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in

GOVERNMENT OF TAMIL NADU

HIGHER SECONDARY SECOND YEAR

COMMERCE

A publication under Free Textbook Programme of Government of Tamil Nadu

Department of School Education

Untouchability is Inhuman and a Crime

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Government of Tamil Nadu

First Edition - 2019

Revised Edition - 2020

(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.

III

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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) b
 y
• 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. The Bachelor Degree holders in commerce can join MBA in any university in developed countries like England. The USA, Australia
and so on.
2. The commerce graduates with ‘Tally’ Accounting package can get employed in any part of world as Accountants in business
enterprises.
3. The 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. Commerce graduates are permitted by foreign governments to start-up export business ventures in their respective Nations, If their
projects are valid.
6. Commerce graduates can become foreign exchange dealers through proper and authorised certification by the respective National
Governments in various countries.
7. Commerce graduates can become bank employees abroad after a formal selection by them. Based on required qualification.
8. Commerce 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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Page
Unit Chapter Contents Month
No.
PRINCIPLES OF MANAGEMENT
1.01 Concept of Management
1.02 Definitions of Management
1.03 Management Vs. Administration 1
1 June
1.04 Management Process
1.05 Principles of Scientific Management
1.06 Principles of Modern Management
1.07 Span of management
FUNCTIONS OF MANAGEMENT
2 2.01 Main Functions 11 June
Unit - I 2.02 Subsidiary Functions
MANAGEMENT MANAGEMENT BY OBJECTIVES (MBO) and
PROCESS MANAGEMENT BY EXCEPTION (MBE)
3.01 Meaning and Definition of MBO
3.02 Objectives of MBO
3.03 Features of MBO
3.04 Process of MBO
3 3.05 Advantages of MBO
16 June
3.06 Disadvantages of MBO
3.07 Meaning of MBE
3.08 Process of MBE
3.09 Advantages of MBE
3.10 Disadvantages of MBE
INTRODUCTION TO FINANCIAL MARKETS
4.01 Meaning and Definition of Financial Market
4.02 Scope of Indian Financial Market
22
4 4.03 Types of Financial Markets June
4.04 Role of Financial Market
4.05 Functions of Financial Market
4.06 New Issue Market (NIM) Vs. Secondary Market
CAPITAL MARKET
5.01 Meaning and Definition
5.02 Characteristics of Capital Market
28
5 5.03 Kinds of Capital Market July
Unit - II
5.04 Functions and Importance of Capital Market
FINANCIAL 5.05 Indian Capital Market – Evolution and Growth
MARKETS – I 5.06 New Financial Institutions
MONEY MARKET
6.01 Meaning and Definition
6.02 Characteristics
6.03 Difference between Capital Market and Money Market
6.04 Participants in Money Market 35
6 July
6.05 Money Market Instruments
6.05.01 Treasury Bills
6.05.02 Certificate of Deposit
6.05.03 Commercial Bills
6.05.04 Government or Gilt-Edged Securities Market.
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STOCK EXCHANGE
7.01 Stock Exchange – Origin, Meaning and Definition
7.02 Functions of Stock Exchange
7.03 Features of Stock Exchange
7 7.04 Benefits and Limitations of Stock Exchange 44 July
7.05 Stock Exchanges in India
7.06 Types of Speculators
Unit - III 7.07 Stock Exchange Vs. Commodity Exchange
FINANCIAL 7.08 Recent Development in Stock Exchange
MARKETS – II
SECURITIES EXCHANGE BOARD OF INDIA (SEBI)
8.01 Introduction of SEBI
8.02 Objectives of SEBI July
59
8 8.03 Functions of SEBI I-Mid Term
8.04 Powers of SEBI (Lesson 1 to 8)
8.05 Dematerialization
8.06 Benefits of Dematerialization
FUNDAMENTALS OF HRM
9.01 Meaning and Definition of Human Resource
9.02 Characteristics of Human Resource
9.03 Significance of Human Resource
9.04 
Meaning and Definition of Human Resource
9 68 August
Management
9.05 
Nature and Features of Human Resource
Management
9.06 Significance of Human Resource Management
9.07 Functions of Human Resource Management
RECRUITMENT METHODS
10.01 Meaning and Definition of Recruitment
10 10.02 Recruitment Process 74 August
10.03 Sources of Recruitment
10.04 Recent Trends in Recruitment
Unit - IV
EMPLOYEE SELECTION PROCESS
HUMAN 11.01 Steps in Employee Selection Process
RESOURCE 11.02 Factors influencing Selection Process
MANAGEMENT 11.03 Importance of Selection
11 11.04 Selection differs from Recruitment 79 August
11.05 Placement
11.06 Significance of Placement
11.07 Principles of Placement
11.08 Principles of Placement
EMPLOYEE TRAINING METHOD
12.01 Purpose of Training or Need for Training
12.02 Steps in Designing a Training Programme
12.03 Training Method
12 12.03 (i) On the Job Training 90 August
12.03 (ii) Off the Job Training
12.04 Differences Between on the Job Training and off
the Job Training
12.05 Benefits of Training

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CONCEPT OF MARKET AND MARKETER

13.01. Meaning and Definition of Market
13.02. Need for Market
13.03. Classification of Markets 101
13 September
13.04. Meaning and Definition of Marketer
13.05. What can be Marketed?
13.06. Role of a Marketer
13.07. Functions of Marketer
MARKETING AND MARKETING MIX
14.01. Introduction
14.02 Evolution of Marketing
14.03. Marketing Concepts
14.04. Definition of Marketing
109
14 14.05. Objectives of Marketing September
14.06. Importance of Marketing
14.07. Functions of Marketing
14.08. Meaning and Definition of Marketing Mix
Unit - V
14.9. Elements of Marketing Mix
ELEMENTS OF 14.10. Marketing Mix Matrix
MARKETING
RECENT TRENDS IN MARKETING
15.01 Recent Trends in Marketing
15.02 E-Marketing
15.03 E-Tailing
15.04 Green Marketing
15.05 Social Marketing
15.06 Rural Marketing
15.07 Services Marketing 117
15 September
15.08 Commodity Exchanges
15.09 Niche Marketing
15.10 Viral Marketing
15.11 Ambush Marketing
15.12 Guerrilla Marketing
15.13 Multi Level Marketing
15.14 Referral Marketing
15.15 Content Marketing

CONSUMERISM
16.01 Consumer
16.02 Consumer Exploitation
16.03 Consumerism and Need for Consumerism
16.04 Importance of Consumerism
Unit - VI
16.05 Origin, Evolution and Growth of Consumerism
CONSUMER 16 127 September
16.06 Consumer Protection
PROTECTION
16.07 Need for Consumer Protection
16.08 Consume Legislation
16.09 The Consumer Protection Act, 1986
16.10 Caveat Emptor
16.11 Caveat Venditor

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RIGHTS, DUTIES & RESPONSIBILITIES OF

CONSUMERS September
140
17 17.01 Duties of Consumers Quarterly
17.02 Consumer Responsibilities (Lesson 1 to 16)
17.03 Consumer Rights

GRIEVANCE REDRESSAL MECHANISM

18.01 Grievance and Need for Redressal Mechanism
18.02 Consumer Councils
18.03 Three Tier Courts or Quasi Judiciary
18.04 District Forum
18.05 State Consumer Disputes Redressal 147
18 October
Commission or State Commission
18.06 National Consumer Disputes Redressal
Commission (NCDRC) or National
Commission
18.07 Voluntary Organizations for Consumer
Awareness

ENVIRONMENTAL FACTORS
19.01 Meaning and Definition of Business Environment
19.02 Types of Business Environment
19.02.01 Internal Environment
19.02.02 External environment:
19 155 October
19.02.03 Micro Environment;
19.02.04 Macro Environment:
19.03 Future Environment of Business-VUCA
19.04 Corporate Governance
19.05 Goods and Services Tax – GST

Unit - VII
LIBERALIZATION, PRIVATIZATION AND
BUSINESS
GLOBALIZATION
ENVIRONMENT
20.01 Dimensions of New Economic Policy
20.02 Meaning and forms of Liberalisation
20.03 Advantages and disadvantages of Liberalisation
20.04 Impact of Liberalisation
20 20.05 Meaning and Forms of Privatisation October
20.06 Advantages and disadvantages of Privatisation 165
20.07 Impact of Privatisation
20.08 Meaning and Forms of Globalisation
20.09 Advantages and disadvantages of Globalisation
20.10 Impact of Globalisation
20.11 Highlights of LPG policy

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THE SALE OF GOODS ACT, 1930

21.01 Formation of Contract of Sale
21.02 Difference between Sale and Agreement to Sell
Unit - VIII 173
21 21.03 Types of Goods October
THE SALE OF 21.04 Transfer of Ownership
GOODS ACT, 21.05 Conditions and Warranties
21.06 Rights of an Unpaid Seller
1930
THE NEGOTIABLE INSTRUMENTS ACT, 1881
AND THE 22.01 Negotiable Instruments – Meaning,
NEGOTIABLE Characteristics, Assumptions
INSTRUMENTS 22
22.02 Negotiability and Assignability
187 October
ACT, 1881 22.03 Bills of Exchange, Cheque, Promissory Note – A
Comparison
22.04 Crossing of Cheque
22.05 Endorsements
ELEMENTS OF ENTREPRENEURSHIP
23.01 Entrepreneurship – Concept, Meaning and
Definition
23.02 Characteristics of Entrepreneur
23.03 Importance of Entrepreneurship
23 204 November
23.04 Entrepreneur, Intrapreneur and Manager – A
Comparison
23.05 Women Entrepreneurs – Opportunities and
Challenges
23.06 Entrepreneurial Functions
TYPES OF ENTREPRENEURS
24.01 Types of Entrepreneurs
Unit - IX 24.02 Classification According to Function
ENTREPRENEURSHIP 24.03 Classification According to Type Of Business
DEVELOPMENT 24 24.04 Classification Based on Technology Adopted 220 November
24.05 Classification in terms of Motivation
24.06 Classification Based on Development Stage
24.07 Classification According to Area
24.08 Classification According to Owner- ship
GOVERNMENT SCHEMES FOR ENTREPRENEURIAL
DEVELOPMENT
25.01 India’s Efforts at Promoting Entrepreneurship
and Innovations
25 25.02 Specific Entrepreneurship Schemes
228 November
25.03 Steps in Promoting an Entrepreneurial Venture
25.04 Entrepreneurial Schemes of Government of
Tamilnadu
COMPANIES ACT, 2013
26.01 Evolution and History of Company Law in India
Unit - X 26.02 The Companies Act 2013
26.03 Meaning and Definition of Body Corporate November
COMPANY
(Company) II-Mid Term
LAW AND 26 237
26.04 Formation / Incorporation of Company (Lesson 17 to
SECRETARIAL 26.05 Promoter 23)
PRACTICE 26.06 Procedural Aspects of Company Formation
26.07 Share and Share Capital
26.08 Issue of Shares, Bonus Shares and Rights Shares

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26.09 Share Certificate and Share Warrant

26.10 Share and Stock
26.11 Debentures
COMPANY MANAGEMENT
27.01 Introduction, Meaning and Definition of
Director
27.02 Key – Managerial Personnel of a Company
27.03 Board of Directors
27.04 Types of Directors as per Companies Act 2013
27.05 Number of Directors
27.06 Legal position of Director
27.07 Appointment of Director
27.08 Qualification of Director
27 27.09 Disqualification of Director
251 December
27.10 Removal of Director
27.11 Remuneration of Director
27.12 Power of Director
27.13 Rights of Director
27.14 Duties of Director
27.15 Liabilities of Director
27.16 Directorial Register
27.17 Manager Vs. Director
27.18 Managing Director Vs. Whole time Director
COMPANY SECRETARY
28.01 Company Secretary
28.02 Qualifications of Company Secretary
28.02.01 Statutory Qualifications
28.02.02 Other Qualifications
28.03 Appointment of Company Secretary
28.04 Functions/ Duties of Company Secretary
28.04.01 Statutory Functions
28.04.02 Non-Statutory Functions December
28.05 Powers and Rights of Company Secretary 268
Half
28 yearly
28.06 Removal / Dismissal of Company Secretary
(Lesson 1 to 28)
28.07 Company Meetings
Full portion
28.08 Kinds of Company Meetings
28.08.01 Shareholders Meetings
28.08.02 Meeting of the Board of Directors
28.08.03 Special Meeting
28.09 Resolution
28.09.01 Kinds of Resolution
28.10 Voting
28.11 Procedures of Voting

E-Book E-Assessment Digi-Link

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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
To enable the students to understand the
are in a play ground or library or class room or
■ Concept of Management
hostel and so on wherein we plan many of our
■ Definitions of Management
actions and execute them in a systematic manner
■ Management an Art or Science
to arrive at the desired results. So management
■ Management Vs. Administration
is 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
1.02 Definitions of Management important in organizational life in any part of
the world. It is a global and universal concept.
1.03 Management Vs. Administration
1.04 Management Process
1.05 Principles of Scientific Management
1.01 Concept of Management
1.06 Principles of Modern Management The management concept can be
1.07 Span of Management understood from its profound characteristic
features as follows:
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1. Body of Knowledge: or community. Corporations have now social

Management has now developed into conscience and awareness.
a specialised body of management theory Consumer-oriented marketing concept
and philosophy. Management literature is is the reflection of a corporate code of conduct.
growing in all countries. In fact, management Pressure of consumerism, trade unionism,
knowledge is the best passport to enter the public opinion, and legislation are definitely
world of employment either in business world inducing the management to evolve a code of
or government or private. ethics. No longer ‘buyer beware’ is ruling the
exchange relations in the market. At present
2. Management Tools:
‘seller beware’ in place of ‘buyer beware’
Tools of management have been developed
influencing market practices.
such as, accounting, business law, psychology,
statistics, econometrics, data processing, etc. 6. Professional Association:
These branches of management profession have The Business Management Associations
enhanced the practical utility of the science of in many countries to promote the spread of
management. knowledge in all management areas and to
3. Separate Discipline: build up the bright public image of managerial
profession.
Management studies in many
universities and institutions of higher learning 1.02  Definitions of Management
are recognised as a separate discipline. Since
Management is a distinct ongoing process
1951, many specialised schools of management
of allocating inputs of an organisation (human
offering master‘s degree in business
and economic resources) by typical managerial
management and administration.
functions (planning, organising, directing and
Seminars, special courses, training controlling) for the purpose of achieving stated
programmes are becoming fashionable and objectives, viz., output of goods and services
popular for orientation and retraining in desired by its customers (environment).
management areas, e.g., export management,
In the process, work is performed with
personnel management, general management,
and through personnel of the organisation in an
production management, marketing
ever-changing business environment.
management, financial management, etc.
1. “To manage is to forecast, to plan, to
4. Specialisation: organise, to command, to co-ordinate and
There is a growing tendency to select to control.”  —Henry Fayol. It attempts to
and appoint highly qualified, trained and describe management in terms of what a
experienced persons to manage the business in manager does, and not what management is.
each functional areas of management. Thus we 2. “Management is a multipurpose organ
have today an increasing tendency in favour of that manages a business and manages
management by experts or professionals. manager, and manages worker and
5. Code of Conduct: work.”— Peter F. Drucker: The Practice of
Enlightened businessmen have recognised Management
that business management is a social institution
and it has social responsibilities to be fulfilled — Drucker stresses three jobs of
towards customers, employees, and the public management:
(i) Managing a business;

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(ii) Managing manager; and But the concept of management involves

(iii) Managing workers and work. a set of required skills for any one designated
as a manager, but the level or span of their
Even if one is omitted, It would not have
managerial skills would vary from person to
management anymore and it also would not
person and individual to individual irrespective
have a business enterprise or an industrial
of the countries they belonged to. The nature
society. According to P. Drucker, the manager
of the administrative and managerial skills
has to balance and integrate three major jobs of
of our former Prime Minister Pt.Jawaharlal
a business enterprise as mentioned above.
Nehru cannot be compared to his counterpart
Hence, a manager is a dynamic and life- and his own daughter Mrs.Indira Gandhi. So
giving element in every business. Without management is not an exact art of doing things.
efficient management it cannot be secure
The art of management is fully reflected
the best allocation and utilisation of human,
in the decision making capacity of a manager.
material and financial resources.
Judgment and imagination are essential even in
Management is an Art or Science a computerised economy. A computer cannot
There is always a discussion about the replace a manager in decision making.
nature of management whether it is an Art of “A professional manager is one who
doing things or it is a pure Science of getting specialises in the work of planning, organising,
things done. It would be useful to explain the leading and controlling the efforts of others
nature of management in brief as under: and does so through systematic use of classified
Management is an in-exact science, knowledge, a common vocabulary and
because in pure science, the principles are put principles and who subscribes to the standards
into test in a laboratory and they are either proved of practice and code of ethics established by
or disproved exactly and precisely. For example, recognised body.” — Louis A. Allen.
plant leaves have starch in them which can be To conclude, Management is neither a
proved or disproved in a Botany lab. Similarly science nor an art, but a combination of both
the management principles can be put to test in requiring people holding managerial positions
an organization where men, machine, money to apply the scientific management principles
and materials (4 Ms) are practically integrated and displaying popular managerial skills to
towards achieving some chosen organizational accomplish the organizational goals as efficiently
goals. These principles cannot be exactly proved and as quickly as possible so as to be competitive
or disproved either as they tend to be flexible to in the globalised environment of business.
changing environment, policies and practical
difficulties while synchronizing them together. 1.03 Management is differ from
So, management can be described as an inexact Administration
science. One should be able to distinguish between
Everyone believes that management is management and administration as the concepts
an art. No, it is not an art in Toto. Because, the are interchangeably used in the world of business
concept of art denotes the learning of skills today. While management is more ‘executive’ in
and practicing them in the day to day life like a nature the concept of administration denotes
mason or carpenter or mechanic or a musician the art of ‘decision making’ at the top and
being able to perform their respective art they ‘evolving policies’ of the business undertakings
learnt by way of skill display before anybody either by the governments of various countries
under any circumstances. or the respective promoters of such business

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enterprises. Management is all about plans and identified as a process. A process is something
actions, but the administration is concerned that what a person does in the context of his
with framing policies and setting objectives. individual duties and responsibilities assigned
The manager looks after the management by his or her immediate higher authority.
of the organization, whereas administrator A process also implies ongoing and
is responsible for the administration of unceasing cyclical operations. In management
the organization. Management focuses on there is planning-action-control cycle. Defining
managing people and their work. the concept must incorporate this management
cycle. A process indicates the dynamic nature of
management.
Board of Directors
It also implies that change is a constant
en n

reality of organisational life and management is

em o

Managing Director
t
ag tra

the management of change. Lastly, management

an is
M min

Manager
Ad

is regarded as a social process because it is

Supervisor directly concerned with management of human
resources in order to secure cooperation and
teamwork from the people in their performance.
So it is concluded that the administration
There are twin purposes of the
is ought to take business decisions while the
management process:
management need to execute them to get things
(1) Maximum productivity or profitability and
done with and through other functional staff
(2) Maximum human welfare and satisfaction.
working under them who are called employees
There are five parts of management as a
of the same organization(s). For example, the
process: first, the co-ordination of resources;
Board of Directors with the CEO/MD may be second, the performance of managerial
called Administration, while the Managers functions as a means of achieving co-
of various units like Production, Marketing, ordination; the third, establishing the objective
Finance, Accounting, Distribution and Research or purpose of management process, i.e., it must
be purposeful managerial activity; the fourth
& Development may be called Management of
aspect is that management is a social process,
the said organization. and the fifth is its cyclical nature.
Theoretically, it can be said that both are
1. Management is Co-Ordination:
different terms, but practically, it is found that
the terms are more or less same. A manager The manager of an enterprise must
performs both administrative and functional effectively coordinate all activities and
activities. Although the managers who are resources of the organisation, namely, men,
working on the top most level are said to machines, materials and money the four M‘s of
be the part of administration, the managers management.
working on the middle or lower level represents 2. Management is a Process:
management. So, it could be concluded that
The manager achieves proper co-
administration is above management.
ordination of resources by means of the
1.04  Management Process managerial functions of planning, organising,
The substance of management should be staffing, directing (or leading and motivating)
and controlling.
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3. Management is a Purposive Process: 5. Management is a Cyclical Process:

It is directed toward the achievement of It represents planning-action-control-re-
predetermined goals or objectives. Without an planning cycle, i.e., an ongoing process to attain
objective, we have no destination to reach or a the planned goals.
path to follow to arrive at our destination, i.e., a
goal, both management and organisation must 1.05 Principles of Scientific
be purposive or goal-oriented. Management
4. Management is a Social Process: In the last century, organizations already
had to deal with management in practice.
It is the art of getting things done through
In the early 1900s, large organizations, such
other people.
Differences between Management Vs Administration
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?
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

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as production factories, had to be managed activity like loading iron sheets into box cars
too. At the time there were only few external can be scientifically planned. This will help in
management tools, models and methods saving time as well as human energy. Decisions
available. should be based on scientific enquiry with cause
At this juncture, Mr.Frederick Winslow and effect relationships.
Taylor (F.W.Taylor) brought about a scientific This principle is concerned with selecting
approach to managing the workforce after the best way of performing a job through the
his experiments with the African and South application of scientific analysis and not by
American slaves employed in a coal field in intuition or hit and trial methods. The work
England. His aim was absolute harmony in work assigned to any employee should be observed
place for overall productivity of the organization and analyzed with respect to each element or part
Principles of scientific management thereof and the time involved therein so as to
propounded by Taylor are decide the best way of performing that work and
1. Science, Not Rule of Thumb to determine the standard output for same.

2. Harmony, Not Discord 2. Harmony, Not Discord:

3. Mental Revolution Taylor emphasized that there should be
4. Cooperation, Not Individualism complete harmony between the workers and
the management since if there is any conflict
5. Development of each and every person to
between the two, it will not be beneficial either
his or her greatest efficiency and prosperity.
for the workers or the management. Both the
They are explained in brief as follows: management and the workers should realize the
1. Science, Not Rule of Thumb: importance of each other. In order to achieve this
In order to increase organisational state, Taylor suggested complete mental revolution
efficiency, the ‘Rule of Thumb’ method should on the part of both management and workers.
be substituted by the methods developed It means that there should be complete
through scientific analysis of work. change in the attitude and outlook of workers
Rule of Thumb means decisions taken and management towards each other. It should
by manager as per their personal judgments. always be kept in mind that prosperity for an
According to Taylor, even a small production employer cannot exist for a long time unless
it is accompanied by the prosperity of the

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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employees of that organisation and vice versa. mutual cooperation between workers and the
It becomes possible by (a) sharing a part of management. Cooperation, mutual confidence,
surplus with workers (b) training of employees, sense of goodwill should prevail among both,
(c) division of work (d) team spirit (e) positive managers as well as workers. The intention is to
attitude (f) sense of discipline (g) sincerity etc. replace internal competition with cooperation.
Management should always be ready to share Both ‘Management’ and ‘Workers’ should realize
the gains of the company with the workers and the importance of each other. Workers should be
the latter should provide their full cooperation considered as part of management and should
and hard work for achieving organizational be allowed to take part in decision making
process of the management. Management
goals. Group action with mutual-trust and
should always welcome their suggestions and
understanding should be perfect understanding
should also reward them if their suggestions
the focus of working. This principle requires that
prove to be beneficial for the organisation viz.
there should be perfect understanding between
reduction of costs or increase in production etc.
the management and workers and both should At the same time, workers should also resist
feel that they are part of same family. It helps to from going on strike or making unnecessary
produce synergy effect since both management demands from management. Workers should
and workers work in unison. be treated as integral part of organisation and
For example, in most of the Japanese all important decisions should be taken after
companies, paternalistic style of management due consultation with workers. Both of them
is in practice and there is complete openness should visualize themselves as two pillars whose
between workers and the management. Usually, soundness alone can ensure achievement of
workers don‘t go on strike but, if at all they do common goals of the organisation. Taylor also
so, they just wear a black badge and work even suggested that there should be proper division
more than the normal hours just to impress of work and responsibility between the two.
upon the management that their focus is on their Management should always guide, encourage
demands as well as organisational objectives. and help the workers.

3. Mental Revolution: 5. 
Development of each and every
The technique of Mental Revolution person to his or her greatest efficiency
involves a change in the attitude of workers and and prosperity:
management towards each other. Both should
realize the importance of each other and should Efficiency of any organisation also depends
work with full cooperation. Management as on the skills and capabilities of its employees to
well as the workers should aim to increase a great extent. Thus, providing training to the
the profits of the organisation. For this, the workers was considered essential in order to
workers should put in their best efforts so that learn the best method developed through the use
the company makes profit and on the other
of scientific approach. To attain the efficiency,
hand management should share part of profits
steps should be taken right from the process of
with the workers. Thus, mental revolution
selection of employees. Employees should be
requires a complete change in the outlook of
both management and workers. There should scientifically selected. The work assigned to each
be a spirit of togetherness between workers and employee should suit his/her physical, mental
management. and intellectual capabilities. Efficient employees
4. Cooperation, Not Individualism: produce more to earn more. This ultimately
helps to attain efficiency and prosperity for both
This principle is an extension of principle
organisation and the employees.
of ‘Harmony, not discord’ and lays stress on
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The Principles of Taylor’s Scientific 5. Unity of Direction: All related activities

Management Theory became widely practiced, should be put under one group, there should
and the resulting cooperation between workers be one plan of action for them, and they
and managers eventually developed into the should be under the control of one manager.
teamwork we enjoy today. While Taylorism in a 6. Subordination of Individual Interest to
pure sense isn’t practiced much today, scientific Mutual Interest: The management must
management did provide many significant put aside personal considerations and
put company objectives firstly. Therefore
contributions to the advancement of management
the interests of goals of the organization
practice. It introduced systematic selection and
must prevail over the personal interests of
training procedures, it provided a way to study
individuals.
workplace efficiency, and it encouraged the idea
7. Remuneration: Workers must be paid
of systematic organizational design.
sufficiently as this is a chief motivation of
1.06 Principles of Modern employees and therefore greatly influences
productivity. The quantum and methods
Management
of remuneration payable should be fair,
The Father of Modern Management is reasonable and rewarding of effort.
Mr.Henry Fayol, and according to him there 8. The Degree of Centralization: The
are 14 major principles of management which amount of power wielded with the central
every manager has to practice for the success of management depends on company size.
the organization. Centralization implies the concentration
1. Division of Work: According to this of decision making authority at the top
principle the whole work is divided into management.
small tasks. The specialization of the 9. Line of Authority/Scalar Chain: This refers
workforce according to the skills of a person, to the chain of superiors ranging from
creating specific personal and professional
top management to the lowest rank. The
development within the labour force and
principle suggests that there should be a
therefore increasing productivity; leads to
clear line of authority from top to bottom
specialization which increases the efficiency
of labour. linking all managers at all levels.
10. Order: Social order ensures the fluid
2. Authority and Responsibility: This is the
operation of a company through authoritative
issue of commands followed by responsibility
procedure. Material order ensures safety and
for their consequences. Authority means the
efficiency in the workplace. Order should
right of a superior to give the order to his
be acceptable and under the rules of the
subordinates whereas responsibility means
company.
obligation for performance.
11. Equity: Employees must be treated kindly,
3. Discipline: It is obedience, proper conduct and justice must be enacted to ensure a just
in relation to others, respect of authority, etc. workplace. Managers should be fair and
It is essential for the smooth functioning of impartial when dealing with employees,
all organizations. giving equal attention towards all employees.
4. Unity of Command: This principle states 12. Stability of Tenure of Personnel: Stability of
that each subordinate should receive orders tenure of personnel is a principle stating that
and be accountable to one and only one in order for an organization to run smoothly,
superior. If an employee receives orders from personnel (especially managerial personnel)
more than one superior, it is likely to create must not frequently enter and exit the
confusion and conflict. organization.

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13. Initiative: Using the initiative of employees 3. With more levels in the hierarchy, the
can add strength and new ideas to an communication suffers drastically. It takes a
organization. Initiative on the part of lot of time to reach the appropriate points,
employees is a source of strength for and hence the actions get delayed.
organization because it provides new and 4. Lack of coordination and control because
better ideas. Employees are likely to take the operating staff is far away from the top
greater interest in the functioning of the management.
organization.
The major advantage of using this
14. Esprit de Corps/Team Spirit: This refers to structure is that the cross communication gets
the need of managers to ensure and develop facilitated, i.e., operative staff communicating
morale in the workplace; individually and with the top management. Also, the chance of
communally. Team spirit helps develop promotion increases with the availability of
an atmosphere of mutual trust and
several job positions.
understanding. Team spirit helps to finish
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 In the case of a flatter organizational
2. Determine the shape or configuration of the structure, where the span is wide leads to a more
Organization complex supervisory relationship between the
The span of management is related manager and the subordinate. It will be very
to the horizontal levels of the organization difficult for a superior to manage a large number
structure. There is a wide and a narrow span of subordinates at a time and also may not listen
of management. With the wider span, there to all efficiently.
will be less hierarchical levels, and thus, the However, the benefit of using the wider
organizational structure would be flatter. span of management is that the number of
Whereas, with the narrow span, the hierarchical managers gets reduced in the hierarchy, and
levels increases, hence the organizational thus, the expense in terms of remuneration is
structure would be tall. saved. Also, the subordinates feel relaxed and
1. Both these organizational structures have develop their independent spirits in a free work
their advantages and the disadvantages. But environment, where the strict supervision is
however the tall organizational structure absent.
imposes more challenges Key Terms
2. Since the span is narrow, which means less Management Administration
number of subordinates under one superior, Span Scalar chain
requires more managers to be employed
in the organization. Thus, it would be very
expensive in terms of the salaries to be paid
to each senior.
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4. Dividing the work into small tasks is

For Own Thinking known as
a) Discipline b) Unity
1. Imagine yourself to be a manager
and chart down the functions to be c) Division of work d) Equity
performed. 5. With a wider span, there will be _______
2. Formulate a new policy relating to hierarchical levels.
timing of employees. a) More b) Less
c) Multiple d) Additional
For Future learning Answers:
1. The changes in management and 1 a 2 c 3 b 4 c 5 b
administration of a school growing II. Very short answer questions:
into a college. 1. What is Management?
2. Application of management process in 2. List out the management tools.
accomplishing work life balance.
3. Who is a manager?
4. State the meaning of Authority.
TOP RANKED INDIAN
5. What do you mean by Span of management?
MANAGEMENT THINKERS:
III. Short answer questions:
Nirmalya kumar, Professor,
1. Define the term management.
London Business school
2. Is management an Art or Science?
Vijay Govindarajan, Professor, Tuck School
3. Differentiate management from
of Business @ Dart mouth college,
Administration.
New Hampshire.
4. What are the principles of Taylor?
Pankaj ghemawat, Professor, IESE Business
5. What determines the span of management?
school, Spain.
IV. Long answer questions:
1. Explain the concept of management.
2. Explain the management process in detail.
Exercise 3. Describe the principles of scientific
management.
4. Explain the principles of modern
management.
I. Choose the Correct answers References
1. Management is what a _______ does? Management - Koontz O'Donnel
a) Manager b) Subordinate
Principles of management - S S Chatterjee
c) Supervisor d) Superior
Management - Rustom S Davor.
2. Management is an ________
a) Art b) Science
c) Art and Science d) Art or Science
3. Scientific management is developed by
a) Fayol b) Taylor
c) Mayo d) Jacob

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UNIT MANAGEMENT PROCESS

I

2
CHAPTER
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
Chapter Synopsis after.
Management functions are called as
2.01 Main Functions Managerial process. This process is 24 hours
2.02 Subsidiary Functions non stop process for attaining the objectives
again and again for reaching the highest level.

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01 Planning

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

Functions of management can be classified of management. Nothing can be performed

into two catogories, they are A. Main functions without planning. (For eg., Writing a book
and B. Subsidiary functions. All functions of starts with planning). In short, planning
management are briefly discussed below: refers to deciding in advance. Planning is a
constructive reviewing of future needs so that
present actions can be adjusted in view of the
For Own Thinking
established goal. Planning should take place
1. How to conduct a three days tour before doing; most individual or group efforts
program from your place to nearest are made by determining before any operative
state? action takes place, what shall be done, where,
2. 
Collect the information about the how and who shall do it.
functions of management concepts 2. Organising
given by various authors.
Organising is the process of establishing
harmonious relationship among the members
2.01  Main Functions of an organisation and the creation of network
Planning, Organising, Staffing, Directing, of relationship among them. Organising
Motivating, Controlling and Co-ordination are function work is assigned to employees who are
the main functions of management. given authority to carry out the work assigned
1. Planning and made accountable for it.

Think Before you Act‘ or 'Look Before 3. Staffing

you Leap' are some of the usual traditional Staffing function comprises the activities
proverbs; which provide a basis or logic for of selection and placement of competent
planning. Planning is the primary function personnel. In other words, staffing refers to
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placement of right persons in the right jobs. towards the accomplishment of objectives of
Staffing includes selection of right persons, an organisation. The difficulty of co-ordination
training to those needy persons, promotion depends upon the size of organisation. The
of best persons, retirement of old persons, difficulty of co-ordination is increased with the
performance appraisal of all the personnel, increasing size of the organisation.
and adequate remuneration of personnel. The
success of any enterprise depends upon the 7. Motivating
successful performance of staffing function. The goals are achieved with the help of
4. Directing motivation. Motivation includes increasing the
speed of performance of a work and developing
Directing denotes motivating, leading, a willingness on the part of workers. This is
guiding and communicating with subordinates done by a resourceful leader. The workers
on an ongoing basis in order to accomblish expect, favourable climate conditions to work,
pre-set goals. Employees are kept informed of fair treatment, monetary or non-monetary
all necessary matters by circulars, instructions incentive, effective communication and
manuals, newsletters, notice-boards, meeting, gentleman approach.
participative mechanism etc., in order to enable
the employees to accomplish the organizational
goals.
“ Passing the buck, the
buck stops here”
5. Controlling
To shift or reassign the blame or
Controlling is performed to evaluate responsibility (for something) to another
the performance of employees and deciding person, group, or thing.
increments and promotion decisions. The
control function helps in identifying under
performers and arranging remedial training for 2.02  Subsidiary Functions
them. It is the control function which facilitates Innovation, Representation, Decision-
synchronization of actual performance with making, and Communication are the subsidiary
predetermined standards. functions of management.
6. Co-ordination 1. Innovation
Co-ordination is the synchronization Innovation refers to the preparation of
(or unification or integration) of the actions personnel and organisation to face the changes
of all individuals, working in the enterprise in made in the business world. Continuous
different capacities; so as to lead to the most changes are being made in the business.
successful attainment of the common objectives. Consumers are satisfied through innovation.
Co-ordination is included in every managerial Innovation includes developing new material,
function; Eg (i) Planning and co-ordination, new products, new techniques in production,
(ii).Organising and co-ordination, (iii) Staffing new package, new design of a product and cost
and co-ordination, (iv) Directing and co- reduction.
ordination, (v) Motivation and co-ordination
and (iv) Controlling and co-ordination. 2. Representation
All the activities are divided groupwise A manager has to act as representative of a
or sectionwise under organising function. company. Manager has dealings with customers,
Now, such grouped activities are co-ordinated suppliers, government officials, banks, financial

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02
03
REPRESENTATION DECISION
MAKING

01
04
INNOVATION
COMMUNICATION

SUBSIDIARY FUNCTIONS

institutions, trade unions and the like. It is the Key Terms

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

• Flexible schedule
II. Very Short Answer Questions:
• Skip annual performance review
1. Write a short note about Planning.
• Embrace tech centered work place
• Plan for in-person intraction 2. What is meant by Motivation?
• Expect to provide more structure and 3. What is meant by Controlling?
direction
4. List the subsidiary functions of management.
• Re-evaluate formal education
• Have a plan for professional growth 5. What is the Traditional proverb used in
planning?
• Set clear expectations
• Make them feel valued
III. Short Answer Questions:
• Be transparent.
1. List out the main functions of management?
2. State the importance of staffing.
3. What is meant by Innovation?
Exercise 4. What is meant by Co-ordination?
5. How the employees are informed about
important matters in a company?

I. Choose the Correct Answers: IV. Long Answer Questions:

1. 
Which is the primary function of
1. E
 xplain the various functions of
management?
management.
(a) Innovating (b) Controlling
(c) Planning (d) Decision-making References
1. G
 upta C. B., 2006, “Management Theory
2. Which of the following is not a main
and Practice”, Reprint. ed., Sultan Chand &
function?
Sons Pvt. Ltd., New Delhi-110 002.
(a) Decision-making (b) Planning
2. G
 upta R. N. and others, 2009, “ Principles
(c) Organising (d) Staffing of Management, ”, Reprint.ed, S. Chand &
3. _________ is included in every managerial Company Pvt. Ltd., New Delhi-110 055.
function. 3. R
 amasamy T, 2007, “Principles of
(a) Co-ordinating (b) Controlling Management,”, Reprint. ed., Himalaya
Publishing House Private Limited,
(c) Staffing (d) Organising
Mumbai-400 004.
4. 
Which of the following is verification
4. S undar K, 2018, Principles of Management,
function?
Vijay Nichole Imprints Pvt. Ltd., Chennai.
(a) Planning (b) Organising
(c) Staffing (d) Controlling

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UNIT MANAGEMENT PROCESS

I

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

ெசயற்ைக அறிந்தக் 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 OBJECTIVES
Learning 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
Chapter Synopsis
before somebody tells his to do something.
3.01 Meaning and Definition of MBO
MBO is popularised in the USA by
3.02 Objectives of MBO George Odiorne. According to him, “MBO
3.03 Features of MBO is a system wherein the superior and the
3.04 Process of MBO sub-ordinate managers of an organisation
jointly identify its common goals, define each
3.05 Advantages of MBO
individual’s major area of responsibility in
3.06 Disadvantages of MBO terms of the result expected of him and use
3.07 Meaning of MBE these measures guides for operating the unit
3.08 Process of MBE and assessing the contribution of each of its
members”.
3.09 Advantages of MBE
Prof. Reddin defines MBO as, “the
3.10 Disadvantages of MBE
establishment of effective standards for
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managerial positions and the periodic 7. A high degree of motivation and satisfaction
conversion of those into measurable time is available to employees through MBO.
bound objectives linked vertically and
8. Recognises the participation of employees
horizontally and with future planning”.
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
3.04  Process of MBO
iii. to clarify both the job to be done and the
The MBO process is characterised by the
expectations of accomplishment
balance of objectives of the organisation and
iv. to foster the increasing competence and individual. The process of MBO is explained
growth of the subordinates
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
and individuals. This will lead to effective 2. Goals of Each Section
management. Objectives for each section, department
2. MBO tries to combine the long run goals or division are framed on the basis of overall
of organisation with short run goals. objectives of the organisation. Period within
3. Management tries to relate the organisation which these objectives should be achieved is
goals with society goals. also fixed. Goals or objectives are expressed in a
meaningful manner.
4. MBO’s emphasis is not only on goals but
also on effective performance.
3. Fixing Key Result Areas
5. 
It pays constant attention to refining, Key result areas are fixed on the basis of
modifying and improving the goals and organisational objectives premises. Key Result
changing the approaches to achieve the Areas (KRA) are arranged on a priority basis.
goals on the basis of experience.
KRA indicates the strength of an organisation.
6. It increases the organisational capability of The examples of KRA are profitability, market
achieving goals at all levels. standing, innovation etc.

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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. 8. Reappraisal of Objectives
An organisation is a part of the dynamic
world. There are a lot of changes within short
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period. The survival and growth of a modern 3.06  Disadvantages of MBO

business organisation largely depends upon
The disadvantages of MBO arise due to
putting up with the changing conditions. So, the
the application of the MBO which are discussed
top management executive should review the
below:
organisation’s objectives to frame the objectives
according to the changing situation. 1. MBO fails to explain the philosophy; most of
the executives do not know how MBO works?
3.05  Advantages of MBO what is MBO? and why is MBO necessary?
and how participants can benefit by MBO?
The advantages of MBO are explained below:
2. MBO is a time consuming process. Much
1. Managers are involved in objectives setting time is needed by senior people for framing
at various levels of management under the MBO. Next,it leads to heavy expenditure
MBO and this commitment ensures hard and also requires heavy paper work.
work to achieve them. 3. 
MBO emphasises only on short-term
2. 
MBO process helps the managers objectives and does not consider the long-
to understand their role in the total term objectives.
organisation. 4. The status of subordinates is necessary for
3. Manager recognises the need for planning proper objectives setting. But, this is not
and appreciates the planning. possible in the process of MBO.

4. MBO provides a foundation for participative 5. 

MBO is rigid one. Objectives should
management. Sub-ordinates are also be changed according to the changed
involved in goal setting. circumstances, external or internal. If it is not
done, the planned results cannot be obtained.
5. 
A department does not work at cross
purpose with another department. In other MANAGEMENT BY EXCEPTION
words, each department’s objectives are
(MBE)
consistent with the objectives of the whole
organisation. 3.07  Meaning of MBE
6. 
Systematic evaluation of performance is Management by exception is an important
made with the help of MBO. principle of managerial control suggested by the
classical writers on management. It is based on
7. MBO gives the criteria of performance. It
the belief that an attempt to control everything
helps to take corrective action.
results in controlling nothing. Management by
8. Delegation of authority is easily done with exception is a style of business management
the help of MBO. that focuses on identifying and handling cases
9. 
MBO motivates the workers by job that deviate from the norm.
enrichment and makes the jobs meaningful. For example, the production manager
10. 
The responsibility of a worker is fixed establishes quality control standards wherein five
through MBO. defects per 100 units produced are permissible.
So long as the number of defects does not exceed
11. Decision is taken by the management very 5, the supervisors/foremen (subordinates) will
quickly. The reason is that each worker handle the problem. Whenever there are more
knows the purpose of taking a decision and than 5 defects, the matter will be reported to the
does not oppose the decision. production manager.
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Management by exception (MBE) has study related business data for identifying
both a general business application and a deviations. There is better use of knowledge
business intelligence application. General of trends, history and available business data.
business exceptions are cases that deviate the v. MBE keeps management alert to
normal behavior in a business process and need opportunities and threats by identifying
to be cared for in a unique manner, typically by critical problems. It can avoid uninformed
human intervention. Their cause might include: and impulsive action.
process deviation, infrastructure or connectivity
issues, external deviation, poor quality business vi. Management by exception provides better
rules, malformed data, etc. yardsticks for judging results. It is helpful in
objective performance appraisal.
3.08 Process of MBE
3.10 Disadvantages of MBE
Primarily, it is necessary to set objectives
or norms with predictable or estimated results. i. The main disadvantage of MBE is, only
These performances are assessed and get managers have the power over really
equated to the actual performance.  Next, the important decisions, which can be
deviation gets analysed. With an insignificant demotivating for employees at a lower level.
or no deviation, no action is required and senior ii. Furthermore, it takes time to pass the
managers can concentrate on other matters. If issues to managers. Managing employees
actual performances deviates significantly, the who deviate from the normal procedures.
issue needs to be passed to the senior managers, Because of compliance failures are
as an “exception has occurred”. Finally, the aim considered difficult to manage and typically
is to solve this “exception” immediately. find themselves with limited job duties and
ultimately dismissed/terminated.
3.09 Advantages of MBE
Key words
Management by exception provides the
following benefits: Harmonise Appraisal Terminated

i. It saves the time of managers because they

deal only with exceptional matters. Routine
problems are left to subordinates. For Own Thinking
ii. It focuses managerial attention on major 1. Discussion on the various functions of
problems. As a result, there is better management, how it helps to MBE?
utilisation of managerial talents and energy.
2. State your own view about MBO and
iii. It facilitates delegation of authority. Top MBE need to the management.
management concentrates on strategic
3. Make your own project about MBO
decisions and operational decisions are left
and MBE with some examples.
to the lower levels. There is increase in span
of control. This leads to motivation and
development of subordinates.
iv. It is a technique of separating important
information from unimportant one. It
forces managers to review past history and

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Answers:
  Case Study 1 a 2 d 3 b 4 c

1. The company gets 30% of marginal profit II. Very Short Answer Questions:
for every year, but not increasing the salary 1. Define - MBO
of the employees for last three years. The
2. What are the objectives of MBO?
employees conduct the indefinite strike
against the company. Assume you are the 3. Bring out the meaning of MBE.
manager of the company. How to solve the 4. Mention any two advantages of MBO?
problem with using MBO or MBE?
5. What is known as KRA?

III. Short Answer Questions:

  Exercise 1. Write the features of MBO.
2. What are the Process of MBE?
3. List out any three process of MBO.
I. Choose the Correct Answers:
IV. Long Answer Questions:
1. ___________ System gives full Scope to the 1. What are the major advantages of MBO?
Individual Strength and Responsibility. 2. What are the advantages of MBE?
(a) MBO (b) MBE 3. Explain the various disadvantages of MBO.
(c) MBM (d) MBA 4. Discuss the disadvantages of MBE.
2. Which is the First step in Process of MBO?
References
(a) Fixing Key Result Area 1. Gupta. C. B, 2006, “Management Theory
(b) Appraisal of Activities and Practice”, Reprint. ed., Sultan Chand &
(c) Matching Resources with Activities Sons Pvt. Ltd., New Delhi-110 002.

(d) Defining Organisational Objectives 2. Gupta R. N. and others, 2009, “Principles

of Management,” Reprint.ed, S. Chand &
3. __________ keeps Management Alert to Company Pvt. Ltd., New Delhi-110 055.
Opportunities and Threats by Identifying
3. Ramasamy. T, 2007, “Principles of
Critical Problems. Management,” Reprint. ed., Himalaya
(a) MBA (b) MBE Publishing House Private Limited,
Mumbai-400 004.
(c) MBM (d) MBO
4. h t t p s : / / e n . w i k i p e d i a . o r g / w i k i /
4. Delegation of Authority is Easily Done
Management_by_exception
with the Help of __________ .
(a) MBM (b) MBE
(c) MBO (d) MBA

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UNIT FINANCIAL MARKETS - I

II
INTRODUCTION TO
4
CHAPTER
FINANCIAL MARKETS

வாரி ெபருக்கி வளம்படுத்து உற்றைவ

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 would destroy it).

Business firms need large funds to

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

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the suppliers to the users. The following diagram Financial Market is a market for creation
explains the Indian Financial System. and exchange of financial assets from household
savers to business firms or financial institutions
4.01 Meaning and Definition of as in the following picture.
Financial Market
A market wherein financial instruments
such as financial claims, assets and securities BUSINESS FIRMS
are traded is known as a ‘financial market’.

