endorsement?
c. A/c payee crossing
d. Special crossing 5. Explain the different kinds of endorsements

8. Which endorsement relieves the endorser References

from incurring liability in the event of N.D. Kapoor, Elements of Mercantile Law,
dishonour Sultan Chand & Sons Pvt. Ltd. New Delhi, 2014
a. Restrictive b. Faculative P.C. Tulsian& Bharat Tulsian, Business Law, S.
c. Sans recourse d. Conditional Chand publishing, New Delhi 2014
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ENTREPRENEURSHIP
UNIT MANAGEMENT PROCESS
DEVELOPMENT
IX
I
ELEMENTS OF
23
1
CHAPTER
PRINCIPLES OF MANAGEMENT
ENTREPRENEURSHIP

ெபாருள்கருவி காலம் விைனஇடெனாடு ஐந்தும்

இருள்தீர எண்ணிச் ெசயல்.
-குறள் 675
COUPLET
Do an act after a due consideration of the following five:
Money, Means, Time, Execution and Place.

Learning Objectives The term entrepreneurship denotes the

process of setting up one’s own business venture
To enable the students to understand the as distinct from pursuing any other economic
■ Entrepreneurship – Concept, Meaning activity or any employment or practicing some
& Definition profession. The person who establishes business
■ Intrapreneur And Manager - A is termed as entrepreneur. The output of an
Comparison entrepreneurial process ends up in establishing
■ Women Entrepreneurs – Opportunities an enterprise. The process of entrepreneurship
and Challenges has been depicted in the following diagram.
■ Entrepreneurial Functions
■ Promotional Functions, Managerial
Functions, Commercial Functions,
■ Entrepreneur Characteristics
■ Importance Of Entrepreneurship

Chapter Synopsis
23.01 Entrepreneurship – Concept, Meaning
& Definition
23.02 Characteristics of Entrepreneur
23.03 Importance of Entrepreneurship
23.04 Entrepreneur, Intrapreneur and
Manager – a comparison
23.05 Women Entrepreneurs –
Opportunities and Challenges
23.06 Entrepreneurial Functions
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23.01 Entrepreneurship – Meaning, century, that the term entrepreneurship was

Concept and Definition used in the realm of economics. Since then
the term entrepreneur is used in many ways
Entrepreneurship generates employment and various views about entrepreneur began to
opportunities to many people besides providing surface. Accordingly, entrepreneurs are now
self employment to the entrepreneur. Any broadly classified into three groups namely risk
business venture started triggers a variety bearer, organiser and innovator.
of economic activities like purchasing raw
material, creating employment opportunities (i) Entrepreneur as a Risk Bearer
and so on. Thus, entrepreneurship become
Richard Cantillon, an Irish man described
crucial for overall economic development of a
the entrepreneur to be a person who assumes
nation.
risk inherent in the venture started by him.
Entrepreneurship can be regarded as one of the Entrepreneur acts as an agent combining all
four major factors of production besides the factors of production to produce a product or
other three namely land, labour and capital. service in order to sell at uncertain price in
It is generally believed that entrepreneurs are future. Knight also describes an entrepreneur to
born. But no country or society can afford to be an economic functionary who undertakes the
wait for the birth of entrepreneurs to pursue its risk of uncertainty which cannot be insured or
development agendas. The pace of economic capitalised or salaried. In nutshell, entrepreneur
development of any country cannot be is described to be a risk taker.
accelerated without creating a sense of awareness
about entrepreneurship among the people. The (ii) Entrepreneur as an Organiser
latter should be made to take a pride in claiming According to Jean Baptize, entrepreneur
to be a job provider rather than a job seeker. is one who brings together various factors of
The Government and various other agencies production and creates an entity to produce
involved in promoting entrepreneurship should product or service and supervises and co-
carry on the noble task of engendering a spirit ordinates several functions in the process. He
of entrepreneurship among the people who further elaborates that an entrepreneur faces
otherwise seek job. a great deal of obstacles and misfortunes and
undergoes mental agony and anxieties in the
Concept of Entrepreneur process of organising any venture. In sum,
The term ‘entrepreneur’ has been derived entrepreneur is described to be an organiser.
from the French language which originally
denotes designation of an organiser of musical (iii) Entrepreneur as an Innovator
or other entertainments. Oxford Dictionary Joseph A Schumpeter in the year 1934 used
(1897) defines an entrepreneur as the director innovation as a criterion to define an individual
or a manager of a musical institution which as entrepreneur. According to him, entrepreneur
organises musical performance. In the early is one who
sixteenth Century, the term was applied to
i. 
Introduces a brand new product in the
refer to those who were engaged in military
market
expeditions. Subsequently, in the seventeenth
century it was extended to cover civil engineering ii. 
Institutes new technology to produce a
activities such as construction and fortification. product
It was only in the beginning of the eighteenth iii. 
Discovers new course of supply of raw

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materials The negativities like inconvenience, discomfort,

iv. Discovers new product hitherto untapped disappointments, rejections, frustrations and so
v. Puts in place a new form of organisation by on should not weaken his steely resolve to make
establishing a monopoly or by dismantling the venture a grand success.
existing monopoly.
3. Flexibility
In all the concept of entrepreneur is
intimately connected with three core elements Entrepreneur should not doggedly stick
namely risk bearing, organising and innovating. to decisions in a rigid fashion. Entrepreneur
should change the decisions made already in the
According to J.A. Schumpeter Joseph A.
light of ever-changing business environment.
Schumpeter, “Entrepreneurship is essentially a
creative activity. It consists of doing such things
4. Innovation
as are generally not done in ordinary course of
business. An entrepreneur is one who innovates, Entrepreneur should contribute
i.e. carries out new combination or enterprise.” something new or something unique to meet
the changing requirements of customers namely
In the words of A.H. Cole, “The purposeful
new product, new method of production
activity of an individual or group of associated
or distribution, adding new features to the
individuals, undertaken to initiate, maintain or
existing product, uncovering a new territory for
earn profits by production and distribution of
business, innovating new raw material etc.,
economic goods and services.”
As per Mary Coulter, “Entrepreneurship 5. Resource Mobilisation
is the process whereby an individual or group
Entrepreneur should have the capability
of individuals use organised efforts to pursue
to mobilise both tangible inputs like manpower,
opportunities to create value and grow by
money materials, technology, market, method
fulfilling wants and needs through innovation
etc., which are scattered over a wide area and
and uniqueness, no matter what resources the
certain intangible inputs like motivation, morale
entrepreneur currently has.”
and innovativeness cannot be purchased in the
market outright. Entrepreneur has to marshal all
23.02 Characteristics of these tangible and intangible inputs to produce
Entrepreneur a product successfully. Thus entrepreneurship
is a function of gap filling and input completion.
1. Spirit of Enterprise
Entrepreneur should be bold enough 6. Hard work
to encounter risk arising from the venture Entrepreneur should put in strenuous
undertaken. Entreprenuer should not get efforts and constant endeavours to accomplish
discouraged by setbacks or frustrations the goals of the venture successfully. They
emerging during the course of entrepreneurial have to courageously face uncertainties, risks
journey. and constraints. They should not blame the
uncontrollable factors for the misfortunes
2. Self Confidence experienced during the course of their
Entrepreneur should have a self confidence entrepreneurial venture. They should spend
in order to achieve high goals in the business. their energy in addressing the issues to stay
successful.

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7. Leadership 23.03 Importance of
Entrepreneur should be able to influence Entrepreneurship
team members by showing sympathy and
empathy so as to enable them to contribute
positively towards the goals of the venture.
Entrepreneur should lead others from the front
and by personal example and should walk the
talk and effectively take all the followers to
activate the goals of the venture.

8. Foresight Entrepreneurship plays a pivotal role in

Entrepreneur should have a foresight to the economic development of a country. The
visualise future business environment. In other following points highlight the significance of
words, Entrepreneur should foresee the likely entrepreneurship.
changes to take place in market, consumer
attitude, technological developments etc., and 1. Innovation
take timely actions accordingly. Entrepreneurship and innovation are
closely intertwined with each other. It is no
9. Analytical Ability exaggeration to say that innovation cannot
Entrepreneurs should not make decisions happen in any country without entrepreneurship.
on the basis of own prejudice or personal likes Entrepreneurs have contributed in no small
and dislikes. Entrepreneur should be able measure to economic development of any
to objectively analyse the situation and act country by innovation. They bring about
accordingly. They should abstain from taking innovation by building a brand new product or
emotional or hasty decisions when they are by constantly upgrading existing product or by
overwhelmed by emotions. In simple words
tapping new market for existing product in a
Entrepreneur should take rational decisions
new territory or by inventing a new technology
after examining the various aspects of a problem.
to produce a product or service and so on. All
these innovative exercise ensures rise in income
10. Decision Making
and output in the economy.
Entrepreneur has to take timely and
correct decision with regard to nature and type 2. Contribution to Gross Domestic
of product to be produced, type of technology
Product (GDP)
to be adopted, type of human assets to be
employed, location of the enterprise, size of the Promotion of entrepreneurship all across
unit, volume of production and so on. The very the country would undoubtedly add to Gross
success of any enterprise hinges on prompt, Domestic Product and National Income of
correct and relevant decisions made by the a country. It is stated that the countries like
entrepreneur. Entrepreneur should rationally America, Japan, Germany and so on have
examine the various factors influencing the recorded a phenomenal increase in the GDP,
decision and take appropriate decisions after per capital income and national income, due to
giving due weight to all the risks embedded in stupendous growth of entrepreneurship.
various factors.
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3. Balanced Regional Development large entrepreneurs. It promotes faster

Encouragement of entrepreneurship in industrialisation and brings about equitable
under developed and undeveloped regions distribution of wealth in the society.
of a country through various incentives and
7. Better Standard of Living
concessions is more likely to promote balanced
regional development across the country. Entrepreneurs provide a lot of well
Besides, essentially it checks the migration of being measures to their employees besides
rural population to urban centres in pursuit paying salaries and wages. This unmistakably
of employment. helps employees upgrade their standard of
living. Some of entrepreneurs who have
4. Export Promotion genuine concern for the welfare of the general
Entrepreneurship helps a country not public, supply goods of good quality at fair
only earn precious foreign exchange but also price. This in turn helps consuming public
preserve it. If entrepreneurship is encouraged save more money and spends liberally on
to produce export oriented goods, it can comfort and convenience goods which are
significantly add to foreign exchange reserve supposed to enhance the standard of living of
of a country. Similarly, if entrepreneurship the general public. Higher standard of living
is encouraged to produce products which brought about by entrepreneurship narrows
are usually imported from foreign countries down the gap between haves and have nots.
i.e. import substitute goods, it can help the
country save precious foreign exchange. 23.04 Entrepreneur,
The comfortable foreign exchange reserve Intrapreneur and
position is more likely to address the adverse Manager – a Comparison
balance of payment position if any.
Intrapreneur
5. Full utilisation of Latent Resource Intrapreneur is one who thinks and acts
Promotion of entrepreneurship across like an entrepreneur for the firm’s development
the country leads to better utilisation of during the course of employment in an
economic, human, material and natural organisation. An Intrapreneur is described to
resources which would remain otherwise be an inside entrepreneur or an entrepreneur
unutilised in a country. In other words, within a large firm who uses entrepreneurial
establishment of small, medium and micro skills without incurring the risk associated
enterprises all over the country paves way for with those activities. Intrapreneurs are usually
harnessing all latent resources in the country. employees of a company who are assigned to
a particular project or who are assigned to
6. Reduction of Concentration of work on a special idea. Intrapreneur usually
Economic Power in Few hands use the resources and capabilities of the firm
Promotion of entrepreneurship by to work on the project or on the idea.
encouraging small, medium and micro
Following are the differences between
enterprises prevents the concentration
Entrepreneur and Intrapreneur:
of economic power in the hands of few

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Differences between Entrepreneur and Intrapreneur

Basis Entrepreneur Intrapreneur

Thinking Entrepreneur is a free thinker Intrapreneur is forced to think independently but

within scope of business activities undertaken in
the enterprise.

Dependency Entrepreneur is an independent Intrapreneur is dependent on the entrepreneur.

person He is an employee.

Fund Entrepreneur has to mobilize funds Intrapreneur does not engage in fund
Mobilization to finance the venture. mobilization. But can access funds mobilized by
the entrepreneur.

Reward Entrepreneur is rewarded by profit Intrapreneur does not share in profits of venture.
for the risk bearing exercise. But gets perquisites, salary, incentives etc., for
the service.

Risk Bearing Entrepreneur bears the risk Intrapreneur does not bear any risk in the venture
involved in the venture undertaken. and does not even share the risk inherent in the
project or work assigned. However Intrapreneur
is accountable for the task or project assigned.

Status Entrepreneur is owner, and doesn’t Intrapreneur is a salaried employee. Intrapreneur

report to anybody in the venture. works within control put in place in the
organization and is made accountable for the
activities undertaken.

Operation Entrepreneur operates mostly Intrapreneur operates within the enterprise.

outside the enterprise.

Difference between ‘Entrepreneur’ Vs.‘Manager’

Basis of
Entrepreneur Manager
difference

Motive The very motive of an entrepreneur The very motive of manager is to render service
is to start a venture by setting of an in an entity setup for execution of venture.
entity.

Status Entrepreneur is owner of the entity Manager is a salaried employee in the entity set
up for carrying on the venture.

Risk Bearing Entrepreneur bears the eventual Manager doesn’t bear any risk in the venture
risk and uncertainty in operating where the venture is unsuccessful he/she simply
the enterprise quits the enterprise.

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Rewards Entrepreneur is rewarded by profit Manager’s reward salary, bonus, allowance is

for the risk bearing exercise. The certain and regular.
reward for entrepreneur is totally
uncertain.

Skills An entrepreneur requires creative Manager requires conceptual skills and human
talent, intuition and urge for relations skills.
innovation.

23.05 Women Entrepreneurs Thus, a stage has been already set for social
– Opportunities and take-off of women from a low development path
to an accelerated pace in achieving higher level
Challenges
of self sustaining economic growth in the wake
Women entrepreneurship has been getting of new economic policy 1991.
growing recognition over the past two decades
across the world. Women entrepreneurs not Definition
only generate new jobs for themselves but also According to Schumpeter’s concept,
for others. They provide society with different “Women who innovate, imitate or adopt
solutions to management, organisation and a business activity are known as women
business problems. Women owned businesses entrepreneurs”.
are playing a pivotal role in the upsurge of Government of India based on women
entrepreneurial activity in the United States. It is participation in equity and employment
reported that the highest number of self employed of business enterprise has defined women
women are in Sweden followed by England, entrepreneurs as “An enterprise owned and
France and USA. In general, women are attracted controlled by a women having a minimum
to retail trade, restaurants, hotels, education, financial interest of 51% of the capital and giving
insurance and manufacturing. In our country, at least 51% of the employment generated in the
women constitute only 5.2 per cent of the total enterprise to women.”
self employed persons in India. Majority of them
opted for agriculture, agro based industries, Opportunities for Women
handicrafts, handlooms, cottage industries but in Entrepreneurs
2011 (2011 census) it has improved to 25 percent.

Women entrepreneurship is gaining

importance in India in the wake of economic
liberalisation and globalisation. The policy
and institutional framework for nurturing
entrepreneurial skills, imparting vocation
education and training has widened the horizon
for economic empowerment of the women.
However, women constitute one third of the
economic enterprise. There are scores of successful
women entrepreneurs both in economic and
social fields in India.

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(i) Opportunities Based on Business (iii) Non-Financial support

Women entrepreneurs are bestowed with Women entrepreneurs are provided with the
numerous business opportunities depending following non-financial support in the form of :
upon their area, choice of industry, capacity to i. Putting in Policies, regulations and legal
invest, technical and non-technical skills etc., structures suitable to women entrepreneurs
When a woman decides to become an
ii. Financial counselling and training
entrepreneur she has extensive opportunities
to tap into. The following are the opportunities iii. Business advisory service
unfolding in different spheres of commerce. iv. Handling legal barriers
i. In the sphere of manufacturing women
v. Establishing Commercial linkages
can start ventures like Agarbathi manufacturing,
papad making, bedspread making, embroidery, vi. Client research
export of handicrafts, apparel manufacturing, vii. Profitability and Efficiency analysis
sweet stalls, manufacturing soft drinks, pickle
viii. 
Offering and designing the products
making , manufacturing garments, handicrafts,
based on their needs
printing press etc.
ii. In the sphere of service industries, ix. Lower rate of interest
women entrepreneurs may try their hand x. Collateral free loans
in ventures like catering service, computer xi. Simplified processing system
centres, tutorial centres, Typewriting institutes,
beauty parlours, dry cleaning, small restaurants, xii. 
Flexible repayment system based on
tailoring, crèche, florist shops, event business nature
management etc.,
(iv) Opportunities Created by
iii. In the realm of trading ventures,
women can enter the ventures like fancy Associations
stores, diagnostic centres, milk distribution, There are various associations like Self
sweet stalls, drug stores, grocery stores, textile Help Groups (SHG), Federation of Indian
retailing, cool drinks parlour, coffee parlour, Women Entrepreneurs (FIWE), Women’s India
cell phone repairs, photo studios, photocopier Trust (WIT), Small Industries Development
firms, working women’s hostel etc., organisation (SIDO), National Bank for
iv. Highly educated, experienced and Agriculture and Rural Development (NABARD),
broadly exposed women technocrats can start Self Employed Women’s Association (SEWA),
larger venture like running hospitals, coaching Association of Women Entrepreneurs of
centres, diagnostic laboratories, manufacturing Karnataka (AWAKE), The International Centre
activities, suited to their field of specialisation, for Entrepreneurship and Career Development,
advertisement and media firms, call centres, TiEStree Shakti (TSS), Tamilnadu Corporation
hotels etc., for Development of Women Ltd. (TNCDW),
Marketing Organisation of Women Enterprises
(ii) Financial Opportunities (MOOWES), Women Entrepreneurs Promotion
All Banks in India provide financial Association (WEPA), Women Entrepreneurs
support to the women Entrepreneur, in the Association of Tamil Nadu (WEAT)andWeoW
form of micro small loans to buy Raw Materials by Google are aggressively promoting women
and Equipments. entrepreneurship in India.

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Similarly, MSE cluster development women by Government of India.

programme bear a substantial portion of the 1. Support for Training and Employment
project cost in respect of ventures owned Programme of Women (STEP)
and managed by women entrepreneurs. The
percentage of guarantee given by Credit 2. Development of Women and Children in
Guarantee Fund Scheme for Micro and Small Rural Areas (DWCRA)
Enterprises extend upto 80% for MSEs owned 3. Small Industry Service Institutes
and operated by women.
4. State Financial Corporations

(v) Opportunities Created by 5. National Small Industries Corporations

Government 6. District Industrial Centres
Government both Union and Central
have put in a number of schemes exclusively for (vii) Consortium of Women
promotion of women entrepreneurship namely: Entrepreneurs of India (CWEI)
i. 
Stand-Up India Scheme for Women Consortium of Women Entrepreneurs of
Entrepreneurs India (CWEI) was registered as a civil society in
the year 1996 which is a non-profit organisation
ii. Trade related Entrepreneruship Assistance
in New Delhi. It is accredited by Government
and Development (TREAD) Scheme for
of India. It is a member of National Board,
Women
Ministry of MSME and is working closely with
iii. Mahila Coir Yojana Ministry of Rural Development in the Public
iv. Mahila E-haat Private Partnership to support below poverty
line families in India. They are rendering the
v. Magalir Udavi Scheme following functions:
vi. Prime Minister’s RozgarYojana (PMRY) i. They are acting as a springboard for
vii. Development of Women and Children in enterprises started by the women.
Rural India (DWCRA) ii. It is helping women achieve high
viii. Mudra Yojana Scheme for Women economic empowerment.
ix. Udyogini Scheme iii. It is acting as a catalyst to improve the
x. TRYCEM access of womenfolk to natural resources.
iv. It is providing technological support in
(vi) Opportunities Created through the sphere of product design and development
Training Programme in the case of women owned enterprises.
Government of India has introduced v. It is providing quality control, marketing
National Skill Development Policy and National and technological supports to women owned
Skill Development Mission in 2009 in order to enterprises.
provide skill training, vocational education and
vi. It is spreading knowledge to women
entrepreneurship development to the emerging
entrepreneurs about various government
work force. This has been catalysing the
schemes.
emergence of women entrepreneurs in India.
The following training schemes are being In sum, it can be stated that women
implemented for promoting self employment of consortium is an agency providing a

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comprehensive service of various types to domestic responsibilities do not allow women

women owned enterprises. entrepreneurs to freely move out of business
enterprises in connection with business
Challenges of Women Entrepreneurs activities.
Though there is a tremendous growth
in the women entrepreneurship in India, a 3. Lack of Education
number of research studies conducted in Illiterate and semi-literate women
India have brought out the following problems entrepreneurs encounter a lot of challenges in
and challenges encountered by women their entrepreneurial journey with respect to
entrepreneurs during the course of their maintaining accounts, understanding money
entrepreneurial journey. matters, day-to-day operations of the company,
marketing the products, applying technology
etc., This reduces the efficiency of operating
the business successfully.