In another words, financial markets may

be channels through which flow loanable funds FINANCIAL MARKETS

directed from a  supplier  who has an excess of BANKS

assets toward a  demander  who experiences a

deficit of funds.
HOUSEHOLD SAVERS
Financial Financial
instruments instruments A financial market is an institution or
arrangement that facilitates the exchange of
Financial
Markets financial instruments such as equity shares,
Savers/ Lenders/
preference shares, debentures, deposits and loans,
Creditors Debtors corporate stocks and bonds, government bonds,
and more exotic instruments such as options and
According to Brigham, Eugene F, “The futures contracts.
place where people and organizations wanting Financial market transactions may take
to borrow money are brought together with place either at a specific place or location, e.g.
those having surplus funds is called a financial stock exchange, or through other mechanisms
market.” such as telephone, telex, or other electronic media.
A financial market, unlike the other
markets, is more of an intangible concept and 4.02 Scope of Indian Financial
basically refers to a market place where buyers Market
and sellers usually participate in an exchange of
The financial market provides financial
assets such as equities, bonds, derivatives and
assistance to individuals, agricultural sectors,
currencies.
industrial sectors, service sectors, financial
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institutions like banks, insurance sectors, d. On the Basis of Timing of Delivery
provident funds and the government as a of Financial Claim
whole. With the help of the financial market (i) Cash/Spot Market is a market where the
all the above stated individuals, institutions delivery of the financial instrument and
and the Government can get their required payment of cash occurs immediately. i.e.
funds in time. Through the financial market settlement is completed immediately.
the institutions get their short term as well (ii) Forward or Futures Market is a market
as long term financial assistance. It leads to where the delivery of asset and payment of
the overall economic development. cash takes place at a pre-determined time
frame in future.
4.03  Types of Financial Markets
Financial Markets can be classified in e. On the Basis of the Organizational
different ways. They are as follows: Structure of the Financial Market
a. On the Basis of Type of Financial (i) Exchange Traded Market is a centralized
Claim organization (stock exchange) with
standardized procedures.
(i) Debt Market is the financial market
(ii) Over–the–Counter Market is a
for trading in Debt Instrument (i.e.
decentralized market (outside the stock
Government Bonds or Securities,
exchange) with customized procedures.
Corporate Debentures or Bonds)
The above classification is not rigid. One
(ii) Equity Market is the financial market for
market may come under more than one
trading in Equity Shares of Companies.
category.
b. 
On the Basis of Maturity of
4.04  Role of Financial Market
Financial Claim
One of the important requisites for the
(i) Money Market is the market for short term
accelerated development of an economy is the
financial claim (usually one year or less)
existence of a dynamic and a resilient financial
E.g. Treasury Bills, Commercial Paper,
market. A financial market is of great use for a
Certificates of Deposit
country as it helps the economy in the following
(ii) Capital Market is the market for long manner:
term financial claim more than a year E.g.
Shares, Debentures (i) Savings Mobilization
c. On the Basis of Time of Issue of Obtaining funds from the savers or
Financial Claim ‘surplus’ units such as household individuals,
business firms, public sector units, Government
(i) Primary Market is a term used to include
is an important role played by financial markets.
all the institutions that are involved in the
sale of securities for the first time by the (ii) Investment
issuers (companies). Here the money from Financial market plays a key role in
investors goes directly to the issuers. arranging the investment of funds thus collected,
(ii) Secondary Market is the market for in those units which are in need of the same.
securities that are already issued. Stock
Exchange is an important institution in
(iii) National Growth
the secondary market. Financial markets contribute to a nation’s

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growth by ensuring an unfettered flow of interaction of buyers and sellers. They

surplus funds to deficit units. Flow of funds for provide a signal for the allocation of funds
productive purposes is also made possible. It in the economy, based on the demand and
leads to overall economic growth. supply, through the mechanism called price
discovery processes.
(iv) Entrepreneurship Growth
(vi) Sale Mechanism: Financial market provides
Financial markets contribute to the a mechanism for selling of a financial asset
development of the entrepreneurial class by an investor so as to offer the benefits of
by making available the necessary financial marketability and liquidity of such assets.
resources.
(vii) Information: The activities of the
(v) Industrial Development participants in the financial market result
The different components of financial in the generation and the consequent
markets help an accelerated growth of industrial dissemination of information to the
and economic development of a country and various segments of the markets, so as to
thus contributing to raising the standard of reduce the cost of transaction of financial
living and the society’s well-being. assets.

4.05 Functions of Financial Markets II. Financial Functions

A financial market renders the following The financial functions of a financial
market include the following:
functions:
(i) Providing the borrowers with funds so as to
I. Intermediary Functions
enable them to carry out their investment
The intermediary functions of a financial plans
market include the following:
(ii) Providing the lenders with earning assets
(i) Transfer of Resources: Financial markets so as to enable them to earn wealth by
facilitate the transfer of real economic deploying the assets in productive ventures
resource from lenders to ultimate borrowers.
(iii) Providing liquidity in the market so as to
(ii) Enhancing Income: Financial markets facilitate trading of funds.
allow lenders earn interest/dividend on
their surplus investible funds and thus
contributing to the enhancement of the
4.06 
New Issue Market (NIM)
individual and the national income. Vs. Secondary Market
(iii) Productive Usage: Financial markets Since his private properties are held liable
allow for the productive use of the funds for satisfying business debts, he can get more
borrowed and thus enhancing the income financial assistance from others.
and the gross national production.
Classification of Financial Assets
(iv) Capital Formation: Financial markets
provide a channel through which new Financial assets can be classified
savings flow to aid capital formation of a differently under different circumstances. One
country. such classification is:
(v) Price Determination: Financial markets (i) Marketable assets
allow for the determination of the price (ii) Non-marketable assets
of the traded financial asset through the

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BASIS FOR
NEW ISSUE MARKET SECONDARY MARKET
COMPARISON
The place where formerly
The market place for new
issued securities are traded is
Meaning shares is called primary market.
known as 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
Fluctuates, depends on the
Price Fixed price
demand and supply force
Organizational Not rooted to any specific spot
It has physical existence
difference or geographical location

Marketable Assets Non-Marketable Assets

Marketable assets are those which can be On the other hand, if the assets cannot be
easily transferred from one person to another transferred easily, they come under this category.
without much hindrance. Example: Shares of Example: Bank Deposits, Provident Funds,
Listed Companies, Government Securities, Pension Funds, National Savings Certificates,
Bonds of Public Sector Undertakings etc. Insurance Policies etc. This classification is
shown in the following chart.

Financial Assets
In any financial transaction, there should be a creation or transfer of financial asset.
Hence, the basic product of any financial system is the financial asset. A financial asset
is one which is used for production or consumption or for further creation of assets. For instance,
a buys equity shares and these shares are financial assets since they earn income in future.
In this context, one must know the distinction between financial assets and physical assets. Unlike
financial assets, physical assets are not useful for further production of goods or for earning income.
For example X purchases land and buildings or gold and silver. These are physical assets since they
cannot be used for further production. Many physical assets are useful for consumption only.
It is interesting to note that the objective of investment decides the nature of the asset. For instance
if a building is bought for residence purposes, it becomes a physical asset. If the same is bought for
hiring, it becomes a financial asset.

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2. Write a note on Financial Market.

Key words
3. What is Spot Market?
Financial Market Debt Market
Equity Market New Issue Market 4. What is Debt Market?
5. How is price decided in a Secondary Market?
III. Short Answer Questions:
1. Give the meaning and definition of Financial
  Exercise
Market.
2. Differentiate Spot Market from Future
Market.
I. Choose the Correct Answers:
3. Write a note on Secondary Market.
1. Financial market facilitates business firms
4. Bring out the scope of Financial Market in
a) To rise funds India.
b) To recruit workers
IV. Long Answer Questions:
c) To make more sales
d) To minimize fund requirement 1. Distinguish between New issue market and
Secondary Market.
2. Capital market is a market for
2. Enumerate the different kinds of Financial
a) Short Term Finance Markets.
b) Medium Term Finance 3. Discuss the role of Financial Market.
c) Long Term Finance 4. What are the functions of Financial Markets?
d) Both Short Term and Medium Term Finance
References
3. Primary market is also called as
1.
BhallaV.K, (2013), “Investment
a) Secondary market b) Money market Management Security Analysis and Portfolio
c) New Issue Market d) Indirect Market Management”, S. Chand & Company Pvt.
Ltd., Ram Nagar, New Delhi.
4. Spot Market is a market where the delivery
of the financial instrument and payment 2. Ranganatham. M et.al., (2006) “.Investment
of cash occurs Analysis and Portfolio Management”,
ISBN 978-81-7758-229-1, Dorling
a) Immediately b) In the future
Kindersley(India) Pvt.Ltd., licensees of
c) Uncertain d) After one month Pearson Education in South Asia.
5. How many times a security can be sold in
3.
Rustagi.R.P, (2005), “Investment
a secondary market?
Management Theory and Practice”,
a) Only one time b) Two time Published Sultan Chand & Sons, 23,
c) Three times d) Multiple times Daryaganj, New Delhi.
Answers: 4. www.keydifferences.com/difference-
1 a 2 c 3 c 4 a 5 d between-primary-market-and-secondary-
market.html#Definition
II. Very Short Answer Questions:
1. 
What are the components of organized
sectors?

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UNIT FINANCIAL MARKETS - I

II
CAPITAL MARKET
5
CHAPTER

முதலிலார்க ஊதிய மில்ைல மதைலயாஞ்

சார்பிலார்க் 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
available at reasonable cost. The process of
Chapter Synopsis economic development is facilitated by the
existence of a well functioning capital market.
5.01 Meaning and Definition
5.02 Characteristics of Capital Market
5.01 Meaning and Definition
5.03 Kinds of Capital Market
Capital market is a market where buyers
5.04 Functions and Importance of Capital and sellers engage in trade of financial securities
Market
like bonds, and stocks. The buying/selling is
5.05 Indian Capital Market – Evolution undertaken by participants such as individuals
and Growth 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
i.e., primary market and secondary market as
Stock Exchange
shown in the following chart.
According to Arun K. Datta, capital
market may be defined as “a complex of insti- Kinds of Capital Market
tutions investment and practices with estab-
lished links between the demand for and sup-
ply of different types of capital gains”. Primary Market Secondary Markets

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

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

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Long term funds are also provided for A number of committees were constituted
development projects in backward and rural in order to suggest measures to revamp and
areas. restructure the working of the secondary
market and cause buoyancy in the primary
(ix) Foreign Capital
market. Some of these committees were:
Capital markets makes possible to Committee on Organization and Management
generate foreign capital. Indian firms are of Stock Exchange, Working group on the
able to generate capital funds from overseas Development of the Capital Market, A Study
markets by way of bonds and other securities. Group for Guidelines Relating to Valuation
Government has liberalised Foreign Direct and New Instruments, A High Powered
Investment (FDI) in the country. This not Study Group on Establishment of New Stock
only brings in foreign capital but also foreign Exchange, A Committee on Trading in Public
technology which is important for economic Sector Bonds and Units of Mutual Funds.
development of the country.
(x) Easy Liquidity
5.06  New Financial Institutions
With the help of secondary market A number of institutions of finance
investors can sell off their holdings and have been established to cater to the credit
convert them into liquid cash. Commercial requirements of various segments of industry
banks also allow investors to withdraw their and needs. A brief outline of these institutions
deposits, as and when they are in need of is presented below;
funds.
(i) Venture Fund Institutions
5.05 Indian Capital Market – Venture capital financing is a form
Evolution and Growth of equity financing designed especially for
The period between 1947 and 1973 funding new and innovative project ideas.
marked the development of infrastructure for Venture capital funds bring into force the hi-
capital market. During this period, a network technology projects which are converted into
of development financial institutions such as commercial production. Many specialized
IFCI, ICICI, IDBI and UTI, SFCs and SIDCs financial institutions have promoted their
were established. These financial institutions own venture capital funds. They include Risk
strengthened the capital market. Capital Foundation of IFCI, Venture Fund of
IDBI, SIDBI, Technology Development and
During the period between 1980 and Infrastructure Corporation of India (TDICI),
1992, debenture emerged as a powerful and others.
instrument of resource mobilization in the
primary market. The public sector bonds were (ii) Mutual Funds
introduced. A number of stock exchanges Financial institutions that provide
came into existence. There was a momentous facilities for channeling savings of small
growth in the secondary market. investors into avenues of productive
SEBI emerged as an effective regulatory investments are called ‘Mutual Funds’. A
body for the primary and secondary markets mutual fund company invests the funds
and afford a measure of protection to small pooled from shareholders and gives them the
investors. New financial services such as benefit of diversified investment portfolio
credit rating was introduced. and a reasonable return.

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Specialized financial institution like takes place through a book entry. The entire
LIC, UTI, etc., beside commercial banks such scripless trading system comprises the
as SBI, and Canara Bank are carrying out the following three segments:
business of mutual funds. The benefits of a. National Trade Comparison and Reporting
mutual fund are high return, easy liquidity, System which prescribes the terms and
safety and tax benefits to the investors. conditions of contract for the securities
(iii) Factoring Institutions market
“Factoring” is an arrangement whereby b. National Clearing System which aims
a financial institution provides financial at determining the net cash and stock
accommodation on the basis of assignment/ liability of each broker on a settlement
sale of account receivables. The factoring date
institutions collect the book debts for and c. National Depository System which
on behalf of its clients. Some of the factoring arranges to provide for the transfer of
institutions operating in India are SBI ownership of securities in exchange on
Factors and Commercial Services Private payment by book entry on electronic
Limited, a subsidiary of State Bank of India ledgers without any physical movement of
and Canbank Factors Limited, a subsidiary transfer deed
of Canara Bank.
(vii) National Securities Depositories
(iv) Over the Counter Exchange of Limited
India (OTCEI)
The NSDL was set up in the year 1996
The OTCEI was set up by a premier for achieving a time bound dematerialization
financial institution to allow the trading as well as rematerialization of shares. The
of securities across the electronic counters establishment of NSDL is expected to alleviate
throughout the country. It addresses some the problems of post trade transactions in
specific problems of both investors and medium- the secondary market.
size companies. Some of the greatest strengths of
OTCEI are transparency of transactions, quick (viii) Stock Holding Corporation of
deals, faster settlements and better liquidity. India Limited (SHCIL)
(v) National Stock Exchange of India Stock Holding Corporation of India
Limited (SHCIL) aims at serving as a central
Limited (NSEI)
securities depository in respect of transactions
NSEI was established in 1992 to function on stock exchanges. The Corporation also
as a model stock exchange. The Exchange takes up the administration of clearing
aims at providing the advantage of nation- functions at a national level.
wide electronic screen based “scripless” and
“floorless” trading system in securities. The Foreign Exchange Market
institution is expected to allow for an efficient
and transparent system of securities trading.
(vi) National Clearance and
Depository System (NCDS)
Under the scripless trading system,
settlement of transactions relating to securities
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The foreign exchange market abets the Derivatives market facilitates the trading in
foreign exchange trading. It is the largest, most financial instruments such as futures contracts
liquid market in the world with an average and options used to help control financial risk.
traded value of more than $5 trillion per day. The instruments derive their value mostly from
It includes all of the currencies in the world the value of an underlying asset that can come
and any individual, company or country can in many forms – stocks, bonds, commodities,
participate in it. currencies or mortgages.
I.  Commodity Market
Gilt-Edged Market also known as
The commodity market manages the trading Government Securities market is
in primary products which takes place in the market for Government and
about 50 major commodity markets where semi-Government securities. An important
financial transactions increasingly outstrip
feature of the securities traded in this market
physical purchases which are to be delivered.
is that they are stable in value and are much
Commodities are commonly classified in two
sought after by banks.
subgroups.
• Hard Commodities Market • Guaranteed return on investments
• No speculation in securities
• Soft Commodities Market
• Institutional based investors which are
compelled by law to invest a portion of
their funds in these securities.
• 
Predominated by such institutions as
LIC, GIC, PFs and the commercial banks
• 
Heavy volume of transactions
necessitating negotiation of each
transaction

Hard commodities are raw materials typically

mined, such as gold, oil, rubber, iron, and ore.   Exercise
Soft commodities are typically grown
agricultural primary products such as wheat,
cotton, coffee, and sugar.
I. Choose the Correct Answers:
1. Capital market do not provide
II.  Derivatives Market a) Short term Funds
b) Debenture Funds
c) Equity Funds
d) Long term Funds
2. When the NSEI was established
a) 1990 b) 1992
c) 1998 d) 1997

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3. Primary market is a Market where securities References

are traded in the 1. Dr.SUNDAR,K 2017, Business Organisation,
a) First Time b) Second Time Vijay Nicole Imprints Pvt 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
Kindersley(India) Pvt.Ltd., licensees of
Answers:
Pearson Education in South Asia.
1 a 2 b 3 a 4 d
4. BhallaV.K, (2013), “Investment
II. Very Short Answer Questions: Management Security Analysis and Portfolio
Management”, S. Chand & Company Pvt.
1. What is Capital Market?
Ltd., Ram Nagar, New Delhi.
2. Write a note on OTCEI.
5. www.economictimes.indiatimes.com/
3. What is Mutual Fund? definition/capital-market
4. Who are the participants in a Capital Market? 6. w w w . s h o d h g a n g a . i n f l i b n e t .
5. How is price determined in a Capital Market? ac.in/bitstream/10603/33042/11/
11_chapter%201.pdf
III. Short Answer Questions: 7. https://dollarsandsense.sg/10-biggest-
1. What are the various kinds of Capital stock-exchanges-world-heres-much-
Market? Explain. theyve-gained-2017/
2. Explain any two functions of Capital Market.
3. Write a note on National Clearance and
Depository System (NCDS).
4.Discuss about evolution and growth of
Indian Capital Market.
5. Explain about Factoring and Venture Capital
Institutions.

IV. Long Answer Questions:

1. Discuss the characters of a Capital Market.
2. Briefly explain the functions of Capital
Market.
3. Explain the various types of New Financial
Institutions.

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UNIT FINANCIAL MARKETS -I

II
MONEY MARKET
6
CHAPTER

சிறப்புஈனும் ெ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 maturities of less than
Chapter Synopsis one year are traded. Examples: Treasury Bills,
Commercial Bills, Certificate of Deposits,
6.01 Meaning and Definition
Government Securities, etc.,
6.02 Objectives and Characteristics
According to Crowther, ”the money
6.03 Difference between Money Market
and Capital Market market is the collective name given to the
various firms and institutions that deal in the
6.04 Participants in Money Markets
various grades of near money”.
6.05 Money Market Instruments
The RBI defines the money market as,
6.05.01 Treasury Bills “a market for short-term financial assets that
6.05.02 Certificate of Deposit are close substitutes for money facilitates the
6.05.03 Commercial Bills exchange of money for new financial claims
6.05.04 Government or Gilt-Edged in the primary market as also for financial
Securities Market. claims, already issued, in the secondary
market”.

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6.02  Objectives and Characteristics 6. Role of Market

The components of a money market are
Objectives
the Central Bank, Commercial Banks, Non-
A well-developed Money Market serves Banking Financial Companies, Discount
the following objectives: Houses and Acceptance House. Commercial
1. 
Providing an equilibrium mechanism banks generally play a dominant role in this
for ironing out short-term surplus and market.
deficits. 7. Highly Organized Banking System
2. Providing a focal point for Central Bank
The Commercial Banks are the nerve
intervention for influencing liquidity in
centre of the whole money market. They are
the company.
the principal suppliers of short-term funds.
3. Providing access in uses to users of short- The commercial banks serve as vital link
term money to meet their requirements between the Central Bank and the various
at a reasonable price. segments of the money market.
Characteristics
8. Existence of Secondary Market
1. Short-term Funds
There should be an active secondary
It is a market purely for short-term market for these instruments.
funds or financial assets called near money.
9. Demand and Supply of Funds
2. Maturity Period
There should be a large demand and
It deals with financial assets having a supply of short-term funds. It presupposes
maturity period upto one year only. the existence of a large domestic and foreign
3. Conversion of Cash trade.

It deals with only those assets which 10. Wholesale Market

can be converted into cash readily without It is a wholesale market and the volume
loss and with minimum transaction cost. of funds or financial assets traded in the
4. No Formal Place market is very large.

Generally, transactions take place 11. Flexibility

through phone, i.e., oral communication. Due to greater flexibility in the
Relevant documents and written regulatory framework, there are constant
communications can be exchanged endeavours for introducing new instruments.
subsequently. There is no formal place like
12. Presence of a Central Bank
stock exchange as in the case of a capital
market. The central bank keeps their cash
reserves and provides them financial
5. Sub-markets
accommodation in difficulties by discounting
It is not a single homogeneous market. their eligible securities. Through its open
It comprises of several sub-markets each market operations the central bank absorbs
specialising in a particular type of financing. surplus cash during off-seasons and provides
E.g., Call Money Market, Acceptance Market, additional liquidity in the busy seasons.
Bill Market.

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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-term loanable
Duration of It is a market for long-term funds
1 funds for a period of not exceeding
Funds exceeding period of one year.
one year.
This market supplies funds
This market supplies funds
for financing current business
for financing the fixed capital
Supply of operations working capital
2 requirements of trade and
Funds requirements of industries and
commerce as well as the long-term
short period requirements of the
requirements of the government.
government.
It deals with instruments like It deals with instruments like
Deals with
3 commercial bills (bill of exchange, shares, debentures, Government
Instruments
treasury bill, commercial papers etc.). bonds, etc.,
Each single money market instrument
Each single capital market
is of large amount. A treasury bill
Money instrument is of small amount.
4 is of minimum for one lakh. Each
Value Each share value is Rs 10. Each
certificate of deposits or commercial
debenture value is Rs 100.
paper is for minimum of Rs 25 lakh.
Role of The central bank and commercial Development banks and Insurance
5 Major banks are the major institutions in companies play a dominant role in
Institution the money market. the capital market.
Transactions mostly take place over
Place of Transactions take place at a formal
6 the phone and there is no formal
Transaction place. Eg. stock exchange.
place.
Transactions have to be conducted Transactions have to be conducted
without the help of brokers i.e., only through authorized dealers
7 Participants Bankers, RBI and Government. i.e., Brokers, Investors, Merchant
Bankers, Underwriters and
Commercial Banks.
The number of instruments dealt in The number of instruments in
money market are include capital market is very few namely,
1) Inter-bank call money shares and debentures.
Number of 2) Notice money upto 14 days
8 Instruments 3) Short-term deposits upto 3months
Dealt 4) 91 days Treasury bill
5) 182 days Treasury bill
6) Commercial papers etc.,

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Financial claims, assets and securities Bonds and shares are dealt in the
are dealt in the Money Market. Capital Market
9 Claims

Low credit and market risk. High credit and market risk
10 Risk

High liquidity in Money Market Low liquidity in Capital Market

11 Liquidity

No price discovery mechanism and Price discovery mechanism exists in

Price exists in this Market. Capital Market
12
Discovery

Central Bank is the Regulator of Besides Central Bank, Special

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

Underwriting is not a primary It is a primary function.

14 Underwriting function.

Dominant Commercial Banks are the dominant Non-banking financial companies

15
Institutions institutions. and special financial institutions.

6.04 
Participants in Money 6.05  Money Market Instruments
Markets There are many kinds of Instruments available
in Money Market. In India, till 1986, only a
There are many participants operating in
few instruments were available. They were as
the Money Market. The participants deal with
follows:
the money market instruments like Treasury
Bills, Commercial Bills, Commercial Papers, i. Treasury Bills in the Treasury Market
etc., ii. Money at Call and Short Notice in the
1. Government of different countries Call Loan Market
2. Central Banks of different countries iii. Commercial Bills and Promissory Notes
in the Bill Market
3. Private and Public Banks
Now in addition to the above, the following
4. Mutual Funds Institutions
new instruments come into existence:
5. Insurance Companies
i. Commercial Papers
6. Non-Banking Financial Institutions
ii. Certificate of Deposits
7. RBI and SBI
iii. Inter-Bank participation Certificates.
8. Commercial Banks
iv. Repo Instruments.
9. State Governments
These instruments are brieflty highlighted in
10. Public
this chapter.
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Treasury Bill Market 6.05.02  Certificate of Deposits

A market for the purchase and sale of Treasury
Bills is known as a “Treasury Bills Market”.
6.05.01  Treasury Bills
Treasury bills are very popular and enjoy a
higher degree of liquidity since they are issued by
the Government. A Treasury bill is nothing but
a promissory note issued for a specified period
stated therein. The Government promises to
Specimen Copy of Certificate of Deposit
pay the specified amount mentioned therein to
Certificate of Deposits are short-term
the bearer of the instrument on the due date.
deposit instruments issued by banks and
The period does not exceed a period of one year.
financial institutions to raise large sums of
General Features money. Certificate of Deposits are issued in
Treasury Bills incorporate the following the form of usance promissory notes. They
general features. are easily convertible in nature and are in
1. Issuer marketable form having particular face value
2. Finance Bills and maturity. The Certificate of Deposit is
3. Liquidity transferable from one party to another. Due to
4. Vital Source their negotiable feature, they are also known as
5. Monetary Management negotiable certificate of deposit.
Issuers
Types of Treasury Bills
The Issuers of Certificate of Deposits are
Treasury Bills are issued to the public
Commercial Banks, Financial Institutions, etc.,
and other financial institutions for meeting the
short-term financial requirements of the Central Subscribers
Government. These bills are freely marketable and Certificate of Deposits are available for
they can be bought and sold at any time and these subscription by individuals, corporations,
bill are tradable in secondary market as well. trusts, associations and NRIs. It is a document
of title to a time deposit. It is a bearer certificate
On the basis of periodicity, Treasury Bills
and is negotiable in the market.
may be classified into three. They are:
1) 91 days Treasury Bills Features of Certificate of Deposit
2) 182 days Treasury Bills and 1. Document of title to time deposit
3) 364 days Treasury Bills 2. It is unsecured negotiable instruments.
3. It is freely transferable by endorsement
Ninety one days Treasury Bills are issued
and delivery.
at a fixed discount rate of 4 per cent as well as
4. It is issued at discount to face value.
through auctions. The RBI holds 91 days and
5. It is repayable on a fixed date without
182 Treasury Bills and they are issued on tap
grace days.
basis throughout the week. 364 days Treasury
6.05.03  Commercial Bills
Bills do not carry any fixed rate. The discount
rate on these bills are quoted in auction by the A bill of exchange issued by a commercial
organization to raise money for short- term
participants and accepted by the authorities.
needs. These bills are of 30 days, 60 days and 90
Such a rate is called cut off rate.
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days maturity. e. Accommodation Bills

The Commercial Bill is an instrument Accommodation bills are those which do
drawn by a seller of goods on a buyer of goods. not arise out of genuine trade of transactions.
It possesses the advantages like self-liquidating
6.05.04 Government or Gilt-Edged
in nature, recourse to two parties, knowing
exact date of transactions, transparency of
Securities Market
transactions etc., A market whereby the Government or
gilt-edged securities can be bought and sold is
Specimen Copy of Commercial Bill
called ‘Government Securities Market’.
Features
The features of the Commercial Bills are Government or Gilt-Edged Securities
as follows: Government securities are issued for the
1. Drawer purposes of refunding the maturing securities,
2. Acceptor for advance refunding securities, which
3. Payee have not yet matured and for cash financing,
4. Discounter i.e., raising fresh cash resources.
5. Endorser
6. Assessment
7. Maturity
8. Credit Rating
Types
a. Demand Bills
A demand bill is one wherein no specific Specimen Copy of Government or
time of payment is mentioned. So, demand Gilt-Edged Securities
bills are payable immediately when they are
presented to the drawee. Characteristics
b. Clean bills and documentary Bills Government Securities plays a significant
Bills that are accompanied by documents role in the Indian Money Market. The
of title to goods are called documentary bills. characteristics of Government Securities are
Clean bills are drawn without accompanying discussed below:
any document. 1. Agencies
E.g. Railway Receipt and Lorry Receipt Government securities are issued by
c. Inland bills and Foreign Bills agencies such as Central Government, State
Governments, semi-government authorities
Bills that are drawn and payable in India
like local Government authorities, e.g.
on a person who is resident in India are called
municipalities, autonomous institution such
inland bills. Bills that are drawn outside India
as metropolitan authorities, port trusts etc.,
and are payable either in India or outside India
are called foreign bills. 2. RBI Special Role
d. Indigeneous Bills RBI takes a special and an active role in
the purchase and sale of these securities as
The drawing and acceptance of indigenous
part of its monetary management exercise.
bills are governed by native custom or usage of
trade.

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3. Nature of Securities 11. Issue opening

Securities offer a safe avenue of investment A notification for the issue of the
through guaranteed payment of interest and securities is made a few days before the public
repayment of principal by the Government. subscription is open.
4. Liquidity Profile 12. Grooming Gradual
The liquidity profile of gilt-edged securities Acquisition of securities nearing maturity
varies. Accordingly liquidity profile of securities through the stock exchanges by the RBI in
issued by Central Government is high. order to facilitate redemption is described as
‘grooming’.
5. Tax Rebate
13. Switching
A striking feature of these securities is
that they offer wide-range of tax incentives to The purchase of one security against the
investors. This has made these securities very sale of another security carried out by the RBI in
popular for this benefit. the secondary market as part of its open market
operations is described as ‘Switching’.
6. Market
14. Auctioning
As each sale and purchase has to be
negotiated separately, the Gilt-Edged Market is A method of trading whereby merchants
an Over-The-Counter Market. The Government bid against one another and where the securities
securities market in India has two segments are sold to the highest bidder is known as
namely primary market and secondary market. ‘auctioning’.
7. Forms
The securities of Central and State London Money Market is the oldest,
Government take such forms as inscribed stock or most developed and leading Money
stock certificate, promissory note and bearer bond. Market in the world.

8. Participants New York Money Market is ranked as

the second well-developed Money Market in
The participants in Government securities
the world next only to the London Money
market include the Government sector
Market.
comprising Central and State Governments
whose holdings represent governmental
transfer of resources.
For Own Thinking
9. Trading
If you earn money, which investment plan
Although the secondary market for would you like?
Government securities is narrow, small and 1. Mutual Funds
less active, banks and corporate holders who 2. Shares
purchase and sell Government securities on the 3. Debentures
stock exchanges participate in trading. 4. Treasury Bill
10. Issue Mechanism 5. Commercial Bill
6. Certificate of Deposit
The Public Debt Office (PDO) of the RBI Why? Give reasons.
undertakes to issue government securities.

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Key words
  Exercise
Treasury Bills Commercial Bills
Commercial Papers Government Bonds
Money Market Capital Markets
I. Choose the Correct Answers:
Certificate of Deposits Auctioning

1. The money invested in the call money

  For Future Learning market provides high liquidity with
_________________.
How to Invest Money in Money Market
a) Low Profitability
Funds?
b) High Profitability
Gathering information about Money
c) Limited Profitability
Market Funds
d) Medium Profitability
Learn about money market
2. A major player in the money market is
Understand the goal of money market
the _________________.
funds. 
a) Commercial Bank
Learn the disadvantages of money market
b) Reserve Bank of India
funds. 
c) State Bank of India
Investing in Money Market Funds
d) Central Bank.
Understand the different types of Money
3. Money Market provides_______________.
Market Funds
a) Medium-term Funds
Understand the purpose of Money Market
b) Short-term Funds
Funds
c) Long-term Funds
Compare past yields
d) Shares
Buying and Tracking of Money Market
4. Money Market Institutions are
Funds
__________.
a) Investment Houses
Buy at Money Market Fund
b) Mortgage Banks
Track the Investment
c) Reserve Bank of India
Use records for tax filing d) Commercial Banks and Discount
Houses.
5. Risk in the Money Market is __________.
a) High
b) Market Risk
c) Low Credit and Market Risk
d) Medium Risk

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6. Debt Instruments are issued by Corporate II. Very Short Answer Questions:
Houses are raising short-term financial 1. Define the term “Money Market”.
resources from the money market are
2. What is a CD market?
called __________.
3. What is Government Securities Market?
a) Treasury Bills
b) Commercial Paper 4. What do you meant by Auctioning?

c) Certificate of Deposit 5. What do you meant by Switching?

d) Government Securities III. Short Answer Questions:

7. 
The market for buying and selling of 1. What are the features of Treasury Bills?
Commercial Bills of Exchange is known 2. Who are the participants of Money Market?
as a __________.
3. Explain the types of Treasury Bills?
a) Commercial Paper Market
4. What are the features of Certificate of Deposit?
b) Treasury Bill Market
5. What are the types of Commercial Bill?
c) Commercial Bill Market
IV. Long Answer Questions:
d) Capital Market
1. Differenciate between the Money Market and
8. A marketable document of title to a time
Capital Market.
deposit for a specified period may be
referred to as a __________. 2. Explain the characteristics of Money Market?
a) Treasury Bill 3. Explain the Instruments of Money Market?
b) Certificate of Deposit 4. Explain the features and types of Commercial
c) Commercial Bill Bills?
d) Government. Securities 5. What are the characteristics of Government
9. Treasury Bills commands ___________. Securities?
a) High Liquidity
References
b) Low Liquidity
1. Financial Markets and Services – E.Gordon
c) Medium Liquidity
and Natarajan,
d) Limited Liquidity
2. Investment Management Security Analysis
10. 
G overnment Securities are issued by
and Portfolio Management – Dr. L Natarajan,
agencies such as __________.
3. Financial Services (Indian Financial System) –
a) Central Government
Prof. B. Santhanam, Financial Marketing –
b) State Governments
Dr. Gurusamy
c) Semi-government Authorities
d) All of the above.
Answers:
1 a 2 a 3 b 4 d 5 c
6 b 7 c 8 b 9 a 10 d

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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).

Chapter Synopsis
Learning Objectives
7.01 Stock Exchange – Origin, Meaning
To enable the students to understand the and Definition
■ Origin, Meaning and Definition of
Stock Exchange 7.02 Functions of Stock Exchange
■ Functions and Features of Stock 7.03 Features of Stock Exchange
Exchange 7.04 Benefits and Limitations of Stock
■ Benefits and Limitations of Stock Exchange
Exchange
7.05 Stock Exchanges in India
■ Stock Exchanges in India
■ Stock Exchange Traders 7.06 Types of Speculators
■ Types of Speculators 7.07 Stock Exchange Vs Commodity
■ Difference between Stock Exchange and Exchange
Commodity Exchange 7.08 Recent Development in Stock
■ Recent Development in Stock Exchange 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 recognized by Government of India on Aug 31,
provide a place for the investors to buy and sell 1957 under Securities Contract (Regulation)
securities freely. The market offers perfectly Act, 1956. It became The Bombay Stock
competitive conditions where a large number Exchange subsequently.
of sellers and buyers participate. Further, stock
Meaning
exchanges provide an auction market in which
members of the exchange participate to ensure Stock Exchange (also called  Stock
continuity of price and liquidity to investors. Market or Share Market) is one of the important
The efficient functioning of the constituents of Capital market. Stock Exchange
stock exchange is responsible for creating a is an organized market for the purchase and
conductive climate for an active and growing sale of industrial and financial security. It is a
primary market for new issues. Moreover, convenient place where trading in securities is
an active and a healthy secondary market in conducted in a systematic manner i.e. as per
existing securities leads to a better psychology certain rules and regulations. It performs various
of expectations, considerably broadening the functions and offers useful services to investors
investment enquiries and thereby, rendering the and borrowing companies. It is an investment
task of raising resources by entrepreneurs easier. intermediary and facilitates economic and
Good performance and outlook for equities in industrial development of a country.
the stock exchanges imparts buoyancy to the Stock exchange is an organized market
new issue market. for buying and selling corporate and other
securities. Here, securities are purchased and
7.01 Stock Exchange – Origin, sold out as per certain well-defined rules
Meaning, Definition and regulations. It provides a convenient and
secured mechanism or platform for transactions
Origin 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
speculation or a gambling den. It should act as
a place for safe and profitable investment, for
this, effective control on the working of stock
Amsterdam Stock Exchange is considered
exchange is necessary. This will avoid misuse of
as the oldest stock exchange in the world. It
this platform for excessive speculation, scams
was established in the year 1602 by Dutch
and other undesirable and anti-social activities.
East India company called VerenigdeOost-
IndischeCompagnie called ‘VOC’. It was later London stock exchange (LSE) is the
rechristended as “Amsterdam Bourse”. The most popular stock exchange in the world.
first stock exchange in India was“The Native While Bombay stock exchange (BSE) is the
Shares and Stock Brokers Association”. It was oldest stock exchange in India. Similar Stock

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exchanges exist and operate in other parts of the easily evaluate the worth of one’s securities on the
world. (Tokyo Stock Exchange, Bankgaco Stock basis of these quotations. The lender can easily
Exchange, Singapore Stock Exchange, Dubai assess the worth of security offered for loan.
Stock Exchange, Newyork Stock Exchange) 3. Protection to Investors
Definition All dealings in a stock exchange are
in accordance with well-defined rules and
According to Hastings, "Stock exchange regulations. For example, brokers cannot charge
or securities market comprises all the places higher rate of commission for their services.
where buyers and sellers of stocks and bonds Any malpractice will be severely punished. Thus
or their representatives undertake transactions stock exchange provides reasonable measure of
involving the sale of securities.” safety and fair dealing in buying and selling of
According to Husband and Dockerary, securities.
"Stock exchanges are privately organized
4. Proper Chanalisation of Capital
markets which are used to facilitate trading in
People like to invest in the shares of such
securities."
companies which yield good profits. The savings
The Indian Securities Contracts
of individuals are directed towards promising
(Regulation) Act of 1956, defines Stock
companies which declare good dividends over
Exchange as,"An association, organization or
a period of time. But for the stock exchanges,
body of individuals, whether incorporated or
these savings are likely to be wasted on the
not, established for the purpose of assisting,
shares of unprofitable units.
regulating and controlling business in buying,
5. Aid to Capital Formation
selling and dealing in securities."
The publicity which the stock exchange
7.02 Functions of Stock Exchange: gives to various industrial securities and their
The various functions of a Stock prices and the facilities provided by it for their
purchase and sale induce people to save and
Exchange are explained below.
invest. Stock exchanges thus ensure a steady flow
The various functions of a Stock Exchange of capital into industry and assists industrial
are explained below. development.
1. Ready and Continuous Market 6. Facilities for Speculation
Stock Exchange is, in fact, a market for Speculation is an integral part of stock
existing securities. If an investor wants to sell exchange operations. As a result of speculation,
his securities, he can easily and quickly dispose demand for and supply of securities are
them off on a stock exchange. In other words, equalized. Similarly, price movements are
he can convert his shares into cash and with the rendered smoothly.
same ease he can convert his cash into securities.
7. Seasoning of Securities
This easy marketability of securities increases
their liquidity (conversion of securities into Speculators and underwriters hold for
cash easily and quickly) and consequently raises a temporary period, securities issued by new
their value. companies. They unlock them when the market
is prepared to absorb the new issues.
2. Correct Evaluation of Securities
8. Clearing House of Business Information
The prices at which securities are bought
and sold are recorded and made public. These Listed companies are required to furnish
prices are called “market quotations”. One can all important information relating to capital

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management, dividend distribution etc, and have to buy or sell the securities at the stock
forward copies of financial statements, annual exchange through the authorised brokers only.
reports etc, to the stock exchange. They publish 6. Association of Persons 
every year, books detailing the financial position A stock exchange is an association of
of companies. Thus, it gives vital information to persons or body of individuals which may be
the investing public for deciding on investment. registered or unregistered.
7.03  Features of Stock Exchange: 7. Recognition from Central Government 
Stock exchange is an organised market.
These are various qualities of a It requires recognition from the Central
Stock Exchange. Such qualities are Government.
enumerated below:
8. Working as per Rules 
1. Market for Securities 
Buying and selling transactions in
Stock exchange is a market, where securities at the stock exchange are governed by
securities of corporate bodies, government and the rules and regulations of stock exchange as
semi-government bodies are bought and sold. well as SEBI Guidelines. No deviation from the
2. Deals in Second Hand Securities  rules and guidelines is allowed in any case.
It deals with shares, debentures bonds and 9. Specific Location 
such securities already issued by the companies. Stock exchange is a particular market place
In short, it deals with existing or second hand where authorised brokers come together daily
securities and hence it is called secondary (i.e. on working days) on the floor of market
market. called trading circles and conduct trading
3. Regulates Trade in Securities  activities. The prices of different securities
traded are shown on electronic boards. After the
Stock exchange does not buy or sell any
working hours market is closed. All the working
securities on its own account. It merely provides
of stock exchanges is conducted and controlled
the necessary infrastructure and facilities for
through computers and electronic system.
trade in securities to its members and brokers
10. Financial Barometers 
who trade in securities. It regulates the trade
activities so as to ensure free and fair trade. Stock exchanges are the financial
barometers and development indicators of
4. Allows Dealings only in Listed Securities 
national economy of the country. Industrial
In fact, stock exchanges maintain an growth and stability is reflected in the index of
official list of securities that could be purchased stock exchange.
and sold on its floor. Securities which do not
figure in the official list of stock exchange 7.04 
Benefits and Limitations of
are called unlisted securities. Such unlisted Stock Exchange
securities cannot be traded in the stock The Benefits of Stock Exchange
exchange. are classified into Benefits to the
5. 
Transactions Effected only through Community, Company and Investors.
Members 
A. Benefits to the Community
All the transactions in securities at the
stock exchange are effected only through its i. Economic Development
authorised brokers and members. Outsiders or It accelerates the economic development
direct investors are not allowed to enter in the by ensuring steady flow of savings into
trading circles of the stock exchange. Investors productive purposes.
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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
are published daily in the newspapers and in
iv. Capital Formation
websites.
It encourages capital formation.
v. Mechanism to trade security
v. Fund Raiser for Government
Stock Exchange provides a mechanism by
It enables Government to raise funds for which purchase and sale of listed securities take
undertaking projects through sale of securities place in a matter of few minutes.
on the stock exchange. Thus stock exchange
serves as a platform for raising public debt. Limitations of Stock Exchange:

B. Benefits to the Company The limitations of stock exchange are as

follows
i. Enhances Goodwill or Reputation
i.  Lack of uniformity and control of stock
Companies whose shares are quoted on
exchanges.
a stock exchange enjoy greater goodwill and ii. Absence of restriction on the membership
credit standing. of stock exchanges.
ii. Wide Market iii. Failure to control unhealthy speculation.
There is a wide and ready market for such iv. Allowing more than one charge in the place.
securities. v. Non-insistence of margin requirement in
iii. Raises huge funds stock exchange or in the case of produce
exchanges.
Stock Exchange can raise huge funds
vi. No proper regulation of listing of securities
easily by issue of shares and debentures.
on the stock exchange.
iv. Increases bargaining strength
7.05  Stock Exchanges In India:
Companies whose shares rise in the stock
exchange command higher bargaining power There are 24 stock exchanges in the
in the event of further expansion, merger or country, with 21 of them being regional in
amalgamation. nature. Three others that have been set up in
the reforms era, viz., National Stock Exchange
C. Benefits to Investors (NSE), the Over the Counter Exchange of India
i. Liquidity Limited (OTCEI), and Interconnected Stock
Stock exchange helps an investors to Exchange of India Limited (ISE) have mandate
to nationwide trading network. The ISE has
convert his shares into cash quickly and thus
been promoted by 15 regional stock exchanges
increases the liquidity of his investments.
in the country and is based at Mumbai. The
ii. Adding collateral value of security
ISE provides a member-broker of any of these
The fact that a security is dealt on a stock stock exchanges an access into the national
exchange makes it a good collateral security for market segment, which would be in addition to
obtaining loan from banks. the local trading segment available at present.
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The NSE, OTCEI, ISE, and majority of the

xiii. The Madras Stock Exchange Ltd.
regional stock exchanges have adopted the
Screen Based Trading System (SBTS) to provide xiv. The Madhya Pradesh Stock Exchange
automated and modern facilities for trading in Ltd.
a transparent, fair and open manner with access xv. The Magadh Stock Exchange Ltd.
to investors across the country. xvi. The Mangalore Stock Exchange Ltd.
STOCK EXCHANGES IN INDIA
(23 RECOGNIZED STOCK EXCHANGES) xvii. The Pune Stock Exchange Ltd.
W
N
E
xviii. The Saurashtra Kutch Stock Exchange
Jammu Ladakh
S
Ltd.
&
Kashmir

Himachal Pradesh
xix. The Vadodara Stock Exchange Ltd.
LUDHIANA 

xx. 
The Coimbatore Stock Exchange
CHANDIGARH
Punjab Urakhand
Urakhand
Punjab
Haryana
esh
Delhi  NEW DELHI

KANPUR Sikkim Aru

na
cha
l Pra
d
Ltd.
  m
JAIPUR
Rajasthan Uar Pradesh sa
As
xxi. The Meerut Stock Exchange Ltd.
Nagaland
Assam 
GUWAHATI
Rajasthan Uar Pradesh
Bihar
PATNA
Mehalaya
Bihar Manipur
Gujarat

xxii. The Over The Counter Exchange of

Jharkhand West
Gujarat
AHMADABAD Bengal Tripura
West Mizoram
 Madhya pradesh
Bengal
KOLKATA 

India (OTCEI)
STOCK
EXCHANGE   VADODARA
Odisha
h

Daman & Diu

ar

Maharashtra Odisha
sg
a


BHUBANESHWAR 
xxiii. 
The National Stock Exchange of
ch

MUMBAI  Maharashtra
 PUNE
VASHI 
Telungana
 HYDERABAD
Telungana India (NSE) Ltd.
a

Goa
tak

xxiv. The Interconnected Stock Exchange

rna

Andra Pradesh
Ka

MANGALORE 
  CHENNAI

of India Ltd.
BENGALURU

TamilNadu
 TamilNadu
Ker

KOCHI
 COIMBATORE
alaKe

Andaman Nichobar Islands

rala

lakshadweep Island
Srilanka
LEGEND Top 10 Stock Exchanges in the World.
Interna‰onal Boundary
State Boundary
Not to Scale  Stock Exchange
As on January 31st, 2017, the ten biggest
stock exchanges in the world by market
Following are the names of the capitalisation of listed securities are:
various stock exchanges in India: i. The New York Stock Exchange - Located
i. The Bombay Stock Exchange in New York City; $19.223 trillion in listed
ii.  The Ahmedabad Stock Exchange market capitalization.
Association Ltd. ii. NASDAQ - Short for the "National
iii. Bangalore Stock Exchange Ltd. Association of Securities Dealers Automated
iv. Bhubaneshwar Stock Exchange Quotation", this electronic stock exchange
v.  The Calcutta Stock Exchange is located in New York City; $6.831 trillion
Association Ltd. in listed market capitalization.
vi. The Cochin Stock Exchange Ltd. iii. 
London Stock Exchange - Located in
vii. The Delhi Stock Exchange Association London, England; $6.187 trillion in listed
Ltd. market capitalization.
viii. The Guwahati Stock Exchange Ltd. iv. Tokyo Stock Exchange - Formally known
ix. The Hydrabad Stock Exchange Ltd. as the Japan Exchange Group, located
x. The Jaipur Stock Exchange Ltd. in Tokyo, Japan; $4.485 trillion in listed
xi. The Kanara Stock Exchange Ltd. market capitalization.
xii.  The Ludhiana Stock Exchange v. 
Shanghai Stock Exchange - Located in
Association Ltd. Shanghai, China; $3.986 trillion in listed
market capitalization.
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vi. Euronext - Located throughout Europe

JOBBERS
(France, Portugal, The Netherlands, and Jobbers are security merchants dealing in
Belgium); $3.321 trillion in listed market shares, debentures as independent operators.
capitalization. They buy and sell securities on their own behalf
and try to earn through price changes. Jobbers
vii. Hong Kong Stock Exchange - Located in
cannot deal on behalf of public and are barred
Hong Kong, Hong Kong; $3.325 trillion in from taking commission. In India, they are
listed market capitalization. called Taravaniwalas.
viii. Shenzhen Stock Exchange - Located in SPECULATION
Shenzhen, China; $2.285 trillion in listed Speculation involves trading a financial
market capitalization. instrument involving high risk, in
expectation of significant returns. The
ix. TMX Group - The Canadian stock motive is to take maximum advantage from
exchange is located in Toronto, Canada; fluctuations in the market. Speculators
$1.939 trillion in market capitalization. are prevalent in the markets where price
movements of securities are highly frequent
x. 
Bombay Stock Exchange - Located in
and volatile.
Mumbai, India; $1.682 trillion in market
capitalization. GAMBLING
There is no reasoning involved in gambling.
It accentuates fluctuations in price and it is
REMISERS unethical and illegal. It does not perform
He acts as an agent of a member of a stock economic function.
exchange. He obtains businessfor his principal
ie., the member and gets a commission for that 7.06   Types of Speculators
service. Speculators in a stock market are of
AUTHORIZED CLERKS different types. They carry their names
The authorised clerks are mere employees depending on their motive of trading in the
of the members, appointed by themember stock exchange. They are named after animals
of stock exchange. The authorised clerks as their behavior could be compared best with
transact business on behalf of their employers
the behavior of animals.
on the floor of the stock exchange. They are
paid a salary, plus acommission. Bull
BROKERS
Brokers are commission agents, who act as
intermediaries between buyers and sellers
of securities. They do not purchase or sell
securities on their behalf. They bring together
the buyers and sellers and help them in
making a deal. Brokers charge a commission
from both the parties for their service.
Brokers are experts in estimating trends of
price and can effectively advice their clients
in getting a fruitful gain. Brokers get orders A Bull or Tejiwala is an operator who
from investing public and execute the orders expects a rise in prices of securities in the future.
through Jobbers and they are entitled to a
In anticipation of price rise he makes purchases
prescribed sale of brokerage.
of shares at present and other securities with the
intention to sell at higher prices in future. He is

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called bull because just like a bull tends to throw to carry a premium. He sells the shares before
his victim up in the air, the bull speculator being called to pay the allotment money. He is
stimulates the price to rise. He is an optimistic also called a premium hunter.
speculator.
Lame Duck
Bear

A bear or Mandiwala speculator expects

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

Sl.No Feature Stock Exchange Commodity Exchange

Stock Exchange (also called

Stock Market or Share Market) A commodity exchange is an
is one important constituent of exchange where commodities are
capital market. Stock Exchange traded. Tradable commodities fall into
is an organized market for the the following categories.
1. Meaning purchase and sale of industrial Metals (e.g. gold, silver,copper)
and financial security. It is Energy (e.g. crude oil, natural gas)
convenient place where trading Agricultural (e.g. rice, wheat, cocoa)
in securities is conducted in a Livestock and meat
systematic manner i.e. as per (e.g. live cattle, lean hog)
certain rules and 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 Only durable, graded and goods
Articles
6. as stocks and bonds and having large volume of trade, price
Traded
government securities. uncertainty and uncontrolled supply
Speculation ensures saleability
of securities affording a broad, Speculation ensures assumption
7. Speculation
ready, liquid and continuous and absorption of price risk.
market of securities.
Standards are to be fixed for
Forward Forward dealings are simplified
8. deliverable grades to facilitate futures
contract as securities are fully standardized
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

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7.08 Recent Development in Stock orders for buying and selling within prescribed
Exchange price are matched by central computer with
each other and instantly communicate to the
The structure of stock market in India has
trading member. NSE has two segments, i.e.,
undergone a vast change due to the liberalization
Debt segment and Capital segment. It has
process initiated by the Government. A number
ushered in transparent, screen based and user
of new structures have been added to the
friendly trading of global standards. It has
existing structure of the Indian stock exchange.
revolutionised stock trading in India.
A brief description of these structures in the
Indian stock market system is presented below: 2. Stock Holding Corporation of India
Limited (SHCIL)
National Stock Market System (NSMS)
National stock market system was
advocated by the - High Powered Group on the
Establishment of New Stock Exchanges headed
by Shri.M.J.Pherwani (popularly known as
Pherwani Committee). At present the National
Stock Market in India comprises the following:
1. National Stock Exchange of India Limited
(NSE)
2. 
Stock Holding Corporation of India
Limited (SHCIL)
The Stock Holding Corporation of India
3. National Clearing and Depository System
Ltd (SHCIL) is committed to speed up trading,
(NCDS)
clearance and settlement services for securities
4. Securities Trading Corporation of India and monetary instruments. SHCIL came into
(STCI) being in 1986. SHCIL is the first depository
5. 
National Securities Depositary Limited participant registered with SEBI and acts as an
(NSDL) agent of the National Securities Depository. It
1. National Stock Exchange (NSE) started its actual operations in 1988. It has its
head office in Bombay, and its branch network
covers Kolkatta, Delhi and Chennai.