4. Lack of Network Support

The successful operation of any
venture irrespective of the size depends
upon the network of support extended by
various constituencies like family members,
friends, relatives, acquaintances, neighbours,
institutions and so on. Women entrepreneurs
1. Problem of Finance
need much needed psychological support and
The access of women to external sources
wiser counselling especially during the time
of funds is limited as they do not generally
they actually encounter challenges. But it is
own properties in their own name. Financial
reported that women entrepreneurs get very
institutions too do not consider women in
limited support in times of crisis from most of
general creditworthy as they are sceptical of their
these constituencies.
entrepreneurial capabilities of women. They
impose stringent condition which discourages
5. Stiff Competition
women to avail themselves of loan assistance
Women entrepreneurs have to face acute
from banks. In this context, they are pushed to
competition for their goods from organised
rely on their own savings and small loans from
sector and from their male counterparts.
friends and relatives. Because of the limited
Since they are not able to spend liberally due
funds, women entrepreneurs are not able to
to financial constraints, they are not able to
effectively and efficiently run and expand their
compete effectively and efficiently in the market.
business.

2. Limited Mobility 6. Sensitivity

Women are more prone to a variety of
Indian women cannot afford to shed
emotions. Being mother, women are vulnerable
their household responsibilities towards their
to many emotions. They tend to have sympathy
family even after they plunge into the venture
and empathy for others. This trait does not
started by them. This restricts the mobility
allow women entrepreneurs to take objective
of women entrepreneur significantly. The

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decisions in many contexts during the course of concessions, benefits and incentives awarded by
running the entrepreneurial venture. Besides, Government and other agencies.
the weak emotions do not allow them to tolerate
failures and disappointments arising during the 8. Dependent culture
normal course of their entrepreneurial journey. In India, women however educated and
This inherently tone downs the effectiveness of talented are groomed to be dependent on their
their functioning. parents, life partners and children during the
various phases of their life cycle. They could not
7. Lack of Information take decisions on their own in many contexts
Women entrepreneurs are reported not to due to this dependency factor. They have to
be generally aware of subsidies and incentives take permission from their support groups to
available for them due to their poor literacy levels engage in any purposeful and gainful activity.
or due to their pre occupation with household They are not treated as equals unlike women in
responsibilities. This lack of knowledge or western countries. This cultural barrier does not
limited knowledge about subsidies prevents allow them to start and manage their ventures
them from availing themselves of special according to their free will and pleasure.

23.06  Entrepreneurial Functions

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I. Promotional Functions to be produced, size of investment, nature of

activities, size of organisation, nature of liability
(1) Discovery of Idea
of owners, retention of control, degree of risk
The first and foremost function of
involved, scale of operations, stability and so on.
entrepreneur is idea generation. A person may
conceive his own ideas or develop the ideas (5) Fulfilment of the formalities
contributed by others. Ideas can be generated
Having chosen the appropriate type of
through several ways like own experience and
organisation, entrepreneur has to take necessary
exposure of entrepreneur, keen observation of
steps to establish the form of organisation
environment, education, training, market survey,
chosen. As regards sole trader, the formalities
environmental scanning and so on. After the
are barest minimum. In the case of partnership
ideas were collected, entrepreneur has to weigh
firm, entrepreneur has to arrange for partnership
objectively each and every idea and finally select
deed and he has to get the deed registered. There
an idea which is worth pursuing commercially.
are lot of formalities to be fulfilled in the case of
(2) Determining the business registration of company and co-operative form of
objectives organisation. Promoter has to take all necessary
Entrepreneur has to develop business steps for establishing the form of organisation.
objectives in the backdrop of nature of business (6) Preparation of Business Plan
and type of business activity i.e. nature of
Entrepreneur has to prepare a business
business, manufacturing or trading, type of
plan or project report of the venture that
business organisation chosen so that he/she
he is proposing to take up. This plan helps
can organise the venture in accordance with the
entrepreneur to achieve various objectives
objectives determined by him/her.
formulated within a specified period of time.
(3) Detailed Investigation
(7) Mobilisation of funds
Entrepreneur has to analyse in detail the
product proposes to produce. In other words, Entrepreneur has to take steps to mobilise
Entrepreneur should investigate commercial capital needed to implement the venture.
feasibility of the product proposed to be Entrepreneur has to estimate the fixed capital
produced and conduct market study to ascertain and working capital required for running the
the potential demand for the product. Besides, project. Then the entrepreneur has to initiate
Entrepreneur has to probe the sources of supply steps to build funds from various channels like
of various inputs required for manufacturing own funds, borrowing from close circles, banks,
the proposed product, their respective prices financial institutions, venture capitalists, issue
and other terms and conditions. of shares and debentures, term loans and so on
to finance his fixed capital requirement.
(4) Choice of form of enterprise
Entrepreneur has to choose the (8) Procurement of Machines
appropriate form of organisation suited to and Materials
implement the venture. There are various Entrepreneur has to locate the various
forms of organisation namely sole proprietor, sources of supply of machineries and
partnership, company and co-operatives equipments and materials. Entrepreneur has
etc. which are in existence. The selection of to collect details from the various sources of
appropriate form of organisation is made after supply and screen them for selecting the best
considering the factors like nature of product source of supply.

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II. Managerial Functions

(i) Planning (iii) Directing

Under planning, entrepreneur has to lay In the realm of directing, entrepreneur
down the objectives, goals, vision, mission, has to motivate, lead, guide and communicate
policies, procedures, programmes, budget, with subordinates on an ongoing basis
schedules etc., for enabling the venture to in order to accomplish pre-set goals. The
proceed towards established destinations. process of directing involves issuing orders
and instructions, guiding, counselling and
(ii) Organising mentoring of employees, supervising employees,
Entrepreneur puts in place suitable maintaining discipline, motivating employees
organisational structure to perform various and providing leadership.
managerial functions namely choosing the type
of organisation, creating department, fitting the (iv) Controlling
human resources to appropriate organisation Entrepreneur has to put in mechanism to
slots, defining and delegating authority, evaluate the performance of employees across
distributing responsibility and creating the organisation. The various steps involved in
accountability for efficient performance of control function includes fixing performance
activities. standards, measuring the actual performance,
comparing actual performance with standards,

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finding out causes for deviation if any, (iii) Accounting

undertaking corrective measures to bring actual Entrepreneur has to arrange to prepare
performance to standards set. He/she may use trading and profit and loss account in order
various control techniques like account, auditing, to know the profit or loss incurred out of
management information system, network operation of the business and prepare balance
analysis, cost control, financial tools etc., sheet to know the financial status of business at
a particular day. Besides, cash flow and fund
(v) Coordination flow statements are prepared to ensure the
Entrepreneur has to evolve mechanism to adequacy of funds and cash for meeting various
pull together the diverse functions performed working capital needs of the business.
by various departments or teams and direct
them towards the established goals of the (iv) Finance
organisation for accomplishment. In the sphere of financial function, an
entrepreneur has to take decisions like choosing
III. Commercial Functions the right type of financing, framing the best
dividend policy, acquiring of funds, efficiently
(i) Production or Manufacturing
managing fixed and current assets, maximising
Under production function, entrepreneur
shareholders wealth and investing of funds
has to take decision relating to selection of
efficiently and effectively.
factory site, design and layout, type of products
to be manufactured, research and development, (v) Human Resource Management
product design etc., The efficient and effective Entrepreneur has to estimate the
performance of production function depends manpower needs of the enterprise and
on the proper production planning and control accordingly decide the size of manpower
to a major extent. required for various slots of organisational
structure. After determining the required man
(ii) Marketing power the entrepreneur has to organise the
Entrepreneur has to carry out following performance of following functions pertaining
functions pertaining to marketing aspect to human resources namely arranging for
namely consumer research, product planning recruitment, selecting manpower, induction
and development, standardisation, packaging, and training, determining compensation
pricing, warehousing, distribution, promotion structure and incentives, designing motivation
etc., The very success of marketing function is programmes, structuring well being measures
very much linked with selection of appropriate for employees, putting in place safety mechanism
marketing mix. The term marketing mix at work place, performance evaluation and
denotes the combination of four components career advancement and structuring social
namely product, price, promotion and physical security programmes.
distribution in the case of physical products and
three more components are included in the case
of service products namely people, process and
physical evidence.

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For Own Thinking

After the completion of the academic career, which engagement would you like to opt for after
considering the following factors:

Dimension Salaried Employment Self Employment

Income Dependable and probably Fluctuation of income depending upon

higher income during the initial economic conditions and endeavours
stages but limited by promotion of the entrepreneur
opportunities

Working Hours Fixed Working Hours Absolute freedom in choosing the

working time.

Job Security Fixed tenure jobs in respect of Stable job till the business is solvent
public sector appointments and
absolute unstable job in private
sector appointments.

Financial Risk There is no financial risk in There is high degree of risk of losing
salaried employment as the the investment due to continuous loss.
employee does not invest in
the capital of the employer
organisation

Personal An employee may derive job Owner derives a sense of personal

Satisfaction satisfaction. The efforts put in satisfaction. In other words, the efforts
by the employee reward more the putin by the owner directly reward him.
employer.

Responsibility The size of responsibility The size of responsibility is always

increases as an employee moves higher to various stakeholders.
up the organisational ladder.

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Case Study 1

GoliVadaPav 1
(Indian Street-food Vendor)

C h a l l e n g e : Ha n d m a d e
patties are not uniform in
quality and have a short
span of shell life. Decrease
in the profit margin due to
acute increase in the price
of ingredients. Bank which
rendered loans to Mr.
Venkatesh insisted to stop
the losses which arose due
to these problems or repay
the bank loans

Inception: Strategy:
VenkateshIyer co-founded Outsourcing the supply chain
GoliVAdaPav with Shiv Menonto and operations from Vista
2004 in Kalyan, near Mumbai Processing foods, a US company
for selling affordable, clean, to supply frozen vegetables and
ethnic fast good to lower income patties to GoliVAdaPav which
customers in India. ensures consistency in quality
and short shell life. Installation of
Product - Vadapav:
automated fryer machines in their
A typical Mumbai street-food outlets improved their business.
dish of a spicy vegetable patty Decision to penetrate the second-
in a bun. The goal was to sell tier cities in western and southern
hygienically prepared food with cities for their marketing.
an authentic touch.

Success Story:
i. GoliVadaPav has 300 stores in 100 cities across 20 states of India.
ii. Goli fast food chain products are prepared in fully automated ‘HACCP’ certified hands free plant
frozen at -18 degree Celsius.
iii. GoliVadaPav was set up in over 40 cities with 150 outlets with a success rate of sale of
75,000-100,000 vadapavs per day.

Key words
Entrepreneurship, Investigation, Innovator, Mobilisation, Leadership, GDP, Intrapreneur, Manager

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III. Short Answer Questions:

  Exercise
1. 
Define Entrepreneur
2. 
Distinguish between entrepreneur and
I. Choose the Correct Answers: Manager.

1. 
Which of the below is a factor of production? 3. 
List down the commercial functions of
(a) Land (b) Labour Entrepreneur and explain them shortly.

(c) Entrepreneurship (d) All of the above 4. 

Explain the promotional functions of
entrepreneur.
2. 
Entrepreneur is not classified as
(a) Risk Bearer (b) Innovator 5. 
Explain the commercial functions of
entrepreneur.
(c) Employee (d) Organizer
IV. Long Answer Questions:
3. 
What are the characteristics of an
entrepreneur? 1. 
How do you Classify entrepreneurs.
(a) Spirit of enterprise (b) Flexibility
2. 
What are the characteristics of an
(c) Self Confidence (d) All of the above entrepreneur?
4. 
Which of the below is not classified into 3. Distinguish between an Entrepreneur and
managerial functions? an Intrapreneur.
(a) Planning (b) Marketing 4. 
Discuss the problems faced by Women
(c) Organizing (d) Controlling Entrepreneurs.
5. 
Which of the below is a commercial 5. Explain in detail the various functions of an
function? entrepreneur.
(a) Accounting (b) Coordination References
(c) Discovery of idea (d) Planning
i. Khanka S.S, Entrepreneurial Development,
Answers: S.Chand& company Ltd. Ram Nagar. New
1 d 2 b 3 d 4 c 4 a Delhi, 2006

II. Very Short Answer Questions: ii. Gupta, G.P. and Srinivasan, N.P.,
Entrepreneurial Development, Sultan
1. 
Mention any two features of entrepreneurs. Chand & Co., New Delhi, 1993.
2. 
List down the managerial functions of iii. Sundar K.S., Elements of Entrepreneurship,
entrepreneurs. Vijay Nichole Imprints Pvt. Ltd., Chennai
3. 
List down the promotional functions of 2018
entrepreneurs.
4. 
Define Intrapreneur
5. 
List the problems faced by the women
entrepreneurs

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UNIT ENTREPRENEURSHIP
MANAGEMENT PROCESS
DEVELOPMENT
IX
I

24
1
CHAPTER
PRINCIPLES
TYPES OF ENTREPRENEURS
OF MANAGEMENT

ஒல்வ அறிவது அறிந்ததன் கண்தங்கிச்

ெசல்வார்க்குச் ெசல்லாதது இல்.
-குறள் 472
COUPLET
To discern the truth in every thing, by whomsoever spoken,
is wisdom.

Chapter Synopsis
Learning Objectives
24.01 Types of Entrepreneurs
To enable the students to understand the
■ Based on Function - Innovating, 24.02 Classification According to Function
Imitative, Fabian, Drone 24.03 Classification According to Type Of
■ Based on Type of Business - Business, Business
Trading. Industrial, Corporate,
24.04 Classification Based on Technology
Agricultural, Retail, Service Adopted
■ Based on Technology - Technical, Non-
technical, Professional 24.05 Classification in terms of Motivation
■ Based on Motivation - Pure, Induced, 24.06 Classification Based on Development
Motivated, Spontaneous Stage
■ Based on Development - First
24.07 Classification According to Area
Generation, Modern, Classical
■ Based on Area - Urban, Rural 24.08 Classification According to Owner-
■ Based on Ownership - Private, State, Joint ship

Entrepreneurs in business are different adopt; the area they start the venture; the level
according to the type of activity undertaken by of development they achieve in the venture;
him/her. Though the word entrepreneur is a type of ownership held and motivation given
general term, they are called by different names to them. Besides each of the above type is sub
depending upon the function they perform; classified as shown in the chart.
business they engaged in; technology they

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24.01 Types of Entrepreneurs

introducing something new in the venture

already started. They constantly observe the
24.02 Classification According environment around them; collect information
to Function and analyse them in order to contribute something
1.  Innovating Entrepreneur a new in the venture. Their innovation may
take the form of brand new product, upgraded
Mrs. Kiran Mazumdar-Shaw
product, discovering untapped market, new
Chairperson & Managing Director
method of production, reengineering of existing
Biocon Limited
product, new method of distribution of product,
Innovative entrepreneur is one who is always
simplification of complex process, adoption of a
focussed on introducing a new project or
distinct process and so on.

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2.  Imitative Entrepreneur 4.  Drone Entrepreneur

Imitative entrepreneur is one who simply Drone entrepreneurs are those who are
imitates existing skill, knowledge or technology totally opposed to changes unfolding in the
already in place in advanced countries. A simply environment. They used to operate in the niche
reengineer or redesign the products developed market. They are similar to fabian entrepreneur
in advanced countries and produce a version in doggedly pursuing their conventional
suited to their local conditions. For example, practices. The main difference between
many electronic products invented in advanced fabianentrepreneur and drone entrepreneur lies
countries are simply reengineered in developing in the fact that while fabian entrepreneur adapts
countries. Similarly expensive medicines to changes eventually as a last resort, drone
developed in advanced countries are simply entrepreneur never adapts himself or herself to
reengineered by changing the composition of change, Example; Gopal Tooth powder
elements or changing the process of production.

3.  Fabian Entrepreneur

24.03 Classification According
to Type of Business

1.  Business Entrepreneur

Business entrepreneur is called solo
entrepreneur. He/she is the one who conceives
an idea for a new product/service and establishes
a business enterprise to translate his idea into
reality. He/she may establish small or large
These entrepreneurs are said to be enterprise to commercially exploit his/he idea.
conservatives and sceptical about plasticising He/she takes up production, operations and
any change in their organisation. They are of pursues marketing activities.
risk-averse type. They do not simply change to
the changes happening in the environment. But 2.  Trading Entrepreneur
they adapt themselves to the changes only as a Trading entrepreneurs are those who restrict
last resort when they fear that non adaptability themselves to buying and selling finished
to changes will inevitably lead to loss or collapse goods. They may be engaged in domestic and
of the enterprise. Their dealings are governed by international trade. Their core strength lies
customs, religion, tradition and past practices in distribution and marketing. They get their
handed down to them by their ancestors. income by way of commission and marketing.
They would like to follow in the footsteps of
predecessors. Example; Nursus coffee

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3. Industrial Entrepreneur 6.  Retail Entrepreneurs

These are entrepreneurs who manufacture Retail entrepreneurs are those who enter
products to cater to the needs of consuming into venture of distributing the end-product to
public after identifying the need left unfulfilled final consumer while wholesale entrepreneurs
by the manufacturer hitherto. They may take up the venture of distributing the product
be small, medium and large entrepreneurs. to retailer. They used to buy the goods in small
Industrial entrepreneurs mobilise the resources quantities from numerous wholesalers and
of various types and create an entity to make it available different products of different
manufacture the products or service. They add brands under one roof to end consumer.
utility to products rolled out by them which is
termed as value addition. 7.  Service Entrepreneurs
4.  Corporate Entrepreneur Service entrepreneurs enter into the
venture of supplying service products to
Corporate entrepreneur is called promoter. end consumers. Hoteliers, airlines, banking,
He/she takes initiative necessary to start an entity insurance and financial service providers,
under corporate format. He/she arranges to fulfil repair service organisation, bus operators, train
the formalities to start a corporate entity under service, advisory organisation, advertising
Company law. Corporate entrepreneur assembles firms, manpower supplier etc., come under
all the resources and put in place organisation service entrepreneur’s category.
to run the business on a day-to-day basis. In
corporate form of organisation, ownership and
management are separated. Corporate entities
24.04 Classification based on
are registered under the Companies Act or under Technology Adopted
the Trust Act. Corporate entrepreneurs install a
team of experts to manage the entity on a day to 1. Technical Entrepreneur
day basis. Technical entrepreneurs are such of
those craftsmen like welder, fitter, moulder,
5.  Agricultural Entrepreneur draughtsman, turner, carpenter, goldsmith,
tailor, photographer, repairer, weaver, sculptor,
Agricultural entrepreneurs are those
potter, wiremen or so on who start small
entrepreneurs who raise farm products and
ventures. They turnout products/service of high
market them. They use the various inputs like
quality. They simply focus on production rather
labour, fertilizer, insecticide, water technology
than on marketing. This type of entrepreneur
etc. to raise the products and market their
demonstrates their creative talents by producing
products either directly or through co-operative
innovative products. Their strength lies in skill
entities or through brokers or through tie up
or knowledge of producing specialised product.
with large retailers. Those who raise allied
products like poultry, meat, fish, honey, skin,
agricultural implements, flower, silk, fruits,
prawn etc., are called agricultural entrepreneur. 2. Non-technical Entrepreneur
In short these entrepreneurs pursue their Non-technical Entrepreneurs are those
venture in agriculture and allied sector. who do not possess any technical competence
to produce the goods or service but have special
talents to market the products successfully or

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expertise to distribute the products produced rate of interest, tax breaks, tax holidays, training,
by technical entrepreneur effectively to channel import of technology from abroad, concessions
members and end consumers. for export oriented item, allotment of sheds, and
lands at subsidised price etc. impel the potential
3.  Professional Entrepreneur entrepreneurs to start the venture.
Professional entrepreneur is one who
is having a rich expertise in starting a venture
but lack interest in continuing the venture as a
manager or as a owner. He/she simply sells out
the venture started by him to someone else after
its successful take-off. They keep on conceiving
new ideas to develop alternative projects. In
short, these entrepreneurs have got professional
expertise in starting the venture and exiting it
after the establishment.

24.05 Classification in Terms of
Motivation
1. Pure Entrepreneur
Pure entrepreneurs are individuals 3.  Motivated Entrepreneur
who are propelled to enter into venture by Motivated entrepreneurs are those
psychological and economic motives. Their motivated to take up venture by the desire for self
egos do not permit them to work for somebody fulfilment. They are motivated to produce and
else. They nurture desire of starting a particular market product or service by sheer prospect of
venture and earning high profit there from and making huge profit. They are further motivated
thus attaining a social status. They apply their to develop the venture to a saleable stage so that
knowledge, skill and insight in making the he/she can sell the venture at a super profit to
venture a great success in order to earn maximum certain entrepreneurs(buyers) who do not like
profit out of the venture. Example Dhirubai to take risks in setting up a new venture but
Ambani, Jamshadji Tata, T.V. Sundaram Iyengar, desire to buy well developed venture promising
Seshadriji, Birla, Narayanamurthi, Aziz Premji great profit prospects.
and so on.
4. Spontaneous Entrepreneur
2.  Induced Entrepreneur These entrepreneurs have natural
An induced entrepreneur is one who is inclination to start venture. They are supposed
inspired to take up entrepreneurial activity to be bold, optimistic and enterprising persons.
thanks to entrepreneurship friendly policies put They have passion for meeting the challenges.
in place by the Government. In other words, Their inner urge and inborn traits drive them to
concessions, incentives and soaps provided commence their ventures.
by the government drive them to enter into
venture. Government provides a great deal of
support in the form of loans, subsidies, nominal

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24.06 Classification Based on 2.  Rural Entrepreneur

Development Stage These are people who start venture in
rural locations. They are provided a lot of
1.  First Generation Entrepreneur economic and fiscal incentives to start their
venture in rural and semi urban areas in order
First generation entrepreneur is one who
to check the exodus of rural people to urban
starts venture by virtue of his knowledge, skill,
centres in pursuit of employment opportunity.
talent and competence. He/she innovates a
Thanks to their immediate access to material,
product/service by technical expertise possessed
labour or other facilities at low cost. As a result
by him/her. These entrepreneurs do not have
the cost of operation of rural ventures tends to
any family background or prior exposure to the
be low. Agricultural and trading entrepreneurs
venture initiated by them. They are self made
entrepreneurs. prefer to set up their venture in rural areas.