3. National Clearance and Depository

System (NCDS)

NSE was incorporated in November,

1992. It is a country wide, screen based, online
This system was created chiefly to
and order driven trading system. It uses satellite
help overcome the problem of settlement
link to spread trading throughout the country
and clearance of transactions consequent to
thereby connecting members scattered all over
enormous workload on the clearing agencies and
the India. Through computer network, member‘s
share transfer agencies. The problems mainly
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arose out of systematic risk like counter party (NSDL) was inaugurated as the first depository
risk, credit risk, bad deliveries, long delayed in India on November 8, 1996. Trading in
delivery, counterfeit scrips, and forged scrips. dematerialized securities on the National Stock
Exchange (NSE) commenced in December 26,
4. Securities Trading Corporation of
1996. The Bombay Stock Exchange, (BSE) also
India (STCI) extended the facility of trading in dematerialized
securities from December 29, 1997.

NIFTY
The Reserve Bank of India set up Securities The word Nifty originates from 2
Trading Corporation of India Limited (STCI) in words, `National' and 'Fifty'. Nifty
May 1994, under the provisions of the Indian basically means the index of the 50 most
Companies Act, 1956, jointly with public sector actively traded stocks from across all sectors.
banks and All-India financial institutions. The Nifty represents the top stocks of the NSE
main objective of establishing the Corporation and when we talk about Nifty going up, it
was to foster the development of an active means that all the heavyweight stocks of NSE
secondary market for Government securities across all sectors are moving up. Most of the
and bonds issued by public sector undertakings. stock trading in the country is done through
It had an authorized and paid-up capital of
Rs. 500 crores of which, RBI contributed 50.18
percent. The RBI in December 1997 divested
part of its equity in STCI in favor of the Bank of
India, an existing shareholder of the Company.

5. National Securities Depository

Limited (NSDL) NSE and BSE. There are other stock
exchanges as well, like the Calcutta stock
exchange, but they are not that popular.
Nifty consists of top 50 companies from 24
different sectors. Nifty is computed from the
performance of top stocks from different
sectors. Some mutual funds use Nifty as a
benchmark. The performance of the mutual
funds is assessed against the performance
of the Nifty. On NSE, futures and options
are available for trading with the Nifty as an
The Government of India enacted the underlying index. Nifty is calculated by using
Depositories Act in August 1996, paving the the market capitalization weighted method
way for setting up o f depositories in India. according to which weights are assigned
Thus, pioneering the concept of depositories according to the size of the company. Larger
and ushering in an era of paperless settlement the size, larger the weightage.
of securities. National Securities Depository Ltd
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SENSEX The trading time for commodity (MCX)

market is between 10:00 a.m. to 11:30 a.m.
Sensex is an index of the stocks in
Monday to Friday.
BSE (Bombay Stock Exchange).
The normal trading time for Agri-
Sensex has a list of 30 stocks. BSE decides
community (NCDEX) market is between
the stocks that are to be listed on Sensex.
10:00 a.m. to 05:00 p.m. Monday to Friday.
The criteria for picking a stock to be listed
In addition, there is no lunch break or tea
on Sensex is volume of the trade of that
break in the Indian stock market timings.
stock and total volume of the stock in BSE.
The timings of the Indian stock market are
  divided into three sessions:
1. Normal session (also called continuous
session)
2. Pre-opening session
3. Post-closing session

Future Market
A Future market is an auction
market in which participants buy
and sell commodity and futures contracts
Based on the above said factors, BSE regularly
for delivery on a specified future date.
prepares a set of 30 stocks which will be Examples of futures markets are the New
together called as SENSEX. BTW Sensex York Mercantile Exchange, the Kansas City
means sensitive Index Now each stock is Board of Trade, the Chicago Mercantile
allotted a weight-age according to a criteria Exchange, the Chicago Board of Options
and the criteria also keeps on changing with Exchange and the Minneapolis Grain
time. So now stocks are normally traded in Exchange. Originally, trading was carried
BSE each day and price of stocks is on through open yelling and hand signals in
a trading pit, though in the 21st century, like
determined according to demand and supply
most other markets, futures exchanges are
mostly electronic.
Stock Trading Timings in India
There are two major stock Options Market
exchanges in India- Bombay An 'Option' is a type of security
stock exchange (BSE) and National stock that can be bought or sold at a
exchange (NSE). However, the timing of specified price within a specified
both BSE & NSE is the same. First of all, period of time, in exchange for a non-
you need to know that the stock market in refundable upfront deposit. An options
India is closed on weekends i.e. Saturday contract offers the buyer the right to buy, not
and Sunday. It is also closed on the national the obligation to buy at the specified price
holidays. The normal trading time for equity or date. Options are a type of derivative
market is between 9:15 a.m to 03:30 p.m, product. The right to sell a security is called
Monday to Friday. a ‘Put Option', while the right to buy is called
the ‘Call Option‘.

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They can be used as: Lombard Street

Leverage: Options help you profit from Lombard Street, London, is
changes in share prices without putting a street notable for its connections
down the full price of the share. You get with the City of London's merchant, banking
control over the shares without buying them and insurance industries, stretching back to
outright. medieval times. From
Hedging: They can also be used to protect Bank junction, where
yourself from fluctuations in the price of a nine streets converge
share and letting you buy or sell the shares by the Bank of England,
at a pre-determined price for a specified Lombard Street
period of time runs southeast for a
short distance before
bearing left into a more
easterly direction,
Dalal Street and terminates at a junction with  Grace
Dalal Street is an area in church Street and  Fenchurch Street. Its
downtown Mumbai, India, that overall length is 260 metresIt has often been
houses the Bombay Stock Exchange (BSE) compared with Wall Street in New York City
– the largest stock exchange in India – and
other reputable financial institutions. It Wall Street
received the name Dalal Street after the Wall Street is a street in lower
Bombay Stock Exchange moved to the area Manhattan that is the original home
in 1874 and became the first stock exchange of the New York Stock Exchange and the historic
recognized by the Indian Government. headquarters of the largest U.S. brokerages
and investment banks. The term Wall Street
is also used as a
collective name
for the financial
and investment
c o m m u n i t y,
which includes
stock exchanges
and large banks, brokerages, securities and
underwriting firms, and big businesses.
Today, brokerages are geographically diverse,
The literal translation of Dalal in Marathi is allowing investors free access to the same
information available to Wall Street's tycoons.
a broker or intermediary. Today, Dalal Street
is a metonym for the entire Indian financial
sector much like Wall Street in the United
States.

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Key words
For Own Thinking
Stock Exchange Commodity Exchange
2. Read the Business Section of a daily
Rechristended Brokers newspaper or a specialised Business
Jobbers Clearing House Newspaper. Locate the segment
where share prices of important stock
Investors Speculators
exchanges are given. Select any five
Optimistic Pessimistic companies and record their share prices
everyday for a period of three weeks.
Observe their price movement and
For Own Thinking
see how major events in the economic,
1. Identify any two persons in your vicinity political or social environment affect
who are associated with the financial the prices of these shares. You may
market/stock exchanges, either as an even get information about these share
investor or as a stockbroker. Talk to them prices from the television.
and find out (i) how sale and purchase
of securities takes place; (ii) what are
the popular instruments traded in the
For Future Learning
market; and (iii) about recent SEBI/ 1. Study the website of Mumbai Stock
government guidelines that may have Exchange, i.e., www.bseindia.com and
affected their transactions. compile information which you find
useful. Discuss it in your class and find
out how it can help you to invest in the
stock market. Prepare a report on your
findings with the help of your teacher.

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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10. The rules and regulations of Stock

Exercise exchange is framed by ________ guide
lines.
a) RBI b) Central Govt
c) SEBI d) BSE
I. Choose the Correct Answers: Answers:
1. ____ is the oldest stock exchange in the world. 1 d 2 b 3 c 4 c 5 b
a) London Stock Exchange 6 b 7 a 8 a 9 a 10 c
b) Bombay Stock Exchange
c) National Stock Exchange II. Very Short Answer Questions:
d) Amsterdam Stock Exchange 1. What is meant Stock Exchange?
2. There are _____ stock exchange in the 2. Define Stock Exchange.
country. 3. Write any 5 Stock Exchanges in India.
a) 21 b) 24 4. What is meant by Remisier?
c) 20 d) 25
5. Who is called a Broker?
3. Stock exchanges deal in
6. What are the types of Speculator?
a) Goods b) Services
7. Mention the Recent Development in Stock
c) Financial Securities d) Country’s Currency
Exchange?
4. Stock exchange allow trading in
a) All types of Shares of any Company III. Short Answer Questions:
b) Bonds issued by the Govt 1. What are the limitations of Stock exchange?
c) Listed Securities 2. Explain Bull and Bear.
d) Unlisted Securities
3. Explain Stag and Lame Duck.
5. Jobbers transact in a stock exchange
4. Explain National Stock Market System.
a) For their Clients
(NSMS)
b) For their Own Transactions
5. Explain National Stock Exchange. (NSE)
c) For other Brokers
d) For other Members IV. Long Answer Questions:
6. A pessimistic speculator is 1. Explain the functions of Stock Exchange.
a) Stag b) Bear (Any 5)
c) Bull d) Lame Duck 2. Explain the features of Stock Exchange.
7. An optimistic speculator is (Any 5)
a) Bull b) Bear 3. Explain the Benefits of Stock Exchange.
c) Stag d) Lame duck 4. Distinguish between Stock Exchange and
8. A bull operator believes in Commodity Exchange (any 5).
a) Increase in Prices References
b) Decrease in Prices
1. Dr.SUNDAR,K 2017, Business Organisation,
c) Stability in Prices Vijay Nicble Imprints Pvt Ltd.,Chennai.
d) No change in Prices
2. Dr.S.GURUSAMY 2012, Financial Markets
9. ______ means the price at which securities and Institutions
are bought and sold are recorded and made
3. https://dollarsandsense.sg/10-biggest-stock-
public.
exchanges-world-heres-much-theyve-
a) Market Quotations b) Trade Quotations
gained-2017/
c) Business Quotations d) Buyers Quotations
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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

Securities and exchange Board of India

Chapter Synopsis (SEBI) was first established in the year 1988 as a
non-statutory body for regulating the securities
8.01 Introduction of SEBI
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

Assistant Directors (Administraon) (System)

Assitant Director Assistant 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 2. Restricts illegal 3. Plays a great

working practices of firms role in protecting
of mutual funds 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 investigation & enforcement action and it

passes rulings and orders.
The various objectives of a Stock
i. Safeguarding the interests of investors by means
Exchange are explained below
of adequate education and guidance. SEBI makes
1. Regulation of Stock Exchanges rules and regulation that must be followed by the
The first objective of SEBI is to regulate stock financial intermediaries like portfolio exchanges,
exchanges so that efficient services may be underwriters and merchant bankers, etc. It takes
provided to all the parties operating there. care of the complaints received from investors .
2. Protection to the Investors Additionally, it issues notices and booklets for
The capital market is meaningless in the absence the information, assistance and protection of
small investors.
of the investors. Therefore, it is important
to protect the interests of the investors. The ii. 
Regulating and controlling the business on
protection of the interests of the investors means stock markets. Registration of brokers and sub-
protecting them from the wrong information brokers is made mandatory and they have to
given by the companies in their prospectus, abide by certain regulations and rules.
reducing the risk of delivery and payment, etc. iii. 
Conduct inspection and inquiries of stock
Hence, the foremost objective of the SEBI is to exchanges, intermediaries and self-regulating
provide security to the investors. organizations and to take appropriate measures
wherever required. This function is carried out
3. Checking the Insider Trading
for organized working of stock exchanges and
Insider trading means the buying and selling intermediaries.
of securities by directors Promoters, etc. who
iv. Barring insider trading in securities.
have access to some confidential information
v. 
Prohibiting deceptive and unfair methods
about the company and who wish to take
used by financial intermediaries operating in
advantage of this confidential information.
securities markets.
This affects the interests of the general investors
and is essential to check this tendency. Many vi. Registering and controlling the functioning of
steps have been taken to check insider trading stock brokers, sub-brokers, share transfer agents,
bankers, trustees, registrars, merchant bankers,
through the medium of the SEBI.
underwriters, portfolio managers, investment
4. Control over Brokers advisers and various other intermediaries who
It is important to supervise/check the might be linked to securities markets in any
activities of the brokers and other middlemen manner.
in order to control the capital market. To vii. 
SEBI issues Guidelines and Instructions to
regulate their activities, it was necessary to businesses concerning capital issues. Separate
establish the SEBI. guidelines are provided for initial public issue
made by listed companies, etc. It conducts
8.03  Functions of SEBI research and publishes information beneficial
Securities and Exchange Board of India to all market players (i.e. all buyers and sellers).
(frequently abbreviated SEBI) is the nodal viii. SEBI regulates mergers and acquisitions as a
agency which safeguards the interests of way to protect the interest of investors. For
an investor in the Indian Financial market. this, SEBI has released appropriate guidelines
SEBI performs three key functions: quasi- with the intention that such mergers and
legislative, quasi-judicial and quasi- takeovers won‘t be at the expense of small
executive. It drafts regulations, conducts investors.

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ix. 
Registering and controlling the functioning of violations. It can even impose suspension of
of collective investment schemes such as their registration for a short period.
mutual funds. SEBI has created regulations 3. 
Power to Initiate Actions in Functions
and guidelines that should be followed by Assigned
mutual funds. The aim is to maintain effective
SEBI has a power to initiate actions in
supervision and avoid any unfair and anti-
regard to functions assigned. For example, it
investor actions.
can issue guidelines to different intermediaries
x. 
Promoting self-regulatory organization of
or can introduce specific rules for the protection
intermediaries. It has extensive legal powers.
of interests of investors.
Having said that, self-regulation is preferable to
external regulation. The function of SEBI is to 4. Power to Regulate Insider Trading
motivate financial intermediaries to create their SEBI has power to regulate insider trading
professional associations and manage harmful or can regulate the functions of merchant
actions of their members. It can also make use bankers.
of its powers when needed for protection of 5. Powers Under Securities Contracts Act
investors. For effective regulation of stock exchange,
xi. 
Carrying out steps in order to develop the the Ministry of Finance issued a Notification
capital markets by having an accommodating on 13 September, 1994 delegating several of
approach. its powers under the Securities Contracts
xii. 
Provide appropriate training to financial (Regulations) Act to SEBI.
intermediaries. This function is great for SEBI is also empowered by the Finance
healthy environment in the stock markets and Ministry to nominate three members on the
also for the protection of investors.
Governing Body of every stock exchange.
xiii. Levying fee or any other type of charges to
6. 
Power to Regulate Business of Stock
carry out the purpose of the Act.
Exchanges
xiv. Performing functions that may be assigned to
SEBI is also empowered to regulate the
it by the Central Government of India.
business of stock exchanges, intermediaries
associated with the securities market as well
8.04  Powers of SEBI as mutual funds, fraudulent and unfair trade
The various powers of a Stock Exchange practices relating to securities and regulation of
are explained below acquisition of shares and takeovers of companies.
1. 
Powers Relating to Stock Exchanges &
8.05  Dematerialization (DEMAT)
Intermediaries
Dematerialization is the process by which
SEBI has wide powers regarding the
physical share certificates of an investor are taken
stock exchanges and intermediaries dealing in
back by the company/registrar and destroyed.
securities. It can ask information from the stock
Then an equivalent number of securities in the
exchanges and intermediaries regarding their
electronic form are credited to the investors
business transactions for inspection or scrutiny
account with his Depository Participant.
and other purpose.
Dematerialization is done at the request of
2. Power to Impose Monetary Penalties
the investor. Investors will first have to open an
SEBI has been empowered to impose account with a DP (Depository Participant) and
monetary penalties on capital market then request for dematerialization of certificates
intermediaries and other participants for a range through the DP.
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Purchases made by an investor are credited

to his account and sales are debited. The securities
held in dematerialized form are fungible. In other
words they do not have any distinguishing features.
Common Low risk of
Dematerialized shares do not have any distinctive Bank BENEFITS OF Delivery
numbers. All the holdings of a particular security DEMATERIALIZATION
will be identical and interchangeable.
Trading in dematerialized shares
commenced on the NSE in December 1996 where Automa c Reduces
Reliance Industries was the first company to trade Update Costs
its 100 shares in demat form. In case of the BSE,
dematerialization of shares commenced in the year
December 1997.
8.06  Benefits of Dematerialization No Odd-lot Easy
Problem to Hold
i. The risks pertaining to physical certificates like
loss, theft, forgery and damage are eliminated
What is Demat Account?
completely with a DEMAT account.
A demat account holds all the shares that
ii. 
The lack of paperwork enables quicker
are purchased in electronic or dematerialized
transactions and higher efficiency in trading.
form. Basically, a demat account is to shares
iii. Trading has become more convenient as one
what a bank account is to money. Like the bank
can trade through computers at any location,
account, a demat account holds the certificates
without the need of visiting a broker.
of financial instruments like shares, bonds,
iv. The shares that are created through mergers government securities, mutual funds and
and consolidation of companies are credited exchange traded funds (ETFs).
automatically in the DEMAT account.
Understand How Does Demat Account
v. 
As all the transactions occur through the
Works:
depository participant, a trader does not have to
communicate individually with each and every CENTRAL DEPOSITORY
CDSL, NDSL
company.
vi There is no need for stamp duty for transfer
of securities; this brings down the cost of
transaction significantly.
vii. Certain banks also permit holding of both
equity and debt securities in a single account.
viii. 
Banks also provide dedicated and trained
INVESTOR’S BO/ DEPOSITORY
customer care officers to assist through all the DEMAT ACCOUNTS PARTICIPANTS
procedures.
ix. 
A DEMAT account holder can How to Open a Demat Account?
buy or sell any amount of shares.
However, there is limit on the number of Select
DP Submit
transactions done using physical securities. Documents Account Number/
ID Provided
x. One can also choose to take a loan against
In-person
securities which are held in a DEMAT account Fill up account
opening form Verificaon
by offering it as a collateral to the lender.
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i. Fill up an account opening form and submit Proof of identity: PAN card, voter's ID,
along with copies of the required documents passport, driver's license, bank attestation, IT
and a passport-sized photograph. You also returns, electricity bill, telephone bill, ID cards
need to have a PAN card. Also carry the with applicant's photo issued by the central
original documents for verification. or state government and its departments,
ii. You will be provided with a copy of the rules statutory or regulatory authorities, public sector
and regulations, the terms of the agreement undertakings (PSUs), scheduled commercial
and the charges that you will incur. banks, public financial institutions, colleges
iii. During the process, an In-Person affiliated to universities, or professional bodies
Verification would be carried out. A such as ICAI, ICWAI, ICSI, bar council etc.
member of the DP’s staff would contact you Proof of address: Ration card, passport, voter
to check the details provided in the account ID card, driving license, bank passbook or
opening form. bank statement, verified copies of electricity
iv. Once the application is processed, the DP bills, residence telephone bills, leave and license
will provide you with an account number or agreement or agreement for sale, self-declaration
client ID. You can use the details to access by High Court or Supreme Court judges, identity
your demat account online. card or a document with address issued by the
central or state government and its departments,
v. As a demat account holder, you would need
statutory or regulatory authorities, public sector
to pay some fees like the annual maintenance
undertakings (PSUs), scheduled commercial
fee levied for maintenance of account and the
banks, public financial institutions, colleges
transaction fee levied for debiting securities
affiliated to universities and professional bodies
to and from the account on a monthly basis.
such as ICAI, ICWAI, Bar Council etc.
These fees differ from every service provider
(called a Depository Participant or DP). While Key Terms
some DPs charge a flat fee per transaction, Quasi-Legislative Quasi-Judicial
others peg the fee to the transaction value, and Quasi-executive Dematerialization
are subject to a minimum amount. The fee Demat-account Depository
also differs based on the kind of transaction
(buying or selling). In addition to the other
fees, the DP also charges a fee for converting
the shares from the physical to the electronic
form or vice-versa.
vi. Minimum shares: A demat account can be
opened with no balance of shares. It also
does not require that a minimum balance be
maintained.

What are the documents required for a PAN, or permanent account number, is
Demat Account? a unique 10-digit alphanumeric identity
You need to submit proof of identity and allotted to each taxpayer by the Income
address along with a passport size photograph Tax Department under the supervision of
and the account opening form. Only photocopies the Central Board of Direct Taxes. It also
of the documents are required for submission, serves as an identity proof.
but originals are also required for verification.
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Format of DEMAT APPLICATION FORM

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For Own Thinking

Case Study 1. Collect the information on various
measures taken by SEBI to protect the
a. Koushikaa’s father has gifted her the shares interests of investors since its inception.
of a large cement company with which he 2. Send a group of students to a trading
had been working. The securities were terminal in your city to gain first hand
in physical form. She already has a bank information on securities trading and
account and does not possess any other prepare a report.
forms of securities. 3. Collect information about SEBI action
She wishes to sell the shares and for Investor Protection taken duringlast
approached a registered broker for the two years.
purpose. Mention one mandatory detail
which she will have to provide with the For Own Thinking
broker.
b. Mr.Kulandaivel was the Chairman of 1. Prepare a report on the role of SEBI in
Thangam Bank. The bank was earning regulating the Indian stock market.
good profits. Shareholders were happy as You can get this information on its website
namely www.sebi.gov.in. Do you think
the bank was paying regular dividends.
something else should be done to increase
The market price of their share was also the number of investors in the stock market?
steadily rising. The bank was about to 2. Investors’ Grievances Redressal
announce taking over the ‘Trinity Bank’. i. SEBI and Stock Exchanges have set up
Mr.Kulandaivel knew that the share price investor grievance redressal cells for fast
of Thangam Bank would rise on this redressal of investor complaints relating to
announcement. Being a part of the bank, securities markets
he was not allowed to buy shares of the ii. SEBI has directed all the stock exchanges,
bank. He called one of the his rich friends registered brokers, sub-brokers, depositories
Mr.Chandrasekaran and asked him to and listed companies to make a provision for
invest ₹5 crores in shares of his bank a special email ID of the grievance redressal
promising him the capital gains. division/ compliance officer for the purpose
of registering complaints by the investors
As expected, the share prices went
iii. SEBI has set up a mechanism for redressal
up by 40% and the market price of
of investor grievances arising from the issue
Chandrasekaran’s shares was now process
₹7 crores. He earned a profit of ₹2 crores. iv. SEBI provides “walk-in” service at its head
He gave ₹1 crore to Mr.Kulandaivel and office at Mumbai and its regional offices
kept ₹1 crore with himself. On regular at New Delhi, Chennai, Kolkatta and
inspection and by conducting enquires of Ahmedabad on all working days. Investors
the brokers involved, the Securities and can meet the officials and get guidance
Exchange Board of India (SEBI) was able to relating to the grievances that they may have
detect this irregularity. The SEBI imposed against issuers. Investors can also meet the
a heavy penality on Mr.Kulandaivel. higher officials of SEBI on specified working
days
By quoting the lines from the above
v. Investors can lodge their complaints with
paragraph, identify and state any two SEBI at: investorcomplaints@sebi.gov.in
functions that were performed by SEBI in
vi. Investors can approach SEBI for any
the above case. assistance at: asksebi@sebi.gov.in

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9. _________ enables small investors to

  Exercise participate in the investment on share
capital of large companies.
a) Mutual Funds b) Shares
c) Debentures d) Fixed deposits

I. Choose the Correct Answers: 10. PAN stands for _____

1. Securities Exchange Board of India was a) Permanent Amount Number
first established in the year ____ b) Primary Account Number
c) Permanent Account Number
a) 1988 b) 1992
d) Permanent Account Nominee
c) 1995 d) 1998
2. The headquarters of SEBI is _______ Answers:
a) Calcutta b) Bombay 1 b 2 b 3 a 4 a 5 b
c) Chennai d) Delhi 6 a 7 c 8 b 9 a 10 c
3. In which year SEBI was constituted as the
II. Very Short Answer Questions:
regulator of capital markets in India?
1. Write a short notes on SEBI.
a) 1988 b) 1992
c) 2014 d) 2013 2. Write any two objectives of SEBI.
3. What is Demat account?
4.
Registering and controlling the
4. Mention the headquarters of SEBI.
functioning of collective investment
schemes as _______ 5. What are the various ID proofs?
a) Mutual Funds b) Listing III. Short Answer Questions:
c) Rematerialisation d) Dematerialization
1. What is meant by Dematerialization?
5. SEBI is empowered by the Finance
2. What are the documents required for a
ministry to nominate ______ members
Demat account?
on the Governing body of every stock
3. What is the power of SEBI under Securities
exchange.
Contract Act?
a) 5 b) 3
4. What is meant by Insiders trading?
c) 6 d) 7
5. Draw the organization structure of SEBI.
6. The process of converting physical shares
into electronic form is called ________ IV. Long Answer Questions:
a) Dematerialisation c) Delisting 1. What are the functions of SEBI?
c) Materialisation d) Debarring 2. Explain the powers of SEBI.
7.
Trading is dematerialized shares 3. What are the benefits of Dematerialisation?
commenced on the NSE is ________
a) January 1996 b) June 1998 References
c) December 1996 d) December 1998 1. Sundar K. Business Organisation,
Vijay Nichole Imprints Private Ltd.,
8. ________ was the first company to trade
Chennai, 2017.
its shares in Demat form.
2. Gurusamy S. Financial Markets and
a) Tata Industries b) Reliance Industries
Institutions, Vijay Nichole Imprints Private
c) Infosys d) Birla Industries
Ltd., Chennai, 2012.

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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
To enable the students to understand the
Chapter Synopsis
■ Meaning and definition of Human 9.01 Meaning and Definition of Human
Resource Resource
■ Characteristics of Human Resource 9.02 Characteristics of Human Resource
■ Significance of Human Resource 9.03 Significance of Human Resource
■ Meaning and definition of Human 9.04 Meaning and Definition of Human
Resource Management Resource Management
■ Features of Human Resource 9.05 Features of Human
Management Resource Management
■ Significance of Human Resource 9.06 Significance of Human Resource
Management Management
■ Functions of Human Resource 9.07 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 iv. Human resource exhibits innovation and

Human Resource creativity
v. 
Human resource alone can think, act,
With the advent of globalisation,
analyse and interpret
liberalisation and privatisation leading to
advancement in information, communication vi. Human resources are emotional beings
and technology paved way for exhibiting vii. Human resources can be motivated either
the high level of innovation and creativity in financially or non financially
human resource. In the current scenario unless viii. 
The behaviour of human resources are
the organisation recruits, selects and utilises unpredictable
high quality human resource the sustainability ix. Over years human resources gains value
remains a question. In order to accomplish and appreciates
personal and organisational objectives the
x. Human resources are movable
unique asset called human resource has to
xi. Human resource can work as a team
be appropriately placed and appreciated. In
an organisation the human resource are the
9.03 Significance of Human
employees who are inevitable for the survival
and success of the enterprise.
Resources
According to Peter.F.Drucker “Man, of The vital resource namely human resource
all resources available to him, can grow and is significant because of the following reasons :
develop” i. It is only through human resource all other
resources are effectively used
As per the views of Michael J Jucius
Human Resource is a “Whole consisting of ii. The sustainable growth of an organisation
interrelated, interdependent and interacting depends on the important resource human
physiological, sociological and ethical resource
components”. iii. 
Industrial relations depend on human
It is clear from the definitions that resource
not all human beings are considered to be iv. Human relations is possible only through
human resources but only those individuals human resource
who acquired the required skill sets, talents, v. Human resource manages all other factors
knowledge, competencies and capabilities in of production
the accomplishment of both individual and vi. 
The skill sets of the Human resources
organisational objectives. can be improved through training and
development programmes
9.02 
Characteristics of Human vii. Human resource can be utilised at all levels
Resources of management
The unique, peculiar and distinctive viii. 
Human resources are well protected by
features of human resources are as under: legislative frameworks.
i. 
Human resource is the only factor of 9.04 
Meaning and Definition
production that lives of Human Resource
ii. Human resource created all other resources Management
iii. It is only the labour of employees that is
The branch of management that deals with
hired and not the employee himself
managing human resource is known as Human
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Resource Management. In order to achieve the management of the available human

personal and organisational objectives human resource is very important especially in
resources are to be trainedup and managed. In functional areas.
short, it is managing people of different strata v. It is a continuous process : As long as
for the accomplishment of the organisational there is human resource in the running of
goals. It includes the overall progress of the an organisation, the activities relating to
employee and the enterprise. managing human resource exists.
Human Resource Management is a vi. It is a dynamic activity : Human resource
function of management concerned with management is not the same as that of other
hiring, motivating and maintaining people factors of production, as they have feelings
in an organisation. It focuses on people in an and emotions which are to be handled
organisation. with care and diligence to maximise its
utilisation.
According to Dale Yoder Human
Resource Management as “the effective vii. It is an integrative tool : The main idea
process of planning and directing the behind managing the human resource is
application, development and utilisation of to motivate, participate and coordinate the
human resources in employment”. available work force.

In the words of E.F.L.Brech HRM as viii. Focuses on development : Human resource

management focuses on the development
that part of management process which
of manpower through training and
is primarily concerned with the human
development programmes. Honing of skills
constituents of an organisation.
through training increases the effective use
9.05 
Features of Human of the resource procured.
Resource Management ix. 
Human resource management is both
science as well as art : As it relies on
The following are the characteristics of human
experiments and observations as well as
resource management : effective handling of manpower it is both
i. 
Universally relevant : Human Resource science and art.
Management has universal relevance. The x. It is interdisciplinary : Human resource
approach and style varies depending the management makes use of concepts
nature of organisation structure and is of different disciplines like sociology,
applicable at all levels. psychology, economics etc. making it
ii. 
Goal oriented : The accomplishment interdisciplinary.
of organisational goals is made possible xi. 
It is intangible : Human resource
through best utilisation of human resource management is a intangible function which
in an organisation. can be measured only by results.
iii. A systematic approach : Human resource
management lays emphasis on a systematic 9.06 
Significance of Human
approach in managing the tasks performed Resource Management
by human resource of an organisation.
The strategic role of human resource
The two sets of functions performed are
management is the process of acquiring, training,
managerial and operative functions.
appraising, and compensating employees, and
iv. 
It is all pervasive : Wherever there is
attending to their labour relation, health, safety
existence of human resource the effective
and fariness concerns.

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There are various reasons why human resource management ensures the right
resource management is important. They are as talent available for the right job, so that no
follows: employee is either under qualified or over
qualified.
v. 
To update the skill and knowledge:
Managing human resource plays a
significant role in the process of employee
skill and knowledge enhancement to
enable the employees to remain up to
date through training and development
programmes.
vi. 
To appraise the performance of
employees: Periodical appraisal of
performance of employees through human
resource management activities boosts
up good performers and motivates slow
performers. It helps the workforce to
identify their level of performance.
vii. 
To improve competitive advantage:
Organisations with capable and competent
employees can truly gain competitive
advantage in the globalised market. Higher
the level of good performers greater the
possibility of fast paced growth of the
enterprise.
vii. 
To provide incentives and bonus to
i. 
To identify manpower needs : best performers: It is the role of human
Determination of manpower needs in an resource management to recognise the best
organisation is very important as it is a performers and to provide them with bonus
form of investment. The number of men and incentives as a form of appreciation for
required are to be identified accurately to their work. This motivation can be either
optimise the cost. financial or non financial.
ii. 
To incorporate change : Change is viii. 
To determine employee commitment:
constant in any organisation and this Human resource management determines
change has to be introduced in such a way the level of commitment of employees
that the human resource management acts to their work either through interview
as an agent to make the change effective. or questionnaire. The higher the level of
iii. 
To ensure the correct requirement of commitment the higher the possibility
manpower: At any time the organisation of the organisation to be successful. This
should not suffer from shortage or surplus can be carried out through appropriate
manpower which is made possible through policies.
human resource management. ix. 
To emphasise socialisation: Human
iv. To select right man for right job: Human beings are social animals and they should
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be ensured that they are comfortable in of accountability to make employees

the work place by maintaining cordial responsible.
relationship with peers, subordinates and iii. Directing – It involves issue of orders
managers so as to contribute maximum to and instructions along with supervision,
the organisation. guidance and motivation to get the best out
x. To promote favourable employee attitude: of employees. This reduces waste of time
Organisations are expected to provide energy and money and early attainment of
a good work environment to secure organisational objectives.
favourable employee attitude towards the iv. Controlling – It is comparing the actuals
management. This can be accomplished with the standards and to check whether
through conflict resolution, counselling, activities are going on as per plan and
grievance reprisals etc. rectify deviations. The control process
xi. 
To provide scope for collective includes fixing of standards, measuring
actual performance, comparing actual with
bargaining: Human resource management
standard laid down, measuring deviations
encourages workforce to form a union to
and taking corrective actions. This is made
represent their grievances and find early
possible through observation, supervision,
solution for their problems by collective
reports, records and audit.
representation.
Operating Functions
9.07 
Functions of Human i. Procurement – Acquisition deals with
Resource Management job analysis, human resource planning,
recruitment, selection, placement, transfer
The functions of human resource
management may be classified as under : and promotion

1. Managerial function - Planning, Organising, ii. Development – Development includes

Directing, Controlling performance appraisal, training, executive
development, career planning and
2. 
Operative function – Procurement,
development, organisational development
Development, Compensation, Retention,
Integration, Maintenance iii. Compensation – It deals with job
Managerial Functions  evaluation, wage and salary administration,
incentives, bonus, fringe benefits and social
i. Planning – Planning is deciding in
security schemes
advance what to do, how to do and who is
to do it. It bridges the gap between where iv. Retention – This is made possible through
we are and where we want to go. It helps health and safety, welfare, social security,
in the systematic operation of business. It job satisfaction and quality of work life
involves determination objectives, policies, v. Integration – It is concerned with the
procedures, rules, strategies, programmes those activities that aim to bring about
and budgets. It ensures maintenance of reconciliation between personal interest
correct number of employees to carry and organisational interest
out activities and also to formulate timely vi. Maintenance – This encourages employees
employee policies. to work with job satisfaction, reducing
ii. Organising – It includes division of labour turnover, accounting for human
work among employees by assigning resource and carrying out audit and
each employee their duties, delegation research.
of authority as required and creation
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c) History and Geography

Key Terms
d) None of the above
Human resource Workforce Management
3. Planning is a _________ function.
Training Development Contribution
a) selective b) pervasive
System Turnover Conflict
c) both a and b d) none of the above
For Future learning 4. Human resource management determines
the _________ relationship.
1. Ensuring the quality of work force a) internal, external
through quality assurance.
b) employer, employee
2. Describe two management techniques
to improve job satisfaction. c) Owner, Servant
3. To prepare Human Resource Planning d) Principle, Agent
Schedule. 5. Labour turnover is the rate at which
4. Analyse the ways of forecasting Human employees _________ the organisation
resource requirements. a) enter b) leave
5. Evaluate the shortfalls of Human
c) Salary d) None of the above
resource management and its
consequence. Answers:
1 b 2 a 3 b 4 b 5 b
For Own Thinking
II. Very Short Answer Questions:
1. Identify points of differences between 1. Give the meaning of Human Resource.
HRM and HRD.
2. What is Human Resource Management ?
2. Analyse the impact of Change
Mangement. 3. State two features of HRM.
3. Prescribe ways of resolving Conflict 4. Mention two characteristics of Human
Management. Resource.
4. Project ways of having a control over 5. What are the managerial functions of HRM.
the operation of Trade Unions.
III. Short Answer Questions:
5. Clearly specify the available Competency
Mapping Process. 1. Define the term Human Resource
Management.
2. What are the characteristics of Human
resources ?
Exercise 3. What is the significance of Human resource?
4. State the functions of Human Resource
Management.
I. Choose the Correct Answers:
IV. Long Answer Questions:
1. Human resource is a _________ asset.
1. Explain the characteristics of Human
a) Tangible b) Intangible
Resource (any 5).
c) Fixed d) Current
2. Describe the significance of Human
2. Human Resource management is both Resource Management (any 5).
_________ and _________ .
3. Elaborate on the Managerial functions of
a) Science and art Human Resource Management.
b) Theory and practice 4. Discuss the Operative functions HRM.
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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.

scrutinises the applications received and the

Learning Objectives suitable candidates are shortlisted for selection.
The following are some of the definitions of
To enable the students to understand the Recruitment.
■ Meaning and definition of Recruitment
According to Edwin B. Flippo, “It
■ Recruitment Process is a process of searching for prospective
■ Sources of Recruitment/Recruitment employees and stimulating and encouraging
Methods them to apply for jobs in an organisation.”
■ Recent Trends in Recruitment
Reasons Behind Recruitment :
Chapter Synopsis There are different reasons why vacancy
10.01 Meaning and definition of arises and they are
Recruitment i. Retirement of an employee
10.02 Recruitment Process ii. Death of an employee
iii. Resignation of job by an employee
10.03 Sources of Recruitment iv. Disablement of an employee
10.04 Recent Trends in Recruitment v. Dismissal of an employee
10.01 Meaning And Definiton of 10.02 Recruitment Process
Recruitment process includes the
Recruitment
following steps :
Recruitment is the process of finding i. Planning recruitment
suitable candidates for the various posts in an ii. Determining vacancies
organisation. It is a process of attracting potential iii. Identifying the sources
people to apply for a job in an organisation. iv. Drafting information for advertisement
It acts as a link between job provider and job v. Selecting the suitable mode of advertisement
seeker. It encourages the prospective employees vi. Facilitating selection process
to apply for the job. Then the organisation vii. Evaluation and control

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10.03  Sources of Recruitment

L R NA L
EXT ERNA IN T E

There are basically two ways by which an ii. Indirect – Employee referral, Government/
organisation can recruit its employees namely Public Employment Exchanges, Employment
Internal and External sources. External sources can Agencies, Employment Consultancies,
further be classified into Direct and Indirect sources. Professional Associations, Deputation,
Internal Sources – Transfer, Upgrading, Word of mouth, Labour Contractors, Job
Promotion, Demotion, Recommendation Portals, Outsourcing, Poaching
by existing Employees, Job rotation, Retired
i. Internal Sources
employees, Dependants, Previous applicants,
The following are the internal sources of
Acquisitions and Mergers
Recruitment
External Sources
i. Transfer - The simplest way by which an
i. Direct – Advertisements, Unsolicited
employee requirement can be filled is
applicants, Walk ins, Campus Recruitment,
through transfer of employee from one
Recruitment at Factory gate, Rival firms, e
department with surplus staff to that of
Recruitment
another with deficit staff.
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ii. Upgrading – Performance appraisal ii. External Sources

helps in the process of moving employees
from a lower position to a higher position
A. Direct
i. Advertisements – The employer can
iii. Promotion – Based on seniority
advertise in dailies, journals, magazines
and merits of the employees they are
etc. about the vacancies in the organisation
given opportunity to move up in the
specifying the nature of work, nature of
organisational hierarchy
vacancy, qualification and experience
iv. Demotion – Movement of employee required, salary offered, mode of applying
from a higher position to a lower and the time limit within which the
position because of poor performance candidate has to apply.
continuously to make him realise the ii. 
Unsolicited applicants – These are the
significance of performance applications of job seekers who voluntarily
v. 
Recommendation by existing apply for the vacancies not yet notified by
Employees – A family member, relative the organisations.
or friend of an existing employee can be iii. Walkins– Walk-in applicants with suitable
recruited and placed qualification and requirement can be
vi. 
Job rotation – One single employee another source of requirement.
managing to learn how to perform in iv. Campus Recruitment – The organisations
more than one job on rotation. This visit the educational institutions to identify
familiarises the employees with all kind and recruit suitable candidates.
of jobs performed and becomes a source. v. 
Recruitment at Factory gate – Usually
vii. Retention – The retiring employees can casual or temporary unskilled employees
be used to meet the requirement after are recruited by this way. They are recruited
superannuation as per management at factory gate and paid on hourly or daily
discretion basis.
viii. Retired employees - The employees who vi. Rival firms – This is also called poaching
have already retired can be called to fill where the efficient employees of rival
the vacancy as they have the required companies are drawn to the organisations
qualification and experience by higher pay and benefits. For example
Salesmen, Chartered Accountants,
ix. Dependants – The legal heir or the
Management professionals etc.
dependent employee may be given a
chance to replace the deceased. vii. e-Recruitment – The organisations which
carry out recruitment online methods is said
x. 
Previous applicants – The applicants
to follow e recruitment. The advancement
who have already applied for any job
in technology and communication has
advertised in the past whose name made it possible to reach out prospective
appears in the data base but not selected applicants globally online. It has become
at that point of time can be utilised inevitable external source of recruitment.
xi. 
Acquisitions and Mergers – This is
another way by which the organisation
B. Indirect
acquires another business unit or merging i. Employee referral – The existing employees
with another establishment. of the organisation may recommend some
of their relatives or known people who
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will be suitable for the existing vacancies. ix. Job Portals – Using internet job portals
Based on the credibility of the employee organisations can screen for the prospective
the referrals will be considered. candidates and fill up their vacancies.
ii. Government/Public Employment
10.04 Recent Trends in
Exchanges – These are exchanges
established by Government which facilitates Recruitment
recruitment throughout the country. It The recent methods of recruiting by
makes available the information required organisations include the following methods :
through the data base for the employer as 1. Outsourcing – There are outsourcing
well as the job seeker by bridging the gap firms that help in the process of recruiting
between them. through screening of applications and
iii. Private Employment Agencies – These are finding the right person for the job for
similar to Public employment exchanges which job they are paid service charges.
except that the ownership is the hands of
Recruitment Process Outsourcing
Private parties. It connects the job provider
and the job seeker by providing the relevant Requirement
and required information. 01 Understanding
iv. Employment Consultancies – These types
of firms facilitate recruitment on behalf 02 Adverse & Source
of client companies at cost. Usually they
provide data relating to executives and 03 Screening
top level personnel for which service they
charge consultation fees also known as R.P.O Validaon
04
Recruitment Process Outsourcing.
v. Professional Associations – Organisations Profile submission
05
seeking applicants of high calibre and
repute with technical knowledge approach Interview Process &
professional associations like Institute of 06 Feedback
Chartered Accounts, The Indian Medical
07 Selecon & Follow-up
Association, The Institute of Training and
Development, The Institute of Engineers,
All India Management Association etc. to 2. Poaching – Organisations instead of
identify the right person. training and developing their own
vi. Deputation – A person who is already an employees hire employees of other
employee of an organisation can be deputed competitive companies by paying them
for a specific job for a specified period as a more both financial and non financial
short term solution. benefits. It is also called raiding.
vii. Word of mouth – The information relating
to job seekers is collected through people Key words
of repute who pass on the message about Recruitment Selection Interview Tests
the vacancy to their known people.
Procurement Training Development
viii. Labour Contractors – Organisations Profession Unsolicited Poaching
recruit unskilled and manual labourers
through these contractors.
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3. Advertisement is a ________ source of

For Future learning recruitment
a) internal b) external
1. Students can be asked to identify four or
five job portals with websites. c) agent d) outsourcing
2. Writing an advertisement for the 4. Transfer is an ________ source of
recruitment of Product Manager. recruitment.
3. Write an assignment on the ways by which a) internal b) external
recruitment can be Outsourced. c) outsourcing d) None of the above
4. Suggest suitable methods of Training for 5. E-recruitment is possible only through
middle and top level employees. ________ facility.
5. Projecting the future methods of a) Computer b) internet
recruitment that can save time and money. c) Broadband d) 4G

Answers:
For own thinking
1 a 2 a 3 b 4 a 5 b
1. Designing new ways of Recruitment
through internet. II. Very Short Answer Questions:
2. Enhancing the role of HR department 1. Give the meaning of Recruitment.
in promoting work life balance. 2. What is promotion ?
3. Simplifying the process of registering in
3. Write any two internal source of recruitment.
Employment Exchanges.
4. Reducing the time gap between search 4. What is meant by Campus recruitment?
for new jobs and availability of new jobs. 5. What is meant by Poaching?
5. To formulate policies to enhance the job III. Short Answer Questions:
opportunities in both Public and Private
1. Define the term Recruitment.
sector.
2. What is meant by unsolicited applicants?
3. What is meant by job portals?
Exercise 4. State the steps in Recruitment process
outsourcing.
IV. Long Answer Questions:
1. Explain the Internal sources of Recruitment
I. Choose the Correct Answers:
(any 5).
1. Recruitment is the process of identifying ___.
2. Explain the External sources of Recruitment
a) right man for right job
(any 5).
b) good performer
3. What is the Recent trends in Recruitment?
c) Right job
d) All of the above
2. Recruitment bridges gap between _____
and ________ .
a) job seeker and job provider
b) job seeker and agent
c) job provider and owner
d) owner and servant
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UNIT HUMAN RESOURCE MANAGEMENT

IV

11
CHAPTER
EMPLOYEE SELECTION PROCESS

விைனக்குரிைம நாடிய பின்ைற அவைன

அதற்குரிய னாகச் ெசயல்.
குறள் 518
COUPLET
Having considered what work a man is fit for, let (the king)
employ him in that work.

11.01 Meaning & definition of

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

Chapter Synopsis
11.01 Meaning & definition of Employee
Selection process
11.02 Steps in Employee Selection Process
11.03 Factors influencing Selection
Process A selection process includes a number
11.04 Importance of Selection of steps – screening the application forms,
11.05 Selection differs from Recruitment test, interview, checking of references, physical
11.06 Placement examination, and approval by appropriate
11.07 Significance of Placement authority, and handing over the selected
11.08 Principles of Placement candidates to orientation and placement section.