2.  Modern Entrepreneur 24.08 Classification According

Modern entrepreneur is one who keenly to Ownership
observes the dynamics of the market with
1.  Private Entrepreneur
eagle eye and identify the unfilled gaps, if any
Ventures started by individual either
in product/service marketed. He/she takes
singly or collectively at their own risk after
initiative in starting the venture to cater to the
mobilising various resources in order to earn
unmet needs of the market.
profit are called private entrepreneurship.
3.  Classical Entrepreneur
2.  State Entrepreneurship
Classical entrepreneur is one who starts his
own venture as a family business. They are called
life timers. They engage in business as a matter
of routine. Their prior exposure to business
environment impels them to commence venture
of their own. Entrepreneurs from the business
families are called classical entrepreneurs. For
instance where son of provision merchant start
his own provision shops, the former is called
classical entrepreneur. Trading/industrial ventures started
by Government under various formats like
24.07 Classification According company, corporation, departments, board
to Area denotes state entrepreneurship.

3.  Joint Entrepreneurship

1.  Urban Entrepreneur
Ventures started and owned by both
Entrepreneur who commences his
private individuals and government denote
entrepreneurial activity in urban areas like
State Capital, District Headquarters, Towns, joint ownership.
Municipalities etc., They may be industrial Key Words
entrepreneur or corporate entrepreneur or Entrepreneur Spontaneous Innovative
retail entrepreneur. Induced Imitative Motivate
Fabian Drone

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• Imagine yourself as a successful

Case kits entrepreneur in Chennai city. You
have decided to enter into foreign
• Consider yourself as a young aspiring markets. What are all the factors to
be considered before entering the
entrepreneur to create an enterprise
international market?
that manufactures chocolates. Make a
• As an entrepreneur, you have
detailed analysis for the success of your developed an APP for games with
enterprise after considering the leading the latest technology. Answer the
competitors in the market in terms of following questions:
pricing, variety and quality. (i) List down the prospective
customers for this APP.
• A started and running a textile
(ii) How will you get more information
showroom business in your area for the from your prospective customers?
past one year. He was not very successful (iii) How you will update your app
and not in a position to have customers. when the technology transforms?
Design him an appropriate strategy to (iv) Discuss about the pricing and
attract new customers of various age marketing strategy for the APP?

groups.
• Your friend wants to start a business
with Rs. 10 lakhs from his ancestral
property. Make an analysis for your
friend to suggest him suitable business For Future Learning
in your locality. 1. Students are instructed to visit and
interview a successful entrepreneur in
• Identify products which are exclusively your locality. Present a report about the
utilised by kids under the age group of factors that leads to the success of the
1-5 years, 5-10 years,10-15 years. entrepreneur based on the interview.
2. Scan the products that are available in
• Critically examine an industry of your
your market. Imagine an innovative
choice based on its current demand and product with multiple uses. Make a
supply of products. survey about the innovative products
success among the locality.
3. Observe the small shops and outlets in
and around your locality. Think about
new ideas for the future outlets in your
area.

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  Case Study - 2

Sri Krishna Integrated Farm

Founder: Products:
Mr. R. Govindaraj, Supply of produced items like Cattle Farm, Fish Farm, Rabbit
Sri Krishna Integrated Farm, Breeder, Country chicken, Organic Paddy, Organic Fertiliser,
Organic Vegetables, Eggs, Milk, Livestock Feed and organic grass
Neppathur Village,
seeds, Vellimasal, Hedgelucem and Concentrating maggots for
Sirkazhi T.K. Nagapattinam. fish and poultry.
Achievements:
i. Giving training to SHG
ii. Supply of Farm Products to Star Hotels and many traders for
Breeding Purpose
iii. Supply to other states like Andhrapradesh, Karnataka and
Kerala
iv. Above 15 lakhs Turnover
v. Size of Employment
vi. Training to unemployed Youth
vii. To reduce migration

A glimpse of Sri Krishna Integrated Farm

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8. Motive of a Pure Entrepreneur is

a. Rendering service b. Earning profit
Exercise c. Attaining status d. Both b & c

9. Which of these is based on Technology?

a. Modern b. Professional
I.  Choose the Correct Answers: c. Corporate d. Industrial

1. Choose the type of entrepreneur that isn’t 10. Which of the below is not a Characteristic
based on function: of a Fabian Entrepreneur?
a. Innovative b. Classical a. Conservative b. Risk averse
c. Fabian d. Drone c. Sceptical d. Adaptive

2. Choose the type of Entrepreneur that is not Answers:

based on Motivation: 1 c 2 c 3 d 4 d 5 c
a. Pure b.. Corporate 6 d 7 d 8 d 9 c 10 d
c. Spontaneous d. Induced
II. Very Short Answer Questions:
3. Which of the following is the Activity of a 1. What is the other name of business
Business Entrepreneur? entrepreneur?
a. Production b. Marketing 2. Mention the other name for corporate
c. Operation d. All of the above entrepreneur.
3. Who are agricultural entrepreneur?
4. Find the odd one out in context of Trading
Entrepreneur. 4. State the name of the following ventures:
a. Selling b.. Commission a. Started by individuals for profit motive
c. Buying d. Manufacturing b. Started by Government

5. Corporate Entrepreneur is also called as c. Started by individuals and Government

together
_____
a. Intrapreneur b. Promoter d. Started as a family business
c. Manager d. Shareholder 5. Give some examples of pure entrepreneurs.

6. Poultry, Flowers, Fruits etc are called allied III.  Short Answer Questions:
Products of _______ entrepreneur. 1. Who is a private entrepreneur?
a. Corporate b. Retail 2. What is political environment?
c. Trading d. Agricultural
3. List down few examples of pure
7. ________ Entrepreneur Supply Services entrepreneurship
Unlike. 4. How does a professional entrepreneur
a. Hoteliers b. Banking operate?
c. Airlines d. Livestock 5. Explain about the agricultural entrepreneur.
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IV. Long Answer Questions:

1. Explain in detail on classification according
to the type of business
2. Discuss the nature of functional
entrepreneurs.
3. Distinguish between the rural and urban
entrepreneur.

References
i. Khanka S.S., Entrepreneurial Development,
S.Chand & company Ltd. Ram Nagar. New
Delhi, 2006
ii. Gupta, G.P. and Srinivasan, N.P.,
Entrepreneurial Development, Sultan
Chand & Co., New Delhi, 1993.
iii. Sundar K.S., Elements of Entrepreneurship,
Vijay Nichole Imprints Pvt. Ltd., Chennai,
2018

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ENTREPRUNERIAL
UNIT DEVELOPMENT
IX
GOVERNMENT SCHEMES FOR
25
CHAPTER
ENTREPRENEURIAL DEVELOPMENT

விைனத்திட்பம் என்ப ெதாருவன் மனத்திட்பம்

மற்ைறய எல்லாம் பிற. -குறள் 661

COUPLET Firmness in action is (Simply) one's firmness of mind:

all other (Abilities) are not of this nature.

Government of India’s
Learning Objectives Support for Innovation and
Entrepreneurship in India
To enable the students to understand the
■ India’s efforts at promoting The Government of India has undertaken
entrepreneurship several initiatives and instituted policy
■ Specific entrepreneurship schemes measures to foster a culture of innovation and
■ Steps in promoting an entrepreneurial entrepreneurship in the country. Job creation
venture is a foremost challenge facing India. With a
■ Women entrepreneurial schemes significant and unique demographic advantage,
■ Government of Tamil Nadu India, however, has immense potential to
entrepreneurial schemes innovate, raise entrepreneurs and create jobs for
the benefit of the nation and the world.
In the recent years, a wide spectrum
Chapter Synopsis of new programmes and opportunities to
nurture innovation have been created by the
25.01 India’s efforts at promoting Government of India across a number of
Entrepreneurship and Innovations sectors namely,Agriculture, Chemicals, and
25.02 Specific Entrepreneurship Schemes Fertilizers, Finance, Commerce and Industry,
Communication and Information Technology,
25.03 Steps in promoting an entrepreneurial
venture Corporate Affairs, Culture, Food Processing,
Housing & Urban Poverty Alleviation, and
25.04 Government of Tamil Nadu Science & Technology etc.
entrepreneurial schemes
Financial assistance, insurance, subsidy,
training, helps early stage tech start-up and

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business loans, special incentive is provided to

set up new enterprises for entrepreneurs.

25.01 India’s efforts at Promoting

Entrepreneurship and
Innovations

1. Startup India:
Through the Startup India
initiative, Government of India promotes
entrepreneurship by mentoring, nurturing and
facilitating startups throughout their life cycle.
Since its launch in January 2016, the initiative 3. Atal Innovation Mission (AIM):
has successfully given a head start to numerous AIM is the Government of India’s
aspiring entrepreneurs. A ‘Fund of Funds’ has endeavour to promote a culture of innovation
been created to help startups gain access to and entrepreneurship, and it serves as a platform
funding. for promotion of world-class Innovation Hubs,
Grand Challenges, start-up businesses and
other self-employment activities, particularly in
technology driven areas.
STARTUP
4. Support to Training and
INDIA Employment Programme for
Women (STEP):
STEP was launched by the Government
of India’s Ministry of Women and Child
Development to train women who have access
to formal skill training facilities, especially in
rural India. The Ministry of Skill Development
& Entrepreneurship and NITI (National
2. Make in India:
Institution for Transforming India formally it is
This scheme is designed to transform called as planning commission) Aayog recently
India into a global design and manufacturing redrafted the Guidelines of the 30-year-old
hub, the Make in India initiative was launched initiative to adapt to present-day needs. The
in September 2014. It came as a powerful call programme imparts skills in several sectors such
to India’s citizens and business leaders, and an as agriculture, horticulture, food processing,
invitation to potential partners and investors handlooms, traditional crafts like embroidery,
around the world to centralize information travel and tourism, hospitality, computer and
about opportunities in India’s manufacturing IT services.
sector. This has in turn helped procure
investments, foster innovation, develop skills, 5. Jan Dhan-Aadhaar - Mobile (JAM):
protect intellectual property and build best-in-
JAM, for the first time, is a technological
class manufacturing infrastructure.
intervention that enables direct transfer

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of subsidies to intended beneficiaries and, 8. Trade related Entrepreneurship

therefore, eliminates all intermediaries and Assistance and Development
leakages in the system, which has a potential (TREAD):
impact on the lives of millions of Indian citizens.
This schemes envisages to address
the critical issues of access to credit among
6. Digital India:
India’s underprivileged women, the TREAD
The Digital India initiative has programme enables credit availability to
been launched to modernize the Indian interested women through non-governmental
economy to make all government services organizations (NGOs). As such, women can
available electronically. The initiative aims at receive support of registered NGOs in both
transforming India into a digitally-empowered accessing loan facilities and receiving counselling
society and knowledge economy with universal and training opportunities to kick-start proposed
access to goods and services. enterprises, in order to provide pathways for
women to take up non-farm activities.
7. Stand-Up India:
It was launched in 2015, Stand-Up India 9. Pradhan Mantri Kaushal Vikas
seeks to leverage institutional credit for the Yojana (PMKVY):
benefit of India’s underprivileged. It aims at A flagship initiative of the Ministry of
enabling economic participation of, women Skill Development and Entrepreneurship
entrepreneurs, Scheduled Castes and Scheduled (MSDE). This is a Skill Certification initiative
Tribes and share the benefit of Indian growth which aims to train youth in industry-relevant
with the above mentioned categories. Towards skills to enhance employment opportunities for
this end, at least one women and one individual livelihood creation and employability.
from the SC or ST communities is granted
loans between Rs.10 lakshs to Rs.1 crore to set 10. National Skill Development
up greenfield enterprises in manufacturing, Mission:
services or the trading sector. This scheme was unveiled in July 2015.
The mission aims at building synergies across the
sectors in terms of skill training activities. With
a vision to build a ‘Skilled India’ it is designed to
expedite decision-making across the sectors to
provide skills at scale, without compromising on
quality or speed.

11. Science for Equity Empowerment

and Development (SEED):
SEED aims to provide opportunities to
motivated scientists and field level workers to
undertake action-oriented, location specific
projects for socio-economic gain, particularly
in rural areas. SEED emphasizes equity in
development, so that the benefits of technology
accrue to a vast section of the population,
particularly the disadvantaged.

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entrepreneurs up to ₹25 Lakhs in the fields of

chemicals, technology hardware, healthcare and
life sciences, aeronautics/aerospace & defence,
agriculture, AI (artificial intelligence), AR/
VR (augmented + virtual reality), automotive,
telecommunication and networking, computer
vision, construction, design, non-renewable
energy, renewable energy, green technology,
fin-tech, Internet of Things, nanotechnology,
social impact, food and beverages, pets and
animals, textiles and apparel.

3. Dairy Entrepreneurship
Development Scheme
Dairy Entrepreneurship Development
Scheme aims at helping entrepreneurs in the
field of Agriculture, pets and animals, and social
impact to set up small dairy farms and incentives
are provided to cover the cost of the required
25.02 Other Specific equipment or establishment of the facility.
Entrepreneurship Schemes
In order to support and strengthen the 4. Single Point Registration Scheme
Start-up culture in India, the Government has (SPRS)
launched various schemes in the past few years. A great scheme for Micro and Small
They are as follows: Enterprises, which provides an exemption
1. Modified Special Incentive Package from payment of Earnest Money Deposit
(EMD). Under this scheme, the tenders are
Scheme (M-SIPS)
issued free of cost.
The M-SIPS scheme provides capital
subsidy of 20% in SEZ and 25% subsidy
5. Atal Incubation Centres (AIC)
in non-SEZ for business units engaged in
manufacturing of electronics in the fields of the The Government of India has setup
Internet of Things, aeronautics/aerospace and the Atal Innovation Mission (AIM) at NITI
defence, automotive, renewable energy, non- Aayog in 2016 with the over arching purpose
renewable energy, technology, green technology of promoting a culture of innovation and
and nanotechnology. entrepreneurship in the country. This has
been setup to provide high class incubation
2. New Gen Innovation and
facilities across various parts of India in terms
Entrepreneurship Development
of capital equipment, operating facilities along
Centre
with sectoral expert for monitoring start-ups,
(New Gen IEDC) especially in transport. manufacturing health,
New Gen IEDC provides a limited one-
energy, water, agriculture and construction
time, non-recurring financial assistance to
sectors.
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For Own Thinking

REASONS WHY WOMEN BECOME

ENTREPRENEURS

Innova
ve Role Model to Self Iden
ty & Need for
Thinking Others Social Status Addi
onal Income

Support of Educa
on and Self Fulfilment New
Family Members Qualifica
on Challenges

Freedom to Employment Success Stories of Government Policies

Take Own Decision Genera
on Friends and Rela
ves and Procedures

25.03  Steps in Promoting an Entrepreneurial Venture.

The various steps involved in starting a venture have been highlighted.

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1.  Selection of the product Following things may be considered in

An entrepreneur may select a product choosing the site namely:
according to his aspiration, capacity and • Nearness to Native Place
motivation after a thorough scrunity of
• Incentives provided by the Govt.
micro and macro environment of business.
He/she may select a brand, new product or • Nearness to Market
may like to select imitation one or he/she • Availability of Labour and Raw Materials
may improve upon an existing product in in a particular area.
terms of additional features like comforts,
• Infrastructure Facilities
convenience, ease of operation, lower price
etc. An entrepreneur has to conduct economic
4.  Designing Capital Structure
viability of the project.
Entrepreneur has to determine the source
2.  Selection of form of ownership of financé for funding the venture. He/she
may mobilise funds from his own savings, loans
Entrepreneur has to choose the form of
from friends and relatives, term loans from
organisation suitable and appropriate for his
banks and financial institutions.
venture namely family ownership, partnership
and private limited company. Family ownership
5. Acquisition of Manufacturing
and partnership forms of organisation are suited
for exercising unified control over the venture know-how
while the company form of organisation may Entrepreneur can acquire
be preferred for pooling of more financial manufacturing know-how from Government
resources, managerial and technical skills and research laboratories, research and
business experience for carrying on medium to development divisions of industries, and
large venture. individual consultants. At times, main units
may supply manufacturing know-how to
3. Selection of Site entrepreneurs starting ancillary units or
Entrepreneur has to choose suitable plot plant and machinery suppliers may provide
for accommodating his venture. He has four this facility to entrepreneurs. Besides,
options open to him for housing his venture. manufacturing know-how can be obtained by
These have been mentioned below. foreign technical collaboration.

• State Development Corporation like 6.  Preparation of project report

SIDCO, SIPCOT, MMDA, TNHB and
Project reports needs to be prepared
Directorate of Industries may allot plot to
according to the format prescribed in the
entrepreneur
loan application form of term lending
• Entrepreneur can have a factory institutions. An entrepreneur can get
sheds constructed by State Industrial the report prepared either by technical
Development Agency consultancy organisation or by auditors or
• Entrepreneur can start ventures in the by consultants or by development agencies.
land developed by private developers This report should cover aspects like sources
of finance, technical know-how, sources of
• Entrepreneur may buy private land and
labour and raw materials, market potential
develop it for industrial use.

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and profitability. The project report should • Provisional Registration Certificate

include the following Entrepreneur has to apply for
• Technical Feasibility. Provisional Registration certificate. It will
It should mention the following be issued to entrepreneur after the fulfilment
of certain conditions for a period of one
■■ Description of product specification year subject to renewal of two periods of six
months duration. If an entrepreneur is not
■■ Raw materials availability
able to commence production beyond the
■■ Manufacturing process extension period, further extension will not
■■ Quality control measures be granted.
■■ Availability of water, power, transport • Permanent Registration Certificate
and communication facilities
Once the venture has commenced
• Economic Viability production or when it is ready to commence
production, it is eligible to get permanent
It essentially involves compilation of
registration certificate.
demand for domestic and export market,
installed capacity of machines, market share, • Statutory Licence
revenue expected, and suitable price structure.
Entrepreneur has to obtain Municipal
• Financial Viability License from the authority concerned. Then
the Entrepreneur has to register the unit with
It should cover the aspects like
the Central and Sales Tax Department. If a
■■ Non-recurring cost such as Land and unit comes within the provisions of Factories
Building, Plant and Machinery etc. Act, he/she has to register it with Inspector of
■■ Recurring expenses like wages, Factories or it has to register the unit under the
salaries, and overheads etc. Shops and Establishment Act.

■■ Probable cost of production • Power Connection

■■ Profit on expected sales Entrepreneur has to make application
to Assistant Divisional Engineer of State
• Managerial Competency Electricity Board for power connection after
Entrepreneur has to include the paying Security Deposit and fulfilling the
mechanism for managing the venture in the official formalities prescribed.
project report. In the case of small sized
ventures, the owner or partners may take • Arrangement of Finance
care of managerial activities while a team Entrepreneur requires two types of finance
of managerial personnel is to be brought in namely long term and short term. While long-
for manning various managerial positions term requirements are needed for acquiring
across different levels of management in the fixed assets, short-term requirement are meant
case of corporate form of organisation. He for meeting working capital needs. Entrepreneur
has to provide details of the organisational has to bring in promoters contribution (seed
structure contemplated in the project report capital) prescribed by financing agencies.
for implementing the venture.

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25.04 Government of Tamil Nadu – Entrepreneurial schemes

For Future learning

How an Entrepreneur will make use of the various schemes of Governments?!

Common
Applicaon
Form Public Health

Inspector of
Factories
Single Window
Clearance Commi ee Town &
Local Body
Country Planning

Polluon
Entrepreneur Control Board

Fire Service
DISTRICT INDUSTRIES CENTRE

SINGLE WINDOW CLEARANCE SYSTEM

ALL CLEARANCES UNDER ONE ROOF
1. Common Applicaon form to be filed with DIC 4. Local body clearance sent back to DIC
2. Forwading of applicaons 5. Forwarding Clearance to entrepreneur by DIC
by District Industries Centre 6. Uncleared applicaon brought to
3. Clearing of applicaon by different agencies Single Window Commi ee

ANGEL INVESTORS

01 Also known as Business Angels or Investment angels.

An Investor who provides financial backing for small

02 startups or entrepreneurs.

Angel investors are usually found among an

03 entrepreneur’s family and friends.

The capital they provide can be a one-€me injec€on

04 of seed money or ongoing support to carry the
company through difficult €mes.

Angel investors give more favorable terms than

05 other lenders, as they are usually inves€ng in the
person rather than the viability of the business.

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II.  Very Short Answer Questions:

Key Words
1.
Name any four Governmental
Seed Capital, STEP, TREAD, JAM, AIC
Entrepreneurial schemes.
2. Give a note on ‘Digital India’.
3. State any three entrepreneurial development
Exercise schemes of Government of Tamil Nadu.
4. List down the two types of finance.
5. Mention the time period of Provision
Registration Certificate.
I. Choose the Correct Answers:
1. The ___________ initiative was launched III.  Short Answer Questions:
to modernize the Indian economy to
1. What is ‘Startup India’?
make all governments services available
electronically. 2. Expand the following: STEP, JAM, TREAD,
M-SIPS, SEED and New Gen IEDC
a) Standup India b) Startup India
c) Digital India d) Make in India 3. Write a short note on the following

2. ________ is designed to transform India to a) Dairy Entrepreneurship development

a global design and manufacturing hub. scheme.
a) Digital India b) Make in India b)  Project report.
c) Startup India d) Design India. 4. What is the procedure for getting power
3. ___________ is the Government of India’s connection for an Entrepreneurial venture.
endeavour to promote culture of innovation
IV.  Long Answer Questions:
and entrepreneurship.
a) AIM b) STEP 1.
Explain any five Government
c) SEED d) AIC Entrepreneurial schemes.

4. ___________ should cover aspects like 2.

Describe the steps promoting
Entrepreneurial venture.
sources of finance, technical know-how,
source of labour and raw material, market 3. Discuss the preparation of a project report.
potential and profitability.
References
a) Technical Report b) Finance Report
1. Khanka s.s, Entrepreneurial Development
c) Project Report d) Progress Report
S.Chand & Company ltd, Ram nagar,New
5. ____________has to include the mechanism Delhi
for managing venture in the project report.
2. Gupta G.P and Srinivasan N.P
a) Banker b) Government ,Entrepreneurial Development, Sultan
c) Lending Institutions d) Entrepreneur chand & CO,New delhi, 1993

Answers: 3. Sundar K.S Elements of Entrepreneurship,

Vijai Nichole Imprints Pvt, Ltd,
1 c 2 b 3 a 4 c 5 d Chennai-2018

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COMPANY LAW AND

UNIT MANAGEMENTPRACTICE
SECRETARIAL PROCESS
10
I

26
1
CHAPTER
PRINCIPLES
COMPANIES
OF MANAGEMENT
ACT 2013

சிறப்பீனும் ெசல்வம் ெபறினும் பிறர்க்குஇன்னா

ெசய்யாைம மாசற்றார் ேகாள்.
-குறள் 311
COUPLET
It is the determination of the spotless not to cause sorrow to
others, although they could (by so causing) obtain the wealth
which confers greatness.

Learning Objectives 26.06 Procedural Aspects of Company Formation

26.07 Share and Share capital
To enable the students to understand the
■ Developments in company law and the 26.08 Issue of Shares, Bonus Shares and
logic of the company law. Rights Shares
■ Elementary ideas on the Formation of 26.09 Share Certificate and Share Warrant
Company
26.10 Share and Stock
■ Role of Promoters
■ Meaning of Shares and Debentures. 26.11 Debentures
■ Basic idea on Share Certificate and
Share warrants 26.12 Difference between Shares and
Debentures

The concept of ‘Company’ or

Chapter Synopsis ‘Corporation’ in business is not new, but was
dealt with, in 4th century BC itself during
26.01 Evolution and History of Company ‘Arthashastra’ days. Its shape got revamped
Law in India
over a period of time according to the needs of
26.02 The Companies Act 2013 business dynamics. Company form of business
26.03 Meaning and Definition of Company has certain distinct advantages over other
forms of businesses like Sole Proprietorship,
26.04 Formation/Incorporation of Company Partnership etc. It includes features such as
26.05 Promoter Limited Liability, Perpetual Succession etc.

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26.01 Evolution & History of social welfare activities.

Company Law in India The Companies Act 1956 has been
The earliest business associations in amended from time to time. From 2006 to 2009
England were the "Merchant Guilds". Some of some important Changes was made.
the merchant Associations or guilds who have
(i) The Company Law Board (CLB) has been
regulated the companies.
abolished and National Company Law
(i) A Royal Charter established the East India Tribunal (NCLT) is formed.
Company in the year 1600.
(ii) The rehabilitation of sick companies will
(ii) In England the Joint Stock Companies Act be undertaken by the NCLT and not
was passed for the first time in 1844. by the Board for Industrial & Financial
Reconstruction (BIFR).
(iii) In the year 1850, taking the English Joint
Stock Companies Act 1844 as a base, a (iii) Earlier the BIFR was entrusted with the
provision was made for registration of joint rehabilitation of sick companies as the
stock companies in India. matter came under the jurisdiction of the
Sick Industrial Companies Act 1985 (SICA)
(iv) The Joint Stock Companies Act was passed
but now the Sick Industrial Companies
in India by introducing the concept of
Repeal Act 2003 has replaced SICA and the
limited liability in the year 1857.
work of revival and rehabilitation has been
(v) In 1913, the Indian Companies Act of entrusted to NCLT.
1913 was passed. The Act introduce
the institution of private companies Again the Companies Act has been
in the corporate sector in India. amended in the year 2013 and has introduced
After Independence. Based on the several new concepts and definitions.
recommendation of the Shri.H.C.Baba
committee in 1950 and the provisions
of the English Companies Act 1948, the 26.02 The Companies
Companies Act 1956 was introduced in
Act 2013
the parliament.
The New 2013 Companies Act got
The Companies Act 1956 came into force the ascent of President on 29th August,
on 1 April, 1956. The main objectives of the
st
2013 but it was passed in the Lok sabha
Company Law 1956 are: on 18th December, 2012 and in Rajya
(i) To sustain trust and faith of Shareholders Sabha on 8th August, 2013. The Act 2013
consists of 29 Chapters 470 Sections
(ii) To protect and preserve the rights of Share and 7 Schedules as against 13 chapters
holders 658 Sections and 15 Schedules in 1956
(iii) To have drastic control over all the activities Act. Separate Chapters for Registered
of company Valuers, Government Companies,
Furnish information or Statistics, Nidhis,
(iv) To make regulation of an effective Annual National Company Law Tribunal &
Meeting, Appellate Tribunal and Special Courts are
(v) The investment of general public should introduced in Companies Act 2013.
be used for the development of society or
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Some Important Basic changes made in the new Companies Act 2013 are as follows:

S. No CHANGES CHANGES MADE

Public company Private company

Types of Companies
One Person company (OPC)

Maximum no of members A private company can have

Incorporation of for private companies maximum of 200 members
1
Company
One person Company New Concept Introduced

Commencement Now applicable to all companies

of business having share capital
MOA to contain the objects for which the
Memorandum
company is proposed to be incorporated
2 of Association Object Clause
and any matter considered necessary
(MOA)
in furtherance thereof
KMP Includes:
• CEO or MD or Manager;
Key Managerial • Company Secretary;
3 Section 2 (51)
Person (KMP) • WTD;
• CFO; and
Such other officers as may be prescribed
States that Every Company belonging to
class or classes of companies as may be
APPOINTMENT prescribed shall have KMPs
4 OF WHOLE Section 203 • MD or CEO or Manager and in
TIME KMP absence of a WTD
• Company Secretary
• Chief Financial Officer
Issue of Shares at Shares, other than sweat equity shares,
a discount cannot be issued at a discount

Preference shares have to be redeemed within

Issue of preference 20 years of issue except for the shares issued for
shares for more than prescribed infrastructure projects, provided
20 years a certain percentage of shares are redeemed
annually at the option of shareholders
Regarding Issue
5 Company shall file a notice in the
of Share Capital
Notice of alteration prescribed form with the Registrar within
of share capital a period of thirty days of redemption of
redeemable preference shares.

Consolidation and division which results

Consolidation and in changes in the voting percentage of
division of shares shareholders shall require approval of the
Tribunal to be effective.

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26.03 Body Corporate Out of the four stages, the first two stages
‘Promotion and Registration’ are necessary for
Body corporate means a corporate entity
both public and private companies. A private
which has a legal existence. According to
company can start operating its business
section 2(11) “body corporate” or “corporation”
immediately after registration, but a public
includes a private company, public company,
company has to pass through two more stages-
one personal company, small company, Limited
capital subscription and commencement of
Liability Partnerships, foreign company
business.
incorporated outside India, but does not include
A public company can raise funds
1. a co-operative society registered under any
from the public by issuing shares. After
law relating to co-operative societies; and
following all the legal provisions of public
2. any other body corporate (not being a issue, which are specified in The Company’s
company as defined in this Act), Act, a public company can start operating
of its business.
26.04 Formation/Incorporation
of a Company 26.05 Promoter
Section 3(1) of the Act states that a company Promotion stage begins when the idea
may be formed for any lawful purpose by- to form a company comes in the mind of a
(a) seven or more persons, where the company person. The person who envisage the idea
to be formed is to be a public company; is called a ‘promoter’. Section 2 (69) of
the Companies Act, 2013 defines the term
(b) two or more persons, where the company
‘promoter’ as under:-
to be formed is to be a private company; or
“Promoter” means a person—
(c) one person, where the company to be
formed is to be One Person Company that (a) who has been named as such in a
is to say, a private company by subscribing prospectus or is identified by the company
their names or his name to a memorandum in the annual return referred to in section
and complying with the requirements of 92; or
this Act in respect of registration: (b) who has control over the affairs of the
The process of formation of company company, directly or indirectly whether
consists of different stages, which starts when a as a shareholder, director or otherwise;
person envisage an idea to form a company and or
ends when a company gets a certificate from the (c) in accordance with whose advice, directions
Registrar of Companies after complying with or instructions the Board of Directors of
the various provisions relating to the formation the company is accustomed to act.
of a company. ‘Formation of a Company’ has By virtue of above definition, persons
been divided into four stages: in accordance with whose advice, directions
1. Promotion or instructions the Board of Directors of the
2. Registration company is accustomed to act are also treated
as promoters. However, if a person is merely
3. Capital Subscription and
acting in a professional capacity i.e. giving only
4. Commencement of Business. professional advice to the Board of directors, he
shall not be treated as a promoter.
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A promoter does various things to get the a) Application for Availability of

company promoted. Some of these are discussed Name of company
below:
As per section 4(4) the Promoter of
the company has to file an application in a
Preliminary steps - First stage:
prescribed form and manner with necessary fee
1. Appoint bankers, solicitors, brokers for the
as prescribed in the law to the Registrar for the
company.
reservation of a name. The application should
2. Prepare the memorandum and the articles state (a) the name of the proposed company; or
of association of the company, get it printed (b) the name to which the company proposes to
and registered. change its name.
3. Find the persons who are ready to sign the
memorandum and articles of association. Certificate of Incorporation
4. Enter into preliminary contracts with After scrutinizing all the documents
underwriters, suppliers of raw material, filed by the promoter the registrar enters
plant and machinery etc. the name of the company in the Register of
The stage of promotion starts when a Companies and charges a registration fee.
promoter conceives the idea to form a The registrar then issues the “Certificate of
company and ends when the company Incorporation”.
is formed and is handed over to the According to Sec.35 of Companies Act
directors. ‘Certificate of Incorporation’ issued by the
Registrar “is a conclusive evidence that all the
26.06 Procedural Aspects of requirements relating to registration have been
Company Formation compiled by the company and the company is
authorized to be registered under the Act.”
Incorporation or Registration –
Once Certificate of Incorporation is
Second stage
issued by Registrar, nobody can question the
The second stage in the formation of the validity of this certificate even if the certificate
company is incorporation or registration. In is wrongly issued.
this stage the promoter does the following:
(a) Application for Availability of Name of
company
(b) Preparation of Memorandum and Articles
of Association
XYZ MARKETING (OFC0 PRIVATE LIMITED
(c) Declaration from the professional
U74888CH2018OFC062448

(d)
Preparation of Affidavit from the AAICBO206M*
CHECBO206M*
subscribers to the Memorandum
(e) Furnishing verification of Registered Office
(f) Preparation of particulars of subscribers
(g) Preparation of particulars of first directors
along with their consent to act as directors
(h) Power of Attorney XYZ MARKETING (OFC0 PRIVATE LIMITED
PLOT NO.150, ABC NAGAR, MKR ROAD, CHENNAI,
TAMILNADU, INDIA, PIN:600 006.

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(b) Preparation of Memorandum and (e) Furnishing Verification of

Articles of Association Registered Office
The Memorandum of Association is the Under Section 12, a company shall, on
charter of a company. It is a document, which and from the 15th day of its incorporation
amongst other things, defines the area within and at all times thereafter, have a registered
which the company can operate. It contain, the office capable of receiving and acknowledging
name clause, situation clause, objective clause, all communications and notices as may be
capital clause, liability clause and subscription addressed to it. The company can furnish to
clause. In the case of One Person Company, in the registrar verification of registered office
the event of death of the subscriber, the name of within 30 days of incorporation in the manner
the person who shall become the member of the prescribed.
company must be stated.
The second most important document (f)  Particulars of Subscribers
which is required at the time of registration is Section 7(1)(e) requires the filing of the
Articles of Association. This document contains particulars of name, including surname or
rules & regulations for the internal management family name, residential address, nationality
of the company. It contains the manner in which and such other particulars of every subscriber
the objectives are to be achieved as mentioned in to the memorandum along with proof of
Memorandum of Association. It lays down the identity, as may be prescribed, and in the case
guidelines for administration and management of a subscriber being a body corporate, such
of the company - Section 5(1). particulars as may be prescribed.

(c)  Declaration from the Professional (g) Particulars of First Directors

A declaration form must be filed by along with their Consent to Act as
a person whose name stated in articles of Directors
association, stating that all the requirements Section 7(1)(f) requires filing of the
of this Act and the rules in force, in respect of particulars of the persons mentioned in the
registration and matters precedent or incidental articles as the first directors of the company,
thereto have been complied with. their names, including surnames or family
names, the Director Identification Number,
(d) Prepration of Affidavit from the residential address, nationality and such other
Subscribers to the Memorandum particulars including proof of identity as may be
According to Section 7(1)(c) the prescribed.
subscribers to the memorandum should file an
affidavit form individually, that he/she is not (h)  Power of Attorney
convicted of any offence in connection with the With a view to fulfilling the various
promotion, formation or management of any formalities that are required for incorporation
company, or that he has not been found guilty of a company, the promoters may appoint an
of any fraud or misfeasance or of any breach of attorney empowering him/her to carry out the
duty to any company under this Act, and that instructions/requirements stipulated by the
all the documents filed with the Registrar for Registrar. This requires execution of Power of
registration of the company contain information Attorney on a non-judicial stamp paper for a
that is correct and complete and true to the best value prescribed in the respective State Stamp
of his knowledge and belief. Laws.
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Capital Subscription - Third stage Rs.1 lakh in the case of private limited
Both private company and public company.
company not having share capital can (iii) It has filed the Registrar the verification of
commence its business after the completion the registered office.
of the above stages. But a public limited
These restrictions in section 11 are
company having its share capital has to pass
applicable to companies having share capital.
through two more stages. One of them is
It can commence business only after fulfilling
capital subscription, steps to be taken at this
all the formalities mentioned above and
stage are listed below.
exercise borrowing powers immediately after
(i) The fulfilling formalities to raise necessary incorporation.
capital
(ii) Adhering to SEBI guidelines in this regard
(I) Provisions Specifically Relating
to Incorporation of One Person
(iii) Observing guidelines for Disclosure and
Company
investor protection issued by SEBI
According to section 3(1), the
(iv) Issuing prospectus memorandum of One Person Company shall
(v) Appointing official banker of the indicate the name of the other person, with his
company for receiving application from prior written consent in the prescribed form,
the investors who shall, in the event of the subscriber’s death
or his incapacity to contract become the member
(vi) Fulfilling the condition for valid allotment
of the company and the written consent of such
by director
person shall also be filed with the Registrar at
(vii) Passing resolution for making allotment the time of incorporation of the One Person
by director Company along with its memorandum and
(viii) Despatch allotment letters to allottees articles.
(ix) Filing allotment return with the Registrar
(x) Issuing share certificates in exchange for 26.07  Share and Share Capital
their allotment letter The term “Capital” is viewed by a layman
(xi) Ensuring collection of minimum as the money, which a business persons invest
subscription in the business and in case of company raise the
capital by issue of shares. They uses this money
to meet its requirements by way of acquiring
Commencement of Business – Fourth
business premises and stock-in-trade, which
stage
are called the fixed capital and the circulating
As per section 11 of the Act, a company capital respectively. The phrase “loan or
having share capital should file with the borrowed capital” is sometimes used to mean
Registrar, declaration stating that money borrowed by the company and secured
(i) Every subscriber to the Memorandum by issuing debentures. This, however, is not the
has paid the value of shares agreed to be proper use of the word “capital”.
taken by him. In case of company limited by shares, the
(ii) Paidup capital is not less than Rs.5 lakhs word “capital” means the share capital i.e., the
in the case of public limited company and capital in terms of rupees divided into specified
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number of shares each having fixed rupee payable to any share holders in that year.
value. For e.g. share capital of a company is
Rs.10,00,000 which can be divided into 10,000 Meaning of Preference Share
shares of Rs.100 each or 1,00,000 shares of Rs.10 Section 42 of the Companies Act, 2013
each, whichever is reasonable to the company. the term ‘preference shares’ mean that part of
the share capital the holders of which have a
Share preferential right over payment of dividend (fixed
The term Share is viewed by a layman amount or rate) and repayment of share capital
as a fraction or portion of total capital of the in the event of winding up of the company.
company which have equal denomination. In
simple, the total capital of the company is shared Kinds of Preference shares
by many person and each share is having equal There are eight types of preference shares.
value. In case of dissolution of the company, any of the
According to Section 2(84) of the eight types would be paid out before other types
Companies Act, 2013, share means share in the of equity.
"Share Capital of a company and includes stock
Cumulative Preference shares:  As the word
except where a distinction between stock and
indicates, all dividends are carried forward until
share is expressed or implied"
specified, and paid out only at the end of the
Kinds of Share Capital specified period.
According to Section 43 of the Act, a Non-cumulative Preference shares:  The
company which is limited by shares can issue opposite of cumulative, obviously. Dividends
two classes of shares they are: are paid out of profits for every year. There are
(i) Equity Share Capital: no arrears carried over a time period to be paid
at the end of the term
a)  With Voting rights or
b) With differential rights as to dividend, Redeemable Preference shares:  Such
preference shares can be claimed after a fixed
voting or otherwise in accordance with
period or after giving due notice.
such rules as may be prescribed.
Non-Redeemable Preference shares:  Such
(ii) Preference Share Capital
shares cannot be redeemed during the lifetime
of the company, but can only be obtained at the
Meaning of Equity Share
time of winding up (liquidation) of assets.
Those shares which are not called as
Convertible Preference shares:  The shares
preference share are known as Equity share
can be converted into equity shares after a time
or the share of a company which do not have
period or as per the conditions laid down in the
any preferential rights with regard to dividend
terms.
and repayment of share capital at the time
of liquidation of a company, is also called Non-convertible Preference shares:  Non-
as ordinary share. It may be noted that the convertible preference shares cannot be, at any
dividend is payable, only when the company time, converted into equity shares.
earns adequate profits and the rate of dividend Participating Preference shares:  Such shares
is recommended by the Board of Directors and have the right to participate in any additional
declared at the General Body Meeting. The rate profits, after paying the equity shareholders.
of dividend is not a fixed one, in all the years. The surplus of profit is apart from the fixed
Where a company earned loss no dividend is dividend paid up for preference shares.
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Non-Participating Preference shares:  Non- (iii) To provide for the payment of premium
participating preference shares do not possess on the redemption of any redeemable
any right to participate in surplus profits or any preference shares or debentures of the
surplus gained at the time of liquidation of the company.
company.
Thus, the Securities Premium Account cannot
Tenure of Preference Shares be treated as a revenue reserve for distributing
dividends. It can only be used for the above
Tenure of Preference Shares continued
mentioned purposes and also for buying back
as 20 years except for “Infrastructural Projects” 
of securities (section 77A). It must be noted
Companies having "infrastructural projects"
that Security premium is not available for
can issue    Preference Shares for more than 20
distribution of dividend.
years but up to 30 years subject to minimum
10% redemption of such preference shares from
Issue of Securities at Discount
21st year onward or earlier.
When the shares are issued at a price below the
26.08 Issue of shares, Bonus face value they are said to be issued at a discount.
For example, a share having the face value of Rs
shares and Right shares
10 is issued at Rs 8. The  companies act 2013,
There are various ways by which shares can be prohibits the issue of shares at discount (Section
issued.
53), except sweat Equity share.
Issue of shares at Par
Sweat Equity Shares
Normally shares are issued at their face
value or par value i.e at a price mentioned on Under section 54 of the Companies Act 2013,
the face of share certificate concerned. There is Sweat Equity Shares can be issued at Discount.
no legal restrictions on issuing shares at par / Sweat Equity Shares means issue of shares to
face value. employees or directors at a lower price for cash
or other than Cash, in lieu of providing know-
Issue of Shares at Premium how or making available rights in the nature
When shares are issued at a price above the of intellectual property rights or any value
face or nominal value, they are said to be issued additions.
at a premium. For example, a share having the
face value of Rs.10 is issued at Rs.12. Here, Rs.2
Bonus Shares
is the premium. The amount of share premium A company may, if its Articles provide, capitalize
has to be transferred to an account called the its profits by issuing fully-paid bonus shares.
‘Securities Premium Account’. This account is The issue of bonus shares by a company is a
capital in nature and can only be utilized for the common feature. In simple, Bonus share means
purposes specified by the Act under Section 78 to utilize the company’s reserves and surpluses,
viz; Issue of fully paid bonus shares to members issue of shares to existing shareholders without
of the company. taking any consideration is known as Bonus
Shares. It can be issued by:
(i) To write off preliminary expenses.
(i) Making partly paid up shares as fully paid
(ii) To write off the expenses of issue, or
commission paid, or discount allowed, (ii) Issuing new shares
on issue of shares or debentures of the
company.