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These steps are not necessary for all types of Commissions, Recruitment Boards and Private
selection process. The main aim of selection Sector Companies either supply pre-printed
process is to find out the suitable candidate application form or direct the candidates to
for specific job. Since there are various factors download the forms uploaded in their respective
which affect the seeking of such information, websites. In the case of voluntary applications
the same type of selection process cannot be submitted by the candidates, they are issued
applied in all types of selection. application form afresh at the venue of the
Selection is the process of differentiating interview to collect complete information about
between applicants in order to identify and hire the candidate in the standardized format. Selector
those with a greater likelihood of success in a can collate different types of information from
job. Selection is the process of choosing the the application blank namely family background,
most suitable person for the vacant position in educational qualification, co-curricular activities,
the organization. work experience, exposure to related activities,
According to Dale Yoder: “Selection scale of pay drawn, academic distinction, area of
is the process in which the candidates for expertise and so on.
employment are divided into two classes – 01. (b)  Scrutinizing the Applications
those who are to be offered employment and Where the applications received in
those who are not.” response to advertisement inviting applications
David & Robbins: Selection is a for opening are more, it is not possible for
managerial decision making process is to recruitment agency to call all the applicants for
predict which job applicants will be successful interview. Hence, selection committee has to
if hired.” evolve some criteria like age, length of experience,
level of education, percentage of marks, higher
11.02 Steps in Employee Selection qualification, level of exposure, communal
Process quotos, proficiency etc., to shortlist the number
of applicants for the interview.
STEPS IN SELECTION PROCESS
01. (c)  Selection Test
Applicaon Blank
Scrunizing the Applicaons 01 Several tests are conducted in the selection
Selecon Test
process to ensure whether the candidate
02 Interview
possesses the necessary qualification to fit into
Physical Examinaon 03 various positions in the organization.
Reference check
Approval of
04 Higher Authority

05
Final Selecon

06 Contract of
Employment

A comprehensive selection process

involves the various steps as shown in figure
A) Ability Test
01. (a)  Application Blank
A test designed to measure an individual’s
Most of public sector undertaking,
cognitive function in a specific area,
various ministries of Government, Selection

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such as variety of skills, mental aptitude, the most desirable action in critical
problem solving, knowledge of particular field, situations using his judging ability.
reasoning ability, intelligence etc. This test is viii) Mental Arithmetic Test - It tests the
used to find the suitability of a candidate for a candidate’s basic numerical ability like
given job role. addition, subtraction, multiplication,
1. Aptitude test division and fraction. It tests the speed
of doing calculation.
Aptitude test is a test to measure suitability
of the candidates for the post/role. It actually ix) Vocabulary Test - The test measures
measures whether the candidate possess a set of candidate’s ability to recognize the
skills required to perform a given job. It helps in relationship among the ideas, think
predicting the ability and future performance of methodically and fluency in English
the candidate. Aptitude test can be measured by language.
the following ways: x) Number Sequence Test - This measures
i) Numerical Reasoning Test - Numerical the candidate’s ability to find a logic
reasoning test provides information about in a series or pattern. Under this test,
candidate’s numerical aptitude. In other candidates have to find out missing
words this test measure the candidate's number in a sequence to determine the
ability to make correct decision from pattern.
numerical data. 2. Achievement Test
ii) Verbal Reasoning Test - It measures the This test measures a candidate’s capacity
candidate's ability to comprehend the to achieve in a particular field. In other words
written text and ability to arrive at factual this test measures a candidate’s level of skill in
conclusion from the written text. certain areas, accomplishment and knowledge
iii) 
Inductive Reasoning Test - Inductive in a particular subject. The regular examination
Test is one of the psychometric tests conducted in educational institution represents
conducted in the selection process to achievement test. It is also called proficiency
measure the problem solving abilities test. This test is conducted before, during or
and ability to apply logical reasoning. after a learning experience. In short it is a test
iv) Mechanical Reasoning Test - This test conducted to find out candidate’s mastery over
measures the engineering student’s ability the subject. Example,
to apply engineering concepts in actual a) A driver may be asked to drive a vehicle to
practice. test his driving efficiency
v) Diagrammatic Reasoning Test - This b) Music student may be asked to play a given
test measures the candidate’s ability to instrument
understand the shapes, abstract ideas c) Teacher candidate may be asked to give a
and ability to observe and extract values demonstration
from illustrations and apply them to new 3. Intelligence Tests
samples.
Intelligence tests are one of the
vi) Spatial Reasoning Test - The test
psychological tests, that is designed to measure
measures the candidate’s ability to clearly
a variety of mental ability, individual capacity
manipulate and remember the shapes,
of a candidate. The main aim of these tests is
still images, and find out pattern which
govern the sequence. to obtain an idea of the person’s intellectual
potential.
vii) Situational Judgment Test - This test
measures the candidate’s ability to choose

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the interpretation or narration given by the

Mental age and Actual (age wise)
candidate to the pictures, figures etc. shown to
calculate the Flow of IQ level.
him in the test situation.
Formula for IQ :
Mental Age 4. Attitude Test
X 100
Actual Age This test measures candidate’s tendencies
(Physical age or current age)
towards the people, situation, action and related
Mental age:  A person’s mental age is a things. For example, morale study, values study,
measurement of their ability to think when social responsibility study expresses attitude
compared to the average person’s ability at
test and the like are conducted to measure the
that age.
attitude of the candidate.
Example: Average intelligence or Average IQ = 100
02. Interview
If ten years old has a mental age 13,
Therefore, IQ = 130, ie, Above average. Next step in selection process is interview.
The term ‘interview’ has been derived from
4. Judgment Test French word enter voir that means to glimpse
This test is conducted to test the presence or to see each other .
of mind and reasoning capacity of the candidates In other words interview represents a face
B. Personality test to face interaction between the interviewer and
interviewee. According to Scott and others “an
Personality test refers to the test
interview is a purpose full exchange of ideas,
conducted to find out the non-intellectual traits
the answering of questions and communication
of a candidate namely temperament, emotional
between two or more persons.”
response, capability and stability. There is no
Various types of interview are shown in
right or wrong answer in the test. It comprises
figure
of following tests.

1. Interest Test
Interest test measures a candidate’s extent
of interest in a particular area chosen by him/
her so that organization can assign the job
suited to his/her in term.
2. Personality Inventory Test
Under this method standardised
questionnaire is administered to the candidate
to find out traits like interpersonal rapport,
dominance, intravertness, extravertness, self
01) Screening / Telephone Interview
confidence, lower sign quality etc. This test
Where the candidates live far away from
assesses the reliability and innate characters of
organization and find it difficult to attend
the candidate concerned.
preliminary interview for various reasons,
3. 
Projective Test / Thematic Appreciation
telephone interview is conducted by some
Test
organization to eliminate unfit and unsuitable
This test measures the candidate’s values,
candidate at the preliminary stage itself.
attitude apprehensive personality etc. out of

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02) In depth Interview 06) Preliminary Interview

This interview is conducted to test the level This interview is conducted to know the
of knowledge of the interviewee in a particular field general suitability of the candidates who have
intensively and extensively. Thus interview helps applied for the job. Team of experts conducts
the interviewers to learn about the candidate’s their interview primarily to eliminate those who
expertise and practical exposure with respect to are unqualified and unfit candidates. This helps
his/her area of specialization. the employer organization to cut cost and time in
selection process.
03) Video Conferencing Interview
07) Stress Interview
Video conferences interview is similar
to face to face interview. Video conferencing This type of interview is conducted to test
interview is a kind of conference call that connects the temperament and emotional balance of the
the candidate with companies located across candidate interviewed. Interviewer deliberately
various geographies. Just like telephone call a video creates stressful situation by directing the candidate
conferencing interview has multi point which to do irrational and irritating activities. They
assess the suitability of the candidate by observing
allows two or more people in different locations
the reaction and response of the candidate to the
to participate in the interview process. Interview
stressful situations. Mostly this type of interview is
can be conducted from a desktop at work, a home
conducted for recruiting sales representatives staff
computer or smart phone or a tablet.
for defence and law enforcement agencies.
04) Group interview
08) Structure/Guided/Planned Interview
A group interview is a screening process
Under this method, a series of question to be
where multiple candidates are interviewed at the
asked by the interviewer are pre-prepared by the
same time. Group interview is a good time saving
interviewer and only these questions are asked in
type of interview. Instead of spending 5 hours
the interview. Ultimately interviewees are ranked
interviewing 5 candidates individually, one hour
on the basis of score earned by the candidate in the
can be spent interviewing them in a group. Some
interview.
time particular topic is given to the group, and
they are asked to discuss it. The competency of 09) Unstructured Interview
members of group is assessed by keenly observing This is quite contrary to structured interview.
the participation of members in the discussion. An atmosphere for free and frank interaction is
05) Panel Interview created in the interview environment. There is no
pre-prepared questions. Interviewers determine
Where a group of people interview the
the suitability of the candidate based on their
candidate, it is called panel interview. Usually
panel comprises chair person, subject expert, response to the random questions raised in the
psychological experts, representatives of interview.
minorities/underprivileged groups, nominees 10) Online Interview
of higher bodies and so on. All panel members Due to tremendous growth in information
ask different types of questions on general areas and communication technology, these days
of specialization of the candidate. Each an interviews are conducted by means of internet via
every member awards marks for the candidate Skype, Wechat, Google duo, Viber, Whatsapp
separately. At the end, the marks awarded by all or Video chat applications. This enables the
the members are aggregated and the candidates interviewers to conduct interview with the
are ranked accordingly. This method eliminates candidates living in faraway places. They saves a
bias in selection process. It ensures more reliability lot of time, money and energy both for employer's
in the selection of the candidate. organisation and the candidate.

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03. (b)Reference Check

10 most common Interview
Reference check is done to know
questions
reliability and trustworthiness of the candidate.
1. Tell me about (your self)
Usually application blank contains a column for
2. Why do you want to work for this the candidate to furnish the list of persons to
Organization? be contacted for reference purpose. Employer
3. Why are you interested in this position? organization used to send either standardized
4. Why should we select you? form to referees or request them to write in detail
5. What is your greatest strength? about certain behavioral traits of candidate
6. Tell about the time, when you failed? under selection like conduct, character, attitude,
7. What is your salary requirement? behavior, value system etc., of the candidate
8. What is your five year plan ? under selection process. The selector decides
9. Why are you looking to leave your present job? the selection worthiness of the candidate based
on the reference and recommendation given by
10. Do you have any questions for me!
referees.
03. (a) P
 hysical Examination or Medical 04.  Approval by Higher Authority
Examination Selection committee sends the list of
candidates selected with some candidate kept in
waiting list for approval by higher authority like
chairman, HR director, CEO and the like. Once
Sound Mind the list is approved the selected candidate will
is in Sound be called for final interview.
Body
05.  Final Selection
The successful candidate who passed
through various stages of selection process will
be called for final interview. These candidates
The last technique used in selection are briefied about the rules and regulations of the
process is medical examination. This is the organization, organizational culture, reporting
most important step in the selection because a relationship, dress code, expectations of employer,
person of poor health cannot work competently facilities available for career growth etc. At the end
and any investment on him may go waste, if he/ of the final interview even the candidate under
she is unable to discharge duties efficiently on selection is allowed freedom to seek clarification
medical grounds. In other words, it determines or make his own demands if any.
an applicant’s physical ability to perform a 06.  Contract of Employment
specific job. The main purpose of medical After the final selection process is
examination is to find out completed, certain documents are expected
1. Physical fitness of the candidate under to be signed both by the organization and the
selection to the job concerned candidate. Hence there is a need for preparing
2. To protect the existing employees of business a contract of employment. The following basic
organization from the infectious diseases information which need to be included in a written
likely to be spread by the candidate selected contract of employment varies according to the
3. To check excessive expenditure in the treatment level of the job. Generally it contains details like
of selected employee after placement. 1. Job Title 2. Duties & Responsibilities

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3. Scale of Pay allowance, increments 4. Working 5. 

Level of Educational Qualification and
hours 5. Date when continuous employment Experience and Exposure
starts and basis for calculating service. 6. Work The process of selection depends on the
Rules 7. Grievance procedure 8. Disciplinary experience and educational qualification, and
procedure 9. Special terms and Conditions exposure required for the post. For example
relating to rights etc. for selection of finance officer, treasurer, legal
adviser, designer, architecture, CEOs, scientist,
11.03 Factors influencing
chairman etc. selection process is shorter
Selection Process as only few candidates compete with higher
Factors influencing employee selection educational qualification, and credentials.
process are listed below
1. Nature of Post
11.04  Importance of Selection
The process of selection of employee 1. Good Talent
varies according to type of personnel to be Proper selection system enables the
recruited. For instance, selection process of organization to appoint talented persons
probationary officer of a bank differs from that for various activities and thereby leading to
of selection of officer for Indian Police Service. improved productivity and profitability of the
2. Number of Candidates organisation.
Selection process depends on the 2. Better Efficiency
response of candidates to the advertisement Selection of right person to the right job
inviting applications for the post. For instance, is sure to produce better quality of work and
for clerical and other physical jobs, more may facilitate faster achievement of objectives.
candidate tend to apply. Hence short listing This will help in greater measure to tone up the
needs to be done. The selection process would overall efficiency of organisation.
be longer if the number of applicants is lesser
3. Reduced Cost of Training and Development
and consequently selection process becomes
shorter. Better selection of candidates definitely
reduces the cost of training because qualified
3. Selection Policy
personnel have better grasping power. If they
The selection policy and selection select suitable candidates for suitable job,
process are inter-related. For example some they can easily understand the techniques
organizations put in place tougher selection of the work better in quick time. Besides, the
process involving several steps to identify the organization can develop different training
best fit while certain other organizations just programmes for different persons on the basis
conduct straight interview and thus cutting of their individual differences, thus reducing
short the selection procedure. the time and cost of training considerably.
4. Cost factor / Budget 4. Reduced Turnover
The longer selection process entails Proper selection of candidates contributes
higher cost. Hence, organizations which cannot to low labour turnover. This will inturn help
afford to spend a larger resource tend to shorten the organisation to minimize recruitment cost.
selection process while organizations with
sound financial condition can afford to adopt 5. Job Motivation
lengthier selection process. If the right person is selected for the right
job, it tends to motivate the person to work
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more effectively and efficiently. They feel that iii) It helps in reducing conflict rates or accidents
their skills are properly used and they tend to iv) It avoids misfit between the candidates and
contribute more attention to the job. the job.
6. Other Benefits v) It helps the candidate to work as per the
Proper selection of candidates reduces predetermined objectives of the organization
absenteeism. They would pay better attention vi) 
It involves assigning a specific rank and
to their jobs and take safety precautions on their responsibilities to an individual
own accord would minimize the occurance of vii) It helps to avoid short term staff shortage.
work place accidents.
11.08  Principles of Placement
11.05 Selection differs from Following principles are followed at the
Recruitment time of placement of an employee:
Recruitment and selection play a vital role
in the Human Resource Management. These are 1. Job First, Man Next
the two sides of the same coin but there exists Man should be placed on the job
some difference between the two. The difference according to the requirements of the job. There
have been highlighted and the exhibit is given is no compromise on the requirements or
below. qualifications of the man with respect to job.
“Job first Man next” should be principles of
11. 06  Placement Placement.
Introduction on Placement is an important
2. Job Offer
human resource activity after a candidate has
been selected. He / she should be placed on a The job should be offered to the man
particular job. In fact, placement signifies placing based on his qualification.
the right person on the right job in a good 3. Terms and conditions
manner. The term ‘placement’ includes initial The employee should be made conversant
assignment of new employees and promotion, with the conditions and culture prevailing in
transfer or demotion of present employees. the organization and all those things relating to
The process of placing the right man on the job.
the right job is called ‘Placement’. 4. Aware about the Penalties
In other words, Placement is a process The employee should also be made aware
of assigning a specific job to each and every of the penalties if he / she commits a wrong or
candidate selected. lapse.
According to Dale Yoder, Placement may
5. Loyalty and Co-operation
be defined as “the determination of
When placing new recruit on the job,
the job to which an accepted candidate is
an effort should be made to develop a sense
to be assigned, and his assignment to that job”.
of loyalty and co-operation in him, so that he/
11.07  Significance of Placement she may realise his/her responsibilities better
The significance of the placement is given towards the job and the organization.
below Placement is not an easy process. It
is very difficult for an new employee, who
i) It improves employee morale
cannot be expected to be not familiar with
ii) It helps in reducing employee turnover the job and environment. For this reason, the

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

employee is generally put on a probation/trial

Key words
period ranging from one year to two years.
Application Blank Structured
After completion of the probation period, if the
Turnover Placement Job Offer
employee shows a better performance, he/she
Loyalty Recruitment Evaluation
is confirmed at the job as a regular employee
Relocation Aptitude Attitude
of the organization.
Personality

For Future learning

For own Thinking
1. Know the job selection methods in
TamilNadu government 1. How will you prepare your Resume and
2. Collection of job application related to Application?
different types job. 2. Find out any 5 Selection interview
questions.
3. Student should know about the skilled
3. Student should arrange face to face
and unskilled workers.
interview
4. Students should know how to apply and
4. To Identify the Placement process
fill up the job application 5. Student should visit a nearby organization
and observe the selection interview.

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c) Reference check, application form, test and

  Exercise interview and physical examination
d) physical examination test and on interview
I. Choose the Correct application term and reference check.
Answers: 7. The purpose of an application blank is to
1. 
The recruitment and gather information about the
Selection Process aimed at right kind of a) Company
people.
b) Candidate
a) At right people
c) Questionnaire or Interview Schedule
b) At right time
d) Competitors
c) To do right things
8. Identify the test that acts as an instrument to
d) All of the above
discover the inherent ability of a candidate.
2. The poor quality of selection will mean
a) Aptitude Test
extra cost on ___________ and supervision
a) Training b)Recruitment b) Attitude Test

c) work quality d) None of these c) Proficiency Test

3. 
___________ refers to the process of d) Physical Test
identifying and attracting job seekers so as 9. 
The process of eliminating unsuitable
to build a pool of qualified job applicants. candidate is called
a) Selection b) Training a) Selection
c) Recruitment d) Induction b) Recruitment
4. 
Selection is usually considered as a c) Interview
___________ process
d) Induction
a) Positive b) Negative
10. Scrutiny of application process is the
c) Natural d) None of these
a) Last step in Selection process
5. 
Which of the following test is used to
measure the various characteristics of the b) First step in Selection process
candidate? c) Third step in Selection Process
a) physical Test b) Psychological Test d) None of the above
c) attitude Test d) Proficiency tests 11. Selection process helps in
6. Which of the following orders is followed a) Locating candidates
in a typical selection process.
b) 
Determining the suitability of the
a) 
application form test and or reference
candidates.
check, interview and physical examination
c) preparing employees for training
b) 
Application form test and or interview,
reference check, and physical examination d) None of these

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12. The process of placing the right man on IV. Long answer questions:
the right job is called ___________.
1. Briefly explain the various types of tests.
a) Training b) Placement
2. Explain the important methods of interview
c) Promotion d) Transfer (any 5).
13. Probation/Trial period signifies 3. Explain the principles of placement.
a) one year to two years 4. Differentiate Recruitment and Selection.
b) one year to three years
References
c) Two years to four years
1. 
Aswathappa. K. Human Resource
d) None of the above management. McGraw Hill
14. Job first man next is one of the principles Education(media) private Ltd., New Delhi
of ___________. 2013.

a) Test b) Interview 2. Balaji C.D Human Resource Management,

Margham Publications , Chennai, 2018.
c) Training d) placement
3. Sharma R.K and Shashi K.Gupta Business
Answers: Organisation and management, Kalyani
1 d 2 a 3 c 4 b 5 b 6 b 7 b Publications New Delhi, 2011.
8 a 9 a 10 b 11 b 12 b 13 a 14 d 4. 
Varma M.M and Aggarwal Personnel
Management and Industrial Relations Manu
II. Very Short Answer Questions: Rastogi , New Delhi, 2005.
1. What is selection?
5. WebSources.
2. What is an interview? www.mgtstudyguide.com, www.mbakno1,
3. What is intelligence test? www.learnbywatch.com

4. What do you understand about bio data? 6. 

Bhattacharyya D.K. Human Resource
Development, Himalaya Publishing
5. What do you mean by placement? House,Girgaon, Mumbai, 2012.
III. Short Answer Questions: 7. 
Sundar K. and Srinivasan J. Elements of
Organisational Behaviour, Vijai Nicole
1. What is stress interview?
Imprints Private Limited , Chennai, 2015.
2. What is structured interview?
3. Name the types of selection test?
4. What do you mean by achievement test?
5. What is aptitude test?
6. How is panel interview conducted?

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UNIT HUMAN RESOURCE MANAGEMENT

IV

12
CHAPTER
EMPLOYEE TRAINING METHOD

அன்பறிவு ேதற்றம் அவாவின்ைம இந்நான்கும்

நன்குைடயான் கட்ேட ெதளிவு.
- 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
To enable the students to understand the the better activities in a systematic way. After
■ Meaning and definition of training having selected the most suitable persons for
■ Purpose of training or Need for training the various suitable jobs in the organization by
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
■ Difference between on the job training have some previous knowledge regarding
and Off the job training the jobs, while others may be entirely new
■ Benefits of training to the jobs. Both types of employees need
some different kinds of training to acquaint
Chapter Synopsis themselves with the jobs.

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
12.05 (i) Benefits to the Training is the act of increasing /
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 for doing the jobs them self. Training enables
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the employees to guide their behavior. Training v) Improved Safety Measures:

refers to the teaching and learning activities Employees gain awareness about the
carried on for the primary purpose of helping risks involved in job and safety measure
members of an organization to acquire and to to be adopted through a proper training
apply the required knowledge, skill and attitudes program. This helps to improve safety in the
to perform their jobs effectively and efficiently. work place and avoid accidents.
According to Edwin B. Flippo” Training
vi) Motivating Employees:
is the act of increasing the Knowledge and
skills of an employee for doing particular jobs”. An employee needs continuous
development to move along the career path as
According to Mathis and Jackson
per the career planning. Training motivates
“Training is a learning process whereby people
and instils organizational commitment.
learn skills, concepts, attitudes and knowledge
to aid in the achievement of goals. vii) Higher Productivity and Profits
Efficient training improves higher
12.01 
Purpose of Training or productivity and more profits as the
Need for Training trained employee can apply more skills and
The purpose of Training can be techniques at works. It helps them do work
explained as follows at faster rate and complete it with high
i) Improved Quality of Work perfection.
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
ii) Enhance Employee Growth facilities are used at an optimum level. This
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
iii) Prevention of Obsolence: various aspect of job in detail at the training
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
purpose of training is to avoid obsolence. work which constantly undergoes changes.
iv) Enlightening New Recruits
New employee can learn the methods
12.02 
Steps in Designing a
of working, techniques, reporting, related
Training Programme
tools and equipment used in the job, the Training is one of the planned activities
work culture of the company etc. with the to transfer or modify knowledge, skills and
help of training. attitude. Every training programme must
address certain vital issues listed below.

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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? the level of training to be imparted to the

Training department has to determine employees. Usually introductory training
the candidates for whom the training should is given to new recruit to sensitize item to
be imparted. In other words it should identify various aspects of the work. Middle level
whether it is needed for operational level employees are given skill development
employees or supervisory level employees or training while higher level training is given
executive level. for enhancing the functional efficiency of
executives.
2. Who is the Trainee?
A person who is learning and 6. Where to Conduct the Training
practising the skills of particular job is called Programme?
trainee. Trainees should be selected on the The venue of training and duration
basis of self-interest and recommendation of training should be fixed based on the
by the supervisor or by the human resource availability of other related factors.
department itself.
12.03 Training Methods
3. Who are Trainers?
Various methods of training are used
Trainer is a person who teaches skills to to train the employees. It is varying from
employee and prepare them for a job activity. one organization to another. Various factors
Trainers may be supervisor, coworkers, HR like skill requirement, qualification of the
staffs, specialists in the other parts of the candidates, cost and time availability and
company, outside consultants, industry indepth knowledge should be considered
association,faculty members of Educational before adopting any given method. There are
Institutions like University etc. The trainers is two principal methods of employee training
otherwise called Instructor, Coach, Teacher, which are used by the organization as given
Mentor, Adviser, Counsellor, Guide, Guru, in the figure.
Manager, Handler, Tutor and Educator etc,.
On the Job Training and Off the Job Training
4. What Method will be used for Training?
Training segment should decide the My employees are my most important
appropriate method of training among the assets. When they go home in the evening
various methods of training available. networth drops to Zero - A software
Billionaire in Silicon Vally (USA)
5. What should be Level the Training?
Training department should decide

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TRAINING METHODS
ON THE JOB TRAINING OFF THE JOB TRAINING

01 Coaching Method Lecture Method 01

02 Mentoring Method Group Discussion Method 02

03 Job rotaon Method Case Study Method 03

04 Job instrucon Technique

Method
Role Play Method 04

05 Apprenceship Training Method Seminar / Conference

Method
05

06 Commiee Assignment Method Field Trip Method 06

Understudy/Internship Training
07 Method
Vesbule Training Method
07
E-learning Method 08
Demonstraon Training Method 09
Programmed
Instrucon Method
10

12.03  (I) On the Job Training i) Coaching Method

On the job training refers to the training In the coaching method of training, the
which is given to the employee at the work superior teaches or guides the new employee
place by his immediate supervisor. In an other about the knowledge and skills relevant to
words the employee learns the job in the actual a given job. In this method superior plays
work environment. It is based on the principle the role of coach or guide and an instructor.
of “Learning by Doing and Learning While Under this method the superior should point
Earning”. On the job training is suitable for out mistakes/lapses committed by the new
imparting skills that can be learnt in a relatively worker and also advise the remedial measures,
short period of time. The following are the on to trainees. The trainees can clear their doubts
the job training methods. then and there.
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iv) Job Instruction Techniques (JIT) Method:

TRAINING EDUCATION

SUPPORT POTENTIAL

MOTIVATION KNOWLEDGE

COACHING In this method, a trainer at the

supervisory level gives some instructions to an
employees to how to perform his job and its
purpose.
ii) Mentoring method
Mentoring is the process of sharing v) Apprenticeship Training Method:
knowledge and experience of an employee.
The focus in this training is on the development
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 The apprentice or trainee learns the
for broadening the knowledge of executives. job knowledge and skills from the trainer
Under this method a trainee is periodically or superior or senior worker. Generally the
shifted from one work to another work and apprenticeship training is given to the technical
from one department / division to another cader like that Mechanics, Electricians,
department / division for a particular period of Craftsmen, Welders, Fitter etc., This duration
time. The main aim of job rotation is to expose of this training programme ranges from one to
the employee to various inter related jobs. five years. The trainee gets the stipend during
The main aim of job rotaon is to
the training period.
expose the employee to various
inter related jobs. vi) Committee Assignment:

JOB ROTATION
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.

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are required to learn the skills and get well

equipped with the tools and techniques that
are to be used at the actual work floor.
i) Lecture Method

Under this method trainees are educated

about concepts, theories, principles and
application of knowledge in any particular area.
Trainer may be generally drawn from Colleges,
Universities, Consultancies, Institutions,
Manufacturing concern, Union etc., They
impart training effectively by their oratorical
skill, knowledge and practical knowledge
using audio visual tools.

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

Trainees are described a situations which This method enables the trainees to listen
stimulate their interest to find solution. They to the lectures / talk delivered on specific topics
have to use their theoretical knowledge and and provides opportunities to participate, to
practical knowledge to find solution to the interact with the speaker and get their doubts
problem presented. There is no single solution clarified or select participants may be allowed
to the problem. It may vary depending upon to present papers with the audio visual aids as
view points of trainees. In short, the purpose delegates. They share their rich experience
of case study method is, to make trainee apply at the seminar through their papers. Thus
their knowledge. 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 vi) Field Trip Method

Under this method trainees are explained A field trip or field work or training in the field
the situation and assigned roles. They have to is a journey undertake by a group of employees/
act out the roles assigned to them without any trainees to a place away from their actual work
rehearsal. There are no pre-prepared dialogues. site. In other words, trainees are taken to
Thus they have to assume role and play the role actual workplace/ site/facility to gain exposure
without any preparation. For example the role and knowledge. They are explained the process
of customer and salesman, management and of work by supervisor/ manager of the facility
union leader, foreman and worker etc. may visisted by the partipants. They are free to clarity
be played in the training arrangements. The their doubts from the organization experts.
moderator after observing the role played gives This method helps the trainees to strengthen
his views to the role players. their theoretical knowledge obtained in a class
room evironment by practical exposure.

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vii) Vestibule Training Method ix) Demonstration Training Method

Vestibule training is training of employees This method is a visual display of how
in an environment similar to actual work something works or how to do something.
environment artificially created for training Demonstration involves showing by reason
purpose. This type of training is given to avoid or proof explaining or making clear by use
any damage or loss to machinery in the actual of examples or experiments. As an example,
place by trainees and avoid disturbing the
trainer shows the trainees how to perform or
normal workflow in the actual workplace. It is
how to do the task of the job.
given to Drivers, Pilots, Space Scientists etc.,

viii) E-learning Method

E learning is the use of technological x) Programmed Instruction Method
process to access of a traditional classroom
Under this method, the subject matter to
or office. E learning is also often referred to
be learnt is presented in a series of units. These
us online learning or web based training. E
units are arranged from simple to complex level.
learning training courses can save lakhs and
It consists of three parts: Presenting facts, New
lakhs of rupees to an organizations as they
no longer have to pay for over time or costly knowledge and Question and Answer. Trainee
seminar to improve employees skills. Under has to read the unit understand the concept and
this type of web based training is anywhere take part in self-evaluation exercise. The system
and any time information can pass over the provides feedback on the accuracy of response
internet. 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
they are allowed to go to the next step for learning.
Programmed instructions is made available in
printed form i.e books, table, interactive video and
other formats. Besides there are number of other
advanced methods of training of the employees
which will be taught to students in their higher
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
v) Employees get higher earnings through certification on successful completion of
incentives and rewards. training and assessment, which will help
v) It builds up the confidence of employee them in securing a job for a better future.
by changing his attitude positively ICA (Infotech Private Ltd.) offers skill
towards to work based training, under this initiative ,in the
vi) It enables him to observe safety practices following sectors:
voluntarily during his engagement in ✓ Agriculture
dangerous operation ✓ Apparel, Maufacturing Made Ups and
Furnishing
(iii)Benefits of Customer ✓ Leather products
✓ Media and Entertainment
i) Customers get better quality of product/
✓ Handicrafts
service.
✓ Telecom
ii) Customers get innovative products or “Success is 80% Attitude and 20% aptitude”
value added or feature rich products. (Funmiwale – Adegbite)
Key words
Vestibule training, Mentoring, Job instruction,
Field trip, Demonstration, E learning,
Off the job training, On the job training, Exercise

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

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

1. What is meant by training?

2. What is Mentoring training method?
3. What is Role play?
4. State e-learning method?

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

ெசய்விைன ெசய்வான் ெசயன்முைற அவ்விைன

உள்ளறிவான் உள்ளம் ெகாளல்.
-குறள் 677
COUPLET
The method of performance for one who has begun an act is
to ascertain the mind of him who knows the secret thereof.

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

13.05. What can be Marketed? ii. In the words of Clark and Clark “A market is
a centre or an area in which the forces leading
13.06. Role of a Marketer to exchange title to a particular product
13.07. Functions of Marketer operate and towards which the actual goods
tend to travel.”

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From the above definition it is observed that 13.03.  Classification of Markets

i. Market may mean a Place; where buying On the basis of different approaches
and selling take place. markets have been classified on the basis of
ii. 
Buyers and sellers come together for Area, Nature of Goods, and Economic view,
transactions. Transaction, Regulation, Time, Volume and
iii. An organisation through which exchange importance. The detailed classification is
of goods takes place. presented in the following chart.

iv. The act of buying and selling of goods (to

I. On the Basis of Geographical Area
satisfy human wants). a. Family Market: When exchange of goods or
services are confined within a family or close
v. 
An area of operation of commercial
members of the family, such a market can be
demand for commodities. called as family market.
13.02.  Need for Market b. Local Market: Participation of both the buyers
and sellers belonging to a local area or areas,
i. To exchange (barter) goods and services. may be a town or village, is called as local
ii. To adjust demand and supply by price market. The demands are limited in this type
mechanism. of market. For example, perishable goods like
iii. To improve the quality of life of the society. fruits, fish, vegetables etc. But strictly speaking
such markets are disappearing because of
iv. To introduce new modes of life.
the efficient system of transportation and
v. To develop product by enhancing market communication. Even, then, in many villages
segment. such markets exist even today.

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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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
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
Flower Market
different countries i.e., involvement of buyers
and sellers beyond the boundaries of a nation.
II. On the Basis of Commodities/Goods
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
Goat Market 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.
ii. Manufactured Goods Market: This
market deals with manufactured goods. e.g.,
Leather goods, Manufactured machinery etc.
The Leather Exchange Market at Kanpur is an
example of the same.
iii. Bullion Market: This type of market deals
Cattle Market with the purchase or sale of gold and silver.
Bullion markets of Mumbai, Kolkata, Kanpur
etc., are examples of such markets.
b. Capital Markets:
New or going concerns need finance at
every stage. Their financial needs are met by
capital markets. They are of three types:
i. Money Market: It is a type of market where
short term seurities are exchanged. It provides
short term and very short term finance to
industries, banks, governments agencies and
Horse Market
financial intermediates.
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ii. Foreign Exchange Market: It is an V. On the Basis of Regulation

international market. This type of markets
i. Regulated Market: These are types of
helps exporters and importers, in converting
their currencies into foreign currencies and vice markets which are organised, controlled and
versa. regulated by statutory measures.

iii. The Stock Market: This is a market  xample: Stock Exchanges of Mumbai,
E
where sales and purchases of shares, debentures, Chennai, Kolkata etc.
bonds etc., of companies are dealt with. It is also ii. Unregulated Market: A market which is
known as Securities market. Stock Exchanges of not regulated by statutory measures is called
Mumbai, Kolkata, Chennai etc., are examples unregulated market. This is a free market,
for this type of market. where there is no control with regard to price,
quality, commission etc. Demand and supply
III. On the Basis of Economics
determine the price of goods.
a. Perfect Market: A market is said to be a
perfect market, if it satisfies the following
VI. On the Basis of Time
conditions: i. Very Short Period Market: Markets
i. 
Large number of buyers and sellers are which deal in perishable goods like, fruits,
there. milk, vegetables etc., are called as very short
period market. There is no change in the supply
ii. Prices should be uniform throughout the
of goods. Price is determined on the basis of
market.
demand.
iii. Buyers and sellers have a perfect knowledge
ii. Short Period Market: i. In certain goods,
of market.
supply is adjusted to meet the demand. The
iv. Goods can be moved from one place to
demand is greater than supply. Such markets are
another without restrictions.
known as Short Period Market.
v. The goods are identical or homogenous.
iii. Long Period Market: This type of market
It should be remembered that such types deals in durable goods, where the goods and
of markets are rarely found. services are dealt for longer period usages.
b. Imperfect Market: A market is said to be VII. On the Basis of Volume of Business
imperfect when
i. Wholesale Market: In wholesale market
i. Products are similar but not identical.
goods are supplied in bulk quantity to dealers/
ii. Prices are not uniform. retailers. The goods and services are not sold to
iii. There is lack of communication. customers directly.
iv. There are restrictions on the movement of ii. Retail Market: In retail market the goods
goods. are purchased from producer or wholesales
IV. On the Basis of Transaction and sold to customers in small quantities by
i. Spot Market: In such markets, goods are retailers.
exchanged and the physical delivery of goods VIII. On the Basis of Importance
takes place immediately. i. Primary Market: The Primary producers
ii. Future Market: In such markets, contracts of farm sell their output or products through this
are made over the price for future delivery. The type of markets to wholesalers or consumers.
dealing and settlement take place on different Such markets can be found in villages and
dates. mostly the products arrive from villages.
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Village market City market Local market

Retail market Wholesale market

ii. Secondary Market: In this market, Definition of marketer
the semi finished goods are marketed. Here “A person whose duties include the
finished goods are not sold. The commodities identification of the goods and services
arrive from other markets. The dealings are desired by a set of consumers, as well as the
commonly between wholesalers or between marketing of those goods and services on
wholesalers and retailers. behalf of a company”.
iii. Terminal Market: It is a central site - Business Dictionary
that serves as an assembly and trading place
for commodities in a metropolitan area. For
13.05.  What can be Marketed?
agricultural commodities, these are usually at
or near major transportation hubs. Marketing is a comprehensive concept
which starts from the point of creation,
13.04 Meaning and Definition promotion and ultimately delivering the goods
of Marketer and services to consumers and businesses. The
dynamic items that can be marketed are listed
Meaning of marketer below:
1. One who deals in a market; specifically, i. Goods: Manufactured Goods are the
one who promotes or sells a product or service main constituent of marketing endeavor in
2. A marketer is someone whose job all the countries across the world. Companies
involves marketing and individuals market goods like consumer
3. Someone who promotes or exchanges durables, electronic products, machineries,
goods or exchanges goods or services for money. Computers and its software and hardware etc.,
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ii. Services: Not only physical goods x. Ideas: An idea may change the world.
can be marketed. Even the services of many Innovative and attractive ideas are the desirable
organisations can be marketed to the consumers products for the marketers to sell. Social media
namely banking, insurance, finance, hospitality, marketing thrives on new ideas in a consistent
tourism, professional consultations etc., manner.
iii. Experiences: The unique and varied
experiences pertaining to a place or a park or
an event can be marketed under this concept.
For eg. Amusement Park, Theme Park,
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., 13.06.  Role of a Marketer
v. Persons: The marketing of goods and
services through celebrities is a successful
formula for creating a brand relationship with tor
Inte
grat
ova or
the consumers. The endorsement for the brand Inn
of a company can be carried down by Cinema

Imp
tor

Stars, Sports Stars, Musicians and eminent

lem
tiga

personalities.

ent
Ins

e
vi. Places: Under place marketing, tourist

r
Role of a Marketer
business prospects, new residents and land are
appealed to visit and particular geography by
promoting special characteristics of places like
infrastructural facilities, amusement, climatic
conditions, entertainment, culture etc.,
The marketer plays four roles as follows
vii. Properties: Properties include both real
property and financial property which involve i. Instigator
transfer of ownership on sale or purchase of the As an instigator, marketer keenly watches
same. For eg. Constructed house, Land, Plot, the developments taking place in the market and
Building, Shares, Debentures, Mutual funds etc., identifies marketing opportunities emerging in
viii. Organisations: An organisation can the ever changing market. He/she puts in place
market itself in order to build an image for appropriate marketing mix to capitalize the
it by sponsoring events, adoption of villages, opportunity. In such a case, marketer plays as
donations for charitable causes, corporate social an instigator and leads the business toward new
responsibility activities etc., directions.
ix. Information: Information is the most ii. Innovator
valuable product that can be marketed today. The Marketer seeks to distinguish his products/
data collected by an organisation can be used as services by adding additional features or
a product for this purpose. For eg., Information functionalities to the existing product, modifying
collected by libraries, research agencies, the pricing structure, introducing new delivery
educational institutions, book publishers, pattern, creating new business models, introducing
broadcasting companies, internet, etc. change in production process and so on.
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iii. Integrator
For own thinking
Marketer plays a role of integrator in
the sense that he collects feedback or vital Mention any two Types of Markets on the
inputs from channel members and consumers basis of Goods
and provides products/service solutions
Mention any two Markets on the basis of
to customers/consumers by co-ordinating
Time
multiple functions of organisation.
iv. Implementer
Marketer plays a role of implementer
when he/she actually converts marketing Exercise
opportunities into marketable product with the
help of several functional teams put in place in
the organisation. I. Choose the Correct
Answers:
13.07.  Functions of Marketer 1. One who promotes (or) Exchange of
goods or services for money is called as
i. 
Gathering and Analysing market
information .

ii. Market planning a) Seller b) Marketer

iii. Product Designing and development c) Customer d) Manager
iv. Standardisation and Grading
2. The marketer initially wants to know in
v. Packaging and Labelling
the marketing is .
vi. Branding
a) Qualification of the customer
vii. Customer Support Services
viii. Pricing of Products b) Quality of the product
ix. Promotion and Selling c) Background of the customers
x. Physical Distribution
d) Needs of the customers
xi. Transportation
xii. Storage and Warehousing 3. The Spot market is classified on the basis
of .
For Future learning a) Commodity b) Transaction
To learn about: c) Regulation d) Time
1. - Co-operative Market
4. Which one of the market deals in
2. - Farmers Market the purchase and sale of shares and
debentures?
i. 
There is a Goat market in
Aathur in Tamil Nadu. a) Stock Exchange Market
ii. There is a daily flower market b) Manufactured Goods Market
in Hosur in Tamil Nadu.
c) Local Market
d) Family Market

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5. Stock Exchange Market is also called III. Long Answer Questions:

_____________ 1. How the market can be classified?
a) Spot Market b) Local Market 2. How the market can be classified on the
c) Security Market d)National Market basis of Economics?

Answers: References
1 b 2 d 3 b 4 a 5 c 1. Pillai, R.S.N., and Bagavathi, Modern
Marketing, S. Chand & Company Lt., New
II. Very Short Answer Questions: Delhi, 2010.
1. What is Market?
2. Philip Kotler, Principles of Marketing,
2. Define Marketer. Prentice Hall of Indian (P) Ltd., New Delhi
3. What is mean by Regulated Market? 2002.

4. What is meant by Spot Market? 3. Sundar K. Elements of Marketing, Vijay

Nicole Imprints Private Ltd., chennai, 2017.
5. What is meant by Commodity Market?
4. www.yourarticlelibrary.com/marketing/
II. Short Answer Questions: market-definition-and-classification-of-
1. What can be marketed in the Market? markets/48772

2. Mention any three Role of Marketer?

3. Marketer is an innovator? Do you agree?
4. Explain the types of market on the basis of
time.
5. List down the functions of Marketer?

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UNIT ELEMENTS OF MARKETING

V
MARKETING AND
14
CHAPTER
MARKETING MIX

ெபாருள்கருவி காலம் விைனயிடெனாடு ஐந்தும்

இருள்தீர எண்ணிச் ெசயல்.
குறள் 675
COUPLET
Do an act after a due consideration of the (following) five, viz.
money, means, time, execution and place.

Learning Objectives
Chapter Synopsis
To enable the students to understand the
14.01. Introduction
■ Introduction to marketing
■ Evolution of marketing 14.02 Evolution of Marketing
■ Marketing concept 14.03. Marketing Concepts
■ Definition of marketing 14.04. Definition of Marketing
■ Objectives of marketing 14.05. Objectives of Marketing
■ Importance of marketing to the society 14.06. Importance of Marketing
■ Importance of marketing to the 14.07. Functions of Marketing
individual firms
14.08. Meaning and Definition of Marketing
■ Functions of marketing Mix
■ Meaning and definition of marketing mix
14.09. Elements of Marketing Mix
■ Elements of marketing mix
14.10. Marketing Mix Matrix
■ 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 iii. Sales Orientation: The stage witnessed
marketing is as old as the Himalayas. It is one of the major changes in all the spheres of economic life.
oldest professions in the world. The selling became the dominant factor, without
Marketing is indeed an ancient art; it has been any efforts for the satisfaction of the consumer
practiced in one form or the other since the days needs.
of Adam and Eve. The word, marketing has been iv. Marketing Orientation: Customers’
defined differently by authorities in different ways. importance was realised but only as a means
The traditional objective of marketing had been to of disposing of goods produced. Competition
make the goods available at places where they are became more stiff. Aggressive advertising,
needed. This idea was later on changed by shifting personal selling, large scale sales promotion etc.
the emphasis from “exchange” to “satisfaction are used as tools to boost sales.
of human wants”. Different authors tried to give v. Consumer Orientation: Under this
suitable definition from their viewpoint. Some are stage only such products are brought forward
very broad; others are rather too narrow. Some to the markets which are capable of satisfying
emphasise on the traditional view of producing the tastes, preferences and expectations of the
goods and finding out customers, others emphasise consumers-consumer satisfaction.
on the modern view that marketing must first find vi. Management Orientation: The
out what customers want and then plan a product to marketing function assumes a managerial role to
satisfy the wants. As any other subject, it has its own co-ordinate all interactions of business activities
origin, growth and development. with the objective of planning, promoting and
14.02  Evolution of Marketing distributing want-satisfying products and services
to the present and potential customers.
i. Barter System: The goods are
exchanged against goods, without any other 14.04  Definition of Marketing
medium of exchange, like money. “Marketing is concerned with the people
ii. Production Orientation: This was a and the activities involved in the flow of
stage where producers, instead of being concerned goods and services from the producer to the
with the consumer preferences, concentrated on consumer”.
the mass production of goods for the purpose of –American Marketing Association.
profit. They cared very little about the customers.

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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“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
the time has changed and object of marketing is x. Marketing adds value of goods by changing
more than securing profits. their ownership and by changing their
time and place of consumption.
The following are the objectives of
marketing: b) To the Individual Firms
i. 
Intelligent and capable application of i. Marketing generates revenue to firms.
modern marketing policies. ii. Marketing section of a firm is the source
ii. To develop the marketing field. of information to the top management for
iii. 
To develop guiding policies and their taking overall decisions on production.
implementation for a good result. iii. 
Marketing and innovation are the two
iv. 
To suggest solutions by studying the basic functions of all businesses. The
problems relating to marketing. world is dynamic.
v. To find sources for further information iv. 
Marketing facilities the development
concerning the market problems. of business and creates employment
opportunities for people.
vi. To revive existing marketing function, if
shortcomings are found. 14.07.  Functions of Marketing
vii. To take appropriate actions in the course Some of the most important functions
of action. of marketing are as follows:
The delivery of goods and services from
14.06.  Importance of Marketing producers to their ultimate consumers or
a) To the Society users includes many different activities. These
different activities are known as marketing
i. Marketing is a connecting link between
functions. Different scholars have described
the consumer and the producer.
different functions of marketing as under:
ii. Marketing helps in increasing the living
i. G.B. Giles described seven functions
standard of people.
of marketing: a. Marketing research
iii. Marketing helps to increase the nation’s b. Marketing planning, c. Product development
income. d. Advertisement and sales promotion e. Selling
iv. Marketing process increases employment and distribution f. After sale services and
opportunities. g. Public relations.
v. Marketing creates modern cultivators. Another classification of marketing
vi. 
Marketing removes the imbalances of functions is given by professors Clark and
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Clark, which is widely accepted by one and all. i. Transportation:

Functions of marketing are classified into three Transport means carrying of goods,
types 1. Functions of Exchange 2. Functions of materials and men from one place to another.
Physical Supply 3. Facilitating Functions. It plays an important role in the marketing.
It creates place utility by moving goods from
FUNCTIONS OF MARKETING
the place where they are available in plenty, to
places where they are needed. Various types
FUNCTIONS OF FUNCTIONS OF
EXCHANGE PHYSICAL SUPPLY of transport are used for carrying goods like
a. Land transport, b. Water transport and c. Air
FACILITATING transport.
FUNCTIONS
Innovation, Representation, Decision-
making, and Communication are the subsidiary
Functions of Exchange: Exchange refers functions of management.
to transfer of goods and services for money’s ii. Storage and Warehousing:
worth. This process can be divided into (a)
a. Storage
Buying and assembling and (b) selling
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
them as and when they are needed. Several
types of warehouses are used for storage of
Functions of Physical Supply goods, which are as follows.
There are two important functions under
this classification: i. Transportation ii. Storage (i) Private warehouses
and ware housing. (ii) Public warehouses
(iii) Bonded warehouses
Facilitating Functions
There are the functions which help or
facilitate in the transfer of goods and services
from the producer to the consumer. They are not
directly connected with the transfer of goods.
Under this category the following functions are
included.