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Private placement The share certificate contains the

Private placement means offer of following details in it, they are:
securities or invitation to subscribe to (i) Company name
securities to a select group of persons through
(ii) Date of issue
private placement offer letter. The number of
subscribers under private placement should not (iii) Details of the member
exceed 50 members or such numbers prescribed. (iv) Shares held
Qualified institutional buyers and employees
holding shares under stock option plans should (v) Nominal value
be excluded in country the maximum members (vi) Paid up value
mentioned above. But, companies going
(vii) Definite number
for private placement should fulfill certain
condition mentioned in Companies Act 2013 in The share certificate is issued by the
this regard. Then only they can collect capital company within three months of the allotment
through private placement. of shares to the applicants, which is issued under
the common seal of the company. Normally, the
Right Shares holder of the share certificate is regarded as the
Right shares are the shares which are issued member of the company.
by the company, with the aim of increasing the
subscribed share capital of the company by
Share Warrant
further issue, if it is authorized by its Articles. A share warrant is a negotiable instrument,
The right shares are primarily issued to the issued by the public limited company only
existing equity shareholders through a letter of against fully paid up shares. It is also termed
an issue, on pro rata basis. as a document of title because the holder of
the share warrant is entitled to the number of
shares mentioned in it. There is no compulsion
26.09 Share Certificate and of the issue of share warrants by the company.
Share Warrant Although if the public company wants to issue
A share certificate is an instrument in share warrants, then prior approval of the
writing, that is a legal proof of the ownership Central Government (CG) is required. Further
of the number of shares stated in it. Every the issue of a share warrant must be authorized
company, limited by shares, whether it is public in the articles of association of the company.
or private must issue the share certificate to its The holder of the share warrant can take
shareholders except in case, where shares are a share certificate only if holder surrenders
held in dematerialization system. the share warrant and pays the required fee
According to Section 45 of the for the issue of share certificate. Thereafter,
Companies Act, 2013 each share of the share the company will cancel the warrant and issue
capital of the company shall be distinguished a new share certificate to him as well as the
with a distinct number for its individual company will enter his name as the member of
identification. However, such distinction the company in the register of members, after
shall not be required, if the shares are held which he will become a member of the company.
by a person whose name is entered as holder Generally, the holder of the share warrant
of beneficial interest as per the records of a is not the member of the company, but if the
company. articles of association of the company provide
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it, then the bearer is deemed to be the member Features of Debentures

of the company.
The important features of debentures
are as follows:
26.10  Share and Stock 1. It is issued by the Company in the form of a
The definition of the term ‘Share’ under certificate under the common seal.
the Companies Act, 1956 (Section 2(46)) 2. It is a movable property
includes ‘Stock’. A company can convert its
3. Debenture holders are the creditors of the
shares into stock and vice versa by following
company
the provisions of Table A (Articles 36-39). Stock
4. Debentures carry a fixed rate of interest.
is created from fully paid shares by passing an
ordinary resolution in the general meeting. The 5. Debenture is redeemed after a fixed period
Articles of Association of the company must of time.
permit this conversion. 6. Debentures may be either secured or
unsecured.

26.11 Debentures 7. Interest payable on a debenture is a charge

against profit and hence it is a tax deductible
Adequate amount of capital is necessary to expenditure.
run a business effectively/successfully. In some
8. Debenture holders do not enjoy any voting
cases capital arranged through internal resources
right.
i.e. by way of issuing equity share capital or using
accumulated profit is not adequate and the 9. Interest on debenture is payable even if
organisation is resorted to external resources there is a loss.
of arranging capital i.e. External Commercial
borrowing (ECB), Debentures, Bank Loan, Kinds of Debentures
Public Fixed Deposits etc. Debentures are generally classified into
When a company needs funds for different categories on the basis of:
extension and development purpose without (1) Convertibility of the Instrument
increasing its share capital, it can borrow from (2) Security of the Instrument
the general public by issuing certificates for a (3) Redemption ability
fixed period of time and at a fixed rate of interest.
(4) Registration of Instrument
Such a loan certificate is called a debenture.
Debentures are offered to the public for 1. On the basis of convertibility,
subscrip­tion in the same way as for issue of Debentures may be classified into
equity shares. Debenture is issued under the following categories:
common seal of the company acknowledging
(i) Non Convertible Debentures (NCD):
the receipt of money.
These instruments retain the debt character
According to Section 2(30) of Companies and cannot be converted into equity shares.
Act 2013 “debenture” includes debenture stock,
(ii) Partly Convertible Debentures (PCD):
bonds or any other instrument of a company
A part of these instruments are converted
evidencing a debt, whether constituting a charge
into Equity shares in the future at notice of
on the assets of the company or not; It is evident
the issuer. The issuer decides the ratio for
from the definition that the term debentures
conversion. This is normally decided at the
covers both secured and unsecured debentures.
time of subscription.
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(iii) Fully convertible Debentures (FCD): debenture. The debenture holder

These are fully convertible into Equity cannot demand repayment as long as
shares at the issuer's notice. The ratio of the company is a going concern. Issuing
conversion is decided by the issuer. Upon company has to pay interest periodically.
conversion the investors enjoy the same But all debentures, whether redeemable
status as ordinary shareholders of the or irredeemable become payable on
company. the company going into liquidation.
(iv) Optionally Convertible Debentures However, after the commencement of the
(OCD): The investor has the option to Companies Act, 2013, now a company
either convert these debentures into shares cannot issue perpetual or irredeemable
at a price decided by the issuer/agreed debentures.
upon at the time of issue.
4. On the basis of Registration,
2. On the basis of Security, debentures debentures may be classified as
are classified into:
(A) A Registered Debentures: Registered
(A) Secured Debentures: These instruments
debentures are issued in the name of a
are secured by a charge on the fixed
particular person, whose name appears
assets of the issuer company. So if the
on the debenture certificate and who is
issuer fails on payment of either the
registered by the company as holder on
principal or interest amount, such fixed
the Register of debenture holders.
assets can be sold to repay the liability to
the investors. (B) Bearer debentures: Bearer debentures
on the other hand, are issued to bearer,
(B) Unsecured Debentures: These instrument
and are negotiable instruments, and so
are unsecured in the sense that if the
transferable by mere delivery like share
issuer defaults on payment of the interest
warrants.
or principal amount, the investor has to
be included as unsecured creditors of the
Section 8
company.
Companies
3. On the basis of Redeemability,
1. Companies has in its objects the
debentures are classified into:
promotion of commerce, art, science,
(A) Redeemable Debentures: It refers to sports, education, research, social
the debentures which are issued with welfare, religion, charity, protection of
a condition that the debentures will be environment or any such other object
redeemed at a fixed date or upon demand, 2. Companies intends to apply its profits,
or after notice, or under a system of if any, or other income in promoting its
periodical drawings. Debentures are objects; and
generally redeemable and on redemption
3. Companies intends to prohibit the
these can be reissued or cancelled.
payment of any dividend to its members.
(B) Perpetual or Irredeemable Debentures: 4. The company registered under this
A Debenture, in which no specific time section shall enjoy all the privileges and
is specified by the companies to pay back be subject to all the obligations of limited
the money, is called an irredeemable companies.

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Navratnas How to propose the Name

Companies for a Company
1. Bharat Electronics Limited (BEL) 1. Plural version of any of the words
2. Container Corporation of India appearing in the name of an existing
(CONCOR) company is not allowed.
3. Engineers India Limited (EIL)
Example: Suppose a company exists in
4. Hindustan Aeronautics Limited (HAL)
the name of "Eswar equipment Private
5. Hindustan Petroleum Corporation Limited
Limited Company", then the name of
(HPCL)
6. Mahanagar Telephone Nigam Limited "Eswar equipments Private Limited
(MTNL) Company" will not be proposed.
7. National Aluminium Company (NALCO) Similarly, The following changes in
8. National Buildings Construction existing company name is also not
Corporation (NBCC) allowed
9. National Mineral Development
2. Changes in Type, Letter Case, Spacing or
Corporation (NMDC)
10. Neyveli Lignite Corporation Limited Punctuation marks
(NLCIL) 3. Joining words or separating words before
11. Oil India Limited (OIL) or after the company name
12. Power Finance Corporation 4. Different tense or number of the same
13. Power Grid Corporation of India word
Limited
5. Different phonetic spellings or spelling
14. Rashtriya Ispat Nigam Limited
variations
15. Rural Electrification Corporation
16. Shipping Corporation of India (SCI) 6. Intentionally misspelled words
7. Addition of internet related designation
8. Addition of common names or titles
Maharatnas
9. Addition of name of place
Companies
10. Different combination of the same words
1. National Thermal Power Corporation 11. Translation of a word
(NTPC)
2. Oil and Natural Gas Corporation
(ONGC)
3. Steel Authority of India Limited (SAIL)
4. Bharat Heavy Electricals Limited (BHEL)
5. Indian Oil Corporation Limited (IOCL)
6. Coal India Limited (CIL)
7. Gas Authority of India Limited (GAIL)
8. Bharat Petroleum Corporation Limited
(BPCL)

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Distinction Between Debentures and Shares

S. No DEBENTURES SHARES

1. Debentures constitute a loan. Shares are part of the capital of a company.

2. Middle and Lower Level Top level
Debenture holder gets fixed rate of Interest Shareholders gets dividends with a varying
3.
which carries a priorities over dividend. rate.
Debentures generally have a charge on the
4. Shares do not carry any such charge.
assets of the company.
Debentures can be issued at a discount
5. Shares cannot be issued at a discount.
without restrictions.
Whereas on equity shares, the dividend varies
The rate of interest is fixed in the case of from year to year depending upon the profit
6.
debentures of the company and the Board of directors
decision to declare dividends or not.
Debenture holders do not have any voting
7. Shareholders enjoy voting right.
right
Dividend can be paid to shareholders only
Interest on debenture is payable even if there
8. out of the profits of the company and not
are no profits i.e. even out of capital.
otherwise.
Interest paid on debenture is a business
Dividend is not allowable deduction as
9. expenditure and allowable deduction from
business expenditure.
profits.
Return of allotment is not required for Return of allotment in e-Form No. 2 is to be
10.
allotment of debentures. filed for allotment of shares.

Key Words

One Person company

Promoter
(OPC)
Misrepresentation Incorporation or
of facts Registration
Share and Share Capital Shares
Sweat Equity Shares Bonus Shares
Right Shares Share Certificate
Share Warrant Debentures
Private Placement

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7. Specify the document which comes under

the Negotiable Instrument Act.
Exercise (a) Share Certificate   (b) Share
(c) Share Warrant   (d) Stock
8. The shares which are offered to the existing
I.  Choose the Correct Answers: shareholder at free of cost is known as
1. The Company will have to issue the notice ___________.
of situation of Registered Office to the (a) Bonus Share    (b) Equity Share
Registrar of Companies within _____ days (c) Right Share    (d) Preference Share
from the date of incorporation.
9. The shares which are offered first to the
(a) 14 days (b) 21 days
existing shareholder at reduced price is
(c) 30 Days (d) 60 Days
known as _____________.
2. How does a person who envisages the idea
(a) Bonus Share  (b) Equity Share
to form a company called?
(c) Right Share    (d) Preference Share
(a) Director      (b) Company Secretary
(c) Registrar      (d) Promoter 10. The Companies Act 2013 Prohibits the
issue of shares at ____________________
3. For which type of capital a company pays the
to the public.
prescribed fees at the time of registration?
(a) Premium  (b) Par
(a) Subscribed Capital  (b) Authorised Capital
(c) Discount   (d) Both at par and Premium
(c) Paid-up Capital    (d) Issued Capital
4. Which of the following types of shares are Answers:
issued by a company to raise capital from
1 c 2 d 3 b 4 b 5 d 6 a 7 c 8 a 9 c 10 c
the existing shareholders?
(a) Equity Shares    (b) Rights Shares
II.  Very Short Answer Questions:
(c) Preference Shares  (d) Bonus Shares
1. Who is called as Promoters?
5. Specify the type of resolution to be passed to
2. What is Share?
choose the location of Registered Office of the
company within the town or village or city. 3. What do you mean by Equity Share?

(a) Ordinary   (b) Special 4. What do you understand by Preference

Share?
(c) Either Ordinary   (d) Board
or Special 5. What is Sweat Equity Shares?

6. Who can issue stock? 6. What is Bonus Shares?

(a) Public   (b) Private 7. What is Right Shares?

(c) One Person   (d) Small 8. What is Private placement?
9. Define Share Warrant.
10. What is Debentures?

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III.  Short Answer Questions:

1. Distinguish between shares and stocks.
2. What do you understand by Issue of
Securities at Premium?
3. What is issue of shares at discount? What
conditions should be fulfilled?
4. State condition stipulated for capital
subscription at the time of promotion.
5. Explain different Kinds of Preference shares.

IV. Long Answer Questions:

1. Write the difference between Debentures
and Shares:
2. Brief different stages in Formation of a
Company.
3. What are the various kinds of Debentures?
4. What formalities need to be fulfilled
for a companies having share capital to
commence business?
5. Write the difference between Share
Certificate and Share Warrant

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COMPANY LAW AND

UNIT MANAGEMENTPRACTICE
SECRETARIAL PROCESS
10
I

27
1
CHAPTER
PRINCIPLES
COMPANYOFMANAGEMENT
MANAGEMENT

முைறெசய்து காப்பாற்றும் மன்னவன் மக்கட்கு

இைறெயன்று ைவக்கப் படும்.
-குறள் 388
COUPLET
The world will praise and submit it self to the mind of the
King who is able to give with affability and to protect all who
come to him.

27.05 Number of Directors

Learning Objectives
27.06 Legal position / Status of Director
To enable the students to understand the 27.07 Appointment of Director
■ The concept of Company Management
■ The meaning of Director and 27.08 Qualification of Director
Qualification of Director 27.09 Disqualification of Director
■ Concept of Board of Director, legal
27.10 Removal of Director
position of Directors
■ Removal of director from a company 27.11 Remuneration of Director
■ Other Managerial personnel involved in 27.12 Power of Director
the Company Management.
27.13 Rights of Director
27.14 Duties of Director
27.15 Liabilities of Director
27.16 Directorial Register
Chapter Synopsis
27.17 Manager Vs Director
27.01 Introduction, Meaning and Definition
27.18 Managing Director Vs Whole time
of Director
Director
27.02 Key – Managerial Personnel of a
Company INTRODUCTION
27.03 Board of Directors The concept and nature of Company
27.04 Types of Directors as per Companies was explained in the previous lesson. It has a
Act 2013 endless life span and the life of the company is
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not affected due to changes in the members i.e person from a Board of Directors who leads or
any member may come and go but the company supervises the functioning of a company.
lives till its death according to the provisions of The Companies Act 2013 section 2 (34)
the Act. In this lesson, how this artificial person defines a director appointed to the board of
is managed is discussed. It is managed by a a Company is
group of human beings. "A Person who is appointed or elected
The group of human beings who undertake member of the Board of Directors of a company
the responsibility to run the business of the and has the responsibility of determining and
company are known as Board of Directors and implementing policies along with others in the
the members of the Board individually called board. It is not necessary to, hold any shares in
as Director. The Directors play a vital role in the company or be an employee. Directors act
the functioning of the company by controlling, on the basis of resolutions made in the Board of
guiding, directing and managing the affairs of Directors meeting according to their powers
the company. The overall performance of any stated in the Articles of Association of the
company is vested with the directors. So they company."
are responsible for it. The every person in the Minimum/Maximum Number of
Board individually or collectively is responsible Directors in a Company- Section 149(1)
for achieving the objectives prescribed in the Section 149(1) of the Companies Act, 2013
Memorandum of Association of the Company. requires that every company shall have a
The appointment of Directors and their minimum number of 3 directors in the case
qualifications are specified in the Companies of a public company, two directors in the case
Act 2013 Chapter XI. of a private company, and one director in the
case of a One Person Company. A company
In the Company Management, Board
can appoint maximum 15 fifteen directors.
of directors gets nucleus position and their
A company may appoint more than fifteen
selection is according to the procedure
directors after passing a special resolution
prescribed lay down in the Act and the Articles
in general meeting and approval of Central
of Association.
Government is not required.
Since the Success of any company depends A period of one year has been provided
on the efficient functioning of its Directors, to enable the companies existing on or before
they can be called as eyes, ears, brain, hands, the commencement of Companies Act, 2013 to
nerves and other essential parts of a company. comply with this requirement.
The directors formulate policies and establish
organizational set up for implementing those General duties are not mentioned in the
policies, in order to achieve the objectives Companies Act and therefore are not
contained in the Memorandum of association obligatory for the directors to perform. Some
of the company. of them are mentioned below:
To act in good faith: The directors are expected
27.01 Meaning and Definition to act in good faith i.e. they should always act in
of Directors the best interest of the company. The directors
should not make any secret profits.
The person one who takes active interest
in the well being of a company and one of To act with utmost care: The directors should
the Members of Board of Directors is called conduct their work with utmost care. They
as Director of a company. A Director is a should act with prudence.

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Not to delegate work: The directors are (iii) the Company Secretary;
supposed to perform all their work by (iv) the Whole-time Director;
themselves. They are not expected to delegate (v) the Chief Financial Officer; and
their work to anyone else.
(vi) such other officer as may be prescribed;
However in the following cases the directors may Following Companies are required to appoint
choose to delegate the work to someone else: KMP
If it is permitted in the Companies Act or
in the Articles of Association.
If the directors cannot perform certain
work that demands specialized expertise, such
work can be delegated in such a case.

27.02 Key- Managerial
Personnel of a Company
Companies Act, 2013 (Act) has introduced
many new concepts and Key Managerial
Personnel (KMP) is one of them. KMP covers 27.03  Board of Directors
the traditional roles of managing director and The Governing body of a Company
whole time director and also includes some incorporated under Companies Act called
functional heads like Chief Financial Officer and Board. It is a group of individuals called
Chief Executive Officer and Company Secretary. directors, elected to represent the views of
shareholders of a public limited company and
to manage the company affairs by establishing
policies and implementing them to achieve the
goal. They are empowered to take decisions on
the major issues to lead the company in the right
way. In General the Board is empowered to

(i) Set the Policies

(ii) Restructure the objectives
(iii) Evaluate the performance of Managing
Director and Senior Executives.

WHO ARE THE KEY MANAGERIAL (iv) Exercise overall Direction

PERSONNEL ? (v) Adopt bylaws
The definition of the term Key Managerial (vi) Determine and pay the dividend
Personnel is contained in Section 2(51) of the
(vii) Issue additional shares.
Companies Act, 2013. This Section states:
In General, the Board is responsible for
(i) the Chief Executive Officer
assisting the company in setting broad goals,
(ii) the Managing Director or the Manager; supporting the management, ensuring the

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adequate resources available in the company Whole Time Director: A Director is one who
and its utilisation. devotes whole of his time of working hours to the
company and has a significant personal interest
COMPOSITION OF THE BOARD OF in the company as the source of his income.
DIRECTORS:
a)  General Optimum Combination: Managing Director: A Director is one who is
employed by the company and has substantial
Board of Directors shall have an optimum powers of management over the affairs of the
combination of executive and non-executive company subject to superintendence, direction
directors with at least one woman director and and control of the board.
not less than fifty percent of the board of directors
shall comprise of non-executive directors. Executive Director
An executive director is a  Chief
Executive  Officer (CEO) or Managing
Director of an organization, company, or
corporation, who is responsible for making
decisions to complete the mission and for the
success of the organisation. In the globalised
business world the title of President or of
Chief Executive Officer is used instead of
Managing Director.

b) When the non-executive Director is the Non - Executive Director

Chairperson: A non-executive director typically does
not engage in the day-to-day management of the
In this case, at least one-third of the board
organization, but is involved in policy making
of directors shall comprise of independent
and planning exercises. In addition, non-
directors and where the company does not have
executive directors' responsibilities include the
a regular non-executive chairperson, at least
monitoring of the executive directors and acting
half of the board of directors shall comprise
in the interest of the company stakeholders.
independent directors.

c) when the non-executive chairperson is a Difference Between Executive and Non-

promoter or is related to any promoter or Executive Director
person occupying management positions An Executive Director can be either
at the level of board of director or at one a whole-time Director of the Company or a
level below the Board of Directors: Managing Director. But a Non- Executive
Director is a Director who is neither a Whole-
In this case, at least one half of the board
time Director nor a Managing Director.
of directors of the company shall consist of
Independent Directors (ID).
A director is appointed to the Board of 27.04 Types of Directors as per
a Company. Such Directors have a different Companies Act 2013
role to play to attain the goal of the company.
According to their role they are differently 1.  Residential Director: – According to Section
classified in accordance with the provision of 149(3) of Companies Act 2013, Every company
the Companies Act 2013. should appoint a director  who has stayed in

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India for a total Period of not less than 182 days director on the Board. The following class of
in the previous calendar year. companies shall appoint at least one woman
2. Independent Director: According to director
Section 149(6) an independent director is (i) every listed company;
an alternate director other than a Managing (ii) every other public company having:
Director who is known as Whole Time Director (a) paid–up share capital of one hundred
Or Nominee Director. The following type crore rupees or more; or
of companies has to appoint minimum  Two
(b) turnover of three hundred crore rupees
independent directors:-
or more.
a) 
Public Companies which have Paid-up 6. Additional Directors: Any Individual can
Share Capital- ₹10 Crores or More; – be appointed as Additional Directors by a
b) Public Companies which have company.
Turnover- ₹100 Crores or More:-
7. Alternate Directors: Alternate director
c) 
Public Companies which have total is appointed by the Board of Directors, as a
outstanding loans, debenture, and substitute to a director who may be absent from
deposits of ₹50 Crores or More. India, for a period which is not less than three
3.  Small Shareholders Directors: Small months.  The appointment must be authorised
shareholders can appoint a single director in a either by the Articles of Association of the
listed company. But this action needs a proper company or by a passing a resolution in the
procedure like handing over a notice to at General Meeting. The alternative director is not
least 1,000 Shareholders or 1/10th of the total a representative or agent of Original Director.
shareholders. 8.  Shadow Director: A person who is not the
4.  Nominee Director: "A director nominated member of Board but has some power to run it
by any financial Institution in pursuance of can be appointed as the director but according
the provisions of any law for the time being in to his/her wish.
force, or of any agreement, or appointed by any
Government , or any other person to represent 27.05 Number of Directors
its interests”. Required
From the above,
Under section 149 (1) of the Companies Act,
a) 
should be nominated by any financial
2013 states that the requirement of Minimum/
Institution in pursuance of any law or in
Maximum Number of Directors in a Company
terms of an agreement entered into by the
company Minimum Number of Directors
b) could be appointed by the Government or a) Public Company: Every Public company
by any other person. shall have a minimum number of 3 directors
c) 
The person so appointed shall represent and
the interests of the organization /Institution b) Private company
which he represents. In case of One Person Company: The
5.  Women Director:   As per Section 149 (1) requirement of directors is one.
(a), there are certain categories according to Other Private Companies: The minimum
which there should be at least one woman as a requirement of Directors is two.
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Maximum Number of Directors: 27.06 LEGAL POSITION OF

A company can appoint maximum 15 DIRECTOR
fifteen directors out of which one must be
Directors are the persons duly appointed
resident of India and after passing special
by the Company to lead and manage its affairs
resolution in general meeting, the company can
and their legal position. At times they have
appoint more than fifteen directors, for which
to act as agents, managing partner, trustees,
the approval of Central Government is not
Employee, and Officer.
required.
Directors as Agents: A company as an artificial
Number of directorships: person, acts through directors who are elected
Under Section 165 of the Companies representatives of the shareholders and who
Act 2013 A person can hold the position of execute decision made for the benefit of
Directorship in different companies up to shareholders. Hence directors share a relationship
maximum of 20. The number of directorships of an agent and a principal with the company.
in public companies/ private companies that
are either holding or subsidiary company of a Example  1: XYZ is Chennai based
public company shall be limited to 10. Further private limited Company which has two
the members of a company may restrict above directors, Agi and Logu. The company
mentioned limit by passing a special resolution. wants to start its business operation in
If a person holds Directorship in more state of Karnataka and for that they need
than the limit specified above he/she has an office accommodation. Agi goes
to resign the excess, according to his / her to Karnataka and buys a property in
choice. Bangalore to house the office. Although
the purchase has been made by Agi the
If a person accepts an appointment as a property belongs to the company. Agi
director in excess of above mentioned limit is has just acted as an agent of the company.
punishable with a fine of not less than Rs. 5,000
but which may extend to Rs. 25,000 for every day Directors are appointed to lead the
after the first day for the period of Directorship company in relation to third parties. They can
hold by the person. enjoy the rights and privileges of an agent. There
is no personal liability on any contracts entered
REMEMEBER THAT by them, if it is within the powers stated in the
• Maximum limit on total number memorandum and articles of the company. If it
of directorship has been fixed at is not so they have personal liability.
20 companies and the maximum
number of public companies in Example  2: The same company due
which a person can be appointed as to negligence of its Directors fails to
a director shall not exceed ten. pay sales tax to the government. The
government files a case against the
• The members of a company may,
directors for the recovery of tax payable
specify any lesser number of
by the company. As the fault is that of
companies in which a director of
the directors, they are personally liable
the company may act as director by
for the payment of the taxes.
a special resolution.