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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
from competitive products.
Facilitating Functions vii. Packing: Packing means wrapping and
crating of goods before distribution. Goods are
i. Financing: 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
important decision taken by a businessman. It
is the decision upon which the success or failure
a. Long-term finance of an enterprise depends to a large extent.
Therefore, price must be determined only after
b. Medium-term finance
taking all the relevant factors into consideration.
c. Short-term finance
ii. Risk Bearing: 14.08. Meaning and Definition
RISK ARISING of Marketing Mix
FROM TIME RISK
NATURAL Marketing mix refers to two things.
CALAMITIES

RISK
i. A list of important elements or ingredients
PLACE RISK
POLITICAL BEARING that make up the marketing programme and

COMPETION RISK ii. The list of forces having bearing on

HUMAN RISKS
marketing operations.
a. Time risk Definition of marketing mix
b. Place risk “Marketing mix is a pack of four sets
of variables namely product variable, price
c. Competition risk
variable, promotion variable, and place
d. Risk of change in demand variable”. In simple words marketing mix
e. Risk arising from natural calamities means a marketing programme that is offered
f. Human risks by a firm to its target consumers to earn profits
g. Political risks through satisfaction of their wants. Such a
marketing programme is a mixture of four
iii. Market Information: According to Clark
ingredients, namely Product mix, Price mix,
and Clark market information means “all the
Place (Distribution)mix and Promotion mix.
facts, estimates, opinions and other information
used in marketing of goods”. - Mr. Jerome McCarthy,

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14.09 Elements of Marketing of Mix 4. Costs

5. Organization Objectives
Channel List Price
Discount b. External Factors:
Inventory
Distribuon Terms & 1. The market and demand
Logiscs Condions
2. Competition
PLACE PRICE
3. Customers
4. Suppliers
Markeng
Mix 5. Legal factors
6. Regulatory factors
PRODUCT PROMOTION iii. Place (Physical Distribution)
Future An excellent quality product, with a competitive
Adversment
Brand price structure, backed up by efficient
Promoon
Service promotional activities, will be a waste if it is not
Sales Force
Innovaon
Packaging moved from the place of production to the place
Style & Image
of consumption at an appropriate time. The
Let us discuss these 4 elements of fourth element of product mix, namely place or
marketing mix in detail. physical distribution facilitates the movement of
products from the place of manufacture to the
i. Product
place of consumption at the right time.
Product is the main element of marketing.
iv. Promotion
Without a product, there can be no marketing.
“A product is anything that can be offered An excellent product with competitive
to a market for attention, acquisition, use or price cannot achieve a desired success and
consumption that might satisfy a want or a need’’, acceptance in market, unless and until its special
says Philip Kotler. features and benefits are conveyed effectively to
the potential consumers.
ii. Price
Price is the value of a product expressed
ADVERTISING
in monetary terms. It is the amount charged for
the product. According to Philip Kotler, “Price INTERNET
is the amount of money charged for a product or TELEVISION
service, or the sum of the values that consumers
exchange for the benefits of having or using the RADIO
product or service”. PRINT
Factors affecting Price of product / service
NEWSPAPER
BILLBOARD
a. Internal Factors:

MAGAZINE
1. Marketing Objectives
2. Marketing Mix Strategy
3. Organizational considerations
Advertisement Media
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14.10.  Marketing Mix Matrix

For own thinking

PRICE PRODUCT i. Mention any two man made risks in

Marketing
ii. 
Mention any two natural risks in
Marketing
TRADITIONAL

PROMOTION
MARKETING
MIX For Future learning

i. To organise a Model Marketing

Practices in your class with some kind
PLACE of goods and services
ii. To arrange and invite a marketing
practitioner and good speakers for
PERFOR guest lectures about success and
MANCE
failures of market
PEOPLE

MODERN
MARKETING
MIX Exercise

PROCESS
PROGRAMME I. Choose the Correct Answers:
1. The initial stage of Marketing system
The principle of the 4P Matrix is that is____________
marketing decisions usually fall into four a) Monopoly system
controllable categories: product, place, price
b) Exchange to Money
and promotion. Carefully positioning the
product in each category will generate a better c) Barter system
response from the target market. d) Self producing

Key words 2. Who is supreme in the Market?

Assurance Dominant Potential a) Customer b) Seller
Perishable Completion Surplus c) Wholesaler d) Retailer
determined consumption Unique
Grading Necessity 3. In the following variables which one is not
the variable of marketing mix?
i. There is a weekly market for a) Place Variable
Fire wood in Karaikudi b) Product Variable
ii. There is a Annual Market
for  Horse in Andhiyur in c) Program Variable
Tamil Nadu. d) Price Variable

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4. Marketing mix means a marketing IV. Long Answer Questions:

program that is offered by a firm to its 1. Discuss about the Evolution of marketing.
target ______________ to earn profits
2. Why the marketing is important to the
through satisfaction of their wants.
society and individual firm? Explain.
a) Wholesaler b) Retailer
3. Narrate the Elements of Marketing mix.
c) Consumer d) Seller
5. Which one is the example of Intangible References
product? 1. Pillai, R.S.N., and Bagavathi, Modern
a) Education b) Mobiles Marketing, Principles and Practices, S.
Chand and Company Ltd., NewDelhi,
c) Garments d) Vehicles
2010.

Answers: 2. Philip Kotler, Principles of Marketing.

1 c 2 a 3 c 4 c 5 a 3. Sundar K. Elements of Marketing, Vijay
II. Very Short Answer Questions: Nicole Imprints Private Ltd., chennai, 2017.
1. What is Marketing?
2. Define Marketing Mix.
3. What is meant by Grading?
4. Define Product.

III. Short Answer Questions:

1. What are the objectives of marketing?
2. What is need for market and explain the
concept of marketing?
3. What are the factors affecting Price of
Product?
4. What do you mean by marketing mix?
Describe any two elements.

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UNIT ELEMENTS OF 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.

Learning Objectives 15.03 E-Tailing

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
Referral Marketing 15.10 Viral Marketing
15.11 Ambush Marketing
15.12 Guerrilla Marketing
Chapter Synopsis
15.13 Multilevel Marketing
15.01 Recent Trends in Marketing 15.14 Referral Marketing
15.01 (i) Electronic Commerce 15.15 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
15.02 E-Marketing is changing very rapidly. The boundaries of
15.02.(i) E-Marketing – Definition nations are disappearing for exploiting the
15.02.(ii) Objectives of E-Marketing opportunities of business. Today’s customers
are global and exhibit international
15.02.(iii) Advantages of E-Marketing
characteristics. Because of developments
15.02.(iv) Disadvantages of E-Marketing
of information technology, rapid means of
15.02.(v) E-Market v/s Traditional transportation, liberalization, and mobility of
Market

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people across the world, their buying habits (ii) E-Business

are fast varying and so are the fortunes of
The regular production or purchase and
various organisations. In the Globalised
sale of goods undertaken with an objective of
business environment, the marketer must
earning profit and acquiring wealth through
move goods faster and quicker to satisfy the
the satisfaction of human wants is known as
consumers’ needs and wants by serving the
business. Electronic business (e-business) via,
best quality goods and services. Therefore
web, internet, intranets, extranets or some
marketers are shifting from transaction
combination thereof to conduct business. In
thinking to relationship building and also
simple words, if all the business transaction
focusing on life long customers. So, marketer
carried out through internet and other online
has given more emphasis on the notion, “offer
tools is called E-business
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.

(i) Electronic Commerce

(iii ) E-Commerce Vs E-Business
(E-Commerce)
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 15.02 E-Marketing

of 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.
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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
services over internet and telecommunication
24 hours and 7 days “24/7” service to its
networks. In simple terms, marketing
users. So consumer can shop or order the
strategies and techniques which are utilised to
product anytime from anywhere.
access target customers through online mode
2. Direct contact of end consumer by the
are referred to E-marketing. E-marketing
manufacturers cuts down the substantially
includes use of internet for all the activities
intermediation cost. Thus products
of advertising, promotion publicity, channel
bought through e-marketing become
of distribution, marketing research to find
cheaper.
out customers’ needs and wants. Electronic
3. Customer can buy whatever they want/
marketing is interchangeably used to mean
need just by browsing the various sites.
online marketing, web marketing, internet
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 a strong online advertising
refers to application of broad range of
campaign a for which company has to
information technology for creating more
spend large amount. The cost of web site
customer value through more effective
design, software, hardware, maintenance
segmentation, targeting, differentiation and
of business site, online distribution costs
positioning strategies, planning more efficiently
and invested time, all must be factored
and executing the conception, distribution,
into the cost of providing service or
promotion and pricing of goods, services
product online.
and ideas; and creating exchanges that satisfy
individual consumer and organization's 2. It is not suitable for small size business
consumer objectives”. and also deters customers from buying
who lives on long distances.
“E-Marketing is achieving marketing
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 update the information on website.
data and electronic customer management 4. 
Many buyers are suspicious about the
systems (E-CRM)” security of the internet. As a result, many
visitors of business web sites, do not like to
(ii) Objectives of E-Marketing use their credit card to make a purchase.
So there is a fear of their cards being
The following are the objectives of
misused by fraudulent practitioners.
E-Marketing
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 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, fast-moving consumer
Social marketing is a new marketing tool. goods (FMCG) such as soaps, detergents,
It is the systematic application of marketing cosmetics, textiles, and so on. The rural to
philosophy and techniques to achieve specific urban flow consists of agricultural produce
behavioural goals which ensure social good. For such as rice, wheat, sugar, and cotton. There
example, this may include asking people not to is also a movement of rural products within
smoke in public areas, asking them to wear seat 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,
exchange with rural customers to satisfy tourism, professional services, repairs etc.,

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The service products are mostly intangible, solution to satisfy the needs of niche market.
inseparable from service provider and service A niche market does not mean a small market,
variable depending on the mood swing of but it involves specific target audience with
service providers perishable in quick time, a specialized offering. It aimed at being a big
unstandardisable and deliverable directly from fish in a small pond instead of being a small
service provider without inter-median. The fish in a big pond. For example, there are
unique characteristics of services marketing various cinema halls across India, but there
warrant different strategies compared with the are few which have recliner seats to offer. Not
marketing of physical goods everybody wants to watch a movie by paying
5x-6x times the cost of a normal ticket. The
15.08  Commodity Exchanges sports channels like STAR Sports, ESPN, STAR
A commodity exchange is an organized Cricket and Fox Sports target the niche market
and regulated market that facilitates the of sports enthusiasts.
purchase and sale of contracts whose values
15.10  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
Niche marketing denotes a strategy message widely across various distance
of directing all marketing efforts towards Hotmail Company owned by Microsoft
one well defined segment of the population. promote the services and advertisement
Actually there is no market in niche market. It message instantly. The most widespread
is found by company, by identifying the need example in recent times is the creation of
of customers which are not served or under moving, surprising or spectacular videos
served by the competitors. The company on YouTube, which are then shared on
which identified niche market develops Facebook, Twitter and other channels.
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15.11  Ambush Marketing 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
15.13  Multilevel Marketing
other 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.

15.12  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
Consumers/ customers are taken by surprise the other distributor he recruits, thus; a
to make a big impression about the brand multilevel marketing is a type of direct selling
which in turn creates buzz about the brand wherein the distributor sells the product via
on shirts it create a memorable experience in relationship referrals and word-of-mouth
the mind of target audience which triggers marketing. The salespersons or distributor
good responses to sales. It is suited to small not only sell the products but also encourage

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

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

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:
1. Selling goods/ services through internet is
and cutlery rather than disposables.
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. Social marketing deals with:
4. Save paper by avoid unnecessary a. Society b. Social Class
printing, by printing on both sides of a c. Social change d. Social evil
sheet of paper whenever possible.
4. Effective use of Social media marketing
5. Do not leave your home or school lights increase conversion rates of ___________.
on overnight Turn the lights off in rooms
a. Customer to buyers
when they're not in use. Replace bulbs
with compact fluorescent lamps (CFLs) b. Retailer to customers
or LED bulbs wherever possible. These c. One buyer to another buyer’s
use 75 percent less energy. d. Direct contact of marketer
5. A company’s products and prices is
WAYS TO REDUCE WATER USAGE IN visually represented by
SCHOOL/HOME PREMISES a. Shopping cart b. Web portal

Fixing dripping taps, plumbing c. Electronic catalogue d. Revenue model.

leaks, and installing low-flow toilets and 6. Pure play retailers are called
low-flow faucet aerators in washrooms. a. Market creators
uses a sprinkling system converting to a
b. Transaction brokers
drip system will dramatically reduce water
usage c. Merchants
Toyota's marketing of the Prius d. Agents
hybrid. Volkswagen/Mercedes-Benz’
marketing of its vehicles as "clean diesel" Answers:
"Earth Friendly" vehicles. 1 b 2 c 3 b 4 a 5 c 6 b

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II. Very Short Answer Questions: IV. Long Answer Questions:

1. What is E business? 1. Explain in detail how traditional marketing
2. What is green marketing? differ from E-marketing

3. What is service marketing? 2. Explain advantages and disadvantages of

E-Marketing.
4. Define E-Marketing.
3. Disscuss any two new methods of marketing.
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 are the advantages of E-Marketing? 2. Modern Marketing Principles and Practices-
2. Discuss the objectives E-Marketing by Pillai R.S.N. and Bagavathi – S.Chand
publication.
3. Explain in detail about Niche marketing.

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UNIT MANAGEMENT
CONSUMER PROTECTION
PROCESS
VI
I

16
1
CHAPTER
PRINCIPLES
CONSUMERISM
OF MANAGEMENT

அழக்ெகாண்ட எல்லாம் அழப்ேபாம் இழப்பினும்

பிற்பயக்கும் நற்பா லைவ.
-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 afterwards yield fruit.

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

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16.01 Consumer 16.02  Consumer Exploitation

A consumer is one who consumes goods Some of the ways in which consumers are
manufactured and sold by others or created being exploited are enumerated hereunder:
(air, water, natural resources) by nature and 1. Selling at Higher Price
sold by others. One, who avails services such as The price charged by the seller for a product
banking, transport, insurance, etc., is also called service may not be commensurate with the
a consumer. In other words, a consumer is an quality but at times it is more than the fair price.
individual who consumes goods- manufactured Even though sellers have surplus or adequate
by firms or created by nature air, water etc. goods they create artificial scarcity in the market
and services offered by government or firms, with an intent to push up the prices. As a result,
hospitals, educational institutions etc., consumers are forced to buy the short supply of
Meaning of Consumer under The Indian goods at higher prices in the black market.
Consumer Protection Act, 1986 2. Adulteration
A person who buys any goods or services It refers to mixing or substituting undesirable
for a consideration which has been paid or material in food. This causes heavy loss to the
promised or partly paid and partly promised consumers. This will lead to monitory loss
or under any system of deferred payment is a and spoil the health. But adulterators make
consumer. illegitimate profit while prudent businessmen
aim at normal profit whenever unscrupulous
A person who obtains such goods for resale
traders seek to reap higher profit out of
or for any commercial purposes will not be a
greed, they seek to adulterate the products.
consumer. However, if such goods are bought by
Adulteration is quite common in food articles.
a person exclusively for the purpose of earning
It is a crime which cannot be pardoned as it
his livelihood by means of self-employment then
spoils the very health of consumers.
such a person will be considered a consumer.
In theory, all business enterprises consider
consumer’s satisfaction as their main objective.
A consumer is said to be the king and the
businessmen are primarily supposed to serve FENNEL SEEDS CUMIN SEEDS

and satisfy customers. The consumer occupies

the central position in the entire scheme of free
economy; consumers have not always received
the attention they deserve. In reality consumers
PURE ADULTERATED
are cheated and exploited in many ways. In the
practical world, a consumer is a ‘slave’ and not
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 customer
is worried, and harmed till buried about the
quality, quantity, price and the timeliness of the
PURE ADULTERATED
supply of goods and services they need.
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Example: have to pay hefty price to buy those goods and

1. Chemicals, detergent chalk, urea caustic thus earning more profit unconscientiously.
soda, etc. are added to make the milk dense Even in Cinema houses, board may hang in the
and white. main entrance ‘House Full’ while cinema tickets
will be freely available at a higher price in the
2. Mixing of stones with grains
black market.
3. Mixing of coconut oil with palmolein
5. Sub-standard
4. Honey is adulterated with water and table
On opening a packet or sealed container
sugar to enhance the quantity
one may find the content to be of poor quality.
5. powdered rice/wheat is adulterated with If defective or damaged items are found in a
starch pack, a consumer finds it difficult to exchange
6. Coffee powder is adulterated with tamarind the defective one for good one and consumers
seed have to blame for lack of attention one cannot
7. Spices like turmeric powder is adulterated return it and the consumers have tendency
with methanol to blame their carelessness or fate for having
8. Papayas seed is added to black pepper bought such sub-standard product. Whenever
goods are bought, seller try to avoid raising bill
9. 
Chilli powder is adulterated with brick
or consumers do not demand bill as a matter
powder
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
Whenever the usage of goods is likely
3. Duplicate or Spurious goods to cause danger or hurts to customers,
manufactures have to forewarn the consumers
Duplicate products of popular products
of various sources of dangers involved in the
are illegally produced and sold. Duplicates
products and the precautionary measures to
are available in plenty in the market for every
be taken by the consumers. In absence of such
original and genuine parts or components like
information or warnings consumers are more
automobile spare parts, blades, pens, watches,
likely to encounter risks while using the risky
radios, medicines, jewellery, clothes and even
products.
for currency notes. Duplicate medicines are
sold in large measure, from Cape to Kashmir. 7. Warranty and Services
A consumer is not in a position to distinguish In case of consumer durable goods like
duplicate from the original. televisions, washing machines, refrigerators,
4. Artificial Scarcity cars, two wheelers and air conditioners etc. free
service is guaranteed only for few years called
There are certain situations where the
warranty period. But in reality free service
shop-keepers put up the board ‘No Stock”
are denied on flimsy grounds even during the
in front of their shops, even though there is
warranty period. Customer care service is likely
plenty of stock in the store. In such situations
to be rendered the shorter warranty period only
consumers who are desperate to buy such goods

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for select few items which the manufacturers consumer and aiding the consumer. In other
know pretty well that they do not get damaged words, it is an organised effort to fight against
during such period .Warranty service may not the unfair marketing practices with a view to
be extended to many parts/components of the secure consumer protection. Consumerism is
product sold. Thus consumers may be charged the society’s attempt to bring back the balance
exorbitant charges in the name of repair costs. in the exchange between the buyers and sellers
8. Unsuitability of Products as the strength of power is normally in favour of
The product quality, durability and sellers rather than buyers.
suitability may come under the category The term consumerism came into
of product fitness. What is claimed by the existence in the early 1960s when it was coined
product advertiser must correspond to the by the business community in the western world
products sold. But in actual practice, it is not particularly in America. It is the social force
so. Items unsuitable for human consumption designed to protect the interest of consumers by
are sold in the market. Some items marked as organising the consumers to bring pressure on
“unbreakable’’ break while using them. Battery the business community to ensure protection.
having a label ‘leak proof ’’ is more likely to Producers, sellers and service providers
leak. In all these eventualities users/consumers give importance to the consumers. In a sense
have to bear the consequences while producers/ every one of us is a consumer. It may be
manufacturers escape utilising the loopholes in individuals, families and institutions. They
the legal system. consume a variety of products and avail a
9. False Advertisements number of services almost every day. You buy
The main purpose of advertisement is to textbooks, notebooks, pen and other stationery
educate the consuming public and customers of items for your studies. Sometimes one–quire
various aspects of the products/service. In reality, notebooks you buy do not contain 192 pages
advertisements convey very little information and the pencil is not of a good quality. Have you
about the product. Many times it makes false not been dissatisfied and heated over these when
representation about the quality, price, grade, you have paid a fair price? Thus, a consumer is
composition, utility guaranteed, performance one who consumes goods manufactured and
etc. Consumers who buy the products on the sold by others
faith of claims made in advertisements are The term consumerism was first coined
cheated. by businessmen in the mid 1960s as they
Thus consumerism has emerged and thought consumer movement as another “ism”
evolved out of outcome of sufferings and like socialism and communism threatening
exploitation of consumers, whose sole aim capitalism.
is to secure protection from commercial “Consumerism is an attempt to enhance
terrorism and exploitative practices and thereby the rights and powers by buyers in relation to
safeguarding their interest by establishing the sellers”
rights and powers against producers and sellers. -L. Massie
“Consumerisms not limited to organised
16.03 
Consumerism and Need efforts only but, is a social movement seeking
for Consumerism to augment the rights and powers of buyers in
Concept of Consumerism relation to sellers”.
It is the social force protecting the – Philip Kotler
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In other words, consumerism refers to Progressives, Women’s movements and Henry

protest against business injustices and to efforts Ford and his assembly line would become
at correcting these injustices. Consumerism characteristic icons of the time. As consumers
as a protest against unfair business practices took a closer look into the products they were
and injustices, aims at removing or uprooting buying and working class persons began to
them or reducing them if not eliminating them demand better working conditions, America hit
totally. There are countless injustices and unfair a cross roads between industry and consumer
practices on which the business community satisfaction. Industrial reform for consumers
stuffs its profits and guff the consumer would be an answerable to inconsistencies that
satisfaction. To illustrate a few of this kind, these existed between product, price, and consumer
can be – supply of unsafe products, adulteration, satisfaction. The first consumer wave marked
fictitious pricing, defective and deceptive a shift toward recognition “the centrality of
packing and packaging, false and misleading consumers to the nation’s economy and polity
advertisements and sales literature, hoarding, (Cohen)” The companies began to make
profiteering, black-marketing, price collusion, efforts towards targeting consumers on a more
misuse of brands, planned obsolescence, short massive scale.
measures and weights, release of those goods Progressives, as well as other American
which are not really wanted by the consumer citizens began to realise the value in fighting
nor can they afford, face lifting of products and for better quality goods. Consumers should
the like. be guaranteed for some type of accountability
from industries in their quality for food
16.04  Importance of Consumerism and goods quality. Middle class progressive
Importance of consumerism lies in women began organisation like ‘The National
1. Awakening and uniting consumers. Consumers League’ (NCL) in response to the
2. Discouraging unfair trade practices. substandard quality of goods and the lack of
involvement by the government in protecting
3. Protecting against exploitation.
consumers against terrible food and other
4. Awakening the government. goods conditions.
5. 
Effective implementation of consumer The majority of the consumers in advanced
protection laws. countries are well educated, well –informed
6. Providing complete and latest information. and are in a position to protect them. But our
7. Discouraging anti-social activities Indian situation is entirely different from the
western, where adequate production and proper
16.05 Origin, Evolution, and distribution of products exist. In India, industries
Growth of Consumerism have not achieved the level of affluence of
Origin technology and the existing markets of products
In the beginning of 20th century industrial run in shortages, adulteration, and black market
economy reached a boom state. The early prices. Indian people have less money at their
20th century marked a period of reform and disposal. The profit making attitude of the
expansion in many areas as well. Advertising business failed to discharge social responsibilities
and consumer consumption would become big of maintaining fair price, quality of goods and
areas of reform and expansion with the growth providing services etc. In short, consumerism
of industry and consumer reform societies to is an outcome of sufferings and exploitation of
the outcry for more truthful advertisement. consumers and some businessmen aim to make

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abnormal profit, which is at the cost of consumer’s the Consumer Movement. He initially fought
safety and health. However, it has been accepted against automobile industry for violating
and agreed that “A consumer is a king of the safety standards and pollution control
market,” but in fact he is not. The majority of norms. But today, in almost all countries
the Indian problems relating to consumers are the consumer movement is well developed.
adulteration, artificial scarcity, unreasonable Countries like Britan, Sweden, Netherlands,
prices etc. Denmark and even in Kenya have stringent
There are different religious customs, laws against consumer exploitation in their
traditions, and languages in India; and about respective countries. The United Nations
three fourth of population live in rural areas, General Assembly has adopted a set of general
where cultivation is the source of livelihood, guidelines for consumer protection.
and there is wide disparity in the income of
people. Majority of the people are mostly
illiterate and have low income. In order to
save or protect them, against exploitative
practices of trade, consumerism has emerged
and has been accepted as a defensive force to
safeguard the interest of the customers.
Evolution of Consumerism
The major causes of consumerism in
India have been identified as rising prices,
poor product performance and service quality, 16.06  Consumer Protection
product shortages and deceptive advertising Consumer protection is a form of social
and inflation. Government has been very action which is designed to attain the well-being
responsive to the consumer needs through of the society namely consumers. A consumer is
legislative actions. Economic discontent has said to be a king in a free market economy. The
been generated out of spiralling inflation. Thus earlier approach of caveat emptor, which means
it has become necessary for the consumers “Let the buyer beware,’’ has now been changed to
to stand up for their rights through effective caveat venditor (“Let the seller beware”). However,
organisation in order to redress the grievances. with growing competition, manufacturers and
The word consumerism came into existence in service providers may be tempted to engage
the year 1960. in unscrupulous, exploitative and unfair trade
Growth practices like defective and unsafe products,
Consumerism or consumer movement is adulteration, false and misleading advertising,
an outcome of sufferings, and exploitations of hoarding, black-marketing etc in an attempt
consumers. It intends to shield the consumers to expand their market share in a competitive
from commercial terrorism and exploitative environment. As a consequence, consumers
practices. Its aim is to safeguard their interests may have to buy unsafe products, may have to
by establishing their rights and powers in suffer from various health disorders, due to
relation to products and sellers. adulteration; may have to pay higher price due
Mr. Ralph Nader pioneered the fight to hoarding and have to get duped by misleading
against monopoly and unethical trade advertisement. In this situation there is a need
practices of large companies in the United to provide adequate protection to consumers
States. He is considered to be the father of against all such malpractices of sellers/vendors.
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Both voluntary measures and law serve There are three parties involved in
as tools to protect consumer’s interest. Self- the sphere of business transactions viz. the
regulation, Consumer Associations, Alert Government, business and the consumers. Let
consumer, and State Support are some of the us discuss what each party has to do in this
means of consumer protection. Individual regard
consumer is considered more vulnerable, in the
modern world, to exploitation and harassment
by the manufacturers and distributors or sellers
because of environmental complexities of
business operations, technological changes,
application of mass production techniques, ROLE OF ROLE OF
vast resources, man-power and acrimonious BUSINESS GOVERNMENT
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, ROLE OF
consumer is not protected or safeguarded but, CONSUMER
consumer is cheated and looted. Thus, there is
a need for consumer movement to safeguard
their interest.
Role of Business
16.07 Need for Consumer Business enterprises should do the
Protection following towards protecting consumers.
1. Avoidance of Price Hike
Business enterprises should desist from
hiking the price in the context of acute shortage
of goods /articles.
2. Avoidance of Hoarding
Business enterprises should allow the
business to flow normally. It should not indulge
in hoarding and black marketing to earn
maximum possible profit in the short term at
the cost of consumers.
Though consumer is said to be the king
3. Guarantees for Good Quality
of entire business sphere, his interests are
Business enterprises should not give false
virtually neglected. Shortage of goods makes
warranty for the products. It should ensure
the consumers to be content with whatever is
supply of good quality.
offered for sale. Quality is sacrificed: warranty of
performance has no meaning; health hazard is 4. Product Information
never considered; profit maximisation turns out Business enterprises should disclose
to be sole consideration of business enterprises. correct, complete and accurate information
In such a context, consumer protection remains about the product viz. size, quality, quantity,
a vital importance. substances, use, side effects, precautions,
weight, exchange, mode of application etc.
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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
mere enaction of laws and do little to protect
6. Protection from the Hazard
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
Activation of Consumer Action Councils
before they are marketed. As regards food items,
1. Consumer action councils established at
business enterprises should withdraw spoiled
village levels should educate consumers of
and contaminated food items.
the right.
7. Money Refund Guarantee 2. Consumer protection agencies should take
Where the product becomes defective, necessary steps to investigate consumer
business enterprises should replace it with complaints and grievances and arrange to
new one or refund the purchase price. If the forward them to correct forum.
product causes injury or harm to consumers, it 3. 
It should regulate business enterprises
should reimburse the expenditures done by the according to the rules of the industry.
consumers concerned.
4. Voluntary consumer groups should provide
8. Consumer Grievances information so as to educate consumers on
Where the business enterprises have matters affecting them through media.
customer care department, it should handle the 5. It should organise movement against the
grievances’ of consumer immediately or within malpractice of manufacturers and traders.
a definite time frame. 6. 
Consumer cooperatives need to be
strengthened.
Role of Government
7. 
Consumer groups should contact the
Since most of consumers including legislators to raise the consumer issues in
academically educated are illiterate about Assembly and Parliament.
their rights and hence passive. Government 8. 
There should be testing laboratories at
should assure an active role in safeguarding each district to test the purity of goods.
the consumers. Government both the central
9. Voluntary consumer organisations should
and the state have brought out a number of
publicise the malpractices of manufacturers
legislations to protect the interest of consumers
and traders by media.
across the country. Other statues have been
10. 
It should take initiation to report such
listed out in the ‘Do you know’ segment of this
officials and authorities who let the offender
lesson. Despite the existence of legal system to
to go scot free to follow enforcement
protect the consumers, consumers in India are
agencies.
still illiterate and passive. Mere statue book will
United Nations Guidelines for Consumer
not address the problem. Law enforcement
Protection
authorities should see that penal clause is not
mere paper jaws-they should sting the offenders The General Assembly of the United
mercilessly. Nations passed a Resolution on April 9, 1985

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adopting a set of guidelines for consumer goods at high prices in black market in
protection to persuade the member countries to respect of essential commodities.
adopt policies and laws for better protection of iv. The Agricultural Products Grading and
the interests of the consumers. The guidelines Marketing Act, 1937 ensures the supply
provided that the governments should develop of agricultural commodities at high
or maintain a strong consumer protection quality.
policy, taking into account the guidelines. v. The Prevention of Food Adulteration
Objectives of United Nations Guidelines for Act, 1954 checks the adulteration of
Consumer Protection food articles and ensures purity of goods
i. 
To assist countries in achieving or supplied and thus protects the health of
maintaining adequate protection for their consumers.
population as consumers vi. Weights and Measures Act, 1976 protects
ii. To facilitate production and distribution the consumer against malpractices of
patterns responsive to the needs and underweight or under measurement.
desires of consumers This Act has been replaced as the Legal
iii. To encourage high levels of ethical conduct Metrology Act, 2009.
for those engaged in the production and vii. The Trademark Act, 1999 prevents the
distribution of goods and services to use of fraudulent marks on the product.
consumers viii. The Competition Act, 2002 protects the
iv. 
To assist countries in curbing abusive consumers against unhealthy competition.
business practices by all enterprises at the ix. 
Indian Standard Institution
national and international levels which (Certification marks) Act, 1952 (Now ISI
adversely affect consumers is known as Bureau of Indian Standards)
v. To facilitate the developing of independent provides special marks to products
consumer groups fulfilling minimum quality standards and
vi. To further international co-operation in thus ensures supply of quality products to
the field of consumer protection consumers.
vii. To encourage the development of market x. 
The Drugs and Magic Remedies
conditions which provide consumers with (advertisements) Act, 1954 prohibits
greater choice at lower prices. advertisement of drugs and remedies
claiming to have magical properties.
16.08  Consumer Legislation xi. 
The Drugs and Cosmetics Act, 1940
i. 
The Indian Contract Act, 1872 was ensures the safety of drugs and cosmetics
passed to bind the people on the promise sold in India.
made in the contract. xii. 
The Food Safety Standard Act, 2006
ii. The Sale of Goods Act, 1930: This Act regulates the manufacture, storage, and
protects consumers against sellers not distribution of food in safe and wholesome
complying with expressed and implied condition to consumers.
warranties in the sale contract. xiii. 
The Air (Prevention and Control
iii. The Essential Commodities Act, 1955 of Pollution) Act, 1981 controls and
protects the consumers against artificial prevents pollution in India.
shortages created by the sellers by xiv. The Public Liability Insurance act, 1991
hoarding the goods and thus selling the provides immediate relief to persons
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affected by accidents securing while loss claimed by the consumers must be a loss
handling hazardous substance. resulting from on some “deficiency of service”
xv. The Narcotic Drugs and Psychotropic or “defect in the goods.” The Act provides for the
Substances Act, 1985 prevents the setting up of a three tier-machinery, consisting
production of narcotic drugs except for of District Forums, State Commissions, and the
educational use. National Commission. It also lays down rules
for formation of consumer protection councils
16.09 The Consumer Protection in every District and State and at the apex level.
Act 1986 (COPRA) Salient features of The Indian Consumer
Nowadays, the consumers’ grievances Protection Act, 1986
and dissatisfactions grow largely. Consumers The salient features of the Indian
themselves did not have any effective mechanism Consumers Protection Act, 1986 are listed
or institutional arrangement for the speedy below
redressal of their grievances. Lack of effective
i. 
Protecting consumers against products
popular movement isolated the consumer and
and services which are harmful to the
so his plight is increased. Sensing the pressure
health of consumers.
mounting from various consumer protection
ii. Protecting consumers from the breach of
groups and consumers themselves, the Central
contract by sellers /manufacturers.
Government enacted a comprehensive law
called the Consumer Protection Act in 1986. iii. Ensuring consumers with supply of goods
This Act came into force with effect from at fair quality.
15.04.1987. This Act was further amended in iv. 
Safeguarding consumers against
1993. The Act is referred in short as ‘COPRA’. misleading and untrue messages
The Consumer Protection Act 1986 communicated through advertisement.
seeks to protect and promote the interests of v. Ensuring that consumers are charged fair
consumers. The act provides safeguards to price.
consumers against defective goods, deficient vi. Ensuring uninterrupted supply of goods.
services, unfair trade practices, and other forms vii. 
Ensuring the availability of goods in
of their exploitation. The object of the act is to correct quantity and right size.
provide for the better protection of the interests
viii. Protecting the consumers against unfair
of the consumer courts for the settlement of
trade practices of unscrupulous trader
consumer’s disputes and all matters connected
xi. 
Protecting the consumers against
there with. The Consumer Protection Act is of
pollution of various kinds
great importance. It is the latest to be adopted.
It is applicable to public sector, financial, and x. 
Protecting consumers against the evil
cooperative enterprises. Recently even medical effect of competition.
services have been brought under its scope. The Importance of Consumer Protection
Act shall apply to all goods and services across Consumer protection has a wide agenda.
board. It not only purports to educate consumers
The Consumer Protection Act 1986 does about their rights and responsibilities, but also
not create rights or liabilities, but it has emerged helps in getting their grievances redressed. It
as new forum for the settlement of disputes provides judicial machinery for protecting the
relating to the sale of goods or services. The interests of consumers to come together and
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organise themselves into consumer associations

is buying from another party. The assumption
for protection and promotion of their interests.
is that buyers will inspect and otherwise ensure
Consumer protection has a special significance
that they are confident with the integrity of the
for business too.
product before completing a transaction. This
Objectives of the Consumer Protection Act does not, however, give sellers the green light
1986 to actively engage in fraudulent transactions.

Following are the objectives of Consumer Caveat Emptor in Practice

Protection act 1986 Under the principle of caveat emptor,
i. 
Protection of consumers against a consumer purchases a coffee mug and later
marketing of goods which are hazardous discovers that it has a leak he has no choice
and dangerous to life and property of other than to keep it with him. According to
consumers. 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 A more common example is a used car
purchased by consumers. transaction between two private parties (as
iii. Protecting consumers from unfair trade opposed to a dealership, in which the sale is
practices of traders. subject to an implied warranty). The buyer
must assume the responsibility of thoroughly
iv. Empowering consumers to seek redressal
researching and inspecting the car by taking it
against exploitation
to a mechanic for a closer look before finalizing
v. Educating the consumer of their rights
the sale. If something comes up after the sale,
and duties
maybe a transmission failure or something,
vi. 
Ensuring better standard of living for it is not the seller's responsibility. But ‘caveat
consumers by providing them with emptor’ principle cannot be applied where the
quality products at fair price. car is bought afresh as a brand new car from
vii. 
Putting in place right mechanism like showroom as the deal in governed by warranty
councils and other authorities to enable of certain years.
the consumers to enforce their rights. 16.11  Caveat Venditor
16.10  'Caveat Emptor' Caveat emptor was the rule for most
purchases and land sales prior to the Industrial
‘Caveat emptor’ is a Latin term that
Revolution, although sellers assume much more
means "let the buyer beware." Similar to the
responsibility for the integrity of their goods in
phrase "sold as is," this term means that the
the present day.
buyer assumes the risk that a product fails to
meet expectations or have defects. In other Today, most sales in the U.S. fall under the
words, the principle of caveat emptor serves principle of caveat venditor, which means "let
as a warning to the buyers that they have no the seller beware," by which goods are covered
recourse with the seller if the product does not by an implied warranty of merchantability.
meet their expectations. Unless otherwise advertised (for example, "sold
as is") or negotiated with the buyer, nearly all
The term actually means that ‘let a
consumer products are guaranteed to work, if
purchaser beware’, for he ought not to be
used for their intended purpose
ignorant of the nature of the property which he
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What are the functions of the

Consumer Clubs in schools? Case Study
The following basic structure of
functioning is recommended: Mr.Narasimachary bought a refrigerator of a
i. Monthly meetings and demonstrations familiar brand with a warranty for seven years.
for one hour after school hours on the He uses the fridge as per the guidelines given
First Thursday of each month. Each by the manufacturer. After the completion
month a topic / activity may be scheduled of two years the fridge went out of order.
as in the model calendar. He was shocked, and approached the dealer.
ii. Days of National and International But the dealer refused to service the fridge at
importance to consumers may be free of cost. What is your suggestion to Mr.
celebrated in the School / College. Narasimachary to this grievance?
Poster / Speech / Essay competitions
can be organised at school level by the
Consumer Club to sensitise the students Live example:
on the importance of the day.
iii. Field visits to local markets / Consumer
A Mumbai based consumer purchased a pair
Courts and door to door campaign
of shoes from the dealer of a well-known
in the local community etc., may be
brand after going through its advertisement
organized for at least 4 days in a year.
It can be done on Saturdays with prior assuming 50% off. Consumer paid Rs.1345/-
arrangement. for the purchase. After the purchase, the
iv. Minutes of each activity have to be consumer came to know that it had two
recorded by the Student and Teacher Co- price tags, one printed at MRP Rs.1345/- and
ordinator jointly as properly document. another sicker for Rs.2690/-. On complaining
by E-mail, the dealer gave reply that discount
Mahatma Gandhi's quote about Consumerism had been included in MRP, and the consumer
was not satisfied. Then he came to show room
“What is a man if he is not a thief who openly
and took refund from the dealer.
charges as much as he can for the goods he sells?”

For own learning Why is it Interesting-

Students should go to the nearest
i. Attracting consumers by misleading
consumer court and watch the activities
advertisement of 50% discount.
of the consumer court
ii. Putting another sticker, double of actual
MRP which is illegal.
For Future learning iii. Wrong excuse that discount is included
Students may collect further details in MRP. Discount should be on MRP and
regarding Consumer Protection. For this as per the Legal Metrology (Packaged
purpose, they may contact their District Commodities) Rules, 2011: “No wholesale
Collector and the Chairman, District dealer or retail dealer or other person shall
Consumer Protection Council and also obliterate, smudge or alter the retail sale
the Voluntary Consumer Organisation of price, indicated by manufacturer or the
locality with valid reputation to learn more packer or the importer, as the case may
about actual implementation of Consumer be, on the package or on the label affixed
Protection Act in practice. thereto.”

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8. The General Assembly of United Nations

Key words
passed resolution of consumer protection
Consumer Protection Consumerism Consumer guide lines on
Consumer movement Caveat Emptor
a) 1985 b) 1958
Caveat Venditor Buyer Beware Consumer
c) 1986 d) 1988
Grievances
Answers:
1 a 2 c 3 c 4 d
Exercise 5 c 6 c 7 b 8 a
II. Very Short Answer Questions:
1. Who is a consumer?
2. Define Consumerism.
I. Choose the Correct Answers:
3. Give two examples of adulteration.
1. The term ‘consumerism’ came into existence 4. What is Caveat Emptor?
in the year __________.
5. What is Caveat Venditor?
a) 1960 b) 1957
6. Write a short notes on Consumer Protection
c) 1954 d) 1958
Act, 1986.
2. Who is the father of Consumer Movement?
a) Mahatma Gandhi III. Short Answer Questions:
b) Mr. Jhon F. Kennedy 1. What are the important legislations related
c) Ralph Nader to consumerism in India? (any 3)
d) Jawaharlal Nehru 2. What is meant by artificial scarcity?
3. Sale of Goods Act was passed in the year? 3. Write the importance of consumerism.
a) 1962 b) 1972
c) 1930 d) 1985 IV. Long Answer Questions:
4. The main objective of all business 1. How consumers are exploited?
enterprises is __________. 2. Explain the role of business in consumer
a) Providing service protection.
b) Providing better standard of life 3. What are the needs for consumer protection?
c) Providing necessities to the society 4. Explain the role of consumers in Consumer
d) Earn profit Protection..
5. The Consumer Protection Act came into 5. What are the objectives of Consumer
force with effect from Protection Act, 1986?
a) 1.1.1986 b) 1.4.1986
6. Write about five important consumer
c) 15.4.1987 d) 15.4.1990 legislations.
6. _____ of every year is declared as a Consumer
Protection Day to educate the public about References
their rights and responsibilities. 1. Modern Marketing - S.A. Sherlekar
a) August 15 b) April 15 2. Modern Marketing - R.S. N. Pillai and
c) March 15 d) September 15 Bagavathi.
7. Any person who buys any goods or avails 3. Marketing Management - Dr. C.B.Gupta
services for personal use, for a consideration and Dr. N.Rajan Nair
is called as 4. Marketing management - S.A. Sherlaker
a) Customer b) Consumer
5. Marketing Management - R.S.N.Pillai and
c) Buyer d) User Bagavathi
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UNIT MANAGEMENT
CONSUMER PROTECTION
PROCESS
6I
RIGHTS, DUTIES &
17
1
CHAPTER
PRINCIPLES OF MANAGEMENT
RESPONSIBILITIES OF CONSUMERS

சலத்தால் ெபாருள்ெசய்ேத மார்த்தல் பசுமண்

கலத்துள்நீர் ெபய்திரீஇ யற்று.
-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 RIGHTS OF CONSUMERS

To enable the students to understand the
■ Rights of consumer
■ Duties of consumers DUTIES OF CONSUMERS
■ Responsibilities of the consumers

RESPONSIBILITIES
OF CONSUMERS
Chapter Synopsis 17.01 Rights of Consumer
17.01 Rights of Consumer The modern marketing concept
recognises the fact that the consumer is the
17.02 Duties of Consumer
pivotal point around which the entire business
17.03 Responsibilities of Consumer 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
Consumer Right is interpreted as “the
their rights as buyers. This chapter explains
right to have information about the quality,
about consumer duties, responsibilities as well
potency, quantity, purity, price, and standard of
as consumer rights.
goods or services”.
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The consumer is to be protected against ii) Right to be Informed

any unfair practices of trade. It is mandatory for
Consumers should be given all the
the consumers to know these rights. However,
relevant facts about the product so that they
there are strong and clear laws in India to defend can take intelligent decisions on purchasing
consumer rights. The most important law is the the product. Advertising and labelling on the
Consumer Protection Act, 1986. According to package should provide objective information
this law, everybody including individuals, a firm, to buyers. This implies that manufacturer
a Hindu undivided family and a company, has and the dealer are expected to disclose all
the right towards the purchase of goods made the material facts relevant and relating to
by them. It is the significant that, as a consumer, the product. The package should contain the
everyone should know the basic rights as well full details about the name of the product,
as about the courts and procedures that follow composition, dosage, date of manufacturing,
with the infringement of one’s rights date of expiry, batch number, warnings,
antidote etc. In addition, it should clarify as
John F. Kennedy’s view on Consumer Rights
to the name of the manufacturer, price with
The former president of U.S.A Mr. John F. or without tax. Such information goes a long
Kennedy defined the basic consumer rights as way towards saving the consumer against the
“The Right of Safety, the Right to be informed, possible deceit.
the Right to choose and the Right to be heard.”
iii) Right to choose
The consumer is the king of the modern
Consumer satisfaction is the ultimate
marketing, but in fact he is not. The various
aim of modern marketing and is the philosophy
rights of consumers guaranteed under the
of marketing concept. A wise trader or dealer
Consumer Protection Act have been discussed
or manufacturer is one who maximises
here under.
his profits by maximising the consumer
i) Right to Protection of Health and Right of satisfaction. Consumer satisfaction can be
Safety increased by giving the consumer the widest
choice. The term ‘Choice’ means offering
There may be few products that are more
the widest range of products in quality and
likely to cause physical danger to consumers’
brand varieties at reasonable prices. In short
health, lives and property. They may contain
consumers should have access to varieties of
potentially harmful substances which are
goods in terms of colour, quality, design, size
dangerous from the consumer welfare point of
etc.
view. The best examples of this kind are Food
additives, colours, emulsifiers, preservatives. iv) Right to be Heard
The health hazards which are likely to arise Consumers have every right to
have to be eradicated or reduced altogether. ventilate and register his/her dissatisfaction,
In case of food items and drugs both life disagreements and get the complaint heard
saving and life sustaining safety is to be and aired. This right is vital. Business
guaranteed. One thing that is encouraging enterprises should lend a compassionate ear
to-day is that recent legislations have shifted to complaints or grievances of consumers.
the responsibility for the production of such All business enterprises should have a
unsafe items onto the shoulders of sellers separate department or wing or segment for
rather than on buyers. addressing consumer grievances.