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It is also considered that directors are not if a director accepts employment in the same
a full fledged agents of the company because company under a separate contract of service,
they are elected person but agents are appointed then, in addition to the directorship, he is also
persons. treated as an employee or servant of the company.
In other words, when the director is appointed
Directors as Managing Partners as whole time employee of the company, then
The management of company is vested in that particular director shall be considered as
the hands of many executives. So, the directors employee director or whole time director.
are virtuals managing partners and the Directors
elected by shareholders are like partners to the
Example  4: Gunalan is a director of
shareholders. However, substantial powers
a company who has also taken an
may be entrusted with the directors or to an
extra charge to act as a manager of the
outsider, such a person has to act under the
company. But as per the contract of
superintendence, control and direction of
service as a manager he is entitled to
the board of Directors. Therefore, unlike in a
receive a remuneration. Hence he is
partnership firm, no power can be delegated to
a director who also happens to be an
a single director as a managing partner.
employee of the company.
Directors as trustees
Directors are trustees of the company’s Directors as officers
money and property and they have to safeguard
“Officer” includes any director, manager
them and use them for the sake of the company
or key managerial personnel or any person in
and on behalf of the company. According to Law
accordance with the directions or instructions
of trust, the equitable ownership of the trust
the Board of Directors or any one or more of
property is vested with the beneficiary only,
the directors who is or are accustomed to act.
Hence directors cannot act as a full-fledged
Therefore Director is treated as officers of an
trustee.
company. Sometimes, they may be also liable
for punishments in form of penalties, under
Example  3: Eswar Company has two Companies Act, when the provisions of the Act
directors Deepa and Mani. The directors are not strictly complied with.
issue 1,000 shares to the public and
receive Rs.100 each per share from the
27.07 Appointment of Directors
shareholders as share application, share
allotment and share first call money.
under Companies Act 2013
However they themselves do not pay - Section 152
Rs.100 for each of the shares taken by Generally, in a public company or
them. This amounts to breach of trust a private company subsidiary of a public
and hence they are required to pay company, two-thirds of the total numbers of
Rs.100 each for the shares held by them. Directors are appointed by the shareholders and
the remaining one-third’s appointment is made
Directors as employees as per Articles and failing which, shareholders
shall appoint the remaining one-third.
Directors are professionals who manage
the company for the benefit of themselves and In a private company, which is not a
for the benefit of the shareholders. However, subsidiary of a public company, the Articles
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can prescribe the manner of appointment of First Director

any or all the Directors. In case the Articles are “First directors” mean those directors who
silent, the Directors must be appointed by the hold office from the date of incorporation of the
shareholders. company. The first directors are usually named
Any company which wants to follow the in the articles of association or are appointed by
principle of Proportional representation, the the directors.
Companies Act also permits the Articles to In the case of a One Person Company, an
provide for the appointment of two-thirds of individual being a member shall be deemed to
the Directors accordingly. be its first director until the director(s) are duly
Nominee Directors can be appointed by a appointed by the member in accordance with
third party or by the Central Government in the the provisions of Section 152.
event of oppression or mismanagement.
Appointment of Additional Director- Section
General provisions relating to appointment 161 (1)
of directors
The board of directors can appoint
1. Every director should be appointed by the additional directors, if such power is conferred
company in general meeting as per the on them by the Articles of Association. Such
provision of the Act. additional directors hold office only upto the
2. Director Identification Number is date of next annual general meeting or the
compulsory for appointment of director of last date on which the annual general meeting
a company. should have been held, whichever is earlier. A
3. Every person proposed to be appointed person who fails to get appointed as a director
as a director shall furnish his Director in a general meeting cannot be appointed as
Identification Number and a declaration Additional Director.
that he is not disqualified to become a
Appointment of Alternate Director- Section
director under the Act.
161 (2)
4. A person appointed as a director should
Section 161(2) of the Act allowed the
give his consent to hold the office of
followings:
director in physical form on or before
his appointment i.e., Consent to act as a (i) The Board of Directors of a company must
director of a company. be authorised by its articles or by a resolution
5. Company should file Form with the passed by the company in general meeting
Registrar of Companies mentioning for appointment of alternate director.
particulars of appointment of directors (ii) The person in whose place the Alternate
and Key Managerial Persons along with Director is being appointed should be
the Consent form signed by Directors, absent for a period of not less than 3 months
as an attachment within 30 days of the from India.
appointment of a director with necessary (iii) The person to be appointed as the Alternate
fee. Director shall be the person other than one
6. Articles of the Company may provide the holding any alternate directorship for any
provisions relating to retirement of the other Director in the Company.
all directors. If such provision relating to (iv) If it is proposed to appoint an Alternate
retirement are not made in the articles. Director to an Independent Director,
Provision in the Act will be applicable.
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it must be ensured that the proposed 1) A person shall not be capable of being
appointee also satisfies the criteria laid appointed director of a company, if the
down for Independent Directors. director is
(v) An alternate director shall not hold office (a)  Of unsound mind
for a period longer than that permissible
(b)  An undercharged insolvent;
to the director in whose place he has been
appointed and should vacate the office if (c) Has been convicted by a court for any
and when the original director in whose offence involving moral turpitude
place he has been appointed returns to and sentenced in respect thereof to
India. imprisonment for not less than six
(vi)
If the term of office of the original months
director is determined before original (d) Has not paid any call in respect of shares
director returns to India, any provision
of the company held by him, whether
for the automatic re- appointment of
alone or jointly with others.
retiring directors in default of another
appointment shall apply to the original, (e) 
An order disqualifying him for
and not to the alternate director. appointment as director has been passed
by a court in pursuance of section 203
27.08  Qualifications of Director
(f) He has been convicted of the offence
As regards to the qualification of dealing with related party transactions
directors, there is no direct provision in the under section 188.
Companies Act, 2013. In general, a director
shall possess appropriate skills, experience and (g)  He has not got the Director Identification
knowledge in one or more fields of finance, law, Number.
management, sales, marketing, administration,
research, corporate governance, technical 27.10  Removal of Director
operations or other disciplines related to the A Director of Company can be removed
company’s business. According to the different from his Office before the expiry of his term by
provisions relating to the directors; the following
qualifications may be mentioned: a) the Shareholders

1. A director must be a person of sound mind. b) the Central Government

2. A director must hold share qualification, if c) the Company Law Board

the article of association provides such.
A director can be removed from his
3. A director must be an individual.
office in any of the following three
4. A director should be a solvent person.
ways:
5. A director should not be convicted by the
Court for any offence, etc. a) Removal by shareholders 169
A company (whether public or private)
27.09 Disqualifications of a may, by giving a special notice and passing an
director ordinary resolution, remove a director before
Section 164 of Companies Act, 2013, has the expiry of his period of office without the
mentioned the disqualification as mentioned proof of mismanagement, breach of trust,
below:
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misfeasance or other misconduct on the part 27.11  Remuneration of Director

of the director. If the shareholders feel that
the policies pursued by the director are not Managerial Persons covered are
appropriate, then director can be removed. The Managing Director, Whole-time Director, Part
shareholders can do so by passing an ordinary time Directors and managers who shall be paid
resolution in a general meeting. remuneration in accordance with provisions of
Section 197 of the Companies Act, 2013.
b) Removal by the Central Government
Managerial Remuneration
The Central Government has been
empowered to remove managerial personnel The Managerial remuneration is payable to
from office on the recommendation of the a person's appointed u/s 196 of the Act. The Term
Company Law Board under the following remuneration means any money or its equivalent
circumstances. given or passed to any person for services
rendered by him and includes perquisites.
(i) Where a person concerned in the conduct
and management of the affairs of a company 1. Value of rent-free or concession accom­
has been guilty of fraud, misfeasance, modation
persistent negligence in carrying out his 2. Value any other items provided at free of
obligations. cost or at concessional rate. .
(ii) Where the business of a company has not 3. value of securities / sweat equity shares
been conducted and managed by such a allotted or transferred by the employer or
person, in accordance with sound business former employer to the employee.
principles or prudent commercial practices; 4. a contribution made by an employer to an
(iii) Where the business of a company has been approved superannuation fund.
conducted and managed by such a person 5. Value of any other fringe benefit or amenity.
in a manner which is likely to cause injury
6. Stock options would be part of remuneration
or damage to the interest of the trade,
for all directors.
industry or business.
Forms of Managerial Remuneration
(iv) Where the business of the company has
been conducted and managed by such 1. Based on Profit of the company
a person with the intent to defraud its 2. Based on Shareholders’ recommen­dations
creditors, members or any other persons. 3. Based on Shareholders’ and Central
c) Removal by the Company Law Board Government recommendations.

If an application has been made to the Remuneration Allowed to Managerial Person

Company Law Board against the oppression in case of Company’s having adequate profits:
and mismanagement of the company’s affairs
A Public Company can pay remuneration
by a director, then the Company Law Board
to its directors including Managing Director
may order for the termination of the director’s
and Whole-time Directors, and its managers
tenure or set aside any agreement that has been
which shall not exceed 11% of the net profit and
entered into between the company and the
it may also be noted, when a Company has only
director. Such order can effect the removal of
one Managing Director or Whole-time Director
the director from his office.
or manager the remuneration payable shall not
exceed 5% of net profits if it is more than one

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11% as calculated in a manner laid down in 27.12  Power of Director

section 198 of the Companies Act, 2013.
Directors should have a vision to frame
Maximum Remuneration Payable by a policies to achieve high level of performance.
Company to its Managerial Personnel To achieve high level of performance, they must
Remuneration Payable by a company set the goals of the company.  They must have
in case where is no profit or inadequacy of powers to carry on objectives of the company.
profit without Central Government and to pay The power of the Directors grouped into four
remuneration in excess of the above limit is different heads viz.,
detailed below: (i) Statutory Powers of Directors

Limit of yearly
(ii) Managerial Powers of Directors
Where Effective
Capital is
Remuneration payable (iii) Powers only with a resolution
shall not exceed (Rupees)
(iv) Other Powers
(i) Negative or less
₹30 lakh
than ₹5 Crore Statutory Powers of Directors
(ii) 
₹5 Crore and In the General Body Meeting of the
above but less ₹42 lakh Company the following powers must be
than ₹100 Crore exercised by the Board of Directors by passing
(iii) 
₹5 Crore and ₹60 lakh a resolution.
above but less
than ₹100 Crore (i) Power to make calls on shareholders in
(iv) 
₹250 Crore and ₹60 lakh plus 9.91% of respect of money unpaid on their shares 
above the effective capital in (ii) Power to issue debentures
excess of ₹250 Crore.
(iii) Power to borrow moneys otherwise than
Minimum  Remuneration  in    case of  Losses  on debentures
During the Tenure of Managerial Personnel (iv) Power to invest the funds of the company
The Approval of Central Government shall (v) Power to make loans
not be required in case of loss or inadequacy of (vi) Power to diversify the company business
profit during the tenure of Managerial Person. (vii) Power to approve amalgamation, Merger
or reconstruction
Remuneration  Payable to a   Managerial (viii) Power to approve Financial Statement
Person  in Two Companies and Board reports.
A managerial person shall draw
remuneration from one or more companies, Managerial Powers of Directors
provided that the total remuneration drawn (i) Power to contract with the third party.
from the companies does not exceed the higher (ii) Power to allot, forfeit or transfer shares of
maximum limit admissible from any one of company
the companies of which he/she is a managerial
(iii) Power to decide the terms and conditions
person.
to issue debentures.
(iv) Power to frame new policies and to issue
instructions for the efficient running of
the business.

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(v) power to appoint Managing Director, (ii) Right to receive notices of board meetings
Manager, Secretary of the company. (iii) Right to participate in proceedings and
(vi) power of Control and supervision of work cast vote in favour or against resolutions
of subordinates. (iv) Right to receive circular resolutions
proposed to be passed
Powers only with a resolution
(v) Right to inspect minutes of board
(i) To sell or lease any asset of the company meetings.
(ii) To allow time to the director for repayment
of the loan Collective rights are as follows
(iii) To borrow money in excess of paid up (i) Right to refuse to transfer shares:
Capital and free reserves Directors of private companies and
(iv) To appoint a sole agent for more than 5 deemed public companies are entitled to
years. refuse registration of transfer of shares to
(v) To issue bonus shares and for a person whom they do not approve.
reorganization of share capital (ii) Right to elect a Chairman: The directors
(vi) To contribute money for charitable are entitled to elect a chairman for the
purposes exceeding ₹50,000 or 5% of the board meetings.
average profits of 3 years whichever is (iii) Right to appoint a Managing director:
greater. The Board has the right to appoint the
managing director/ manager of the
Other Powers company.
(i) Power to fill casual vacancy (iv) Right to recommend dividend: The
(ii) Power to appoint the first auditor of the Board is entitled to decide whether
company dividend is to be paid or not. Shareholders
(iii) Power to appoint alternative directors, cannot compel the directors to pay
additional directors and Key managerial dividend. However they can reduce the
personnel. rate of recommended dividend. Payment
of dividend is the prerogative of the board
(iv) Power to remove Key managerial
personnel
(v) Power to recommend the Interim and
27.14  Duties of Director
final dividend to shareholders. Directors act as agents of the shareholders
(vi) Power to declare solvency position of the and act as a trustees of shareholders. Thus they
company. have a fiduciary duty to protect the property of
(vii) Power to make political contribution the company. Simply stated the following are
the duties of Directors.
27.13  Rights of Director Collective Duties of Directors: Directors as a
part of Board perform certain duties collectively. 
Rights can be categorized into individual
The following are some of those duties exercised
rights and collective rights.
collectively:-
Individual rights are such as
(i) Approval of  annual accounts and
(i) Right to inspect books of accounts  authentication of annual accounts

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(ii) Directors report to shareholders (vi) Duty to confirm the required disclosure
highlighting performance of the company, in the prospectus as required by the Act.
transfers to reserves, investment of (vii) Duty to sign in the prospectus before
surplus funds, borrowings submitting it to the Registrar of
(iii) Appointment of First Auditors Companies
(iv) Issuance of Notice  and Holding of Board (viii) Duty to deposit application money in
meetings and shareholders meetings a scheduled Bank and its utilisation in
(v) Passing of resolutions at board meetings accordance with the specification given
or by circulation. in the Act.
(ix) Duty to file Return of Allotment of
General duties of Directors: Securities with the Registrar.
(i) Structuring or new policy to reach the (x) Duty to arrange for making payment of
objectives of a company. Dividend declared.
(ii) Delegating power to any committee if (xi) Duty to forfeit and transfer shares.
the Articles Permits for well being of the (xii) Duty to file all the reports and resolutions
company as required by the Act with the Registrar
(iii) Issuing instructions to employees for of Companies.
implementation of policy to review (xiii) Duty to carry out all other activities as
company's progress. specified in the Act in time.
(iv) Appointing their subordinates like (xiv) Duty to call on an Extraordinary General
Managing director, Manager, Secretary Body Meeting, if necessary.
and other employees. (xv) Duty to call statutory and annual general
(v) Acting in accordance with the Articles of meeting of the company
the company
(vi) Act in Good faith in order to promote the 27.15  Liabilities of director
objects of the company
The liabilities of directors may be
(vii) Perform duties with due and reasonable
discussed under three heads:
care and diligence.

Specific Duties of Directors 1. Liability to outsiders:

(i) Duty to disclose his name, address and The directors are not personally liable to
occupation outsiders if they act within the scope of powers
vested in them. The general rule in this regard in
(ii) Duty to disclose his shareholding and
that wherever an agent is liable, those directors
interest in Contracts of the company.
would be liable, but where the liability would attach
(iii) Duty to hold minimum qualification to the principal only, the liability is the liability of
shares within two months after his the company. The directors are personally liable to
appointment. third parties of contracts in the following cases:
(iv) Duty to issue prospectus and fix the
a. They contract with outsiders in their
minimum subscription.
personal capacity
(v) Duty to take care that prospectus should
b. They contract as agents of an undisclosed
not contain any false or misleading
principal
statement.
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c. They enter into a contract on behalf of a 3. Criminal liabilities of directors:

prospective company. Directors will be liable with a fine and
d. When the contract is ultra-vires the imprisonment or both for fraud of non-
company. compliance of any statutory provisions in the
In default of statutory duties, the directors following situations where
shall be personally liable to third parties in the (i) There is mis-statement in Prospectus
following cases: (ii) There is failure to file return on allotment
with the registrar
1. Mis-statement in prospectus.
(iii) There is failure to give notice to the
2. Irregular allotment.
registrar for conversion of share into stock
3. Failure to repay application money if the
(iv) There is failue to issue share Certificate
minimum subscription is not received.
and Debenture certificate
4. Failure to repay application money if
(v) There is failure to maintain register of
allotment of shares and debentures is not
the members and register of debenture
dealt in on the stock exchange as specified
holders
in the prospectus.
(iv) There is default in holding Annual
2. Liability to company General Meeting
The directors shall be liable to the (vii) There is failure to provide Financial
company for in the following cases: Statements

(a) Where they have acted ultra-vires the 27.16 Directorial Register or

company
Register of directors and
For example, where they apply the funds
KMPs (Rule 17)
of the company to objects not specified in the
memorandum of association or when they pay In corporate law, the directors register
dividends out of capital. refers to a list of the directors elected by
the shareholders, generally recorded in the
(b) Where there is a breach of trust company's minute book. By law, companies are
Directors being the trustees of the required to keep this list up to date to remove
company, they should discharge their duties in those  directors  who are deceased or resign,
the best interest of the company; Where they and to add those who have been elected by the
commit a breach of trust resulting in a loss to shareholders.
the company, they are bound to make good the (1) Every company shall keep at its registered
loss. For example, where the directors of the office a register of its directors and key
companies utilise company’s property for their managerial personnel containing the
own benefit, they are guilty of breach of trust. following particulars, namely:—
(c) Misfeasance (i) Director Identification Number (optional
Directors are liable to the company for for key managerial personnel);
misfeasance. The word misfeasance covers (ii) present name and surname in full;
willful negligence. However mere failure on the (iii) any former name or surname in full;
part of the director to take necessary steps for
(iv) father’s name, mother’s name and spouse’s
recovery of debts due to the company does not
name(if married) and surnames in full;
constitute misfeasance.

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(v) date of birth; (iv) cumulative balance and number of

(vi) residential address (present as well as securities held after each transaction;
permanent); (v) mode of acquisition of securities;
(vii) nationality (including the nationality of (vi) mode of holding – physical or in
origin, if different); dematerialized form; and
(viii) occupation; (vii) whether securities have been pledged or
(ix) date of the board resolution in which the any encumbrance has been created on the
appointment was made; securities.
(x) date of appointment and reappointment Apart from the above the following Registers
in the company; must be available in the company Registrar
(xi) date of cessation of office and reasons Office:
therefor; 1. Register of loans, guarantee, security and
(xii) office of director or key managerial acquisition made by the company
personnel held or relinquished in any 2. Register of investments not held in its own
other body corporate; name by the company
(xiii) membership number of the Institute of 3. Register of contracts with related party and
Company Secretaries of India in case of contracts and Bodies etc. in which directors
Company Secretary, if applicable; and are interested
(xiv) Permanent Account Number (mandatory 4. Register of directors and key managerial
for key managerial personnel if not having personnel
DIN);
5. Register of details of securities held by
(2 In addition to the details of the directors or Directors and Key Management Personnel
KMPs, the company shall also include in the 6. Register of members
aforesaid Register the details of securities 7. Register of debenture holders/ other
held by them in the company, its holding securities holders
company, subsidiaries, subsidiaries of the
8. Notice of situation or change of situation or
company’s holding company and associate
discontinuation of situation, of place where
companies relating to—
foreign register shall be kept
(i) the number, description and nominal 9. Declaration by the registered owner of
value of securities; shares who does not hold the beneficial
(ii) the date of acquisition and the price or interest in such shares
other consideration paid; 10. Declaration by the beneficial owner who
(iii) date of disposal and price and other holds or acquires beneficial interest in
consideration received; shares but whose name is not entered in the
register of members

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27.17  Manager Vs Director:

BASIS MANAGER DIRECTOR

A person who is in charge for A person appointed by the

the particular department of shareholders to lead the company
a. Nature of work the Company and is responsible to achieve its goal is known as
for the performance of that Director
department is called as manager.
A manager allocates works to A director implements policies
the Subordinate according to and provides fundamental
their nature of appointment and guidelines to carry out a job
decided by whom the particular to the concerned manager and
b. Nature of work
job has to be done and provide direct them to work accordingly.
necessary guidelines regarding
what to do, when to do and how
to do.
A manager comes under executive Directors comes under Top-level
c. Level of management level i.e at the Middle-level management and play important
management role in Decision making.
Managers are responsible for Directors responsible for
implementation of plans and formulation of plans and policies
d. Responsibility
policies approved by the Board of time to time to achieve the goal of
Directors the company.

27.18 Managing Director Vs Whole time Director

Differentiate between managing director and whole-time directors of a company.

BASIS MANAGING DIRECTOR WHOLE-TIME DIRECTOR

Managing Director is entrusted with The Power is stated in the term of

1. Power employment.
substantial powers.
Section 197 Prohibits to act both a Sometimes a whole-time director
2. Prohibition managing director and a manager may be appointed as manager and
simultaneously. director of a company.
Consent of the shareholders of the Consent of shareholders of the
company by means of resolution is company by a special resolution is
3. Appointment
not necessarily for the appointment of must for the appointment of a whole-
managing director time director
No individual can be appointed for There is no such restriction regarding
4. Duration of
more than five years at a time. the appointment of a whole-time
Appointment
director.

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6. Under the companies Act, which one of the

Key words
following powers can be  exercised by the
Board of Directors Management Board of Directors?
Managers Managing Director (a) Power to sell the company’s undertakings.
Promoter (b) Power to make call.
(c) Power to borrow money in excess of the
paid up capital.
(d) Power to reappoint an auditor.
Exercise 7. Which director need not hold qualifying
shares.
(a)  
Directors appointed to Central
I.  Choose the Correct Answer: Government
1. A person Shall hold office as a director in (b) Directors appointed to Shareholders.
________ companies as per the Companies (c)  
Directors appointed to Managing
Act, 2013. Director
(a) 5 companies (b) 10 companies (d)  
Directors appointed to Board of
(c) 20 companies (d) 15 companies Directors

2. Which _________ Director is appointed by 8. What is the statue of Directors who regulate
a Financial institution. money of the company.

(a) Nominee (b) Additional (a) Banker (b) Holder

(c) Women (d) Shadow (c) Agent (d) Trustees

3. A Private Company shall have a minimum 9. According to Companies Act, the Directors
of ________. must be appointed by the.

(a) Seven directors (b) Five directors (a) Central Government

(c) Three directors (d) Two directors (b) Company Law Tribunal

(c) Company in General Meeting
4. A Public Company shall have a minimum of
(d) Board of Directors.
________ Directors.
10. The Board of Directors can exercise the
(a) Twelve (b) Seven
power to appoint directors in the case of.
(c) Three (d) Two
(a) Additional Directors
5. A Public Company having a paid up Share
(b) Filling up the Casual vacancy
Capital of Rs. ___________ or more may
(c) Alternate Directors
have a Director, elected by such small
(d) All the above.
shareholders.
(a) One (b) Three Answers:
(c) Five (d) Seven
1 c 2 a 3 d 4 c 5 c 6 b 7 a 8 d 9 c 10 d

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II.  Very Short Answer Questions:

As the salary of an average
1. Define Director. Indian CEO at top listed private
2. Name the companies required to appoint companies is doubling from Rs.
KMP. 10 crore to Rs. 20 crore in just two years,
it’s bound to trigger interests as we hope
3. Who is whole time Director?
for a legitimate raise in our paychecks this
4. Who is called as Managing Director? year. The analysis of CEOs salaries in top
5. Who can be Executive Director? listed companies for FY 2015-16 shows that
the average remuneration paid to the top
III.  Short Answer Questions: executives was approximately Rs. 19 crore.
The payment includes their salary,
1. Differentiate Executive and Non-Executive commissions, allowances, value of all
Directors. prerequisites and ESOPs (Employee Stock
2. When are alternative directors appointed ? Ownership Plans) exercised during the year
and all other benefits.
3. Who is a shadow director?
4. What is causal Vacancy?
Wouldn’t it be interesting to know who are
5. State the minimum number of Directors for these highest paid CEOs in India?
a Private company.
Annual
Name Salary in Company Name
IV.  Long Answer Questions: Crores
1. Who are the KMP? M. Naik Rs. 66.14 L&T
2. Explain composition of the board of Vishal Sikka Rs. 48.73 Infosys
directors. Desh Bandhu
Rs. 44.80 Lupin Ltd.,
3. Brief different types of Directors. Gupta

4. State the qualification of Directors. Chandrasekaran Rs. 25.60 TCS

5. List the disqualification of a directors. Rahul Bajaj Rs. 22.32 Bajaj Group
Yogesh Chander
6. Explain how director of a company can be Rs. 15.15 ITC Ltd.,
Deveshwar
removed from the office.
Mukesh Ambani Rs. 15.00 RIL,
7. What is the maximum limit for the
Managerial remuneration? Hindustan
Sanjiv Mehta Rs. 13.87 Unilever
8. What are the duties of a directors? Ltd.,
9. State the powers of the directors. Abidali
Rs. 11.96 Wipro
Neemuchwala
10. State the Criminal liabilities of Directors.
Gopal Vittal Rs. 10.40 Bharti Airtel

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COMPANY LAW AND

UNIT MANAGEMENTPRACTICE
SECRETARIAL PROCESS
10
I

28
1
CHAPTER
PRINCIPLES
COMPANY OFSECRETARY
MANAGEMENT

அறனறிந்து ஆன்றைமந்த ெசால்லான் எஞ்ஞான்றுந்

திறனறிந்தான் ேதர்ச்சித்துைண.
-குறள் 635
COUPLET
He is the best helper (of the king) who understanding the
duties, of the latter, is by his special learning, able to tender
the fullest advice, and at all times conversant with the best
method (of performing actions).

25.03 Appointment of Company Secretary

Learning Objectives
25.04 Functions/ Duties of Company
To enable the students to understand the Secretary
■ Meaning and Definition of company 25.04.01 Statutory Functions
secretary 25.04.02 Non-Statutory Functions
■ Qualifications of the Secretary
25.05 Powers and Rights of Company
■ Appointment and Dismissal Secretary
■ Functions of Company secretary
25.06 Removal / Dismissal of Company
■ Rights and L iabilities
Secretary
■ Company Meetings –Meaning and
Types 25.07 Company Meetings
■ Resolutions – Meaning and Types 25.08 Kinds of Company Meetings
■ Voting – Meaning and Methods
25.08.01 Shareholders Meetings
25.08.02 Meeting of the Board of
Directors
25.08.03 Special Meeting
Chapter Synopsis
25.09 Resolution 
25.01 Company Secretary 25.09.01 Kinds of Resolution
25.02 Qualifications of Company Secretary 25.10 Voting
25.02.01 Statutory Qualifications 25. 10.01 Features of Voting
25.02.02 Other Qualifications

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25.10.02 Types of Votes According to explanation from Oxford

25.10.03 Procedures of Voting Dictionary, “a secretary is a person who is
I. Open Procedure employed to conduct correspondence on
II. Secret Procedure behalf of an individual or a company and
also to execute filing, documentation and
25.01 Company Secretary administrative functions”.

A company is an artificial being, though

a company is a legal entity; it has no physical 25.02 Qualifications of
personality such as neither a mind nor body of Company Secretary
its own. Though not visible, company having Since the
an image or appearance exists only with its amendment of the
rules and by laws. Any company cannot act by Companies Act in
itself; it needs one or group of people to operate 1994, only a person
it. Besides operating the company there are having prescribed
numbers of functions holding responsibility qualifications can be
and need to take care such as directing the appointed secretary
work force towards productivity, managing the of a company. Apart
smooth functioning, supervising the overall from the statutory
performance of the company. The person who qualifications, he should also have other
is responsible for the general performance of qualifications as may be necessary to conduct
an organization is called company secretary. the affairs of the company.
The Key Managerial Personnel (KMP) who
run a company is called with different titles viz,
directors, managers, or secretary.
The word secretary has originated in
Latin. The Latin word ‘Secretarius’ which
means secret. As we know secret refers to
something, which is not disclosed and kept as
confidential. Some Information should be kept
very confidential in all the companies. Hence, a
person is appointed to perform activities which
are confidential in nature and manage the day-
to-day business of the company. The person who
steers the company holding the administrative,
financial, and overall performance of the
company is called company secretary.
25.02.01 Statutory Qualifications
According toSection 2(24) of the Companies According to Section 2(45) of the
Act, 2013 defines “Company Secretary” or Companies Act 2013, a Company Secretary
“Secretary” means any individual possessing must possess the qualifications prescribed by
the prescribed qualifications, appointed to the Central Government from time to time.The
perform the duties which may be performed qualifications prescribed by the Companies
by a secretary under this Act and any other Secretary’s Qualifications) Rules 1975, for the
ministerial or administrative duties”. Secretary of a Company are:

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must be smart, unbiased, and must have high

IQ, besides presence of mind and amiable
personality. Having reasonable proficiency
in speaking and writing in different regional
languages is an added qualification of a
secretary. Beside Company Secretary should
have a thorough knowledge of company law,
mercantile law, economic law, labour law,
Accounting and Office management.

A (i) In case of a company having a paid-

up share capital of ₹5 crore or more,
the Secretary must be a member of the
Institute of Company Secretaries of India
incorporated under the Companies Act,
1956, and licensed under Sec. 25 of that
Act.
(ii) A person who is a member of the Institute
of Chartered Secretaries of London
shall also be eligible for appointment as
Secretary of such a company. 25.03 Appointment of Company
(B) In the case of any other company, one or Secretary
more of the following qualifications shall As per section 2(24), 203, 204 of Companies
have to be possessed by the Secretary: Act 2013 the provisions regarding appointment
(i) Qualifications specified in clause (a) of company secretary are Every listed Company
above; must have full-time Company Secretary.
(ii) A degree in law granted by any university. Every unlisted company and every private
(iii) Membership of the Institute of Chartered company having a paid up capital of ₹5 crore or
Accountants of India. more must also have a full time secretary.
(iv) Membership of the Institute of Cost and Only an individual who is a member of
Works Accountants of India. institute of company secretaries of India can be
(v) A post-graduate degree or diploma in appointment as a company secretary.
Management or Commerce granted by a) By the Promoters: The first secretary of a
any university or the Indian Institute of company is appointed by the promoters at pre-
Management. incorporation stage and such name is mentioned
(vi) A diploma in Company Law granted by in the Articles of Association.
any Indian Law Institute.
b) By the First board of Directors: After the
25.02.02 Other Qualifications company has been registered, the first board of
Statutory qualifications are not enough directors appoints the secretary at the first board
to become a company secretary. The Secretary meeting. The board of directors can continue

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the existing secretary appointed by promoters (v) To sign and send annual return
or can appoint a new company secretary. (vi) To make a statutory declaration for
receiving certificate of commencement of
business
25.04 Functions/ Duties of
(vii) To send notice of general meeting to every
Company Secretary
member of the company
Functions of the Company Secretary may be
(viii) To make statutory books
discussed under two headings:
(ix) To prepare minutes of every general
(i) Statutory Functions or Duties and (ii) meeting and board meeting within 30
Non-statutory Functions or Duties. days
(x) To file a resolution with the registrar
(xi) To assist in preparing the statement of
affairs in a winding up

Under the Income-tax Act: He is responsible for

deduction of requisite income tax from salaries
of employees, dividends and interests payable.
He has to ensure that the tax deducted is
deposited at government treasury. Secretary has
to submit and verify various forms for timely
filing of income tax returns to the authorities in
accordance with the law. He has to see that the
certificate of Tax Deducted at Source (TDS) is
issued to every employees and shareholders.

Under Indian Stamp Act: The company

25.04.01 Statutory Functions secretary has to ensure that whether proper
As the principal officer of the company, the stamps are affixed on the company’s documents
secretary must observe all the legal formalities like letter of allotment and share certificate
in respect of the provisions of the Companies or not. He is also complying with Minimum
Act and other laws (e.g., Income-tax Act, Stamp Wages Act, Industrial Disputes Act, Employee
Act, Sales-tax Acts, etc.) which have a bearing State Insurance Act etc.
on the activities of the company. Under the Sales-Tax Act: He must ensure
According to Companies Act 2013 timely submission of tax returns to the Sales-tax
authorities and payment of tax.
(i) To sign document and proceedings
requiring authentication by the company Under Other Acts: He must see that the
(ii) To maintaining share registers and register provisions of any other Act applicable to the
of Directors and of contracts company, e.g., Foreign Exchange Regulation
(iii) To give notice to register for increase in Act, Industries (Development and Regulation)
the share capital Act, and Rules, are also complied with. Where
the company is carrying on manufacturing
(iv) To deliver share certificate of allotment
business, he must also comply with the
within 2 months after transfer
provisions of the Factories Act, Payment of

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Wages Act, Industrial Disputes Act and other 3. Functions in Relation to Office and Staff
labour laws. The Secre­tary is the kingpin of the whole
corporate machin­ ery. He is responsible for
25.04.02  Non-Statutory Functions
smooth functioning of the office work. He
Secretary has to discharge non-statutory exercises an overall supervision, control and
functions in relation to directors, shareholders co-ordination of all clerical activities in the office.
and office and staff. These functions are briefly
mentioned. 25.05 Powers and Rights of
(1) Functions as agent of directors; Company Secretary
(2) Functions towards shareholders;
Signing
(3) Functions towards office and staff.

1. Functions in Relation to Directors

A company secretary acts under the full
control of the board of directors and carry out
the instructions of the directors. The secretary
provides necessary advice and information
to the board to formulate company policy and A Company secretary is a high level
arrive at decisions. It is the secretary’s duty to officer. He enjoys certain rights and power as
implement the decisions taken by the board of per contract made with the company, which are
directors. as follows:
The duties of the secretary includes a) Supervision and Control: As a head of the
arranging board meetings, issuing notice and office, a company secretary has the rights
preparing agenda of such meetings, recording to supervise, direct and control all office
the attendance of the direc­tors and the minutes activities of subordinate offices.
and resolutions of the meeting in consultation
b) Singing authority: Being a principal officer,
with the Chairman. He maintains all important
a company secretary can sign contracts,
correspond­ence, files, documents and records
proceedings of the company meeting, files
in the board office.
and documents on behalf of the company.
2. Functions in Relation to Shareholders c) Exercising power:  He has the right to
exercise powers as granted by board of
The company secretary must serve in the
directors.
best interests of the shareholders. He also must
safeguard the shareholders’ interest. Under d) Issuing testimonial:  A company secretary
the Companies Act 2013, secretary should act can issue testimonials to employees on
as link between the board of directors and the behalf of the company.
shareholders and also ensure that the shareholder’s e) Claiming salary and damages:  As per
rights are violated. He has to arrange the issue contract, he has the right to claim his salary
allotment letters, call letters, letters of regret, and other allowances. He can also take legal
share certificates, share warrants to Shareholders. action against the company if there is any
Besides he has to issue notices and agenda of all breach of contract. Before his services are
meeting of shareholders and also send replies to terminated, he can demand a reasonable
the inquiries and complaints of the shareholders notice and claim damages for his wrongful
on behalf of the board of directors.
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dismissal. dealt with at the meetings, should be validly

f) Preferential creditor:  During winding up transacted and not liable to be questioned later
of a company, company secretary can claim due to any irregularity.
his legal dues on a preferential basis.
g) Attending meeting: He has the right to be 25.08 Kinds of Company
physically present in the meetings of the Meetings
shareholders and board of directors. Under the Companies Act, 2013,
Company meetings can be classified as under:
25.06 Removal / Dismissal of
Company Secretary 1.  Meetings of Shareholders:
In accordance with the law governing (a) Statutory Meeting
relationship between a master and servant, (b) Annual General Meetings (AGM)
company secretary may be dismissed like an (c) Extraordinary General Meetings (EGM)
ordinary servant of a company. The Board of
directors of a company has absolute discretion 2. Meetings of the Directors
to remove a company secretary or to terminate (a) Board meetings
his services at any time for any reason or (b) Committees meetings
without any reason. Generally secretary may be
terminated under the following situations: 3. Special Meetings
(a) Class Meetings.
1. when his term of appointment has expired;
(b)  
Creditors and of Debenture/bond
2. when he is given a proper notice of
holders meetings
dismissal as per the terms of agreement of
employment; The following picture shows the different
types of company meetings
3. when he makes a secret profit;
4. when he misconducts himself ;
5. where he is found to be guilty of moral
turpitude, negligence, disobedience,
incompetence.
6. where he suffers from permanent mental
and physical disabilities.

25.07  Company Meetings

25.08.01  Shareholders Meetings

The meeting held with the shareholders
of the company is called shareholders meeting.
The shareholders meeting can be classified as
A company meeting must be convened statutory meeting, annual general meeting and
and held in perfect compliance with the various extra ordinary general meeting.
provisions of the Act and the rules framed
thereunder. It is essential that the business
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a)  Statutory Meeting 25.08.02 Meeting of the Board of

According to Companies Act, every Directors
public company, should hold a meeting of Since the administration of the company
the shareholders within 6 months but not lies in the hands of the board of directors, they
earlier than one month from the date of should meet frequently for the proper conduct
commencement of business of the company. of the business and to decide policy matters of
This is the first general meeting of the public the company.
company is called the Statutory Meeting. This
meeting is conducted only once in the lifetime a) Board Meetings
of the company. A private company or a public Meetings of directors are called Board
company having no share capital need not Meetings. Meetings of the directors provide a
conduct a statutory meeting. The company platform to discuss the business and take formal
gives the circular to shareholders before 21 days decisions. First meeting of directors should be
of the meeting. convened within 30 (Thirty) days from the date
of incorporation of the company.
b)  Annual General Meeting [AGM]
Every year a meet­ing is held to transact b) Committee Meetings
the ordinary business of the company. Such Every listed company and every other
meeting is called Annual General Meeting of public company having paid up share capital of
the company (AGM). Company is bound to ₹10 crore is required to have audit committee.
invite the first general meeting within eighteen This committee should meet at least four times
months from the date of its registration. Then in a year. In case of other companies, the board
the general meeting will be held once in every of directors shall nominate a director to play the
year. The differences between two general role of audit committee which is functioning
meetings should not be more than fifteen as a vigil mechanism.
months. Every Annual General meeting shall
be held during business hours, on a day which 25.08.03  Special Meeting
is not a public holiday, at the Reg­istered Office
of the company or at some other place within a) Class Meeting (Meetings of Particular Share
the town or village where the Registered Office or Debenture Holders)
is situated. AGM should be conducted by both Meetings, which are held by a particular
private and public Ltd companies. class of share or debenture holders e.g.
preference shareholders or debenture holders is
c)  Extra-Ordinary General Meeting known as class meeting. The debenture holders
Both Statutory meeting and annual of a particular class conduct these meetings.
general meetings are called as ordinary These meetings are held according to the
meetings of a company. All other general rules and regulations laid by the Trust Deed or
meetings other than statutory and annual Debenture Bond, from time to time, where the
general meetings are called extraordinary interests of the debenture holders play vital role
general meetings. If any meeting conducted in at the time of re-organisation, reconstruction,
between two annual general meeting to deal amalgamation or winding-up of the company.
with some urgent or special or extraordinary
na­ture of business is called as extra-ordinary
general meetings.