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v) Right to Seek Redressal of consumers and on the environment which

This step is one step ahead of the previous people live. In other words air pollution, water
right. The complaints and protests are not just pollution, food pollution, noise pollution, and
to be heard: but the aggrieved party is to be relation pollution, and legacies of on-going
granted compensation within a reasonable time industrialisation take a heavy toll on the quality
period . There should be prompt settlement of of life of people and on the environment of their
complaints and claims lodged by the aggrieved inhabitation. The social cost of these pollutions
customers. This will boost consumer confidence far exeed their social benefits. In other words,
and help render justice to buyers. There should each kind of pollution is eating away the social
be fair and just settlement of deserving claims benefits resulting from the society. It is where
in a definite timeframe. the social responsibilities of business enterprises
arise; there is nothing wrong in producing
vi) Right to Consumer Education
the products/output for the mankind. But
The consumer has a right to acquire the manufacturers have to safely dispose the
knowledge and stay well-informed all through inevitable sewage and effluent in such a way
his life. He should be aware about his rights that it does not cause any damage to human or
and the reliefs granted to him where a product environment.
or service falls short of his expectations. Many
viii) Right to Consumer Protection
consumer organisations and some enlightened
businesses are taking a pro active part in The consumer has a right to be aware
educating consumers in this respect. of his rights and remedies available to him,
redress his grievances through publicity in
the mass media. Consumer has a right to be
CONSUMERS RIGHTS IN INDIA protected against goods and services which
are hazardous to life and health. For instance,
On 24th December 1986, electrical appliances which are manufactured
Government of India enacted the with substandard components or which do
CONSUMER PROTECTION ACT 1986 to not conform to the safety norms might cause
serious physical injury to the user. Therefore,
01. Ensure Rights of Consumers consumers need to be educated that they should
use electrical appliances with ISI mark which
02. Provide Remedies for
deceived Consumers stands testimony to the quality and standards
observed in the manufacturers.
03. Check Unfair Business Pracces &
Restricve Trade Pracces. ix) Right to Basic Needs
Every consumer has a right to get basic
This is a unique law in the WORLD.
necessities of life such as food, clothing and water,
and right to pure and healthy environment. It
vii) Right to Quality of Life is the latest addition to consumer bill of rights.
Quality of life refers to the perceived well- Community life should be free from various
being of people, in groups and individually, and modes of pollution. This will enhance the
well-being of the environment in which these quality of human life.
people live. Consumerism has been defined 17.02 Duties of Consumers
as ‘an improved quality of life.” It means that Apart from rights, there are certain
the environmental problems affect the very life duties imposed on the consumer. Consumer

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should be conscious of his duties. He should v) Misleading Schemes

make purchases judiciously and should not Mostly advertisements are used to be
misuse his rights. Following are source of the very attractive and appealing to the senses.
duties of consumers: They may be occasionally false and misleading.
i) 
Buying Quality Products at Reasonable The consumer is supposed to be careful with
Price the attractive advertisements and avoid such
It is the responsibility of a consumer to misleading and false advertisements. These days
purchase a product after gaining a thorough almost every product in the market is offered
knowledge of its price, quality and other for sale with a gift, discount, or a free product
terms and conditions. The consumer should to bait the consumer to buy. For example, a free
enquire about the price from certain shops comb with soap, a discount off on the price of
and if possible from government stores to the soap or one free soap on buying one, and the
get an idea of its price. The consumer has to like. Often a consumer is allured by such offers
have the knowledge about the quality from and buys such a product even when it is not
his own experiences or from the experiences desperately in order, to avail them of free offer.
of other persons who used the product or by In this case consumers should not forget
browsing the website. Hence it is the duty of
the fact that the seller has already inflated the
the consumer to buy scrupulously.
price of the product supplied with free offer and
ii) E nsure the Weights and Measurement recovers its cost price under the scheme. Hence
before Making Purchases the consumer should be aware of the fact that he
The sellers often cheat consumer by is not getting anything free and should not buy
using unfair weights and measures. The unwanted things out of greed.
consumer should ensure that he/she is getting vi) Ensuring the Receipt of Cash Bill
the product of exact weight and measure.
It is a legitimate duty of consumers to
Consumer should check the weights and
collect cash receipt and warranty card supplied
balance of the product. Consumer should
along with bills. This will help them in seeking
not buy a product which has been weighed
redressal for their grievances. Unscrupulous
along with its packing. Therefore the
sellers offer to reduce the final price of goods
consumer should remain vigilant when the
if they sell without bill. Often consumers get
seller is naturally measuring or weighing the
allured by this trap. In this case, if the goods
product.
bought without bill go out of order or turn
iii) Reading the Label Carefully
defective, consumers cannot approach the
It is the duty of the consumer to consumer court without proof of purchase.
thoroughly read the label of the product. Hence it is the duty of the consumer to demand
It should have correct, complete and true and collect the cash receipt, and warranty card.
information about the product.
vii) Buying from Reputed Shops
iv) 
B eware of False and Attractive
It is advisable for the consumer to make
Advertisements
purchase from the reputed shops or government
Often the products are not as attractive
shops like super bazaar, cooperative stores, and
as shown in the advertisement by the sellers.
the like. The consumer by purchasing from
Hence, it is the prime duty of consumer
such shops can escape from the malpractice of
not to get misled by such fraudulent
the manufacturers and shopkeepers or vendors.
advertisements.
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viii)Never Purchase from Black Market services. Rights and responsibilities are two
The consumer should discharge his sides of the same coin. Just as consumers enjoy
duties as responsible citizen. He should not certain rights, they owe certain responsibilities.
buy things from black market and in excess The responsibilities of consumer are listed
of his requirements. At times of scarcity below;
consumer should not resort to panic buying 1. The consumer must pay the price of the
and stock things excessively. This practice goods according to the terms and conditions
prevents others from purchasing their share of of the sales contract.
requirement. 2. The consumer has got a responsibility to
ix) Buying Standardized Products apply to the seller for the delivery of the
goods. He/she has to take delivery of the
Often the consumer buys cheap products
goods in time.
which are not durable or are not safe. Therefore,
it is the duty of the consumer to buy products 3. The consumer has to bear any loss, which
with standardization marks which is supposed may arise to the seller when the consumer
to be safe in every respect. delays taking delivery of the goods as per the
terms of contract.
x) Follow the Instruction of the Manufacturer
4. The consumer is bound to pay any interest
It is the duty of the consumer to use
and special damages caused to the seller in
the product as per its instructions, e.g., if a
case if there is delay in the payment.
medicine carries an instruction regarding its
storage, it should be stored in the fridge. This 5. 
The consumer has to assiduously follow
would help in prevention of any damage to the and keenly observe the instructions and
medicine and harm to the consumer’s health. precautions while using the products.
6. 
The consumer has the responsibility to
xi) Knowledge of Consumer Rights
express unambiguously to the seller of his
These days it is not uncommon to see a requirements and expectations from the
seller trying to cheat the consumer in every product.
possible way in order to earn quick profits.
7. The consumer must seek to collect complete
It is the duty of the consumer to be aware of
information about the quality, quantity,
his rights. If a consumer is cheated by a seller,
price etc of the product before purchasing it.
then he should immediately lodge a complaint
with the authorities designated for consumer 8. The consumer must get cash receipt as a
grievance redressal rather than remaining a proof of goods purchased from the seller.
silent spectator. If it carries any warranty, the buyer must
obtain the warranty card mentioning the
17.03 Responsibilities of date of purchase and period of warranty. It
Consumer must also bear the signature and stamp of
the seller organisation.
Consumer rights, by themselves, cannot be
effective in achieving the objective of consumer 9. The consumer must file a complaint with
protection. Consumer protection can, in effect, the seller concerned about defects or
be achieved only when the consumers also shortcomings noticed in their products and
understand their responsibilities. Consumers services.
should keep in mind their responsibilities while 10. The consumer should never compromise
purchasing, using and consuming goods and on the quality of goods. The consumers
must watch for ISI, Agmark, FPO, the
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standard quality certification marks and 12. The consumer has every right to safety,
the like in the label. right to be informed, right to choose, right
11. The consumer should not be carried to represent, and right to seek redressal and
away by exaggerating the quality of the right to seek information. If any of these
goods through advertisements. If there rights is violated, the consumer should
is any discrepancy between the features file a complaint with the appropriate legal
advertised and the actual features observed machinery under the Consumer Protection
in the product, it must be brought to the Act, 1986.
notice of the seller or advertiser.

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.

Case Study
For Future learning
Mr. K.V.Chandran bought a branded L E
Students should collect the
D Television set from a popular T.V showroom
information about consumer court
with a warranty of five years and installed it
activities, learn further about consumer
in his home. After 18 months of the purchase,
rights through visit the following websites:
the audio system of the T.V developed trouble.
He approached the dealer and claimed service www.jagograhakjago.com
to the T.V. but he refused to service the T.V. https://consumeraffairs .nic.in
What is your suggestion to Mr. K.V. Chandran

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Answers:
For own Thinking 1 c 2 a 3 c 4 c 5 a
Students should watch the activities of II. Very Short Answer Questions:
consumer council of their school.
1. Write short notes on: “Right to be informed.”
2. What do you understand about “Right to
Key words Safety”?
Consumer rights Consumer duties
3. What are the rights of consumer according to
Consumer responsibilities Cash receipt
John F. Kennedy?
Cash memo
4. Which is the supreme objective of business?
5. What are the important aspects to be kept in
mind by consumer while purchasing goods
Exercise
related to the quality of goods?

III. Short Answer Questions:

1. What do you understand by “Right to
I. Choose the Correct Answers: redressal”.
1. The final aim of modern marketing is 2. What do you understand about” Right to
_______ protection of health and safety”.
a. Maximum profit
b. Minimum profit IV. Long Answer Questions:
c. Consumer satisfaction 1. What are the rights of consumers?
d. Service to the society
2. Explain the duties of consumers.
2. _______ is the king of modern marketing.
a. Consumer b. Wholesaler 3. What are the responsibilities of consumers?
c. Producer d. Reatailer
References:
3. As the consumer is having the rights, they
are also having ________. 1. Modern Marketing - S.A. Sherlekar
a. Measures b. Promotion 2. Modern Marketing - R.S. N. Pillai and
c. Responsibilities d. Duties Bagavathi.
4. Which of the following is not a consumer
3. Marketing Management - Dr. C.B.Gupta and
right summed up by John F. Kennedy
Dr. N.Rajan Nair
a. Right to safety
b. Right to choose 4. Marketing management - S.A. Sherlaker
c. Right to consume 5. Marketing Management - R.S.N.Pillai and
d. Right to be informed Bagavathi
5. It is the responsibility of a consumer that
he must obtai______ as a proof for the
purchase of goods.
a. Cash receipt b. Warranty card
c. Invoice d. All of these

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UNIT CONSUMER PROTECTION

6
GRIEVANCE REDRESSAL
18
CHAPTER
MECHANISM

பிணியின்ைம ெசல்வம் விைளவின்பம் ஏமம்

அணிெயன்ப நாட்டிவ் ை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.
Chapter Synopsis This chapter is an attempt to explain grievance
redressal mechanism followed in India.
18.01 Grievance and Need for Redressal
Mechanism Mahatma Gandhi said about the Customer
18.02 Consumer Councils
18.03 Three Tier Courts or Quasi Judiciary “A customer is the most important visitor
18.04 District Forum on our premises. He is not dependent on
18-05 State Consumer Disputes Redressal us. We are dependent on him. He is not an
Commission 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 is part of it. We are not doing him a favour by
Commission serving him. He is doing us a favour by giving
18.07 Voluntary Organizations for Consumer
us the opportunity to do so.”
Awareness
18.01 Grievance 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 more than one District Forum in a district if it
products. A few firms enjoy monopoly power in deems fit to do so.
the market place. A large majority of consumers Complaints can be filed with the forum
are ignorant and illiterate and do not know their by a consumer. Complaints can also be filed by
rights. They are poor and there is lack of unity the Central or State Government or by a group
among them. Due to these reasons, consumers of consumers. Thus, it is not necessary that
are often deprived of their rights. They are often complaint should be filed only by the affected
exploited through misleading advertisements, person. Others can also take up the matter
poor quality goods, fractional weights and with the District Forum.
measures, overcharging, etc.
Members
18.02  Consumer Councils
1. A person who is or who has been or is
The Consumer Protection Act postulates qualified to be, a District Judge as its
establishment of Consumer Protection President.
Councils at the District, State and Central
2. Two other members who shall be persons
levels for the purpose of spreading consumer
of ability, integrity and standing and have
awareness. The objects of the Councils, as per
adequate knowledge or experience of or
the Act, shall be to promote and protect the
who have shown their capacity in dealing
rights of the consumers.
with problems relating to economics,
18.03 
Three Tier Courts or law, commerce, accountancy, industry,
Quasi Judiciary public affairs or administration. It is
insisted in the Act that out of such two
NATIONAL other members’ one shall be a woman.
COMMISSION Jurisdiction
(Above One Crore)
The District Forum can entertain
complaints within the territory of genuine
STATE district and where the value of goods or services
COMMISSION and the compensation if any claimed is less than
(Above 20Lakhs to
Rs 20 Lakhs.
One Crore)
Powers
Every proceedings before the District
DISTRICT Forum shall be deemed to be judicial
FORUM
(Below 20Lakhs)
proceedings within the meaning of sections
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
As per the Consumer Protection Act of
made direct to the State Commission. Further
1986 and Section 9 thereof the establishment
the District Forum also may pass orders against
of a District Forum by the State Government
traders indulging in unfair trade practices,
in each district is necessary today to protect
sales of defective goods or rendering deficient
the interest of aggrieved consumers in that
services, the turnover of goods or value of
district. The State Government can establish
services does not exceed Rs 20 Lakhs.
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shown capacity in dealing with problems

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

Each State Commission shall consist of 1. The State Commission’s jurisdiction may
the following members. be original, appellate or revision. The State
Commission may reverse or confirm the
1. 
A person who is or has been a Judge
of a High Court appointed by the State orders passed by the District Forum.
Government as its President. 2. Any person aggrieved by an order of the
2. Two other members who shall be persons State Commission may prefer an appeal to
of ability, integrity and standing and have the National Commission within 30 days
adequate knowledge or experience of or have from the date of such order.
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18.06 National Consumer 4. Generally over-seeing the functioning of

the State Commissions and the District
Disputes Redressal
Forums to ensure that the objects and
Commission (NCDRC) or purposes of the Consumer Protection
National Commission Act are best served, without interfering
The National Consumer Disputes Redressal with their quasi-judicial freedom.
Commission (NCDRC), India is a quasi-judicial Appellate Forum
commission in India which was set up in 1988
Any consumer dispute which is
under the Consumer Protection Act of 1986. Its
pending before or has been decided by
head office is in New Delhi. The Commission
any State Commission where it appears to
is headed by a serving or retired judge of the
the National Commission that such State
Supreme Court of India. The National Consumer
Commission has exercised a jurisdiction not
Disputes Redressal Commission (NCDRC) is
vested in it by law, or has failed to exercise
also called as National Commission. a jurisdiction so vested or has acted in the
Members exercise of its jurisdiction illegally or with
The National Consumer Disputes material irregularity. Section 23 of Consumer
Redressal Commission has been constituted by Protection Act, 1986, provides that any
a Notification. person aggrieved by an order of National
Commission may prefer an Appeal against
1. The National Commission should have five
such order to Supreme Court of India within
members.
a period of 30 days.
2. One should be from judiciary.
3. Four other members of ability, knowledge You can call to register your
and experience from any other fields. complaint 1800-11-4000 or
4. It should include a woman. 14404
Timing: All Days except National Holidays
Jurisdiction (09:30 AM To 05:30 PM) or SMS on this
Section 21 of The Consumer Protection Number 8130009809
Act, 1986 describes, the National Commission
shall have jurisdiction 18.07 Voluntary Organizations
1. To entertain a complaint valued more than for Consumer Awareness
1 Crore.
Consumer is a broad label for any
2. Revised the orders of State Commissions. individuals or households that use goods
3. To call for the records and pass appropriate and services produced within the economy.
orders from the State Commission and Voluntary consumer organisations refer to
District Forum. the organisation formed voluntarily by the
Powers consumers to protect their rights and interests.
1. Adoption of uniform procedure in the Objectives
hearing of the matters is followed in the
National Commission 1. 
The Department of Consumer Affairs
(DCA) operates the Consumer Welfare
2. Prior service of copies of documents Fund (CWF). The primary objective of
produced by one party to the opposite
the CWF is to strengthen the Consumer
parties.
Advocacy Movement in India.
3. Speedy grant of copies of documents are
2. A wide network of Voluntary Consumer
issued by the National Commission.
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Organisation (VCO) is doing rescue and file a case in the court, on behalf
commendable work to raise awareness of a consumer. By giving this service to the
amongst consumers. consumers, the consumers get a feeling that
3. 
To strengthen consumer protection they are not alone in their struggle.
and welfare and to provide counselling, iii) Organising Protests against Adulteration etc.
guidance and mediation services. The consumer’s organizations play
4. VCO’s supported through CWF provides a significant role in eliminating the evil of
grants for diverse projects including adulteration, hoarding black-marketing and
comparative testing of products and under-weight selling.
services and dissemination of the findings iv) Helping Educational Institutions
5. 
Steps have been taken to enhance These organizations advice the
transparency and to digitalise the educational institutions the way to prepare
government’s interface with its citizens. courses of study keeping in view the interests
of the consumers.
Accelerating Consumer Awareness/Educating
v) 
Promoting Network of Consumer
Consumers
Association
The first priority of a consumer
Consumer organizations are trying to
organization is to accelerate consumer
grow their numbers. They want to cover all the
awareness towards their rights. To accomplish
regions of the country so that consumers of all
this task the following efforts are made:
the regions are benefited by their services.
I. 
To publish brochures journals and
vi) Extending Support to Government
monographs.
Consumer organisations keep informing
ii. 
To arrange conferences, seminars and
the government agencies about adulteration,
workshops.
artificial scarcity, inferior quality produce etc.
iii. To educate consumers to help themselves. to help the government.
iv. 
To provide special education to women
about consumerism. Procedures for Filing Complaint

To maintain desirable standards, the A complaint can be filed by a complainant

following steps are followed: against the seller, manufacturer, or dealer
of goods which are defective or against the
i) Collecting Data on Different Products
provider of services, if they are deficient in any
and testing them
manner whatsoever. An unfair trade practice
These organizations collect samples or restrictive trade practice can also invite
of different products from time to time and complaint
test them. After that the results of the tests
are declared to public. In this way, these Steps involved in filing Complaint in
organisations provide prior information to Consumer Court
consumers about the authenticity of product The first step in filing a consumer
and protect them. complaint is to send a legal notice to the seller
ii) Filing Suit on Behalf of Consumers or company. A legal notice must be drafted
Whenever a consumer fails to raise his with the help of a consumer court lawyer and
voice of protest regarding his complaints, include the following:
these consumers’ organisations come to the 1. Details of the consumer like name, address,

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product or services purchase details of the years from the date on which the cause of
company, etc. action has arisen, to the date on which the
2. Necessary details of the problem faced and completion from the deficiency in service.
describe the deficiency in service. 2. Stamp paper is not required for declaration
3. Action taken by the company in response 3. Complaint can be registered, in person, by
to the customer complaint
the complainant or through his authorised
4. Action expected from the company agent or by post addressed to the Redressal
5. Time period given to the company to take Agency.
action
4. Advocates are not necessary.
6. The legal action that will be taken upon
failure by the company in sending a reply What are the particulars that should be
to the legal notice. furnished along with the complaint?
Who can make complaint? The complaint should contain the
1. A consumer as defined under Consumer following particulars:
Protection Act, 1986 1. 
The name and complete address of the
2. A registered Voluntary Consumer complainant
Association 2. 
The name and complete address of the
3. Central Government opposite party/parties
4. State Government / Union Territory 3. 
Date of purchase of goods or services
5. One or more consumer representing availed
numerous consumers having the same 4. Amount paid for the above purpose
interest. 5. 
Particulars of goods purchased with
When the complaints can be made? number or details of services availed
A complaint may be made in writing 6. 
The details of complaint, whether it is
under the following circumstances: against Unfair Trade Practices/supply
1. Loss or damage is caused to the consumer of defective goods/deficiency in service
due to unfair trade practice of a trader. provided/collection of excess price, should
2. If the article purchased by a consumer is explicitly be mentioned in the complaint
defective. petition.
3. If the services availed of by a consumer 7. 
Bills/receipts and copies of related
suffer from any deficiency. correspondence, if any.
4. When the price paid by a consumer is in Relief to the Consumers
excess of the price displayed on the goods The District Forum / State Commission
or when the price is in excess of the price can order the following reliefs to the consumers:
fixed under any law in force. 1. To remove the defects in the goods pointed
5. Goods, which will be hazardous to life and out
safety, when used are being offered for 2. To replace the goods
sale to the public in contravention of the
3. To return to the complainant the price of
provisions of any law.
the goods
How to register the complaints? 4. To pay such amount of compensation for
The complaint should be registered by the loss or injury suffered by the consumer
the following ways: 5. To discontinue the unfair trade practice or
1. 
Complaint can be registered within 2 not to repeat it
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6. To withdraw the hazardous goods from

being offered for sale For Future Learning
7. To provide the cost of expenditure incurred STUDENTS CONSUMER CLUB
by the complainant Students may create “Students
What is the appeal provision? Consumer Club”. They may create
1. Aggrieved by the orders issued by the District awareness about the Products and Services.
Consumer Redressal Forum appeal, petition They can motivate the parents about the
can be filed before State Consumer Dispute consumer awareness of the following
Redressal Commission within 30 days from
1. MRP of the Product.
the date of receipt of orders
2. Expiry of the Product
2. Aggrieved by the orders issued by the State
3. Quality of the Product (ISI, ISO and
Consumer Dispute Redressal Commission
appeal petition can be filed before National Agmark, etc.)
Consumer Dispute Redressal Commission
within 30 days from the date of receipt of orders
3. Aggrieved by the orders issued by the
National Consumer Dispute Redressal
Exercise
Commission appeal petition can be filed
before Supreme Court of India within 30
days from the date of receipt of orders
4. No fee is charged for registering an appeal
I. Choose the Correct Answers:
petition before State / National Consumer
Dispute Redressal Commissions 1. The Chairman of the National Consumer
5. The appeal petition has to be filed with the Disputes Redressal Council is ______
grounds for appeal with copies of orders of a) Serving or Retired Judge of the Supreme
the lower redressal agencies and registering Court of India.
procedures are same, as is being done in the
b) Prime Minister
case of registering complaint.
c) President of India
The International Organisation d) None of the above
of Consumers Unions (IOCU)
was first established in 1960 2. The Chairman of the State Consumer
to create cross-border campaigns and Protection Council is _____
share knowledge; it has over 250 member a) Judge of a High Court
organisations in 120 countries. Its head b) Chief Minister
office is based in London, England, with
c) Finance Minister
regional officers in Latin America, Asia,
Pacific, Middle East and Africa. d) None of the above
3. The Chairman of the District Forum is
Key words ________
Grievance Redressal District Forum a) District Judge
Mechanism
b) High Court Judge
Consumer Voluntary Consumer Welfare
c) Supreme Court Judge
Organisation Fund
Three Tier Court Consumer Awareness d) None of the above

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4. 
The State Commission can entertain c) A group of consumers
complaints where the value of the goods d) All of the above
or services and the compensation, if any 10. A consumer has to be protected against
claimed exceed
a) Defects of product
a)`2 lakhs but does not exceed `5 lakhs
b) Deficiencies of product
b) `20 lakhs but does not exceed `1 crore
c) Unfair and restrictive trade practices
c) `3 lakhs but does not exceed `5 lakhs
d) All of the above
d) `4 lakhs but does not exceed `20 lakhs
Answers:
5. 
The National Consumer Disputes
Redressal Commission has jurisdiction to 1 a 2 a 3 a 4 b 5 a
entertain complaints where the value of 6 b 7 a 8 d 9 d 10 d
goods/services complained against and the II. Very Short Answer Questions:
compensation, if any, claimed is 1. What do you meant by Redressal Mechanism?
a) Exceeding `1 crore 2. What do you know about National Commission?
b) Exceeding ` 10 lakhs 3. State the meaning of the term State Commission.
c) Exceeding ` 5 lakhs 4. What is an term District Forum?
d) Exceeding ` 12 lakhs 5. How to register the complaints?
6. The District Forum can entertain complaints III. Short Answer Questions:
where the value of goods or services and the 1. Is Consumer Protection necessary?
compensation if any claimed is less than 2. Who are the members of the National
a) Below `10,00,000 Commission?
3. What is the Pecuniary Jurisdiction of the
b) Below `20,00,000
State Commission?
c) Below `40,00,000 4. Who are the members of the State
d) Below `50,00,000 Commission?
7. 
The International Organisation of 5. Write a note on the Voluntary Consumer
Consumers Unions (IOCU)was first Organisation.
established in IV. Long Answer Questions:
a) 1960 b) 1965 1. Explain the overall performance of National
c) 1967 d) 1987 Commission.
2. Explain the overall performance of State
8. Consumer awareness covers the following:
Commission.
a) 
Consumer awareness about Maximum 3. What is Voluntary Consumer Organisations?
Retail Price (MRP) Explain its Functions.
b) 
Consumer awareness about Fair Price References
Shop
1. Consumer Protection Law and Practice by
c) Consumer awareness about price, quality, Dr V.K.Agarwal
and expiry date of the product 2. Consumer Behaviour Dr L. Natarajan,
d) All of the above Margham Publications, Chennai
9. Complaints can also be filed by the 3. Marketing Management Dr. R.L.Varshney
a) Central Government and Dr S.L.Gupta, Sultan Chand&Sons,
NewDelhi.
b) State Government

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UNIT BUSINESS
MANAGEMENT
ENVIRONMENT
PROCESS
7I

19
1
CHAPTER
PRINCIPLES
ENVIRONMENTAL
OF MANAGEMENT
FACTORS

ெதரிந்த இனத்ெதாடு ேதர்ந்ெதண்ணிச் ெசய்வார்க்கு

அரும்ெபாருள் யாெதான்றும் 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
19.02 Types of Business Environment
■ Meaning of Business environment
19.02.01 Internal Environment
■ differences between internal and
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-
cultural, political and legal, geo-physical VUCA
and technological factors of business 19.04 Corporate Governance
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 changing environment and needs of people.

of Business Environment Example large scale Retail stores like Aditya
Birla’s “More” are now providing home
According to Bayard O ‘Wheeler delivery services.
Business environment is “the total of all things
external to firms and industries which affect For Example Japanese camera film making
their organisation and operations”. company Fuji Films which had global
A business in order to remain successful presence for over 50 years was affected with
and competitive has to adapt to the constantly the advent of digital cameras.
changing environment. The formulation of
strategic decisions , policies and programmes
requires an understanding of the environmental 19.02 Types of Business
factors impacting the business. Therefore Environment
scanning of the environment for identifying The Business Environment can be
threats and opportunities is essential for any classified as follows:
business.
The significance of understanding the
business environment is 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 I)Internal Environment
and thus enjoys the first ever advantage in II)External Environment
offering world class medical facilities in India.
Internal environment refers to those
iii. Environment scanning: It helps the firms to factors within an organisation e.g Policies
identify threats which may affect the business. and programmes, organisational structure,
Thus measures can be taken by the firm to employees, financial and physical resources.
overcome the threats. These factors can be changed or altered and
iv. Business aids: It stimulates systematic hence are known as controllable factors.
monitoring of environment which helps
External environment refers to those
business in taking steps to cope with the rapid
factors outside the business These factors by and
changes
large are beyond the control of a business and
v. Public image: Environmental analysis helps hence uncontrollable .e.g economic, political
a business to enhance its image by being and socio-cultural factors.
sensitive and quickly responding to the
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19.02.01  Internal Environment Vision: Liberate our farmers from economic

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

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19.02.02  External environment suppliers instead of relying on a single

All factors outside the business which have source. Organisations have realised the
a bearing on the working of a business can be importance of nurturing and maintaining
termed as the external environment. This is good relationship with the suppliers.
subdivided into micro or task environment and iii) Marketing Channel members: The
macro or general environment. marketing inter-mediaries serve as a
connecting link between the business and
19.02.03  Micro Environment its customers .The middlemen like dealers,
Micro Environment Factors wholesalers and retailers ensure transfer of
product to customers .physical distribution
is facilitated by transporters, and warehouses
Financiers
help in storing goods. Market research
agencies help the firm to understand the
Competors
Suppliers needs of the customers while advertising
agencies help in promoting the products
Micro and services. Insurance firm is another
Environment marketing intermediary which provides
coverage for risk in business.
Markeng
Customers Channel
iv) Public This refers to any group like media
Members group, citizen action group and local public
which has an impact on the business. The
Public
public group has the ability to make or mar a
business. Many companies had to face closure
due to actions by local public.
This refers to those factors which are
in the immediate environment of a business v) Customers: The aim of any business is
affecting its performance. These include the to satisfy the needs of its customers. The
following: customer is the king and the fulcrum
i) Financiers: The financiers of a business around which the business revolves. Hence
which includes the debenture holders and it is essential for any business to understand
financial institutions play a significant the needs of its varied customers like
part in the running of a business. Their individuals, retailers, wholesalers,
financial capability, policies strategies, industries and government sector.
attitude towards risk and ability to give Customer relationship management aims
non–financial assistance are all important at creating and sustaining cordial relations
to a business. with customers.
ii) Suppliers: In any organisation the suppliers vi) Competitors: All organisations face
of raw materials and other inputs play a competition at all levels local, national
very vital role. Timely procurement of and global. Competitors may be for the
materials from suppliers enables continuity same product or for similar products. It
in production and reduces the cost of is important for a business to understand
maintaining stock/inventory. Organisations its competitors and modify their business
generally obtain supplies from a panel of strategies in the face of competition.
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robust industrial base, and high standard of

For example. the closure of Sterlite Copper
living. Many of these developed nations have
factory in Thoothukudi due to protests by
successfully integrated the computer based
environment protection group in 2018.
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
income, high population, a low standard of
Economic living and slow absorption of technology.
Under developed nations are low income
Global Socio- economies with a very low degree of
Cultural
technology adoption and a very poor
standard of living.
Macro
Environment 2) 
The nature of economic system: The
economic systems can be classified as
Polical Capitalistic, Socialistic and Mixed economy.
Technology and
Legal Capitalistic economy is a free enterprise
market where individual ownership of
Geo-
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 private
in which the business operates. The success of sector ownership.
a business is dependent on its ability to adapt 3) 
The economic policies of a nation:
to the macro environment, since these are Monetary policy, fiscal policy, Export-
uncontrollable factors. They offer enormous import policy, Industrial policy Trade policy,
opportunities to business and also poses serious Foreign exchange policy etc are part of the
threats to business. The general or remote economic environment.
environment factors are as follows; 4) Economic indices: The Economic indices
I. Economic environment: The business is like GDP, GNP national income, per-capita
an integral part of the economic system income, balance of payments, rate of savings
prevalent in a nation. The multiple variables and investments etc. form an important part
in the macro environment system which has of economic environment.
a bearing on a business include 5) 
Development of financial market: The
1) 
The nature of economy based on the organisation and development of money
stage of development: The countries market, capital market securities market and,
across the globe can be categorised on the the banking system has a greater impact.
basis of growth and per capita income as 6) Economic structure: The Economic
developed nations, developing nations and structure includes capital formation,
under developed nations. The USA, Japan, investment pattern, composition of trade
Germany, Canada and Australia developed balance, occupational distribution of
economies generally have high degree of workforce, and the structure of national
technological advancement, very strong and output.
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II. Socio-Cultural environment - Business is a the funding of political parties by business

part of the society .Social environment refers houses and the clout wielded by them.
to the sum total of factors of the society in 3) The image of the leader and the country in
which the business is located. Social and the inter-national arena.
cultural environment of society affects 4) 
Legal framework of business and their
the business. It is dynamic and includes degree of flexibility.
the behaviour of individuals, the role and
5) The constitution of the nation.
importance of family, customs, traditions,
beliefs and values, religion and languages, 6) 
The Foreign policy of the country with
the ethical values. The literacy level, and special reference to tariffs and free trade.
the social attitudes of the people of the IV. Geo-physical environment – The natural,
society. The socio-cultural environment also geographical and ecological factors have a
includes the following; bearing on the business. These are as follows;
1) The social institutions and groups 1) 
the availability of natural resources like
2) Family structure prevalent in the society minerals oil .etc, since setting up of
industries requires availability of raw
3) Role of marriage as an institution
materials
4) Caste system in the society
2) 
the weather and climatic conditions and
5) Customs , beliefs and values availability of water and other natural resources
6) 
Demographic factors which includes the is essential for the agricultural sector .
size, composition, literacy level, distribution 3) 
topographical factors like the terrain
and mobility of the population impacts type of business since the demand
7) 
The lifestyle of people and their tastes, and consumption pattern may vary in
likes and preferences. these regions. E.g in the the hilly region
III. 
Political and Legal environment – The mode of transport will have to be modified
framework for running a business is given to tackle the terrain.
by the political and legal environment. 4) 
ecological factors are now gaining
The success of a business lies in its ability momentum, since the governments across
to adapt and sustain to political and legal the globe are framing stringent policies for
changes. The legislative, executive and ecological conservation and prevention of
judiciary are the three political institutions pollution. The ban on use of plastic bags
which directs and influences a business.The imposed by the Ooty corporation is an
major elements of the legal and political example.
environment are 5) location of certain industries is influenced
1) Political stability is reflected by the following by the geographical conditions For e.g In
parameters like the election system, the law Tamilnadu the concentration of cotton
and order situation, the role and structure of textile industry in Coimbatore is due to
Military and Police force, the declaration of conducive weather conditions. .
President’s rule, civil war etc 6) availability of natural harbours and port
2) Political organisation refers to the ideology facilities for transporting goods .
and philosophy of the political parties, V. 
Technological environment –
the government, the role and degree of The development in the IT and
authority of bureaucracy, the level of telecommunications has created a
political consciousness among citizens and global market. Technology is widely
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used in conducting market research for business and the lack of clarity are the variables
understanding the special needs of the which affects business.
customer. Digital and social media are It is now important for every business to
used as a platform for advertising and meet the challenges posed by the environment
promoting the products/services. Data- in order to remain competitive. The uncertain
mining and data analytics are used to conditions and situations requires a firm to be
know the customer better. Technology is prepared to face the volatility by planning. The
used in managing inventory, storing goods presence of complex variables impacting business
in warehouses, in distributing goods and should be understood and alternative measures
in receiving payment. This dynamic for solving the issues should be developed. In an
environment also includes the following ; VUCA environment a firm has to be forward
1) the level of technology available within the looking anticipating the change, adaptability will
country remain essential for the success of any business
2) rate of change in technology in an ambiguous, uncertain environment.
3) technology adopted by competitors
19.04  Corporate Governance
4) technological obsolescence
Corporate governance is a set of rules and
VI. Global environment With the rapid growth
policies which governs a company. It provides
of technology the physical boundaries
a frame work for managing a company and
are fast disappearing and the new global
achieving its objectives. It gives guidelines for
market is emerging. The international
internal control, performance measurement
environmental factors which affects a
and corporate disclosure. Corporate governance
business are as follows;
lays down the rules and responsibilities of
1) Differences in language and culture
the stakeholders of a company primarily the
2) Differences in currencies shareholders, the directors and the management.
3) Differences in norms and practices The role of board of directors is very important
4) Differences in tastes and preferences of in corporate governance. It is the board that
people provides the guidelines for the company and
5) The tax structure relating to import and its other stakeholders including employees,
export. customers, suppliers and financiers. Corporate
6) Differences in the degree of adoption of governance is based on the four fundamental
technology. pillars of fairness, transparency, accountability
and responsibility.
19.03 Future environment of In India the Kumara Mangalam
business-VUCA Birla Committee 2000, Narayana Murthy
The future environment of business in Committee 2003 , Adi Godrej Committee
this age of rapid technological advancement 2008, and presently Uday Kotak Committee
has been captured aptly in the acronym were constituted to give a comprehensive
framework for Corporate Governance.
VUCA – volatility, uncertainty, complexity
The present corporate governance norms,
and ambiguity, developed in the late 80’s by
included in the Companies Act 2013,
the U.S military. Every business has to take
SEBI listing regulations and Clause 49 of
strategic decisions.The dynamic ever changing the listing agreement are the outcome of
environment, the unpredictability of various discussion by these committees.
factors, the multiplicity of forces affecting
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The Indian Corporate Governance a constitutional body for making

framework requires listed companies recommendations to the Union and State
i) 
to have independent directors on the Government on issues related to Goods and
board; At least one third of the directors Service Tax. The GST Council is chaired by the
have to be independent directors. Union Finance Minister and other members
are the Union State Minister of Revenue or
ii) to have at least one independent woman
Finance and Ministers in-charge of Finance or
director ,
Taxation of all the States.
iii) 
to disclose all deals and payments to
The Goods and Services Tax Council
related parties.
shall make recommendations to the Union and
iv) 
to disclose details of managerial the States on
compensation a.  the taxes, cesses and surcharges levied by
v) CEO and CFO to sign stating that the the Union, the States and the local bodies
governance norms have been complied which may be subsumed in the goods and
with in the financial statements. services tax
It can thus be concluded that the presence b.  the goods and services that may be
of active governance norms in a company subjected to, or exempted from the goods
enhances the image of the company, increases and services tax
investor confidence and safeguards the c.  model Goods and Services Tax Laws,
interests of the shareholders and the society. principles of levy, apportionment of Goods
and Services Tax levied on supplies in the
The new norms laid down in Companies Act
course of inter-State trade or commerce
2013 by bringing in transparency in corporates
under article 269A and the principles that
have raised the governing standards of Indian govern the place of supply
companies as per International Standards.
d. the threshold limit of turnover below which
19.05 GST Goods and Services goods and services may be exempted from
Tax goods and services tax
e. the rates including floor rates with bands
GST is the indirect tax levied on
of goods and services tax
goods and services across the country. It is
f. any special rate or rates for a specified
a comprehensive, multi-stage, destination-
period, to raise additional resources
based tax that is levied on every value addition. during any natural calamity or disaster
There are 3 taxes applicable under this g. special provision with respect to the States
system. of Arunachal Pradesh, Assam, Jammu and
i) C
 GST: Collected by the Central Kashmir, Manipur, Meghalaya, Mizoram,
Government on an intra-state sale (Eg: Nagaland, Sikkim, Tripura, Himachal
transaction happening in TamilNadu) Pradesh and Uttarakhand and
ii) SGST: Collected by the State Government h. any other matter relating to the goods and
services tax, as the Council may decide.
on an intra-state sale (Eg: transaction
happening within TamilNadu) Purpose
iii) IGST: Collected by the Central At the Tata group we are committed to
Government for inter-state sale (Eg: improving the quality of life of the communities
Punjab to Tamil Nadu) we serve. We do this by striving for leadership
and global competitiveness in the business
Goods & Services Tax Council  is
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sectors in which we operate.

Our practice of returning to society For Future learning
what we earn evokes trust among consumers, 1) Identify top five Indian companies
employees, shareholders and the community. and understand their vision , mission
We are committed to protecting this heritage and core values.
of leadership with trust through the manner in 2) Examine how mobile phones are
which we conduct our business. replacing the existing technologies-
Radio, Music system, Camera etc.
Core values
Tata has always been values-driven. These values
continue to direct the growth and business
  Case Study
of Tata companies. The five core Tata values
underpinning the way we do business are:
Integrity: We will be fair, honest, transparent
and ethical in our conduct; everything we do
must stand the test of public scrutiny.
Excellence: We will be passionate about
achieving the highest standards of quality, Dr.VargheseKurien – Pioneer of White
always promoting meritocracy. revolution in India
Unity: We will invest in our people and partners, Amul meant different things to different people :
enable continuous learning, and build caring To a Milk Producer A life enriching experience
and collaborative relationships based on trust To a Consumer Assurance of having
wholesome milk
and mutual respect.
To a Mother  A reliable source of
Responsibility: We will integrate environmental nourishment for her child
and social principles in our businesses, ensuring To the Country Rural Development and
that what comes from the people goes back to Self Reliance
the people many times over.
Pioneering: We will be bold and agile,
  Case Study
courageously taking on challenges, using
deep customer insight to develop innovative Apollo Hospitals
solutions.
Our Vision
Mission
Apollo’s vision for the next phase of
To improve the quality of life of the communities development is to ‘Touch a Billion Lives’.
we serve globally through long-term stakeholder Our Mission
value creation based on Leadership with Trust. “Our mission is to bring healthcare of
International standards within the reach of
Key Terms
every individual. We are committed to the
achievement and maintenance of excellence
Environment, Micro and Macro in education, research and healthcare for the
Environment, Value system, Capitalistic benefit of humanity”.
The TVS Group traces its origins to a rural
Economy, Socialistic Economy, Mixed transport service, founded in 1911 in Tamil
economy, Fiscal Policy, Monetary policy, Nadu, India. Today, this renowned business
Demography, VUCA GST conglomerate remains faithful to its core
ideals of trust, values, service and ethics.

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Exercise
6. ________ environment includes weather
and climatic conditions.
(a) Micro (b) Macro

I. Choose the Correct Answers: (c) Minimum (d) Maximum

1. VUCA stands for ____, _____,_____,______. Answers:

(a) Volatility, Uncertainty, Complexity and 1 a 2 b 3 a 4 a 5 b 6 b
Ambiguity
II. Very Short Answer Questions:
(b) Value, Unavoidable, Company and
1 . Define Business environment
Authority
2. What is internal environment?
(c) Volatility, Uncontrollable, Company and
Auction 3. Give the meaning of corporate governance.
(d) All of the above 4. What is GST?
2. GST stands for ______,______,______. 5. Expand VUCA.
(a) Goods and Social Tax III. Short Answer Questions:
(b) Goods and Service Tax 1. What are the political environment factors?
(c) Goods and Sales Tax 2 . Write about any three internal environmental
(d) Goods and Salary Tax factors of business.

3. Factors within an organisation constitutes 3. State the framework of Corporate

_________ environment. Governance in India.

(a) Internal Thinker 4. What are the functions of the GST council?

(b) External Thinker 5. What do you know about Technological

environment?
(c) Fellow human beings
(d) All of the above IV. Long Answer Questions:
4. Macro Environment of business is an 1. Discuss the role of macro environment of
_________ factor. business.

(a) Uncontrollable (b) Controllable 2. Describe the economic environment of

business.
(c) Manageable (d) Immanageable
3. Explain the micro environmental factors of
5. The two major types of business environment business.
are _______ and ___________.
(a) Positive and Negative
(b) Internal and External
(c) Good and Bad
(d) Allowable and Unallowable

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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.

Learning Objectives Chapter Synopsis

To enable the students to understand the 20.01 Dimensions of New Economic
■ Meaning, measures, advantages, Policy
disadvantages and impact of 20.02 Meaning and forms of Liberalisation
Liberalisation 20.03 Advantages and disadvantages of
■ Meaning, measures, advantages, Liberalisation
disadvantages and impact of 20.04 Impact of Liberalisation
Privatisation 20.05 Meaning and Forms of Privatisation
■ Meaning, measures, advantages, 20.06 Advantages and disadvantages of
disadvantages and impact of Privatisation
Globalisation 20.07 Impact of Privatisation
■ Highlights of LPG 20.08 Meaning and Forms of Globalisation
20.09 Advantages and disadvantages of
Globalisation
During 1991, India approached 20.10 Impact of Globalisation
International Bank for Reconstruction and 20.11 Highlights of LPG policy
Development (IBRD), popularly known as
World Bank and International Monetary Fund
(IMF) and received $ 7 million as loan to repay India agreed to the conditions of World
the external borrowings. These international Bank and IMF and announced New Economic
agencies expected India to liberalise and open Policy (NEP) which consists of wide range of
up economy by removing restrictions on private economic reforms. This new set of economic reforms
sector and remove trade restrictions between is commonly known as the LPG or Liberalisation,
India and other countries. Privatisation and Globalisation model.
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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
INDIA the small industries: Investment limit of the
small scale industries has been raised to Rs.
1 cr. So these companies can upgrade their
Liberalization refers to laws or rules
machinery 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
free to enter in the market and establish their 1991, as an immediate measure to resolve
venture in the country. Liberalizing trade the balance of payments crisis, the rupee was
policy by the government includes removal of devalued against foreign currencies. This

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led to an increase in the inflow of foreign grow, some decline. Therefore, there may
exchange. often be structural unemployment from
(e) Liberalization of export and import certain industries closing.
transactions: By simplifying procedures (b) Loss to domestic units: With fewer
for imports and exports the government entry restrictions, it has been possible
wanted to permit the international flow of for many entrants to make inroads into
goods, services, capital, human resources and the country, which poses a threat and
technology, without many restrictions. competition to the existing domestic units.
(c) Increased dependence on foreign
20.03 Advantages and
nations: Trade liberalisation means firms
Disadvantages of will face greater competition from abroad.
Liberlization When competition is not automatically
enhanced, it can lead to domination by
Advantages
big institution that has market controlling
(a) Increase in foreign investment: If powers.
a country liberalises its trade, it will make
(d) Unbalanced development: Trade
the country more attractive for inward
liberalisation may be damaging for
investment. Inward investment leads to
developing economies which cannot compete
capital inflows but also helps the economy
against free trade. The trade liberalisation
through diffusion of more technology,
often benefits developed countries rather
management techniques and knowledge.
than developing economies.
(b) Increase the foreign exchange reserve:
Relaxation in the regulations covering
Financial Sector
foreign investment and foreign exchange has
paved way for easy access to foreign capital.
Reforms taken
(c) Increase in consumption: Fiscal Sector Industrial Sector
during
Liberalization increases the number of goods liberalisa on
available for consumption within a country
due to increase in production.
Trade Sector
(d) Control over price:  The removal of
tariff barriers can lead to lower prices for
consumers. This would be particularly a
benefit for countries who are importers.
20.04  Impact of Liberalization
(a) The impact of Liberalisation on Indian
(e) Reduction  in external borrowings:
Liberalization reduces the dependence Economy was well afforeciable with the
on  external commercial borrowings by phenominal growth by contributing $1.3
attracting more foreign investments. Trillion to the world GDP. So also the Indian
Economy because the Seventh Largest among
Disadvantages the world leading economies.
(a) Increase in unemployment: Trade (b) Liberalization has opened up new
liberalisation often leads to a shift in the business opportunities abroad and increased
balance of an economy. Some industries foreign direct investment.
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(c) New market for various goods came into i. Bharat Aluminimum Co. Ltd., (BALCO)
existence and resulted not only in urban but ii. Hindustan Zinc Ltd (HZL)
also in rural development.
iii. Indian Petrochemicals Corporation Ltd
(d) It became very easy to obtain loans from
(IPCL)
banks for business expansion.
(e)"Foreign Collaboration" is the latest iv. Maruthi Udyog Ltd (MUl)
outcome of liberalization. v. Modern Food Industries Ltd (MFIL)
(f) A number of multinational companies
India Scooters Limited - The first ever
started operating world-wide including India. 
company Privatized in India

20.05 Meaning and forms of Forms of Privatization

Privatization (a) Contraction(minimisation) of public
Privatization is the incidence or process of sectors: The number of industries reserved
transferring ownership of a business enterprise, for public sector was reduced from 17 (as per
agency or public service from the government to 1956 policy) to only 8 industries viz, Arms and
the private sector. Simply speaking, privatisation Ammunition, Atomic Energy, Coal and Lignite,
means permitting the private sector to set up Mineral oils, Mining of ores, Mining of copper,
industries which were previously reserved for lead, zinc etc., Minerals for atomic energyand
the public sector. Under this policy many Public Railways.
Sector Units (PSUs) were sold to private sector. Currently only Atomic Energy,
The main reason for privatisation was Defence and Railways are Government
that PSUs were running in losses due to monopoly industries i.e., Public sector
mismanagement and political interference. industries in the country.
The managers could not work independently
and the production capacity remained under- (b) Sales of shares of public sectors to
utilized. To increase competition and efficiency the private sector: Indian Govt. started
privatisation of PSUs was inevitable. Some selling shares of PSUs to public and financial
examples of Public Sector Enterprises recently institution. Now the private sector will acquire
privatlised are as follows. 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,
Privatization free 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
associated with improved efficiency due to the
not always have time or expertise to force
profit incentive. Private companies will ensure
them to 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
(b) Professional management: Government
more and opt for best quality services.
owned enterprises make poor economic
This leads to division, making it harder to
management compared to private owned
provide excellent public services for weaker
enterprises. This is because of the fear of
sections.
negative publicity. Private ownership makes
bold management decisions due to their strong
20.07  Impact of Privatization
foundation at international level.
(a) P
 rivatization  has a positive  impact  on
(c) Increase in competition: Privatisation
the financial growth by decreasing the
of state-owned monopolies occurs alongside
deficits and debts.
deregulation i.e. policies to allow more
firms to enter the industry and increase the (b) I ncrease in the efficiency of government
competitiveness of the market. It is this increase undertakings.
in competition that can be the greatest spur to (c) P
 rovide better goods and services to the
improvements in efficiency. consumers.
(d) Reduction in economic burden of (d) M
 aking way for Foreign Direct
Government: Since the ownership, control Investment (FDI)
and management of many PSUs are transferred
to private, the burden and responsibility of 20.08 Meaning and Forms of
government has comparatively reduced. Globalization
Globalisation means the interaction
and integration of the domestic economy
with the rest of the world with regard to
foreign investment, trade, production and
financial matters. It is the process by which
businesses or other organizations develop
international influence or start operating on
an international scale. Globalization stands for
the consolidation of the various economies of
the world.
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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
through various modes such as joint venture,
GLOBALISATION merger, franchise, turn-key projects, etc.

Globalization results from the removal (b) Expansion of market: The size and
of barriers between national economies to operation of business moves from local to
encourage the flow of goods, services, capital, national and from national to international.
and labour. While the lowering or removal of (c) Technological development:
tariffs and quotas that restrict free and open Technological advancement paves way
trade among nations has helped globalize the for a company to enter foreign market.
world economy. Globalisation of technology is done by Royalty
or purchase of technology or by technology
Forms of Globalization
collaborations.
(a) Foreign trade policy: India has signed
a number of agreements in order to expand (d) Reduction in brain drain: Brain
Indian trade worldwide. Some of the agreement drain is a situation in which a country loses its
includes TRIPS (Trade Related Intellectual most educated and talented workers to other
Property Rights), GATS (General Agreement countries through migration. Globalisation
on Trade in Service). paves way for employment opportunities in
the home country and utilise the man-power
(b) Export promotion: Globalisation efficiently.
promotes export by reducing quotes and
tariffs, by eliminating trade restrictions and by Disadvantages
simplifying trade procedures. (a) Loss of domestic industries:
(c) Freedom to repatriate: Repatriate means, Globalisation causes decline in the demand
to send or bring money back to one’s own of domestic products which in turn vanishes
country. Since globalisation has integrated many the domestic business.
countries, repatriation has become very easy. (b) Increase in inequalities: Globalisation
(d) Reduction in tariffs: Custom duties widens the gap between rich and poor. Also
and tariffs imposed on imports and exports developed countries exploit the resources of
are reduced gradually to make Indian economy developing countries.
attractive to the global investors. (c) Dominance of foreign institutions:
(e) Encouraging open competition: Economic power shifts from independent
Globalisation brings an end to the difference industries to international organisations
between domestic and international markets. which is a threat to national sovereignty.

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20.10  Impact of Globalization as a result of modernization. Globalization

is the greater integration among countries
(a) Corporations got a competitive
and economies for trade, economic, social
advantage from lower operating costs, and
and political benefits. Liberalization
access to new raw materials and additional
generally refers to removal of restrictions;
markets.
usually government rules and regulations
(b) Multinational corporations (MNCs) imposed on social, economic, or political
can manufacture, buy and sell goods matters.
worldwide.
(c) Globalisation has led to a boom in
Key Terms
consumer products market.
FDI, TRIPS, TRYSEM, GATS
(d) The advent of foreign companies and
growth in economy has led to job creation.
(e) Globalisation has touched every aspect The former Prime Minister
of agriculture like technological advancement, of India Dr.Manmohan Singh
improved production techniques and quality is considered as the architect of
based enhancement. Indian economic reforms who introduced the
policy of liberalisation in India in 1991.
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
For Future learning
(e) Opportunities for overseas trade
(f) Steps to regulate inflation
Financial Sector
(g) Tax reforms
(h) Abolition of License Reforms taken
Fiscal Sector during Industrial Sector
liberalisa on
Globalization and liberalization are
concepts closely related to one another, Trade Sector

and both globalization and liberalization

refer to relaxing social and economic
Gather knowledge about these four Dimensions
policies which results in better integration
with an economy and between nations.
Globalization and liberalization both occur
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II. Very Short Answer Questions:

Exercise
1. State the branches of New Economic Policy.
2. What is Privatisation?
3. Mention any two disadvantages of
Liberalisation.
I. Choose the Correct Answers:
4. Name the industries which are reserved for
1. __________ is the result of New Industrial
public sector.
Policy which abolished the ‘License
System’. 5. Give any two advantages of Globalisation.
(a) Globalisation (b) Privatisation
III. Short Answer Questions:
(c) Liberalisation (d) None of these
2. 
___________ means permitting the 1. What do you mean by Liberalisation?
private sector to setup industries which 2. What is meant by Public Sector Units
were previously reserved for public sector. (PSUs)?
(a) Liberalisation (b) Privatisation
3. State any three impacts on Globalisation.
(c) Globalisation (d) Public Enterprise
4. Write a short note on New Economic Policy.
3. 
____________ ownership makes bold
management decisions due to their strong IV. Long Answer Questions:
foundation in the international level.
(a) Private (b) Public 1. Explain the advantages and disadvantages
of liberalisation.
(c) Corporate (d) MNC’s
4. __________ results from the removal of 2. Explain the impact of LPG on Indian
barriers between national economies to Economy.
encourage the flow of goods, services,
capital and labour. References
(a) Privatisation (b) Liberalisation www.gktoday.in
(c) Globalisation (d) Foreign Trade www.indiastudychannel.com
5. New Economic Policy was introduced in www.economicshelp.org
the year _______. www.managementnote.com
(a) 1980 (b) 1991
(c) 2013 (d) 2015

Answers:
1 c 2 b 3 a 4 c 5 b

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THE SALE OF GOODS ACT 1930

AND THE NEGOTIABLE
UNIT MANAGEMENT PROCESS
INSTRUMENTS ACT 1881
VIII
I

21
1
CHAPTER
PRINCIPLES
THE SALE OFOF
GOODS
MANAGEMENT
ACT 1930

அழிவதூஉம் ஆவதூஉம் ஆகி வழிபயக்கும்

ஊதியமும் சூழ்ந்து ெ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
■ Contract of sale
■ Differentiate the sale and agreement to sell
■ Knows the types of Goods
■ Transfer of ownership
■ Conditions and warranties
■ Knows the rights of unpaid seller Sale of Goods is one of the most important
Acts coming under special contract. This Act
was passed in the year 1930. Prior to this Act,
Chapter Synopsis it was governed by Chapter 7 of the Indian
Contract Act 1872. Contracts for the sale of
21.01 Formation of Contract of Sale
Goods are subjected to general legal principles
21.02 Difference between Sale and applicable to all contracts. Hence the general
Agreement to Sell provisions of Indian Contract Act continue to
21.03 Types of Goods apply to the Contract for the sale of goods.
21.04 Transfer of Ownership 21.01 Formation of Contract of Sale
21.05 Conditions and Warranties
21.06 Rights of an Unpaid Seller Contract of Sale of Goods
Contract of sale of goods is a contract
whereby the seller transfers or agrees to transfer
the property (ownership) of the goods to the
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buyer for a price. The term ‘ownership’ is utmost ownership.

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

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.

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Where the goods sold under the Where the goods under the
agreement to sell are destroyed,
contract of sale are destroyed, the
the loss falls squarely on the seller
loss falls squarely on the buyer as
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.

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

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

The diagram given below exhibits the type particular supplier, it is an example of future
of goods covered under the sale of goods act. contract. Future goods represents unascertained
Existing goods may be either goods.
(i) Specific Goods 3. Contingent Goods
(ii) Ascertained Goods Contingent goods are the goods, the
(iii) Generic or Unascertained Goods acquisition of which by the seller depends upon
2. Future Goods a contingency (an event which may or may not
happen). Contingent goods are a part of future
These are goods which a seller does not
goods. Eg.‘A’ agrees to sell a particular painting
possess at the time of contract of sale but which
work, provided he gets from ‘C’. In this case,
will be manufactured or produced or acquired
the painting work represents contingent goods.
by him after entering into the contract of sale Similarly a rice merchant agrees to supply 10
agreement. Eg. ‘A’ contractor agrees to supply bags of basmathi rice from Pakistan if he get
100 bags of rice to ‘B’ for giving marriage feast. supplies. In this case, basmathi rice representing
It is a case of future goods. Similarly where the contingent goods may or may not be available
bus company agrees to buy spare parts from a to the rice merchant.
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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.

CONTINGENT GOODS (Eg.Basumathi Rice)

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21.04  Transfer of Ownership is immaterial in the matter of transferring the

ownership of the goods.
eg. ‘B’ selects certain books in a bookshop.
The price is settled. ‘B’ arranges to take delivery
of books next day through his servant and agrees
to pay for the books on the 1st of next month.
The books were destroyed by fire in the same
evening. In this case, ‘B’ has to bear the loss and
pay for the books selected since the ownership
Transfer of property (ownership) in has already passed on to ‘B’.
goods from the seller to the buyer is the main
(ii) Beyond the Date of Contract
object of a contract of sale. The term property in
goods must be distinguished from possession of (a). Goods not in a Deliverable condition
goods. Property in goods means the ownership Where there is a contract for sale of
of goods while possession of goods refers to the specific goods not in a deliverable condition
custody of goods or control over the goods. i.e. the seller has to do certain activities to
For eg. ‘A’ may possess a watch. Just bring the goods into deliverable condition like
because ‘A’ possesses the watch, he cannot be painting, quality checking, weighing etc., then
owner. He might have borrowed the watch from the ownership does not pass till such activities
his friend or stolen the watch from somebody bringing them into deliverable condition are
or found it on the highways. In this case, he completed. eg. There was a contract for a sale
cannot be called owner. It is important to know of machine weighing 30 tonnes and installed
the precise movement of time at which the in a concrete floor. Some parts of the machine
ownership in goods passes from seller to buyer. were damaged during the process of removal.
In this case, buyer is entitled to refuse to buy the
Passing of Property machine as it is not in a deliverable condition.
Transfer of title of a property is called as (b) 
When the Price of Goods is to be
passing of property. Ascertained by Weighing or Testing or
Passing of Property Doing Something
Where there is a contract for the sale of
Unascertained Goods sent specific goods in a deliverable condition, but
Specific Goods
Goods on Approval
the seller is yet to weigh, measure, test or do
At the me of
Contract
some other act or think with reference to the
goods for the purpose of fixing the price, then
Beyond the
date of Contract the ownership in the goods passes to the buyer
only after such activities are carried out and
I. Specific Goods completed and the buyer has a knowledge of it.

(i) At the Time of Contract eg. ‘A’ sold some quantity of wheat to ‘B’
at the rate of Rs. 10 per kg. However, ‘A’ had to
Where there is an unconditional contract
weigh the wheat in order to know the price of
for the sale of specific goods in a deliverable
the entire quantity of wheat sold to ‘B’. In this
state, ownership in the goods passes to the
case, the ownership of the wheat shall transfer
buyer when the contract is made. The time of
to ‘B’ as soon as ‘A’ weighs the wheat ‘B’ comes
payment of price or time of delivery of goods
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to know about the completion of the weighing the goods. In other words, where the goods
activity. identified and isolated are put into boxes or any
container with the consent of the buyer, it is
II. Unascertained Goods called appropriation. eg. ‘A’ agrees to sell ‘B’ the
As already we studied that the oil to be produced by him. The oil was filled by
unascertained goods are those which are not ‘A’ into the bottles supplied by ‘B’. It is an effective
specifically identified at the time of contract of appropriation and the ownership of oil goods
sale. The ownership in the case of unascertained passes to the buyer when the oil is filled into the
goods, is transferred to the buyer subject to the bottles. In this case, the buyer gave his consent to
fulfilment of following conditions: the appropriation by supplying the bottles.
a. When the Goods are Ascertained
c. Delivery to the Carrier
Ascertainment is a process by which the
goods to be delivered under the contract of sale Where the seller delivers the goods to a
are identified and set apart. It is a unilateral carrier for the purpose of transmission to the
act of the seller alone to identify and isolate the buyer, he is deemed to have unconditionally
goods. appropriated the goods to the contract. But
the only condition is that the seller should
b. When the Goods are Appropriated to the
not have reserved the right of disposal of the
Contract
goods.Where the railway receipt or the bill of
Appropriation is a process by which the lading is made out in the name of the buyer, the
goods to be delivered under the contract of sale presumption is that the seller has not reserved
are identified and isolated with the consent of the right of disposal of the goods. The property
the seller as well as the buyer. It is a bilateral act in such goods passes to the buyer immediately
of the seller and the buyer to identify and isolate on delivering them to the carrier.

III. Goods Sent ‘On Approval’ or ‘On Sale or Return’ Basis

Goods sent on approval or on sale or 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’.

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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.

21.05  Conditions and Warranties (ii) Warranty: Warranty represents a

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

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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.

Implied Conditions and Warranties should agree with the descriptions made by the
In every contract of sale, there are seller. eg. ‘A’ has bought a machinery from ‘B’
who described it to be just one year old. After
certain expressed and implied conditions
buying the machinery and using it for a month,
and warranties. The term implied conditions
‘A’ came to know that it is very old machinery.
means conditions which can be inferred from
In this case, ‘A’ can return the machinery to ‘B’
or guessed from the context of the contract.
on the ground that machinery is not as per the
Following are the implied conditions:
description i.e. not recent one.
Implied Conditions 3. Sale by Sample
1. Conditions as to Title Where goods are sold by showing samples
In the case of sale, seller has a right to sell by the seller eg. foodgrains, cloth, medicine,
the goods. The buyer can assume that the seller chemicals etc., the bulk of goods supplied by
has a right to sell the goods. eg. ‘R’ purchased the seller should be similar to the sample shown
a motorcar from ‘D’ and used it for 4 months. by the seller. In other words, where the goods
supplied do not match with the samples; the
Later after six months, true owner came and
buyer can very well return the goods subject to
proved that he is a true owner. In this case, ‘R’
the following conditions:
has to return the car to the true owner and claim
1. The bulk of the goods must correspond
the full price paid by him from ‘D’.
with the sample in quality
2. Conditions as to Description 2. 
The buyer should have a reasonable
In a contract of sale by description, there opportunity of comparing the bulk with the
is an implied condition that goods supplied sample and
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3. The good must be free from any defect to declare any defect in the goods. But ‘X’ sold
rendering them unsalable. the goods without such declaration. Later, such
4. Conditions as to Quality or Fitness goods were found to be defective. In this case,
‘Y’ can claim refund of the price on the ground
There is no implied condition as to the
of breach of custom.
quality or fitness for any particular purpose of
goods. But goods must be fit for a particular Implied Warranties
purpose if (i) Quiet Possession
(i) The buyer has made known to the seller There is an implied warranty that the
the particular purpose for which he needs buyer shall have and enjoy quiet possession of
the goods the goods. If the buyer’s possession is disturbed
(ii) The buyer relies on the seller’s skill or by a person having a superior right to that of the
judgement and seller, the buyer is entitled to claim the damages.
(iii) The goods are of a description which is in
eg. ‘X’ sold a second hand radio to ‘Y’ who
course of the seller’s business to supply
spendsRs. 100 on the repairs of the radio. This
eg. ‘A’ bought set of false teeth from a
radio was seized by the police as it was a stolen
dentist. The set did not fit into A’s mouth. Held
one. ‘Y’ filed a suit against ‘X’ for the recovery
that he could reject the set as the purpose for
of damages for breach of warranty of quiet
which it was bought was known to the dentist.
possession including the cost of repair. ‘Y’ won
5. Conditions as to Merchantability the case. In other words, he was held entitled to
If goods are bought by description and recover the damages.
the seller is a dealer in goods of that description, (ii) Free from Any Encumbrances
the implied condition is that goods must be of The goods bought must not have been
merchantable quality. It only means that the subject to any charge or right in favour of a third
goods must be saleable in the market under that party. If the buyer’s possession is disturbed by
denomination. “A watch that will not keep time, reason of the existence of any encumbrance, he is
a pen that will not write and tobacco which will entitled to claim damages for breach of warranty.eg.
not smoke, cannot be regarded as merchantable ‘X’ borrowed Rs. 50,000 from ‘Y’ and hypothecated
under such names.” his autorickshaw with ‘Y’ as security. Later on, ‘X’
6. Condition as to Wholesomeness sold the autorickshaw to ‘Z’ who bought it in good
In the case of eatables, the goods must be faith. In this case, ‘Z’ can claim damages from ‘X’
wholesome besides being merchantable. because his possession is disturbed by ‘Y’ having a
eg. ‘F’ bought milk from ‘A’, a dairy encumbrance on the auto.
owner. The milk was contaminated with germs (iii) Warranty in the case of Dangerous
of typhoid fever. F’s wife on taking the milk Goods
became infected and died of it. ‘A’ was held
Where the seller knows that the goods he is
liable in damages.
selling are dangerous or likely to be dangerous to
7. Condition Implied by Trade Usage the buyer and the buyer is ignorant of the danger,
An implied condition as to quality or the seller should warn the buyer of the probable
fitness for a particular purpose can also be fixed danger, otherwise he will be liable to compensate
by the usage of trade. the buyer in case of any injury.eg. ‘C’ bought from
Eg.‘X’ sold certain drugs by auction to ‘A’ a tin of disinfectant powder. ‘A’ knew that the lid
‘Y’. In the auction sale, there is a trade custom of the tine was defective and that if it was opened

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without special care, it might be dangerous. Yet ‘A’ the seller has transferred to the buyer the
did not warn ‘C’. ‘C’ opened the tine in the usual documents of title to the goods, his lien is
way whereupon the powder flew into her eyes, not affected so long as he continues to be in
causing injury. Held that ‘A’ was liable in damage to possession of the goods.
‘C’ as he should warned ‘C’ of the probable danger. For eg.‘A’ has sold the 10 TV sets to ‘B’ and
Unpaid Seller - Meaning transferred the documents of title to the goods to
A seller is deemed to be an unpaid seller ‘B’ by courier service. But goods are under the
(a) when the whole of the price has not been custody of ‘A’ ready for despatching to booking
paid or (b) a bill of exchange or other negotiable office. Meantime, ‘B’ became insolvent. In this
instrument given to him has been dishonoured. case, ‘A’ can retain the goods.
Thus it would be obvious that a seller who has Where an unpaid seller has made a part
received only a part of the price is also an unpaid delivery of the goods, he has lien on the reminder.
seller. Seller includes not only the actual seller However, if delivery of a part is intended as a
but also an agent of a seller or a consignee. delivery of the whole, then this lien is lost.
21.06  Rights of an Unpaid Seller Right of Lien is Lost
RIGHTS OF UNPAID SELLER
(a) When he delivers the goods to a carrier
AGAINST THE
or other bailee for the purpose of transmission to
AGAINST GOODS BUYER PERSONALLY
the buyer without reserving the right of disposal
WHERE THE PROPERTY IN WHERE THE PROPERTY IN SUIT FOR PRICE of the goods. eg. ‘X’ of Delhi sold some goods
GOODS HAS PASSED TO GOODS HAS NOT PASSED TO
THE BUYER THE BUYER
to ‘Y’ of Bombay and took the railway receipt in
SUIT FOR DAMAGES

RIGHT TO LIEN
WITHHOLDING
DELIVERY
the name of ‘Y’ and sent the railway receipt to
RIGHT OF STOPPAGE LIEN
SUIT FOR INTEREST
‘Y’. In this case, ‘X’ has not reserved the right of
IN TRANSIT
disposal of goods. (or)
RIGHT OF RESALE STOPPAGE IN TRANSIT
(b) When the buyer or his agent lawfully
RESALE
obtains possession of them. In other words,
buyer took delivery from booking office (or)
Rights of an Unpaid Seller
(c) When the seller waives his right of lien
I. (a). Rights of an Unpaid Seller against the
Right of Stoppage in Transit
Goods
(i) Where the Property in the Goods has Passed Where the seller has delivered the goods
to the Buyer to a carrier or other bailee for the purpose of
transmission to the buyer, but the buyer has
a. Right of Lien: An unpaid seller has a
right to retain the goods till he receives the price. not acquired them, then the seller can stop
But to exercise this lien the goods and regain the possession. In other
words, goods must be neither with the seller nor
i. He must be in possession of goods
with the buyer but should be in the hands of a
ii. The goods must have been sold without any
carrier. Further, the buyer must have become
stipulation as to credit or where goods have
an insolvent.
been sold on credit, the terms of credit must
have expired. He can also exercise the right of Termination of Right of Stoppage
lien when the seller becomes insolvent. This right to stop the goods comes to an end:
iii. It must be remembered that the right of lien (a) When the goods are delivered to the
depends on actual possession. Thus where buyer or his agent or

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(b) When, on arrival of the goods at the

appointed destination, the carrier communicates For Own Thinking
to the buyer or his agent that he is holding the
(a) Find out whether the following
goods on his behalf
transactions can be included under the
c. Right of Resale Contract of Sale:
i. X agreed to sell 100 shares to Y for
The unpaid seller can resell the goods
Rs. 10,000.
(i) Where they are of a perishable nature or
ii. X agreed to sell his building for Rs.
(ii) After exercising his right of lien or stoppage
1,00,000 to Y
in transit, even though he has given iii. X agreed to exchange with Y 100 kg
intimation to the buyer of his intention of rice valued at Rs. 20 per kg for 200
to resell, buyer has not tendered the price Kg of wheat valued at Rs. 12 per kg.
within a reasonable time. and pay the difference in cash.
(iii) Where the seller has expressly reserved the iv. X agreed to transfer some jewellery
right of resale in the contract itself to his prospective wife out of love
I. (b). Where the Property in the Goods does and affection.
not pass to the Buyer v. X agree to buy a painting from an
artist
Right of an Unpaid Seller against the Buyer
vi. X supplied a piece of cloth to a tailor
Personally to stitch a suit for him. The tailor
(i) Suit for price: Where the ownership in the agreed to supply lining materials and
goods has passed to the buyer and the buyer buttons.
refuses to pay for the goods, the seller can file vii. X agreed to pledge his goods valued
case against the buyer for the price at Rs. 1,00,000 with Y
Clues: Students are advised to understand
(ii) 
Suit for Damages for Non-acceptance: the meaning for goods and the
Where the buyer wrongfully refuses to essential elements of contract of sale.
accept the goods, the seller can sue him for (b) Find out whether the following
damages for non-acceptance of the goods. contracts of sale amount to sale or
(iii) 
Suit for Cancellation of the Contract agreement to sell:
i. X entered into a contract for sale entire
before the Due Date: Where the buyer
crop of rice cultivated in his farm.
cancels the contract before the date of
ii. A railway administration agreed to
delivery, the seller may either treat the
sell coal-ash that might accumulated
contract as continuing or wait till the due during the period of the contract.
date or he can file a case against buyer iii. X entered into a contract for sale of
immediately. some goods in a particular ship to be
(iv) Suit for Interest: Where there is a specific delivered on the arrival of the ship
agreement between buyer and seller iv. X entered into a contract for sale of a
regarding charging interest on the price, the painting only if Z, its present owner
sells it to him.
seller can recover interest from the buyer
from the due date of contract till the date Key Terms
of payment of purchase price. If there is
no specific agreement, the seller can charge Sale Ownership Property
interest from such day as he may notify to Conditions Warranties Insolvency
the buyer. Contingent Lien

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broke due to the fact that the materials used

For Own Thinking in its manufacture were unsuitable. As a
result, the boy who was using it, blinded in
(c) State whether the seller is an unpaid one of his eyes. State whether the seller is
seller or not in the following cases: liable or not.
i. X sold some goods to Y for Rs. (iv) X bought from Y a heap of wheat the weight
of which is 1000 kg at the rate of Rs. 8 per
10,000. Y paid Rs. 9,900 but failed to
kg. and agrees to pay the price on the first
pay the balance day of the next month and the wheat is to
ii. X sold some goods to Y for Rs. be delivered at X’s godown on the following
10,000 and received a cheque for the day. A fire broke out and the entire quantity
full price as conditional payment. of wheat was destroyed. State whether X is
liable to pay the price or not. Why?
On presentment, the cheque was (v) X bought from Y a heap of wheat (weight
dishonoured by the bank. 100 kg) at the rate of Rs. 8 per kg. and Y had
iii. X sold some goods to Y for Rs. to put the wheat in bags to deliver it to X. Y
10,000 on a credit of one month. filled some bags in X’s presence, but before
the remainder could be filled, a fire broke
One month has not yet expired.
out and the entire quantity of wheat was
iv. X sold some goods to Y for Rs. destroyed. State whether X is liable to pay
10,000 on a credit of one month and the price or not. Why?
one month has expired and the price (vi) X bought from Y a heap of wheat at a rate of
Rs. 8 per kg and Y had to weigh the wheat.
remains unpaid.
Before weighing was completed, the wheat
v. X sold some goods to Y for Rs. 10,000 was destroyed by fire. State whether X is
on a credit of one month. Y became liable to pay the price or not. Why?
insolvent during the period of credit. 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.

  Case Study (ii) If anyone finds any article

or goods on the highways he or
(i) X purchased a hot water bottle from Y, retail she is supposed to be bailee of
chemist. X asked Y if it would stand boiling the goods and takes care of the goods as if
water. The chemist told him that the bottle it were his own. If true owner is traced he
was meant to hold hot water. The bottle or she must restore the goods to him. He
burst when water was poured into it and
injured his wife. State whether seller is liable or she should not use the goods for his own
for the injury suffered by the buyer and purpose. If he uses such goods he is found
the consequent compensation, give your to be guilty of criminal misappropriation of
reasons. the property under section 403 of the Indian
(ii) X asked a car dealer to suggest him car
suitable for touring purposes. The dealer Penal Code. The finder of the lost goods
suggested a ‘Buggati Car’. Accordingly, X can recover all reasonable expenses from the
purchased it but found it unsuitable for true owner. The finder can sell the goods if
touring purpose. State whether the car the true owner cannot be found out or if the
dealer is liable for breach of condition?
true owner refuses to pay the lawful charges
(iii) X, a dealer sold a plastic catapult to B. While
using the catapult in the usual manner, it of the finder.

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(i) Mere possession of the goods 7. In which of the following types, the
does not make the possessor the ownership is immediately transferred to
owner of the goods possessed. A buyer?
person may possess the goods by a) When goods are ascertained
borrowing from others; or from finding it on b) When goods are appropriate
the highways or by mortgage or by pledge or c) Delivery to the carrier
by bailment or by lease or by hire and so on. d) Sale or return basis
These transactions do not confer ownership 8. ________ is a stipulation which is
rights to the possessor. It is only when the collateral to main purpose of contract:
ownership is transferred that the person a) Warranty b) Condition
becomes absolute owner. The owner possesses c)Right d) Agreement
every right to hold the goods against the whole 9. Unpaid seller can exercise his right of lien
world. In this context, you have to understand
over the goods, where he is in possession
that purchase means buying the ownership of
of the goods as
the goods bought for consideration and sales
means selling the ownership over the goods a) Owner of goods b) Agent of buyer
for consideration. c) Bailee for buyer d)All of these
10. The unpaid seller can exercise his right
of stoppage of goods in transit where the
buyer
Exercise a) Becomes insolvent
b)Refuses to pay price
c) Payment of price
I. Choose the Correct Answers: d)Both (b) and (c)
1. Sale of Goods Act was passed in the year Answers:
a) 1940 b) 1997 1 c 2 d 3 b 4 b 5 c
c) 1930 d) 1960 6 b 7 c 8 a 9 d 10 a
2. Which of the below constitutes the
II. Very Short Answer Questions:
essential element of contract of sale?
1. What is a contract of sale of goods?
a) Two parties b) Transfer of property
2. List down the essential elements of a
c) Price d) All of the above
contract of sale.
3. Which of the below is not a good?
3. What is meant by goods?
a) Stocks b) Dividend due
4. What is a Contingent Goods?
c) Crops d) Water
5. What do you understand by warranty?
4. In case of the sale, the ____ has the right to
sell III. Short Answer Questions:
a) Buyer b) Seller 1. Explain the meaning of Agreement to sell.
c)Hirer d) Consignee 2. Discuss in detail about existing goods.
5. The property in the goods means the 3. Discuss the implied conditions and
a) Possession of goods warranties in sale of goods contract.
b) Custody of goods IV. Long Answer Questions:
c) Ownership of goods 1. Explain in detail the elements of Contract of
d) Both (a) and (b) sale.
6. Specific goods denote goods identified 2. Distinguish between sale and agreement to
upon the time of ______ of sale: sell
a) Agreement b) Contract 3. Classify goods under the Sale of Goods Act.
c) Order d) Obligation 4. Distinguish between Conditions and
Warranty.
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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
The word ‘Negotiable’ means transferable
22.01 Negotiable Instruments – Meaning, from one person to another in return for
Characteristics, Assumptions consideration. The word ‘Instrument’ means
22.02 Negotiability & Assignability a written document by which a right is created
in favour of certain person. Thus, a negotiable
22.03 Bills of Exchange, Cheque, Promis-
sory Note – A Comparison instrument is a document which entitles a
person to a certain sum of money and which
22.04 Crossing of Cheque is transferable from one person to another by
22.05 Endorsements 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 eg. A sold certain goods to B. B gives a Bills
the Negotiable Instruments Act 1881. This Act of Exchange to S for the price. Later B refuses
speaks about promissory note, bills of exchange to pay the Bills of Exchange on the ground that
and cheques. the goods supplied are defective. Meantime,
A endorsed the bill to C. In this case, B’s defence
22.01 Negotiable Instruments– is of no value. C is a holder in due course. His
Meaning, Characteristics, 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
name in case of dishonour, without giving notice
According to section 13 of the Negotiable
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.
she need not return the bill to true owner.

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22.02 Negotiability and Assignability Assignability

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

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

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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
person including a banker a 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
currency. home 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.
Characteristics of a Promissory Note But is must be made payable to order
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 Bills of Exchange 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

NLY Types of Crossing

NTO BL
E
. U TI
A  General Crossing
CO CO
& AC EGO
ES T N
According to section 123 of the Negotiable
YE NO
PA
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
A
any abbreviation thereof, between to parallel
IN DI E IA LE DI
A
F . F IN YE D transverse lines or of two paralleltransverse
O O PA F IN I AB F IN
NK C KO C O T
O O
BA
& N
A A/ NK EG ANK lines simply, either with or without the words
E B A N
AT E B T EB
ST AT AT
E
NO TAT “not negotiable” that addition shall be deemed
ST ST S
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 Instrument Meaning Example

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
payable
“Pay to R or bearer”
(i) 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 “Pay to R or order”

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

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

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

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An instrument which is not (i)A Bill drawn in Delhi on

inland instrument is called foreign a merchant in London and
instrument. accepted and payable in London.
(iv) Foreign (ii)A bill drawn in London on a
i) Bill drawn outside India
Instrument merchant in Agra and accepted
ii) Bill payable outside India
iii) Bill drawn upon foreign and payable in Agra.
citizens.

A bill is drawn by A an agent

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

Giving a blank cheque to a party

It means an incomplete instrument

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

I promise to pay ShaliniRs. 5000

It is defined as an instrument which after 3 months
(vii) Time Instrument
is 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
get the bill discounted with his
(viii) Accommodation Bill which is drawn, accepted
banker and on due date remits
Instrument without consideration
the 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,

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

It means the bill to which no

(x) Clean Bill document 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
of the cheque. It includes bank code, bank
declared for reasons like death of a leader
account number, cheque number, cheque
in power, natural calamities, strike, election
amount and a control indicator. The
day and so on, day should be made a public
MICR code helps the banker to ensure the
holiday. So that negotiable instruments legitimacy or originality of paper documents.
maturing on the day can be paid on the next The special ink used in the MICR code is
working day. In other words, it implies that sensitive to magnetic fields. It prevents the
negotiable instruments maturing on the date crime of printing counterfeit cheques or
of emergency holiday should be paid on the documents using technology. The magnetic
next day. ink will help discover fake documents.

The Reserve Bank of India Act IFSC – Indian Financial System

1934 Code
The Negotiable Instruments Act IFSC code is an alphanumeric
does not affect the provisions code which facilitates electronic
of Sec. 31 and 32 of Reserve Bank of India fund transfer in India. This code uniquely
Act 1934. The object of section 31 is to identifies each bank branch participating
prevent private persons from violating the in the two main Payment and Settlement
monopoly of the government in note issue systems in India. The Real Time Gross
(paper currency in India). According to the Settlement(RTGS) and the National
provisions of sec, 31, no person (other than Electronic Fund Transfer (NEFT) systems.
the Reserve Bank of India or the Central IFSC is a 11 character code. The first 4
Government) can draw, accept make or issue alphabetic characters represent the bank
any bill of exchange, hundi or promissory name and the last 6 characters (usually
note payable to bearer on demand. numeric) represent the branch. The fifth
No person can make or issue any promissory character is 0 and reserved for future
note payable to bearer of instrument. This use. This code routes the messages to the
renders the words “or to bearer” in the destination banks or branch. The format of
definition of promissory note in sec. 4 of IFSC code is given below:
the Negotiable Instruments Act in operative.
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
III. Classify the following endorsement
(e) A Bill drawn by Bajaj Auto Agent
with reasons
on Bajaj Auto Ltd.
(i) No other words except B’s signature
(f) Bill drawn by A on Y (an imaginary
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 b 7 a 8 c 9 a 10 d
2. 
Negotiable Instrument is freely
transferable by delivery if it is a ________ II. Very Short Answer Questions:
instrument. 1. What is meant by Negotiable Instrument?
a. Order b. Bearer 2. Define Bill of Exchange
c. Both a & b d. None of the above 3. List three characteristics of a Promissory Note.
3. The transferee of a Negotiable Instrument 4. Define Cheque?
is the one ___________ 5. Define Endorsement
a. Who transfer the instrument
b. On whose name it is transferred III. Short Answer Questions:
c. Who enchases it 1. 
Explain the characteristics 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 5. Explain the different kinds of endorsements
d. Special crossing
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 DEVELOPMENT
IX
ELEMENTS OF
23
CHAPTER
ENTREPRENEURSHIP

ெபாருள்கருவி காலம் விைனயிடெனாடு ஐந்தும்

இருள்தீர எண்ணிச் ெசயல்.
-குறள் 675
COUPLET
Do an act after a due consideration of the (following)
five, viz. 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 – Meaning, Concept 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 – Meaning,
Concept & 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
opportunities to many people besides providing to 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
(i) Entrepreneur as a Risk Bearer
material, creating employment opportunities
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.
Entrepreneur acts as an agent combining all
Entrepreneurship can be regarded as one of the
factors of production to produce a product or
four major factors of production besides the
service in order to sell at uncertain price in
other three namely land, labour and capital.
future. Knight also describes an entrepreneur to
It is generally believed that entrepreneurs are
be an economic functionary who undertakes the
born. But no country or society can afford to
risk of uncertainty which cannot be insured or
wait for the birth of entrepreneurs to pursue its
capitalised or salaried. In nutshell, entrepreneur
development agendas. The pace of economic
is described to be a risk taker.
development of any country cannot be
accelerated without creating a sense of awareness (ii) Entrepreneur as an Organiser
about entrepreneurship among the people. The According to Jean Baptize, entrepreneur
latter should be made to take a pride in claiming is one who brings together various factors of
to be a job provider rather than a job seeker. production and creates an entity to produce
The Government and various other agencies product or service and supervises and co-
involved in promoting entrepreneurship should ordinates several functions in the process. He
carry on the noble task of engendering a spirit further elaborates that an entrepreneur faces
of entrepreneurship among the people who a great deal of obstacles and misfortunes and
otherwise seek job. undergoes mental agony and anxieties in the
Concept of Entrepreneur process of organising any venture. In sum,
entrepreneur is described to be an organiser.
The term ‘entrepreneur’ has been derived
from the French language which originally (iii) Entrepreneur as an Innovator
denotes designation of an organiser of musical Joseph A Schumpeter in the year 1934 used
or other entertainments. Oxford Dictionary innovation as a criterion to define an individual
(1897) defines an entrepreneur as the director as entrepreneur. According to him, entrepreneur
or a manager of a musical institution which is one who
organises musical performance. In the early
i. 
Introduces a brand new product in the
sixteenth Century, the term was applied to
market
refer to those who were engaged in military
expeditions. Subsequently, in the seventeenth ii. 
Institutes new technology to produce a
century it was extended to cover civil engineering product
activities such as construction and fortification. iii. 
Discovers new course of supply of raw
It was only in the beginning of the eighteenth materials

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iv. Discovers new product hitherto untapped 3. Flexibility

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

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and by personal example and should walk the 1. Innovation

talk and effectively take all the followers to
Entrepreneurship and innovation are
activate the goals of the venture.
closely intertwined with each other. It is no
8. Foresight exaggeration to say that innovation cannot
Entrepreneur should have a foresight to happen in any country without entrepreneurship.
visualise future business environment. In other Entrepreneurs have contributed in no small
words, Entrepreneur should foresee the likely measure to economic development of any
country by innovation. They bring about
changes to take place in market, consumer
innovation by building a brand new product or
attitude, technological developments etc., and
by constantly upgrading existing product or by
take timely actions accordingly.
tapping new market for existing product in a
9. Analytical Ability new territory or by inventing a new technology
Entrepreneurs should not make decisions to produce a product or service and so on. All
on the basis of own prejudice or personal likes these innovative exercise ensures rise in income
and dislikes. Entrepreneur should be able and output in the economy.
to objectively analyse the situation and act 2. Contribution to Gross Domestic
accordingly. They should abstain from taking Product (GDP)
emotional or hasty decisions when they are
Promotion of entrepreneurship all across
overwhelmed by emotions. In simple words
the country would undoubtedly add to Gross
Entrepreneur should take rational decisions
Domestic Product and National Income of
after examining the various aspects of a problem.
a country. It is stated that the countries like
10. Decision Making America, Japan, Germany and so on have
Entrepreneur has to take timely and recorded a phenomenal increase in the GDP,
correct decision with regard to nature and type per capital income and national income, due to
of product to be produced, type of technology stupendous growth of entrepreneurship.
to be adopted, type of human assets to be 3. Balanced Regional Development
employed, location of the enterprise, size of the Encouragement of entrepreneurship in
unit, volume of production and so on. The very under developed and undeveloped regions
success of any enterprise hinges on prompt, of a country through various incentives and
correct and relevant decisions made by the concessions is more likely to promote balanced
entrepreneur. Entrepreneur should rationally regional development across the country.
examine the various factors influencing the Besides, essentially it checks the migration of
decision and take appropriate decisions after rural population to urban centres in pursuit
giving due weight to all the risks embedded in of employment.
various factors.
4. Export Promotion
23.03 Importance of
Entrepreneurship helps a country not
Entrepreneurship only earn precious foreign exchange but also
Entrepreneurship plays a pivotal role in preserve it. If entrepreneurship is encouraged
the economic development of a country. The to produce export oriented goods, it can
following points highlight the significance of significantly add to foreign exchange reserve
entrepreneurship. of a country. Similarly, if entrepreneurship

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is encouraged to produce products which of living. Some of entrepreneurs who have

are usually imported from foreign countries genuine concern for the welfare of the general
i.e. import substitute goods, it can help the public, supply goods of good quality at fair
country save precious foreign exchange. price. This in turn helps consuming public
The comfortable foreign exchange reserve save more money and spends liberally on
position is more likely to address the adverse comfort and convenience goods which are
balance of payment position if any. supposed to enhance the standard of living of
5. Full utilisation of Latent Resource the general public. Higher standard of living
brought about by entrepreneurship narrows
Promotion of entrepreneurship across down the gap between haves and have nots.
the country leads to better utilisation of
economic, human, material and natural 23.04 Entrepreneur,
resources which would remain otherwise Intrapreneur and
unutilised in a country. In other words, Manager – a Comparison
establishment of small, medium and micro Intrapreneur
enterprises all over the country paves way for Intrapreneur is one who thinks and acts
harnessing all latent resources in the country. like an entrepreneur for the firm’s development
6. R
 eduction of Concentration of during the course of employment in an
Economic Power in Few hands organisation. An Intrapreneur is described to
Promotion of entrepreneurship by be an inside entrepreneur or an entrepreneur
encouraging small, medium and micro within a large firm who uses entrepreneurial
enterprises prevents the concentration skills without incurring the risk associated
of economic power in the hands of few with those activities. Intrapreneurs are usually
large entrepreneurs. It promotes faster employees of a company who are assigned to
industrialisation and brings about equitable a particular project or who are assigned to
distribution of wealth in the society. work on a special idea. Intrapreneur usually
use the resources and capabilities of the firm
7. Better Standard of Living to work on the project or on the idea.
Entrepreneurs provide a lot of well Following are the differences between
being measures to their employees besides Entrepreneur and Intrapreneur:
paying salaries and wages. This unmistakably
helps employees upgrade their standard
Differences between Entrepreneur and Intrapreneur

Basis Entrepreneur Intrapreneur

Intrapreneur is forced to think independently
Thinking Entrepreneur is a free thinker but within scope of business activities
undertaken in the enterprise.

Entrepreneur is an independent Intrapreneur is dependent on the entrepreneur.

Dependency
person He is an employee.

Intrapreneur does not engage in fund

Fund Entrepreneur has to mobilize
mobilization. But can access funds mobilized
Mobilization funds to finance the venture.
by the entrepreneur.

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Intrapreneur does not share in profits of

Entrepreneur is rewarded by profit
Reward venture. But gets perquisites, salary, incentives
for the risk bearing exercise.
etc., for the service.
Intrapreneur does not bear any risk in the
Entrepreneur bears the risk venture and does not even share the risk
Risk Bearing involved in the venture inherent in the project or work assigned.
undertaken. However Intrapreneur is accountable for the
task or project assigned.
Intrapreneur is a salaried employee.
Entrepreneur is owner, and doesn’t Intrapreneur works within control put in place
Status
report to anybody in the venture. in the organization and is made accountable
for the activities undertaken.

Entrepreneur operates mostly

Operation Intrapreneur operates within the enterprise.
outside the enterprise.

Difference between ‘Entrepreneur’ Vs.‘Manager’

Basis of
Entrepreneur Manager
difference

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

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

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

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

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

An entrepreneur requires creative Manager requires conceptual skills and human

Skills talent, intuition and urge for relations skills.
innovation.

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23.05 Women Entrepreneurs of business enterprise has defined women

– Opportunities and entrepreneurs as “An enterprise owned and
controlled by a women having a minimum
Challenges financial interest of 51% of the capital and giving
Women entrepreneurship has been getting at least 51% of the employment generated in the
growing recognition over the past two decades enterprise to women.”
across the world. Women entrepreneurs not
only generate new jobs for themselves but also Opportunities for Women
for others. They provide society with different Entrepreneurs
solutions to management, organisation and
business problems. Women owned businesses
are playing a pivotal role in the upsurge of
entrepreneurial activity in the United States.
It is reported that the highest number of self
employed women are in Sweden followed by
England, France and USA. In general, women
are attracted to retail trade, restaurants, hotels,
education, insurance and manufacturing. In our
country, women constitute only 5.2 per cent of the
total self employed persons in India. Majority of
them opted for agriculture, agro based industries,
handicrafts, handlooms, cottage industries but in
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 (i) Opportunities Based on Business
enterprise. There are scores of successful women Women entrepreneurs are bestowed with
entrepreneurs both in economic and social fields numerous business opportunities depending
in India. upon their area, choice of industry, capacity to
Thus, a stage has been already set for social invest, technical and non-technical skills etc.,
take-off of women from a low development path When a woman decides to become an
to an accelerated pace in achieving higher level entrepreneur she has extensive opportunities
of self sustaining economic growth in the wake to tap into. The following are the opportunities
of new economic policy 1991. unfolding in different spheres of commerce.
Definition i. In the sphere of manufacturing women
According to Schumpeter’s concept, can start ventures like Agarbathi manufacturing,
“Women who innovate, imitate or adopt papad making, bedspread making, embroidery,
a business activity are known as women export of handicrafts, apparel manufacturing,
entrepreneurs”. sweet stalls, manufacturing soft drinks, pickle
Government of India based on women making , manufacturing garments, handicrafts,
participation in equity and employment printing press etc.

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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
centres, tutorial centres, Typewriting institutes, xi. Simplified processing system
beauty parlours, dry cleaning, small restaurants, xii. 
Flexible repayment system based on
tailoring, crèche, florist shops, event business nature
management etc.,
iii. In the realm of trading ventures, (iv) Opportunities Created by
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.
Similarly, MSE cluster development
(iii) Non-Financial support
programme bear a substantial portion of the
Women entrepreneurs are provided with the project cost in respect of ventures owned
following non-financial support in the form of : and managed by women entrepreneurs. The
i. Putting in Policies, regulations and legal percentage of guarantee given by Credit
structures suitable to women entrepreneurs Guarantee Fund Scheme for Micro and Small
ii. Financial counselling and training Enterprises extend upto 80% for MSEs owned
and operated by women.
iii. Business advisory service
(v) Opportunities Created by
iv. Handling legal barriers
Government
v. Establishing Commercial linkages Government both Union and Central
vi. Client research have put in a number of schemes exclusively for
vii. Profitability and Efficiency analysis promotion of women entrepreneurship namely:

viii. 
Offering and designing the products i. 
Stand-Up India Scheme for Women
based on their needs Entrepreneurs

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ii. Trade related Entrepreneruship Assistance Ministry of Rural Development in the Public
and Development (TREAD) Scheme for Private Partnership to support below poverty
Women line families in India. They are rendering the
iii. Mahila Coir Yojana following functions:
iv. Mahila E-haat i. They are acting as a springboard for
enterprises started by the women.
v. Magalir Udavi Scheme
ii. It is helping women achieve high
vi. Prime Minister’s RozgarYojana (PMRY) economic empowerment.
vii. Development of Women and Children in iii. It is acting as a catalyst to improve the
Rural India (DWCRA) access of womenfolk to natural resources.
viii. Mudra Yojana Scheme for Women iv. It is providing technological support in
ix. Udyogini Scheme the sphere of product design and development
in the case of women owned enterprises.
x. TRYCEM
v. It is providing quality control, marketing
(vi) Opportunities Created through and technological supports to women owned
Training Programme enterprises.
vi. It is spreading knowledge to women
Government of India has introduced
entrepreneurs about various government
National Skill Development Policy and National
schemes.
Skill Development Mission in 2009 in order to
In sum, it can be stated that women
provide skill training, vocational education
consortium is an agency providing a
and entrepreneurship development to the
comprehensive service of various types to
emerging work force. This has been catalysing
women owned enterprises.
the emergence of women entrepreneurs in
India. The following training schemes are being Challenges of Women Entrepreneurs
implemented for promoting self employment of Though there is a tremendous growth
women by Government of India. in the women entrepreneurship in India, a
1. Support for Training and Employment number of research studies conducted in
Programme of Women (STEP) India have brought out the following problems
2. Development of Women and Children in and challenges encountered by women
Rural Areas (DWCRA) entrepreneurs during the course of their
3. Small Industry Service Institutes entrepreneurial journey.
4. State Financial Corporations 1. Problem of Finance
5. National Small Industries Corporations
The access of women to external sources
6. District Industrial Centres of funds is limited as they do not generally
own properties in their own name. Financial
(vii) Consortium of Women
institutions too do not consider women in
Entrepreneurs of India (CWEI)
general creditworthy as they are sceptical of their
Consortium of Women Entrepreneurs of entrepreneurial capabilities of women. They
India (CWEI) was registered as a civil society in impose stringent condition which discourages
the year 1996 which is a non-profit organisation women to avail themselves of loan assistance
in New Delhi. It is accredited by Government from banks. In this context, they are pushed to
of India. It is a member of National Board, rely on their own savings and small loans from
Ministry of MSME and is working closely with friends and relatives. Because of the limited
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funds, women entrepreneurs are not able to to compete effectively and efficiently in the
effectively and efficiently run and expand their market.
business.
6. Sensitivity
2. Limited Mobility Women are more prone to a variety
Indian women cannot afford to shed of emotions. Being mother, women are
their household responsibilities towards their vulnerable to many emotions. They tend to
family even after they plunge into the venture have sympathy and empathy for others. This
started by them. This restricts the mobility trait does not allow women entrepreneurs
of women entrepreneur significantly. The to take objective decisions in many
domestic responsibilities do not allow women contexts during the course of running the
entrepreneurs to freely move out of business entrepreneurial venture. Besides, the weak
enterprises in connection with business emotions do not allow them to tolerate
activities. failures and disappointments arising during
the normal course of their entrepreneurial
3. Lack of Education
journey. This inherently tone downs the
Illiterate and semi-literate women effectiveness of their functioning.
entrepreneurs encounter a lot of challenges
in their entrepreneurial journey with respect 7. Lack of Information
to maintaining accounts, understanding Women entrepreneurs are reported
money matters, day-to-day operations of the not to be generally aware of subsidies and
company, marketing the products, applying incentives available for them due to their
technology etc., This reduces the efficiency poor literacy levels or due to their pre
of operating the business successfully. occupation with household responsibilities.
This lack of knowledge or limited knowledge
4. Lack of Network Support
about subsidies prevents them from availing
The successful operation of any themselves of special concessions, benefits
venture irrespective of the size depends and incentives awarded by Government and
upon the network of support extended by other agencies.
various constituencies like family members,
friends, relatives, acquaintances, neighbours, 8. Dependent culture
institutions and so on. Women entrepreneurs In India, women however educated
need much needed psychological support and and talented are groomed to be dependent
wiser counselling especially during the time on their parents, life partners and children
they actually encounter challenges. But it is during the various phases of their life cycle.
reported that women entrepreneurs get very They could not take decisions on their own in
limited support in times of crisis from most many contexts due to this dependency factor.
of these constituencies. They have to take permission from their
support groups to engage in any purposeful
5. Stiff Competition
and gainful activity. They are not treated as
Women entrepreneurs have to face acute equals unlike women in western countries.
competition for their goods from organised This cultural barrier does not allow them to
sector and from their male counterparts. start and manage their ventures according to
Since they are not able to spend liberally due their free will and pleasure.
to financial constraints, they are not able

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23.06  Entrepreneurial Functions

I. Promotional Functions business organisation chosen so that he/she

can organise the venture in accordance with the
(1) Discovery of Idea
objectives determined by him/her.
The first and foremost function of
(3) Detailed Investigation
entrepreneur is idea generation. A person may
conceive his own ideas or develop the ideas Entrepreneur has to analyse in detail the
contributed by others. Ideas can be generated product proposes to produce. In other words,
through several ways like own experience and Entrepreneur should investigate commercial
exposure of entrepreneur, keen observation of feasibility of the product proposed to be
environment, education, training, market survey, produced and conduct market study to ascertain
environmental scanning and so on. After the the potential demand for the product. Besides,
ideas were collected, entrepreneur has to weigh Entrepreneur has to probe the sources of supply
objectively each and every idea and finally select of various inputs required for manufacturing
an idea which is worth pursuing commercially. the proposed product, their respective prices
and other terms and conditions.
(2) Determining the business
objectives (4) Choice of form of enterprise
Entrepreneur has to develop business Entrepreneur has to choose the
objectives in the backdrop of nature of business appropriate form of organisation suited to
and type of business activity i.e. nature of implement the venture. There are various
business, manufacturing or trading, type of forms of organisation namely sole proprietor,
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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.
to be produced, size of investment, nature of
activities, size of organisation, nature of liability II. Managerial Functions
of owners, retention of control, degree of risk
involved, scale of operations, stability and so on.
(5) Fulfilment of the formalities
Having chosen the appropriate type of
organisation, entrepreneur has to take necessary
steps to establish the form of organisation
chosen. As regards sole trader, the formalities
are barest minimum. In the case of partnership
firm, entrepreneur has to arrange for partnership
deed and he has to get the deed registered. There
are lot of formalities to be fulfilled in the case of
registration of company and co-operative form of (i) Planning
organisation. Promoter has to take all necessary Under planning, entrepreneur has to lay
steps for establishing the form of organisation. down the objectives, goals, vision, mission,
(6) Preparation of Business Plan policies, procedures, programmes, budget,
schedules etc., for enabling the venture to
Entrepreneur has to prepare a business proceed towards established destinations.
plan or project report of the venture that
(ii) Organising
he is proposing to take up. This plan helps
Entrepreneur puts in place suitable
entrepreneur to achieve various objectives
organisational structure to perform various
formulated within a specified period of time. managerial functions namely choosing the type
(7) Mobilisation of funds of organisation, creating department, fitting the
human resources to appropriate organisation
Entrepreneur has to take steps to mobilise
slots, defining and delegating authority,
capital needed to implement the venture.
distributing responsibility and creating
Entrepreneur has to estimate the fixed capital
accountability for efficient performance of
and working capital required for running the
activities.
project. Then the entrepreneur has to initiate
steps to build funds from various channels like (iii) Directing
own funds, borrowing from close circles, banks, In the realm of directing, entrepreneur
financial institutions, venture capitalists, issue has to motivate, lead, guide and communicate
of shares and debentures, term loans and so on with subordinates on an ongoing basis
to finance his fixed capital requirement. in order to accomplish pre-set goals. The
process of directing involves issuing orders
(8) Procurement of Machines
and instructions, guiding, counselling and
and Materials mentoring of employees, supervising employees,
Entrepreneur has to locate the various maintaining discipline, motivating employees
sources of supply of machineries and and providing leadership.
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(iv) Controlling four components namely product, price,

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

5. 
List the challenges faced by the women
  Exercise entrepreneurs

III. Short Answer Questions:

I. Choose the Correct Answers: 1. 
Define Entrepreneur
1. 
Which of the below is a factor of 2. 
Distinguish between entrepreneur and
production? Manager.
(a) Land (b) Labour
3. 
List down the commercial functions of
(c) Entrepreneurship (d) All of the above Entrepreneur and explain them shortly.
2. 
Entrepreneur is not classified as 4. 
Explain the promotional functions of
(a) Risk Bearer (b) Innovator entrepreneur.
(c) Employee (d) Organizer IV. Long Answer Questions:
3. 
What are the characteristics of an
1. 
How do you Classify entrepreneurs.
entrepreneur?
(a) Spirit of enterprise (b) Flexibility 2. 
What are the characteristics of an
entrepreneur?
(c) Self Confidence (d) All of the above
3. Distinguish between an Entrepreneur and
4. 
Which of the below is not classified into
an Intrapreneur.
managerial functions?
4. 
Discuss the challenges faced by Women
(a) Planning (b) Marketing
Entrepreneurs.
(c) Organizing (d) Controlling
5. Explain in detail the various functions of an
5. 
Which of the below is a commercial entrepreneur.
function?
References
(a) Accounting (b) Coordination
(c) Discovery of idea (d) Planning i. Khanka S.S, Entrepreneurial Development,
S.Chand& company Ltd. Ram Nagar. New
Answers:
Delhi, 2006
1 d 2 c 3 d 4 b 5 a
ii. Gupta, G.P. and Srinivasan, N.P.,
II. Very Short Answer Questions: Entrepreneurial Development, Sultan
Chand & Co., New Delhi, 1993.
1. 
Mention any two characteristics of
iii. Sundar K.S., Elements of Entrepreneurship,
entrepreneurs.
Vijay Nichole Imprints Pvt. Ltd., Chennai
2. 
List down the managerial functions of 2018
entrepreneurs.
3. 
List down the promotional functions of
entrepreneurs.