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b)  Meetings of the Creditors (vii) To increase or decrease the number of

Strictly speaking, these are not meetings directors within the limits prescribed
of a company. Unlike the meetings of a company, (viii) To remove a director and appoint another
there arise situation in which a company may director in his place
wish to arrive at a consensuses with the creditors (ix) To make inter corporateinvestment,
to avoid any crisis or to evolve compromise or within the limits
to introduce any new proposals. (x) To approve voluntary winding up if the
articles authorise
25.09 Resolution  (xi) To fill up the vacancy in the office of
As per the Companies Act 2013, for taking liquidator, etc.,
any decision or executing any transaction,
the consent of the shareholders, the Board b)  Special Resolution
of Directors and other specified is required. A special resolution is the one which
The decisions taken at a meeting are called is passed by a not less than 75% of majority.
resolutions. In other words a motion, with or The number of votes, cast in favour of the
without the amendments which is put to vote at resolution should be three times the number of
a meeting and passed with the required quorum votes cast against it. The intention of proposing
becomes resolution. a resolution as a special resolution must be
specifically mentioned in the notice of the
25.09.01  Kinds of Resolution general meeting.
There are broadly three types of
Special Resolution is required for the following
resolutions, namely ordinary resolution, special
Matters
resolution and resolution requiring special
notice. (i) To change the registered office of the
company from one state to another
a)  Ordinary Resolution: (ii) To change the objectives of the company
An ordinary resolution is one which (iii) To change the name of the company
can be passed by a simple majority. i.e. if the (iv) To alter the Articles of Association
members of votes cast by members, entitled to
(v) To reduce the share capital subject to the
vote in favour of the resolution is more than the
confirmation of the court
votes cast against the resolution.
(vi) To commence any new business
Ordinary Resolution is required for the (vii) To appoint the auditor for the company
following Matters (viii) To appoint the sole selling agents in
(i) To change or rectify the name of the specified cases
company (ix) To determine the remuneration of the
(ii) To alter the share capital of the company Director and the Managing Director
(iii) To redeem the debentures
c)  Resolution requiring Special Notice:
(iv) To declare the dividends
There are certain matters specified in the
(v) To approve annual accounts and balance Companies Act, 2013 which may be discussed
sheet at a general meeting only if a special notice is
(vi) To appoint the directors given at least 14 days before the meeting.The

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intention to propose any resolution must be (a) By Voice:

notified to the company. The following matters Voice voting
require special notice before they are discussed is a popular type of
in the meeting:- voting in which the
(i) To appoint an auditor, a person other than chairman allows
a retiring auditor the members to
(ii) To provide expressly that a retiring raise their voice
Auditor shall not be reappointed in favour or against an issue ‘Yes’ for approval
and ‘No’ for rejection. Chairman announces the
(iii) To remove a director before the expiry of
result of voice voting on the basis of strength
his period of office
of words shouted. It is an unscienfic method. It
(iv) To appoint a director in the place of a cannot be employed for deciding complex issue.
director so removed
(b) By Show of Hands:
25.10 Voting Under this method the chairman, requests
The word the members to raise their hands of those who
‘Vote’ originated in are in favour of the proposal or candidate and
Latin word ‘Votum’ then requests those are against. Then the
indicating one’s wishes chairman counts the number of hands raised
or desire. By casting for Yes and No respectively can announce the
his vote one formally result on the basis of hands counted.
declaring his opinion or wish in favour of or
against a proposal or a candidate to be elected II. Secret Procedure
for an office. The proposals passed across the Secret procedure is adopted to decide
table of any company depend mainly on the certain vital issues. It is a popular voting method
votes cast by the board of directors. Every that could maintain the secrecy of the voter.
motion or proposal is subject to the approval
of the majority of the members or shareholders a) By Ballot
can cast their votes only on the occasions in Under this
which they want establish their rights according system, ballot
to the section 47 of the company Act, 2013. paper bearing
serial number
25.11 Procedures of Voting is given to the
members to record their opinion by marking
There are two distinct procedures of voting
with the symbol or Shareholders have to cast
viz., Open and Secret procedures.
their vote in a secret chamber and put the
I. Open Procedure ballot paper into the ballot box. The chairman
This type of voting has no secrecy as the opens the ballot box in the presence of tellers or
all the members assembled can see voting. There scrutinizers and counts the votes. He rejects the
are two popular methods of open voting namely defective or wrongly marked ballot papers. The
voice voting and voting by show of hands. votes are counted and the results are announced.

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b) Postal Ballot
B i g Case Study
companies or big
associations having 1. Mr R, as the secretary of the Muraliviki
members scattered Co., signed a letter to its bank,
all over the country forwarding a ‘resolution' of the board of
follow this method of voting. Under this method directors. The resolution named three
serially numbered ballot papers are sent by post directors and instructed the bank to
in sealed covers to the members,who, living at a pay cheques signed by any two of them
distant place, are unable to attend the meeting and countersigned by the secretary.
physically. The members or voters fill in the Specimen signatures were attached. The
ballot papers and return them in sealed covers instruction was entirely in accordance
which are opened when the ballot box is opened with the company's memorandum and
for counting the votes. articles. However, there had never been
any proper appointment of directors or a
Poll: Poll means tendering or offering secretary by the company. Those who had
vote by ballot to a specially appointed formed the company had assumed their
officer, called the polling officer. roles. Following the letter, the bank had
Under the Companies Act, poll means honoured cheques in accordance with
exercising voting right in proportion to the instructions contained in the letter.
shareholder’s contribution to the paid- The question was, whether, the company
up capital of a limited company having was bound by the cheques. Comment.
a share capital.
2. A contract between Muthumani Ltd and
Mr. V, one of its director is referred to a
general meeting for its approval. At the
Key words meeting, Mr. V voted for the resolution
and all others against it. But as V held
Secretary Meetings Committee
majority of shares and was entitled to
Motion Resolution majority of votes, the resolution was
passed. Is the contract binding on the
company?

For Future learning

1. Study the websites which are
related to company functions
www.bseindia.com

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7. From the date of its incorporation the First

Annual General Meeting is to be conducted
Exercise within __________ months.
(a) Twelve (b) Fifteen
(c) Eighteen (d) Twenty one
I.  Choose the Correct Answer: 8. What percentage of shareholders is needed
1. Mention the status of a Company Secretary to pass special resolution?
in a company. a) It must be unanimous
a) A member b) Not less than 90%.
b) A director c) Not less than 75%.
c) An independent d) More than 50%.
d) An employee contractor 9. A special resolution must be filed with the
2. Who can become a secretary for a company? Registrar within
a) Individual person a) 7 days b) 14 days
b) Partnership firm c) 30 days d) 60 days
c) Co-operative societies 10. A special resolution is required to
d) Trade unions a) redeem the debentures
3. Which meeting will be held only once in the b) declare dividend
life time of the company? c) appoint directors
a) Statutory d) appoint auditor
b) Annual General
Answers:
c) Extra - ordinary
1 d 2 a 3 a 4 c 5 c
d) Class General
6 b 7 b 8 c 9 c 10 d
4. Board Meetings to be conducted minimum
__________ times in a year. II.  Very Short Answer Questions:
a) 2 b) 3 1. Who is a Secretary?
c) 4 d) 5 2. Define Meeting?
5. Who is not entitled to speak at the annual 3. What is Resolution?
general meeting of the company. 4. Write short note on ‘Proxy’?
a) Auditor b) Shareholder 5. What is Vote?
c) Proxy d) Directors
III.  Short Answer Questions:
6. Mention the company which need not
1. What is Special Resolution?
convene the Statutory Meeting.
2. What do you mean by Statutory Meeting?
a) Widely held public
3. What do you understand by ‘Poll’?
b) Private Limited
4. Give any three cases in which an ordinary
c) Public Limited resolution need to be passed.
d) Guarantee having a share capital 5. What resolution is requires special notice?

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IV.  Long Answer Questions: 5. Explain different types of open and secret
types of voting.
1. Elaborate the functions of the Company
Secretary
2. Discuss the liabilities of Company Secretary. Stakeholders of the company
include shareholders, employees,
3. Briefly state different types of company
customers, suppliers, financiers,
meetings.
governments and the society.
4. Describe the different types of resolutions
which company may pass with suitable
matters required for each type of resolution.

Specimen Notice of Statutory Meeting

NITHILAN MANUFACTURING LIMITED
Regd. Office Address

Notice is hereby given that the statutory meeting of the company will be held at the registered office
of the company at ______ on ______ 2018 at ______ a.m./p.m. for considering the statutory report
and for conducting any other business which ought to be considered at that meeting.'
Please find enclosed a copy of the statutory report.
By order of the board
for Nithilan Manufacturing Limited
Date:
Place
Note:
A member entitled to attend and vote at the meeting is entitled to appoint one or more
proxies to attend and vote instead of him and a proxy need not be a member. The instrument
appointing a proxy should be deposited at the registered office of the company not less than
48 hours before the commencement of the meeting.

Specimen of Resolution for QUORUM

Appointment of Secretary
There is another requirement
“Resolved that the appointment of of quorum. A single person does not
ShriJayabharathi who possesses the requisite contain a meeting so it has to be seen
qualifications under the Companies that the required number of people are
(Appointment and Qualifications of present. Requisite number of person at
Secretary) Rules, 2013 be and is hereby, the meeting is called as quorum.
confirmed as secretary of the company; on
a salary of Rs. 55,000 per month exclusive of
allowances, the appointment being subject
to three months’ notice of termination on
either side.

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PROXY
Proxy means a person being the representative of a shareholder at the meeting of the
company who may be described as his agent to carry out which the shareholder has himself
decided upon. Proxy can be present at the meeting and he cannot vote.

Specimens of some Special Resolutions of General Meetings

1) Alteration of the name of the company.
“RESOLVED that the name of the Company be, and is hereby, altered from Vijaiya Limited to
Vijayalakshmi Limited and that the Central Government be Informed accordingly to secure
its consent to such alteration.”
2)  Reduction of share capital.
“RESOLVED that the capital of the Company be reduced from ₹1,00,000 divided into 1,000
fully paid Equity Shares of ₹100 each to ₹50,000 divided into 5000. Shares which have been
subscribed and by reducing the nominal value of each share of ₹100 each to ₹10 each fully
paid.”

Specimen of Proxy form

ABISHNAVI COMPANY LTD
Registered Office: 45 Cuddalore Road, Chidambaram

I/We ______ of ______ in the district of ______ being a member/members of the above named
Company hereby appoint--------in the district of--------or failing him______of______in the district
of______as my/our proxy to vote for me/us on my/our behalf at the 25th Annual General Meeting
of the Company to be held at 3 p.m. on Monday, the 12th July 2018 and at any adjournment thereof.

1 Rupee
Revenue
Stamp

Signed this ______ day of ______ 2018

Signature _____________
Address _____________

N.B. (i) The proxy need not be a member.

(ii) The proxy form duly signed and stamped should reach the Company’s office at least
48 hours before the time of the meeting.

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References 4. Company Law - Dr. S.R. Myneni - Asia Law

Company Law and Secretarial Practice Dr. G.K. House Publishers.
Varshney -SahityaBhawan Publications. 5. Company Law and Secretarial Practice
1. Company Meetings - KR Chandratre - Dr. PMS .Abdul Gaffoor and Dr.S.
LexisNexis India Publications. Thothadrivijay Nicole imprints private
limited.
2. Company Law and Secretarial Practice by J.
Santhi  - Margham Publications. 6. Company Law and Secretarial Practice
– N.D.Kapoor – Sultan chand& Sons
3. Secretarial Practice - M C Kuchhal – Vikas
Publications.
Publishers.

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GLOSSARY
Administration நிர்வாகம் Consumerism நுகர்வோரியல்
Application விண்ணப்பம் Consumption நுகர்வு
Appraisal மதிப்பிடல் Content Marketing கருத்து சந்தை
Aptitude திறனாய்வு Contingent நிகழ்தகவு
Assignability உரிமை மாற்றம் Contribution பங்களிப்பு
Assurance அறுதியிடல் Control கட்டுப்படுத்துதல்
Attitude அணுகுமுறை Co-ordination ஒருங்கிணைப்பு
Auctioning ஏலமிடுகை Crossing கீறலிடுதல்
Bearer க�ொணர்பவர் Debentures கடனீட்டுப் பத்திரம்
Bills of Exchange மாற்றுச் சீட்டு Debt Market கடன் சந்தை
Blank வெற்று Decision-Making முடிவெடுத்தல்
Board of Directors இயக்குநர் குழுமம் புறத்தோற்றமற்ற பத்திரக்
Demat-account
Bonus shares மிகையுதிய பங்குகள் கணக்கு
Brokers தரகர்கள் Dematerialization மின்பொருளாக்கம்
Capital Market மூலதனச் சந்தை Demography மக்களியியல்
முதலாளித்துவ Depository வைப்பகம்
Capitalistic Economy
ப�ொருளாதாரம் Determined தீர்மானித்தல்
Cash memo ர�ொக்க குறிப்பு Development மேம்பாடு
Cash receipt ர�ொக்க ரசீது Director இயக்குநர்
வாங்குவ�ோரே விழித்திரு Directorial Register இயக்குநரக பதிவேடு
Caveat Emptor
தத்துவம் Dishonour அவமதிப்பு
விற்பனையாளரே Distribution பகிர்வு
Caveat venditor
விழித்திரு தத்துவம் District Forum மாவட்ட குறைதீர்வு மன்றம்
Certificate of
வைப்புச் சான்றிதழ் Dominant மேலாதிக்கம்
Deposits ச�ோம்பலான
Change மாற்று Drone
த�ொழில்முனைவ�ோர்
Cheque காச�ோலை Electronic marketing மிண்ணணு சந்தையிடல்
Clearing House தீர்வகம் Endorsement மேலெழுதுதல்
Commercial Bills வணிகச் சீட்டு Entrepreneur த�ொழில் முனைவ�ோர்
Commercial Papers வணிகத் தாள் Entrepreneurship த�ொழில் முனைவு
Committee குழு Environment சுற்றுச்சூழல்
Commodity
ப�ொருள் மாற்றியம் Equity Market பங்கு சந்தை
Exchange
Completion பூர்த்தி செய்தல் e-tailing மிண்ணணு வர்த்தகம்
Conflict முரண்பாடு Evaluation மதிப்பீடு
Consumer நுகர்வோர் காலம் கடத்தும்
Fabian
பழமைவாதம்
Consumer Awareness நுகர்வோர் விழிப்புணர்வு
Financial Market நிதிசார் சந்தை
Consumer duties நுகர்வோர் கடமைகள்
Consumer Fiscal policy வரிக் க�ொள்கை
நுகர்வோர் குறைபாடுகள் ம�ொத்த உள்நாட்டு
Grievances GDP
Consumer movement நுகர்வோர் இயக்கம் உற்பத்தி
Consumer protection நுகர்வோர் பாதுகாப்பு Government Bonds அரசுப் பத்திரம் (முறி)
Consumer Grading வகைப்படுத்துதல்
நுகர்வோர் ப�ொறுப்புகள்
responsibilities Green marketing பசுமைச் சந்தை
Consumer rights நுகர்வோர் உரிமைகள் Grievance Redressal
குறைதீர்ப்பு செயல்முறை
Consumer welfare Mechanism
நுகர்வோர் நலநிதி
fund Harmonise ஒத்திசைவு

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Human Resource மனித வளம் Quasi-Legislative பகுதி சட்டத்துறை

Imitative மாதிரியை பின்பற்றுபவர் Rechristended மாற்றுப் பெயரிடப்பட்ட
Incorporation கூட்டுருவாக்கம் Recruitment பணியமர்த்தல்
Induced தூண்டப்பட்ட Referral Marketing பரிந்துரை சந்தை
Innovation புதுமை Registered Office பதிவு அலுவலகம்
Insolvency ந�ொடிப்பு Relocation மறுஇடஅமைவு
Instrument ஆவணம் Resolution தீர்மானம்
Interview நேர்காணல் Right shares உரிமைப் பங்குகள்
Intrapreneur அகத்தொழில் முனைபவர் Rural marketing ஊரகச் சந்தை
Investigation புலனாய்வு Satisfaction திருப்தி
Investors முதலீட்டாளர்கள் Scalar Chain அதிகார சங்கிலி
Job offer பணி முனைவு Secretary செயலர்
Jobbers தனி வணிகர்கள் Seed capital விதை முதல்
Lien பற்றுரிமை Selection தேர்வு
Loyalty விசுவாசம் Services marketing சேவை சந்தையிடுகை
Management மேலாண்மை Share capital பங்கு மூலதனம்
Management மேலாண்மை Share certificate பங்கு சான்றிதழ்
Managing Director மேலாண்மை இயக்குநர் Share warrant பங்காணை
Micro and Macro நுண்ணிய மற்றும் பேரின Social marketing சமூகச் சந்தை
Environment சுற்றுச்சூழல் Socialistic Economy சமதர்ம ப�ொருளாதாரம்
Misrepresentation of உண்மைக்கு புறம்பான Span வீச்சு எல்லை
Facts அறிவிப்பு Speculators ஊகவணிகர்கள்
Mixed Economy கலப்பு ப�ொருளாதாரம் Spontaneous தன்னிச்சையான
Monetary policy பணக் க�ொள்கை Stabilize நிலைப்படுத்து
Money Market பணச் சந்தை Stock Exchange பங்கு மாற்றம்
Motion முன்மொழிதல் Structured கட்டமைப்பு
Motivation செயலூக்கம் Surplus உபரி
Necessity தேவை / அவசியம் உழைப்புக்கான சாதாரணப்
Sweat Equity shares
Negotiability மாற்று முறைத்தன்மை பங்குகள்
New Issue Market புதிய வெளியீட்டுச் சந்தை System முறை
One Person
ஒரு நபர் நிறுமம் Terminate நீக்குதல்
Company Tests தேர்வு (ச�ோதனை)
Optimistic நேர்மறைச் சிந்தனையாளர் Three Tier Court மூன்றடுக்கு நீதிமன்றம்
Organisation அமைப்பு Training பயிற்சி
Perishable அழுகும் தன்மையுள்ள Treasury Bills கருவூலச் சீட்டு
Personality ஆளுமை Turnover சுழற்சி
எதிர்மறைச் த�ொழிலாளர்கள் இடம்
Pessimistic
சிந்தனையாளர் Turnover
பெயர்தல்
Placement பணியமர்த்தல் Unique தனித்தன்மை
Poaching வேட்டையாடுதல் Unsolicited வேண்டப்படாத
Potential தகுதியான Utility பயன்பாடு
Preservation பாதுகாத்தல் Value system மதிப்பு முறை
Procurement க�ொள்முதல் Voting Rights வாக்குறுரிமை
Profession த�ொழில் Warranties நம்புறுதி
Promissory Note வாக்குறுதித் தாள் ஆற்றல்மிக்க
Promoter நிறுமத் த�ோற்றுவிப்பாளர் Workforce
பணியாளர்கள்
Quasi-Executive பகுதி செயலாக்கம் Wrapping உரையிடுதல்
Quasi-Judicial பகுதி நீதித்துறை

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 www.asiriyar.net

COMMERCE – Class XII

List of Authors and Reviewers
Domain Expert Authors
Dr. Prof. D. Ilangovan Dr. Vidya Srinivasan
Prof & Head, Dept of Commerce, Associate Prof. Head, Dept of Commerce, Stella Maris
Annamalai University, Annamalai Nagar College, Chennai.
Chidamparam. Dr. M. Thirunarayanasamy
Assistant Professor,
Reviewers Department of Commerce, Govt. Arts College,
Dr. K. Padhmanaban Puttur, Nagai District.
Professor of Commerce, Dr. J. Paramasivam
Annamalai University, Annamalai Nagar, Assistant Professor,
Chidambaram. Dept. of Commerce,
Thirukolanjiappar Govt. Arts College, Vriddhachalam.
Dr. K. Sundar
Associate Prof. of Commerce, Dr. M. Jaya
Annamalai University, Annamalai Nagar, Associate Prof. Head, Dept. of Commerce,
Chidambaram. Asan Memorial College of Arts and Science, Chennai.
Mr. R. Ramesh
Dr. Jayanthi Lakshmanasamy
PGT in Commerce,
Associate Prof. of Commerce,
Trinity Academy Mat. Hr. Sec. School,
Govt Arts College (Autonomous)
Mohanur Road, Namakkal – 637002.
Nandhanam, Chennai.
Mr. S. Rajendran
Dr. K. Murugadoss
PGT in Commerce,
Associate Prof. Head, Dept. of Commerce,
GKHSS, V. Kallapatty, Madurai – 625 529.
Periyar Arts College,
Cuddalore – 1. Mr. R. Shanmugasundaram
PGT in Commerce,
Dr. T. Thirupathi
GBHSS, Pandamanagalam, Namakkal – 637 208.
Associate Prof. Head, Dept. of Commerce,
Govt Arts College, Dr. J. Anand
Salem -7. PGT in Commerce,
Maharishi Vidhya Mandir Hr.Sec.School,
SCERT Co-ordinator Chetpet, Chennai-31.
Mr. P. Ravi Dr. P. Senthil Kumar
PGT in Commerce, Guest Lecturer in Commerce,
Presidency Girls Hr.Sec.School, Thiruvalluvar Govt Arts College,
Chennai. Rasipuram, Namakkal-Dt.

Art and Design Team QR CODE Management Team

R. Jaganathan, SGT,
Layout PUMS -  Ganesapuram, Polur , Thiruvannamalai.
Prasanth C
J.F. Paul Edwin Roy, B.T, Assistant,
Mathan Raj PUMS -Rakkipatty, Veerapandi, Salem.
Adison Raj A. Devi Jesintha, B.T, Assistant,
Rajesh Thangappan G.H.S, N.M. Kovil, Vellore.

In-House
QC - Arun Kamaraj Palanisamy
- Kamatchi Balan Arumugam
This book has been printed on 80 G.S.M.
Elegant Maplitho paper.
Co-ordination
Ramesh Munisamy Printed by offset at:

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