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ENTREPRENEURSHIP
UNIT DEVELOPMENT
IX
I

24
CHAPTER
TYPES OF ENTREPRENEURS

ஒல்வ தறிவது அறிந்ததன் கண்தங்கிச்

ெசல்வார்க்குச் ெசல்லாதது இல்.
-குறள் 472
COUPLET There is nothing which may not be accomplished by those who,
before they attack (an enemy), make themselves acquainted with
their own ability, and with whatever else is (needful) to be known,
and apply themselves wholly to their object.

Learning Objectives Chapter Synopsis

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
Motivated, Spontaneous Development Stage
■ Based on Development - First
24.07 Classification According to Area
Generation, Modern, Classical
■ Based on Area - Urban, Rural 24.08 Classification According to
■ Based on Ownership - Private, State, Joint Ownership

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

24.02 Classification According them in order to contribute something a new

to Function in the venture. Their innovation may take the
1.  Innovating Entrepreneur form of brand new product, upgraded product,
Innovative entrepreneur is one who is always discovering untapped market, new method of
focussed on introducing a new project or production, reengineering of existing product,
introducing something new in the venture already new method of distribution of product,
started. They constantly observe the environment simplification of complex process, adoption of a
around them; collect information and analyse 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
These entrepreneurs are said to be
reality. He/she may establish small or large
conservatives and sceptical about plasticising
enterprise to commercially exploit his/he idea.
any change in their organisation. They are of
He/she takes up production, operations and
risk-averse type. They do not simply change to
pursues marketing activities.
the changes happening in the environment. But
they adapt themselves to the changes only as a 2.  Trading Entrepreneur
last resort when they fear that non adaptability Trading entrepreneurs are those who restrict
to changes will inevitably lead to loss or collapse
themselves to buying and selling finished
of the enterprise. Their dealings are governed by
goods. They may be engaged in domestic and
customs, religion, tradition and past practices
international trade. Their core strength lies
handed down to them by their ancestors.
in distribution and marketing. They get their
They would like to follow in the footsteps of
income by way of commission and marketing.
predecessors. Example; Nursus coffee

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3. Industrial Entrepreneur final consumer while wholesale entrepreneurs

These are entrepreneurs who manufacture take up the venture of distributing the product
products to cater to the needs of consuming to retailer. They used to buy the goods in small
public after identifying the need left unfulfilled quantities from numerous wholesalers and
by the manufacturer hitherto. They may make it available different products of different
be small, medium and large entrepreneurs. brands under one roof to end consumer.
Industrial entrepreneurs mobilise the resources
7.  Service Entrepreneurs
of various types and create an entity to
Service entrepreneurs enter into the
manufacture the products or service. They add
venture of supplying service products to
utility to products rolled out by them which is
end consumers. Hoteliers, airlines, banking,
termed as value addition.
insurance and financial service providers,
4.  Corporate Entrepreneur repair service organisation, bus operators, train
Corporate entrepreneur is called promoter. service, advisory organisation, advertising
He/she takes initiative necessary to start an entity firms, manpower supplier etc., come under
under corporate format. He/she arranges to fulfil service entrepreneur’s category.
the formalities to start a corporate entity under
Company law. Corporate entrepreneur assembles 24.04 Classification based on
all the resources and put in place organisation Technology Adopted
to run the business on a day-to-day basis. In
corporate form of organisation, ownership and 1. Technical Entrepreneur
management are separated. Corporate entities Technical entrepreneurs are such of
are registered under the Companies Act or under those craftsmen like welder, fitter, moulder,
the Trust Act. Corporate entrepreneurs install a draughtsman, turner, carpenter, goldsmith,
team of experts to manage the entity on a day to tailor, photographer, repairer, weaver, sculptor,
day basis. potter, wiremen or so on who start small
5.  Agricultural Entrepreneur ventures. They turnout products/service of high
quality. They simply focus on production rather
Agricultural entrepreneurs are those
than on marketing. This type of entrepreneur
entrepreneurs who raise farm products and
demonstrates their creative talents by producing
market them. They use the various inputs like
innovative products. Their strength lies in skill
labour, fertilizer, insecticide, water technology
or knowledge of producing specialised product.
etc. to raise the products and market their
products either directly or through co-operative 2. Non-technical Entrepreneur
entities or through brokers or through tie up Non-technical Entrepreneurs are those
with large retailers. Those who raise allied who do not possess any technical competence
products like poultry, meat, fish, honey, skin, to produce the goods or service but have special
agricultural implements, flower, silk, fruits, talents to market the products successfully or
prawn etc., are called agricultural entrepreneur. expertise to distribute the products produced
In short these entrepreneurs pursue their by technical entrepreneur effectively to channel
venture in agriculture and allied sector. members and end consumers.
6.  Retail Entrepreneurs 3.  Professional Entrepreneur
Retail entrepreneurs are those who enter Professional entrepreneur is one who
into venture of distributing the end-product to is having a rich expertise in starting a venture

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but lack interest in continuing the venture as a making huge profit. They are further motivated
manager or as a owner. He/she simply sells out to develop the venture to a saleable stage so that
the venture started by him to someone else after he/she can sell the venture at a super profit to
its successful take-off. They keep on conceiving certain entrepreneurs(buyers) who do not like
new ideas to develop alternative projects. In to take risks in setting up a new venture but
short, these entrepreneurs have got professional desire to buy well developed venture promising
expertise in starting the venture and exiting it great profit prospects.
after the establishment. 4. Spontaneous Entrepreneur
24.05 Classification in Terms of These entrepreneurs have natural
Motivation inclination to start venture. They are supposed
to be bold, optimistic and enterprising persons.
1. Pure Entrepreneur They have passion for meeting the challenges.
Pure entrepreneurs are individuals Their inner urge and inborn traits drive them to
who are propelled to enter into venture by commence their ventures.
psychological and economic motives. Their
egos do not permit them to work for somebody 24.06 Classification Based on
else. They nurture desire of starting a particular Development Stage
venture and earning high profit there from and 1.  First Generation Entrepreneur
thus attaining a social status. They apply their First generation entrepreneur is one who
knowledge, skill and insight in making the starts venture by virtue of his knowledge, skill,
venture a great success in order to earn maximum talent and competence. He/she innovates a
profit out of the venture. Example Dhirubai product/service by technical expertise possessed
Ambani, Jamshadji Tata, T.V. Sundaram Iyengar, by him/her. These entrepreneurs do not have
Seshadriji, Birla, Narayanamurthi, Aziz Premji any family background or prior exposure to the
and so on. venture initiated by them. They are self made
entrepreneurs.
2.  Induced Entrepreneur
An induced entrepreneur is one who is 2.  Modern Entrepreneur
inspired to take up entrepreneurial activity Modern entrepreneur is one who keenly
thanks to entrepreneurship friendly policies put observes the dynamics of the market with
in place by the Government. In other words, eagle eye and identify the unfilled gaps, if any
concessions, incentives and soaps provided in product/service marketed. He/she takes
by the government drive them to enter into initiative in starting the venture to cater to the
venture. Government provides a great deal of unmet needs of the market.
support in the form of loans, subsidies, nominal
3.  Classical Entrepreneur
rate of interest, tax breaks, tax holidays, training,
Classical entrepreneur is one who starts his
import of technology from abroad, concessions
own venture as a family business. They are called
for export oriented item, allotment of sheds, and
life timers. They engage in business as a matter
lands at subsidised price etc. impel the potential
of routine. Their prior exposure to business
entrepreneurs to start the venture.
environment impels them to commence venture
3.  Motivated Entrepreneur of their own. Entrepreneurs from the business
Motivated entrepreneurs are those families are called classical entrepreneurs. For
motivated to take up venture by the desire for self instance where son of provision merchant start
fulfilment. They are motivated to produce and his own provision shops, the former is called
market product or service by sheer prospect of classical entrepreneur.

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24.07 Classification According
to Area   Case kits
1.  Urban Entrepreneur
Entrepreneur who commences his • Consider yourself as a young aspiring
entrepreneurial activity in urban areas like entrepreneur to create an enterprise that
State Capital, District Headquarters, Towns, manufactures chocolates. Make a detailed
Municipalities etc., They may be industrial analysis for the success of your enterprise
entrepreneur or corporate entrepreneur or after considering the leading competitors in
retail entrepreneur. the market in terms of pricing, variety and
quality.
2.  Rural Entrepreneur
These are people who start venture in • A started and running a textile showroom
rural locations. They are provided a lot of business in your area for the past one
economic and fiscal incentives to start their year. He was not very successful and not
venture in rural and semi urban areas in order in a position to have customers. Design
to check the exodus of rural people to urban him an appropriate strategy to attract new
centres in pursuit of employment opportunity. customers of various age groups.
Thanks to their immediate access to material, • Your friend wants to start a business with
labour or other facilities at low cost. As a result Rs. 10 lakhs from his ancestral property.
the cost of operation of rural ventures tends to Make an analysis for your friend to suggest
be low. Agricultural and trading entrepreneurs him suitable business in your locality.
prefer to set up their venture in rural areas.
• Identify products which are exclusively
utilised by kids under the age group of 1-5
24.08 Classification According years, 5-10 years,10-15 years.
to Ownership
• Critically examine an industry of your
1.  Private Entrepreneur choice based on its current demand and
Ventures started by individual either supply of products.
singly or collectively at their own risk after
• Imagine yourself as a successful
mobilising various resources in order to earn
entrepreneur in Chennai city. You have
profit are called private entrepreneurship.
decided to enter into foreign markets. What
2.  State Entrepreneurship are all the factors to be considered before
Trading/industrial ventures started entering the international market?
by Government under various formats like • As an entrepreneur, you have developed an
company, corporation, departments, board APP for games with the latest technology.
denotes state entrepreneurship. Answer the following questions:
3.  Joint Entrepreneurship (i) 
List down the prospective customers
Ventures started and owned by both for this APP.
private individuals and government denote (ii) 
How will you get more information
joint ownership. from your prospective customers?
(iii) How you will update your app when the
Key Words
technology transforms?
Entrepreneur Spontaneous Innovative
(iv) Discuss about the pricing and marketing
Induced Imitative Motivate
strategy for the APP?
Fabian Drone

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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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9. Which of these is based on Technology?

a. Modern b. Professional
Exercise c. Corporate d. Industrial
10. Which of the below is not a Characteristic
of a Fabian Entrepreneur?
a. Conservative b. Risk averse
I.  Choose the Correct Answers: c. Sceptical d. Adaptive
1. Choose the type of entrepreneur that isn’t
based on function: Answers:
a. Innovative b. Classical 1 b 2 b 3 d 4 d 5 b
6 d 7 d 8 d 9 b 10 d
c. Fabian d. Drone
2. Choose the type of Entrepreneur that is
II. Very Short Answer Questions:
not based on Motivation:
1. What is the other name of business
a. Pure b.. Corporate
entrepreneur?
c. Spontaneous d. Induced
2. Mention the other name for corporate
3. Which of the following is the Activity of a entrepreneur.
Business Entrepreneur?
3. Who are agricultural entrepreneur?
a. Production b. Marketing
4. State the name of the following ventures:
c. Operation d. All of the above
a. Started by individuals for profit motive
4. Find the odd one out in context of Trading
b. Started by Government
Entrepreneur.
c. Started by individuals and Government
a. Selling b.. Commission
together
c. Buying d. Manufacturing
d. Started as a family business
5. Corporate Entrepreneur is also called as
5. Give some examples of pure entrepreneurs.
_____
a. Intrapreneur b. Promoter III.  Short Answer Questions:
c. Manager d. Shareholder 1. Who is a private entrepreneur?
6. Poultry, Flowers, Fruits etc are called 2. How does a professional entrepreneur
allied Products of _______ entrepreneur. operate?
a. Corporate b. Retail
3. Explain about the imitative entrepreneur.
c. Trading d. Agricultural
4. Write about Fabian entrepreneur.
7. ________ Entrepreneur Supply Services
Unlike.
IV. Long Answer Questions:
a. Hoteliers b. Banking
1. Explain in detail on classification according
c. Airlines d. Livestock to the type of business
8. Motive of a Pure Entrepreneur is
2. Discuss the nature of functional
a. Rendering service b. Earning profit entrepreneurs.
c. Attaining status d. Both b & c

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ENTREPRUNERIAL
UNIT DEVELOPMENT
IX
GOVERNMENT SCHEMES FOR
25
CHAPTER
ENTREPRENEURIAL DEVELOPMENT

விைனத்திட்பம் என்பது ஒருவன் 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
of new programmes and opportunities to
Chapter Synopsis nurture innovation have been created by the
Government of India across a number of
25.01 India’s efforts at promoting
Entrepreneurship and Innovations sectors namely,Agriculture, Chemicals, and
Fertilizers, Finance, Commerce and Industry,
25.02 Specific Entrepreneurship Schemes Communication and Information Technology,
25.03 Steps in promoting an Corporate Affairs, Culture, Food Processing,
entrepreneurial venture 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.

4. Support to Training and

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
enabling economic participation of, women of 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 be
It should mention the following 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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Answers:
Key Words
Seed Capital, STEP, TREAD, JAM, AIC 1 c 2 b 3 a 4 c 5 d

II.  Very Short Answer Questions:

1.
Name any four Governmental
Exercise Entrepreneurial schemes.
2. Give a note on ‘Digital India’.
3. List down the two types of finance.
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
2. Expand the following: STEP, JAM, TREAD,
electronically. M-SIPS, SEED and New Gen IEDC
a) Standup India b) Startup India
3. Write a short note on the following
c) Digital India d) Make in India
a) Dairy Entrepreneurship development
2. ________ is designed to transform India
scheme.
to a global design and manufacturing hub.
b)  Project report.
a) Digital India b) Make in India
c) Startup India d) Design India.
IV.  Long Answer Questions:
3. ___________ is the Government of
1.
Explain any five Government
India’s endeavour to promote culture of Entrepreneurial schemes.
innovation and entrepreneurship.
2.
Describe the steps promoting
a) AIM b) STEP
Entrepreneurial venture.
c) SEED d) AIC
4. ___________ should cover aspects like References
sources of finance, technical know-how, 1. Khanka s.s, Entrepreneurial Development
source of labour and raw material, market S.Chand & Company ltd, Ram nagar,New
potential and profitability. Delhi
a) Technical Report b) Finance Report 2. Gupta G.P and Srinivasan N.P
c) Project Report d) Progress Report ,Entrepreneurial Development, Sultan
5.
____________has to include the chand & CO,New delhi, 1993
mechanism for managing venture in the 3. Sundar K.S Elements of Entrepreneurship,
project report. Vijai Nichole Imprints Pvt, Ltd,
a) Banker b) Government Chennai-2018
c) Lending Institutions d) Entrepreneur

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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 26.05 Share and Share capital

To enable the students to understand the 26.06 Issue of Shares, Bonus Shares and
■ Developments in company law and the Rights Shares
logic of the company law. 26.07 Share Certificate and Share Warrant
■ Elementary ideas on the Formation of
Company 26.08 Share and Stock
■ Role of Promoters 26.09 Debentures
■ Meaning of Shares and Debentures.
■ Basic idea on Share Certificate and 26.10 Difference between Shares and
Share warrants 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
26.04 Formation / Incorporation of forms of businesses like Sole Proprietorship,
Company
Partnership etc. It includes features such as
Limited Liability, Perpetual Succession etc.
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26.01 Evolution & History of The Companies Act 1956 has been

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

a Company denoted in money and is the capital of the
company. The persons who contributed in it or
The word ‘company’ is derived from the Latin
form it, or to whom it belongs, are members.
word (Com=with or together; pains =bread), and
The proportion of capital to which each member
it originally referred to an association of persons
is entitled is “share”. The shares are always
who took their meals together. A company is a
transferable although the right to transfer them
corporate body and a legal person having status and
may be restricted.”
personality distinct and separate from the members
constituting it. From the above definition, it can be
concluded that a company is registered
It is called a body corporate because, the
association, having its own corporate and legal
persons composing it are made into one body by
personality distinct which is separate from
incorporating it according to the law and clothing
its members with a perpetual succession, a
it with legal personality. The word ‘corporation’ is
common seal for its signatures, a common
derived from the Latin term ‘corpus’ which means
capital comprised of transferable shares and
‘body’.
carrying limited liability. (These aspects are
Accordingly, ‘corporation’ is a legal person discussed in 11thstd)
created by a process other than natural birth. It is,
for this reason, sometimes called artificial legal Body Corporate
person. As a legal person, a corporate is capable Body corporate means a corporate entity
of enjoying many of the rights and incurring which has a legal existence. According to section
many of the liabilities of a natural person. 2(11) “body corporate” or “corporation” includes
An incorporated company owes its existence a private company, public company, one personal
either to a special Act of Parliament or to company company, small company, Limited Liability
law. Public corporations like LIC, RBI, SBI etc., have Partnerships, foreign company incorporated
been brought into existence through special Acts outside India, but does not include
of Parliament, whereas companies like Tata Steel 1. a co-operative society registered under any
Ltd., Reliance Industries Limited have been formed law relating to co-operative societies; and
under the Company law i.e. Companies Act, 1956 2. any other body corporate (not being a
which is being replaced by the Companies Act, company as defined in this Act),
2013
26.04 Formation/Incorporation
In the legal sense, a company is an association of a Company
of both natural and artificial persons and is
Section 3(1) of the Act states that a company
incorporated under the existing law of a country.
may be formed for any lawful purpose by-
In terms of the Companies Act, 2013
(a) seven or more persons, where the company
[Section 2(20)] “company” means a company
to be formed is to be a public company;
incorporated under this Act or under any
previous company law. (b) two or more persons, where the company
to be formed is to be a private company; or
Lord Justice Lindley has defined a
company as “an association of many persons (c) one person, where the company to be
who contribute money or money’s worth to formed is to be One Person Company that
a common stock and employ it in some trade is to say, a private company by subscribing
or business and who share the profit and loss their names or his name to a memorandum
arising there from. and complying with the requirements of

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this Act in respect of registration: number of shares each having fixed rupee value.
The process of formation of company For e.g. share capital of a company is Rs.10,00,000
consists of different stages, which starts when a which can be divided into 10,000 shares of Rs.100
person envisage an idea to form a company and each or 1,00,000 shares of Rs.10 each, whichever
ends when a company gets a certificate from the is reasonable to the company.
Registrar of Companies after complying with Share
the various provisions relating to the formation
The term Share is viewed by a layman as a
of a company. ‘Formation of a Company’ has
fraction or portion of total capital of the company
been divided into four stages:
which have equal denomination. In simple, the
1. Promotion total capital of the company is shared by many
2. Registration person and each share is having equal value.
3. Capital Subscription and According to Section 2(84) of the
4. Commencement of Business. Companies Act, 2013, share means share in the
Out of the four stages, the first two stages "Share Capital of a company and includes stock
‘Promotion and Registration’ are necessary for except where a distinction between stock and
both public and private companies. A private share is expressed or implied"
company can start operating its business Kinds of Share Capital
immediately after registration, but a public
company has to pass through two more stages- According to Section 43 of the Act, a
capital subscription and commencement of company which is limited by shares can issue
business. two classes of shares they are:
A public company can raise funds from (i) Equity Share Capital:
the public by issuing shares. After following a)  With Voting rights or
all the legal provisions of public issue, which
b) With differential rights as to dividend,
are specified in The Company’s Act, a public
voting or otherwise in accordance with
company can start operating of its business.
such rules as may be prescribed.
26.05  Share and Share Capital
(ii) Preference Share Capital
The term “Capital” is viewed by a layman
Meaning of Equity Share
as the money, which a business persons invest
Those shares which are not called as
in the business and in case of company raise the
preference share are known as Equity share
capital by issue of shares. They uses this money
or the share of a company which do not have
to meet its requirements by way of acquiring
any preferential rights with regard to dividend
business premises and stock-in-trade, which are
and repayment of share capital at the time of
called the fixed capital and the circulating capital
liquidation of a company.
respectively. The phrase “loan or borrowed
capital” is sometimes used to mean money Meaning of Preference Share
borrowed by the company and secured by issuing Section 42 of the Companies Act, 2013
debentures. This, however, is not the proper use the term ‘preference shares’ mean that part of
of the word “capital”. the share capital the holders of which have a
preferential right over payment of dividend (fixed
In case of company limited by shares, the
amount or rate) and repayment of share capital
word “capital” means the share capital i.e., the
in the event of winding up of the company.
capital in terms of rupees divided into specified

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Kinds of Preference shares can issue    Preference Shares for more than 20
There are eight types of preference shares. years but up to 30 years subject to minimum
In case of dissolution of the company, any of the 10% redemption of such preference shares from
eight types would be paid out before other types 21st year onward or earlier.
of equity. 26.06 Issue of shares, Bonus
Cumulative Preference shares:  As the word shares and Right shares
indicates, all dividends are carried forward until There are various ways by which shares can be
specified, and paid out only at the end of the issued.
specified period.
Issue of shares at Par
Non-cumulative Preference shares:  The
Normally shares are issued at their face
opposite of cumulative, obviously. Dividends
value or par value i.e at a price mentioned on
are paid out of profits for every year. There are
the face of share certificate concerned. There is
no arrears carried over a time period to be paid
no legal restrictions on issuing shares at par /
at the end of the term
face value.
Redeemable Preference shares:  Such
Issue of Shares at Premium
preference shares can be claimed after a fixed
When shares are issued at a price above the
period or after giving due notice.
face or nominal value, they are said to be issued
Non-Redeemable Preference shares:  Such
at a premium. For example, a share having the
shares cannot be redeemed during the lifetime
face value of Rs.10 is issued at Rs.12. Here, Rs.2
of the company, but can only be obtained at the
is the premium. The amount of share premium
time of winding up (liquidation) of assets.
has to be transferred to an account called the
Convertible Preference shares:  The shares ‘Securities Premium Account’. This account is
can be converted into equity shares after a time capital in nature and can only be utilized for the
period or as per the conditions laid down in the purposes specified by the Act under Section 78
terms. viz; Issue of fully paid bonus shares to members
Non-convertible Preference shares:  Non- of the company.
convertible preference shares cannot be, at any (i) To write off preliminary expenses.
time, converted into equity shares.
(ii) To write off the expenses of issue, or
Participating Preference shares:  Such shares commission paid, or discount allowed,
have the right to participate in any additional on issue of shares or debentures of the
profits, after paying the equity shareholders. company.
The surplus of profit is apart from the fixed
(iii) To provide for the payment of premium
dividend paid up for preference shares.
on the redemption of any redeemable
Non-Participating Preference shares:  Non- preference shares or debentures of the
participating preference shares do not possess company.
any right to participate in surplus profits or any
Thus, the Securities Premium Account cannot
surplus gained at the time of liquidation of the
be treated as a revenue reserve for distributing
company.
dividends. It can only be used for the above
Tenure of Preference Shares mentioned purposes and also for buying back
Tenure of Preference Shares continued of securities (section 77A). It must be noted
as 20 years except for “Infrastructural Projects”  that Security premium is not available for
Companies having "infrastructural projects" distribution of dividend.

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Issue of Securities at Discount is public or private must issue the share

certificate to its shareholders except in case,
When the shares are issued at a price below the
where shares are held in dematerialization
face value they are said to be issued at a discount.
system.
For example, a share having the face value of Rs
10 is issued at Rs 8. The  companies act 2013, According to Section 45 of the
prohibits the issue of shares at discount (Section Companies Act, 2013 each share of the share
53), except sweat Equity share. capital of the company shall be distinguished
with a distinct number for its individual
Sweat Equity Shares identification. However, such distinction
Under section 54 of the Companies Act 2013, shall not be required, if the shares are held
Sweat Equity Shares can be issued at Discount. by a person whose name is entered as holder
Sweat Equity Shares means issue of shares to of beneficial interest as per the records of a
employees or directors at a lower price for cash company.
or other than Cash, in lieu of providing know-
The share certificate contains the
how or making available rights in the nature of
following details in it, they are:
intellectual property rights or any value additions.
(i) Company name
Bonus Shares (ii) Date of issue
A company may, if its Articles provide, capitalize (iii) Details of the member
its profits by issuing fully-paid bonus shares. (iv) Shares held
The issue of bonus shares by a company is a (v) Nominal value
common feature. In simple, Bonus share means (vi) Paid up value
to utilize the company’s reserves and surpluses, (vii) Definite number
issue of shares to existing shareholders without The share certificate is issued by the
taking any consideration is known as Bonus company within three months of the allotment
Shares. It can be issued by: of shares to the applicants, which is issued
(i) Making partly paid up shares as fully paid under the common seal of the company.
(ii) Issuing new shares Normally, the holder of the share certificate is
regarded as the member of the company.
Right Shares
Share Warrant
Right shares are the shares which are issued A share warrant is a negotiable
by the company, with the aim of increasing the instrument, issued by the public limited
subscribed share capital of the company by company only against fully paid up shares. It
further issue, if it is authorized by its Articles. is also termed as a document of title because
The right shares are primarily issued to the the holder of the share warrant is entitled to
existing equity shareholders through a letter of the number of shares mentioned in it. There is
an issue, on pro rata basis. no compulsion of the issue of share warrants
by the company. Although if the public
26.07 Share Certificate and
company wants to issue share warrants, then
Share Warrant
prior approval of the Central Government
A share certificate is an instrument in (CG) is required. Further the issue of a share
writing, that is a legal proof of the ownership warrant must be authorized in the articles of
of the number of shares stated in it. Every association of the company.
company, limited by shares, whether it
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The holder of the share warrant can take of interest. Such a loan certificate is called a
a share certificate only if holder surrenders debenture.
the share warrant and pays the required fee Debentures are offered to the public for
for the issue of share certificate. Thereafter, subscrip­tion in the same way as for issue of
the company will cancel the warrant and issue equity shares. Debenture is issued under the
a new share certificate to him as well as the common seal of the company acknowledging
company will enter his name as the member the receipt of money.
of the company in the register of members,
after which he will become a member of the According to Section 2(30) of
company. Companies Act 2013 “debenture” includes
debenture stock, bonds or any other
Generally, the holder of the share
instrument of a company evidencing a debt,
warrant is not the member of the company, but
whether constituting a charge on the assets
if the articles of association of the company
of the company or not; It is evident from the
provide it, then the bearer is deemed to be the
definition that the term debentures covers
member of the company.
both secured and unsecured debentures.
26.08  Share and Stock Features of Debentures
The definition of the term ‘Share’ under The important features of debentures
the Companies Act, 1956 (Section 2(46)) are as follows:
includes ‘Stock’. A company can convert its
1. It is issued by the Company in the form of a
shares into stock and vice versa by following
certificate under the common seal.
the provisions of Table A (Articles 36-39).
Stock is created from fully paid shares by 2. Debenture holders are the creditors of the
passing an ordinary resolution in the general company
meeting. The Articles of Association of the 3. Debentures carry a fixed rate of interest.
company must permit this conversion. 4. Debenture is redeemed after a fixed period
of time.
26.09 Debentures
5. Debentures may be either secured or
Adequate amount of capital is necessary unsecured.
to run a business effectively/successfully. In 6. Interest payable on a debenture is a charge
some cases capital arranged through internal against profit and hence it is a tax deductible
resources i.e. by way of issuing equity share expenditure.
capital or using accumulated profit is not
7. Debenture holders do not enjoy any voting
adequate and the organisation is resorted
right.
to external resources of arranging capital
i.e. External Commercial borrowing (ECB), 8. Interest on debenture is payable even if
Debentures, Bank Loan, Public Fixed there is a loss.
Deposits etc. Kinds of Debentures
When a company needs funds for Debentures are generally classified into
extension and development purpose without different categories on the basis of:
increasing its share capital, it can borrow
(1) Convertibility of the Instrument
from the general public by issuing certificates
for a fixed period of time and at a fixed rate (2) Security of the Instrument

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(3) Redemption ability 3. On the basis of Redeemability,

(4) Registration of Instrument debentures are classified into:
(A) Redeemable Debentures: It refers to
1. On the basis of convertibility,
the debentures which are issued with
Debentures may be classified into
a condition that the debentures will be
following categories:
redeemed at a fixed date or upon demand,
(i) Non Convertible Debentures (NCD): or after notice, or under a system of
These instruments retain the debt character periodical drawings. Debentures are
and cannot be converted into equity shares. generally redeemable and on redemption
(ii) Partly Convertible Debentures (PCD): these can be reissued or cancelled.
A part of these instruments are converted (B) Perpetual or Irredeemable Debentures:
into Equity shares in the future at notice of A Debenture, in which no specific time
the issuer. The issuer decides the ratio for is specified by the companies to pay back
conversion. This is normally decided at the the money, is called an irredeemable
time of subscription. debenture. The debenture holder
(iii) Fully convertible Debentures (FCD): cannot demand repayment as long as
These are fully convertible into Equity the company is a going concern. Issuing
shares at the issuer's notice. The ratio of company has to pay interest periodically.
conversion is decided by the issuer. Upon But all debentures, whether redeemable
conversion the investors enjoy the same or irredeemable become payable on
status as ordinary shareholders of the the company going into liquidation.
company. However, after the commencement of the
Companies Act, 2013, now a company
(iv) Optionally Convertible Debentures
cannot issue perpetual or irredeemable
(OCD): The investor has the option to
debentures.
either convert these debentures into shares
at a price decided by the issuer/agreed 4. On the basis of Registration,
upon at the time of issue. debentures may be classified as
2. On the basis of Security, debentures (A) A Registered Debentures: Registered
are classified into: debentures are issued in the name of a
particular person, whose name appears
(A) Secured Debentures: These instruments
on the debenture certificate and who is
are secured by a charge on the fixed
registered by the company as holder on
assets of the issuer company. So if the
the Register of debenture holders.
issuer fails on payment of either the
principal or interest amount, such fixed (B) Bearer debentures: Bearer debentures
assets can be sold to repay the liability to on the other hand, are issued to bearer,
the investors. and are negotiable instruments, and so
transferable by mere delivery like share
(B) Unsecured Debentures: These
warrants.
instrument are unsecured in the sense
that if the issuer defaults on payment
of the interest or principal amount, the
investor has to be included as unsecured
creditors of the company.

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26.10  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.

Navratnas Companies
1. Bharat Electronics Limited (BEL)
2. Container Corporation of India (CONCOR)
3. Engineers India Limited (EIL)
4. Hindustan Aeronautics Limited (HAL)
5. Hindustan Petroleum Corporation Limited (HPCL)
6. Mahanagar Telephone Nigam Limited (MTNL)
7. National Aluminium Company (NALCO)
8. National Buildings Construction Corporation (NBCC)
9. National Mineral Development Corporation (NMDC)
10. Neyveli Lignite Corporation Limited (NLCIL)
11. Oil India Limited (OIL)
12. Power Finance Corporation
13. Power Grid Corporation of India Limited
14. Rashtriya Ispat Nigam Limited
15. Rural Electrification Corporation
16. Shipping Corporation of India (SCI)

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Key Words
Maharatnas
One Person company (OPC) Promoter
Companies
Misrepresentation Incorporation
1. National Thermal Power Corporation of facts or Registration
(NTPC)
Share and Share Capital Shares
2. Oil and Natural Gas Corporation
(ONGC) Sweat Equity Shares Bonus Shares
3. Steel Authority of India Limited (SAIL) Right Shares Share Certificate
4. Bharat Heavy Electricals Limited (BHEL) Share Warrant Debentures
5. Indian Oil Corporation Limited (IOCL) Private Placement
6. Coal India Limited (CIL)
7. Gas Authority of India Limited (GAIL)
8. Bharat Petroleum Corporation Limited
(BPCL)
Exercise
How to propose the Name
for a Company
I.  Choose the Correct Answers:
1. Plural version of any of the words
1. The Company will have to issue the notice
appearing in the name of an existing
of situation of Registered Office to the
company is not allowed.
Registrar of Companies within _____
Example: Suppose a company exists in
days from the date of incorporation.
the name of "Eswar equipment Private
Limited Company", then the name of (a) 14 days (b) 21 days
"Eswar equipments Private Limited
(c) 30 Days (d) 60 Days
Company" will not be proposed.
Similarly, The following changes in 2. How does a person who envisages the idea
existing company name is also not to form a company called?
allowed
2. Changes in Type, Letter Case, Spacing (a) Director      (b) Company Secretary
or Punctuation marks (c) Registrar      (d) Promoter
3. Joining words or separating words
before or after the company name 3. For which type of capital a company pays the
4. Different tense or number of the same prescribed fees at the time of registration?
word (a) Subscribed Capital  (b) Authorised Capital
5. Different phonetic spellings or spelling
variations (c) Paid-up Capital    (d) Issued Capital
6. Intentionally misspelled words 4. Which of the following types of shares are
7. Addition of internet related designation issued by a company to raise capital from
8. Addition of common names or titles the existing shareholders?
9. Addition of name of place
10. Different combination of the same (a) Equity Shares    (b) Rights Shares
words
(c) Preference Shares  (d) Bonus Shares
11. Translation of a word

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5. Specify the type of resolution to be passed II. Very Short Answer Questions:
to choose the location of Registered Office
of the company within the town or village 1. What are the four stages of formation of a
or city. company?

(a) Ordinary (b) Special 2. What is Share?

3. What is Bonus Shares?
(c) Either Ordinary (d) Board
or Special 4. What is Right Shares?

6. Who can issue stock? 5. What is Debentures?

(a) Public (b) Private

III. Short Answer Questions:

(c) One Person (d) Small 1. What do you understand by Issue of

Securities at Premium?
7. Specify the document which comes under
the Negotiable Instrument Act. 2. Explain different Kinds of Preference shares.
(a) Share Certificate (b) Share IV. Long Answer Questions:
(c) Share Warrant (d) Stock
1. Write the difference between Debentures
8. The shares which are offered to the existing and Shares:
shareholder at free of cost is known as
___________. 2. Brief different stages in Formation of a
Company.
(a) Bonus Share (b) Equity Share
3. What are the various kinds of Debentures?
(c) Right Share (d) Preference Share

9. The shares which are offered first to the

existing shareholder at reduced price is
known as _____________.

(a) Bonus Share (b) Equity Share

(c) Right Share (d) Preference Share

10. The Companies Act 2013 Prohibits the

issue of shares at ______ to the public.

(a) Premium (b) Par

(c) Discount (d) Both at par and Premium

Answers:
1 c 2 d 3 b 4 b 5 d
6 a 7 c 8 a 9 c 10 c

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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
That king, will be esteemed a God among men, who performs
his own duties, and protects (his subjects).

Learning Objectives 27.07 Appointment of Director

27.08 Qualification of Director
To enable the students to understand the
27.09 Disqualification of Director
■ The concept of Company Management
■ The meaning of Director and 27.10 Removal of Director
Qualification of Director 27.11 Remuneration of Director
■ Concept of Board of Director, legal 27.12 Power of Director
position of Directors 27.13 Rights of Director
■ Removal of director from a company
27.14 Duties of Director
■ Other Managerial personnel involved in
the Company Management. 27.15 Liabilities of Director
27.16 Directorial Register
Chapter Synopsis 27.17 Manager Vs Director
27.18 Managing Director Vs Whole time
27.01 Introduction, Meaning and Director
Definition of Director
27.02 Key – Managerial Personnel of a
Company
INTRODUCTION
The concept and nature of Company
27.03 Board of Directors
was explained in the previous lesson. It has a
27.04 Types of Directors as per Companies endless life span and the life of the company is
Act 2013 not affected due to changes in the members i.e
27.05 Number of Directors any member may come and go but the company
lives till its death according to the provisions of
27.06 Legal position / Status of Director
the Act. In this lesson, how this artificial person
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is managed is discussed. It is managed by a "A Person who is appointed or elected

group of human beings. member of the Board of Directors of a company
The group of human beings who undertake and has the responsibility of determining and
the responsibility to run the business of the implementing policies along with others in the
company are known as Board of Directors and board. It is not necessary to, hold any shares in
the members of the Board individually called the company or be an employee. Directors act
as Director. The Directors play a vital role in on the basis of resolutions made in the Board of
the functioning of the company by controlling, Directors meeting according to their powers
guiding, directing and managing the affairs of stated in the Articles of Association of the
the company. The overall performance of any company."
company is vested with the directors. So they Minimum/Maximum Number of
are responsible for it. The every person in the
Directors in a Company- Section 149(1)
Board individually or collectively is responsible
Section 149(1) of the Companies Act, 2013
for achieving the objectives prescribed in the
requires that every company shall have a
Memorandum of Association of the Company.
minimum number of 3 directors in the case
The appointment of Directors and their
of a public company, two directors in the case
qualifications are specified in the Companies
of a private company, and one director in the
Act 2013 Chapter XI.
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,
they can be called as eyes, ears, brain, hands, to enable the companies existing on or before
nerves and other essential parts of a company. the commencement of Companies Act, 2013 to
The directors formulate policies and establish comply with this requirement.
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:
27.01 Meaning and Definition To act in good faith: The directors are expected
of Directors to act in good faith i.e. they should always act in
The person one who takes active interest the best interest of the company. The directors
in the well being of a company and one of should not make any secret profits.
the Members of Board of Directors is called To act with utmost care: The directors should
as Director of a company. A Director is a conduct their work with utmost care. They
person from a Board of Directors who leads or should act with prudence.
supervises the functioning of a company. Not to delegate work: The directors are
The Companies Act 2013 section 2 (34) supposed to perform all their work by
defines a director appointed to the board of themselves. They are not expected to delegate
a Company is their work to anyone else.
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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 27.03  Board of Directors
Personnel (KMP) is one of them. KMP covers
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.
(iv) Exercise overall Direction
(v) Adopt bylaws
WHO ARE THE KEY MANAGERIAL
PERSONNEL ? (vi) Determine and pay the dividend
(vii) Issue additional shares.
The definition of the term Key Managerial
Personnel is contained in Section 2(51) of the In General, the Board is responsible for
Companies Act, 2013. This Section states: assisting the company in setting broad goals,
supporting the management, ensuring the
(i) the Chief Executive Officer
adequate resources available in the company
(ii) the Managing Director or the Manager; and its utilisation.
(iii) the Company Secretary;
COMPOSITION OF THE BOARD OF
(iv) the Whole-time Director; DIRECTORS:
(v) the Chief Financial Officer; and a)  General Optimum Combination:

(vi) such other officer as may be prescribed; Board of Directors shall have an optimum
combination of executive and non-executive
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directors with at least one woman director and Executive Director

not less than fifty percent of the board of directors An executive director is a  Chief
shall comprise of non-executive directors. 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.
Non - Executive Director
A non-executive director typically does
b) When the non-executive Director is the not engage in the day-to-day management of the
Chairperson: organization, but is involved in policy making
and planning exercises. In addition, non-
In this case, at least one-third of the board
executive directors' responsibilities include the
of directors shall comprise of independent
monitoring of the executive directors and acting
directors and where the company does not have
in the interest of the company stakeholders.
a regular non-executive chairperson, at least
half of the board of directors shall comprise Difference Between Executive and Non-
independent directors. Executive Director
c) when the non-executive chairperson is a An Executive Director can be either
promoter or is related to any promoter or a whole-time Director of the Company or a
person occupying management positions Managing Director. But a Non- Executive
at the level of board of director or at one Director is a Director who is neither a Whole-
level below the Board of Directors: time Director nor a Managing Director.
In this case, at least one half of the board
of directors of the company shall consist of
27.04 Types of Directors as per
Independent Directors (ID). Companies Act 2013
A director is appointed to the Board of 1.  Residential Director: – According to Section
a Company. Such Directors have a different 149(3) of Companies Act 2013, Every company
role to play to attain the goal of the company. should appoint a director  who has stayed in
According to their role they are differently India for a total Period of not less than 182 days
classified in accordance with the provision of in the previous calendar year.
the Companies Act 2013. 2. Independent Director: According to
Whole Time Director: A Director is one who Section 149(6) an independent director is
devotes whole of his time of working hours to the an alternate director other than a Managing
company and has a significant personal interest Director who is known as Whole Time Director
in the company as the source of his income. Or Nominee Director. The following type
Managing Director: A Director is one who is of companies has to appoint minimum  Two
employed by the company and has substantial independent directors:-
powers of management over the affairs of the
a) 
Public Companies which have Paid-up
company subject to superintendence, direction
Share Capital- ₹10 Crores or More; –
and control of the board.
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b) Public Companies which have 7. Alternate Directors: Alternate director

Turnover- ₹100 Crores or More:- is appointed by the Board of Directors, as a
c) 
Public Companies which have total substitute to a director who may be absent from
outstanding loans, debenture, and India, for a period which is not less than three
deposits of ₹50 Crores or More. months.  The appointment must be authorised
either by the Articles of Association of the
3.  Small Shareholders Directors: Small company or by a passing a resolution in the
shareholders can appoint a single director in a General Meeting. The alternative director is not
listed company. But this action needs a proper a representative or agent of Original Director.
procedure like handing over a notice to at
8.  Shadow Director: A person who is not the
least 1,000 Shareholders or 1/10th of the total
member of Board but has some power to run it
shareholders.
can be appointed as the director but according
4.  Nominee Director: "A director nominated to his/her wish.
by any financial Institution in pursuance of
the provisions of any law for the time being in
27.05 Number of Directors
force, or of any agreement, or appointed by any
Government , or any other person to represent
Required
its interests”. Under section 149 (1) of the Companies Act,
From the above, 2013 states that the requirement of Minimum/
a) 
should be nominated by any financial Maximum Number of Directors in a Company
Institution in pursuance of any law or in Minimum Number of Directors
terms of an agreement entered into by the a) Public Company: Every Public company
company shall have a minimum number of 3 directors
b) could be appointed by the Government or and
by any other person. b) Private company
c) 
The person so appointed shall represent In case of One Person Company: The
the interests of the organization /Institution requirement of directors is one.
which he represents. Other Private Companies: The minimum
5.  Women Director:   As per Section 149 (1) requirement of Directors is two.
(a), there are certain categories according to Maximum Number of Directors:
which there should be at least one woman as a
A company can appoint maximum 15
director on the Board. The following class of
fifteen directors out of which one must be
companies shall appoint at least one woman
resident of India and after passing special
director
resolution in general meeting, the company can
(i) every listed company; appoint more than fifteen directors, for which
(ii) every other public company having: the approval of Central Government is not
(a) paid–up share capital of one hundred required.
crore rupees or more; or Number of directorships:
(b) turnover of three hundred crore rupees Under Section 165 of the Companies
or more. Act 2013 A person can hold the position of
6. Additional Directors: Any Individual can Directorship in different companies up to
be appointed as Additional Directors by a maximum of 20. The number of directorships
company. in public companies/ private companies that
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are either holding or subsidiary company of a Directors are appointed to lead the
public company shall be limited to 10. Further company in relation to third parties. They can
the members of a company may restrict above enjoy the rights and privileges of an agent. There
mentioned limit by passing a special resolution. is no personal liability on any contracts entered
If a person holds Directorship in more by them, if it is within the powers stated in the
than the limit specified above he/she has memorandum and articles of the company. If it
to resign the excess, according to his / her is not so they have personal liability.
choice. It is also considered that directors are not
If a person accepts an appointment as a a full fledged agents of the company because
director in excess of above mentioned limit is they are elected person but agents are appointed
punishable with a fine of not less than Rs. 5,000 persons.
but which may extend to Rs. 25,000 for every day
after the first day for the period of Directorship Directors as Managing Partners
hold by the person. The management of company is vested in
the hands of many executives. So, the directors
27.06 LEGAL POSITION OF are virtuals managing partners and the Directors
DIRECTOR elected by shareholders are like partners to the
shareholders. However, substantial powers
Directors are the persons duly appointed may be entrusted with the directors or to an
by the Company to lead and manage its affairs outsider, such a person has to act under the
and their legal position. At times they have superintendence, control and direction of
to act as agents, managing partner, trustees, the board of Directors. Therefore, unlike in a
Employee, and Officer. partnership firm, no power can be delegated to
Directors as Agents: A company as an artificial a single director as a managing partner.
person, acts through directors who are elected
representatives of the shareholders and who Example  2: The same company due to
execute decision made for the benefit of negligence of its Directors fails to pay sales
shareholders. Hence directors share a relationship tax to the government. The government files
of an agent and a principal with the company. a case against the directors for the recovery
of tax payable by the company. As the fault is
that of the directors, they are personally liable
for the payment of the taxes.
Example  1: XYZ is Chennai based private
limited Company which has two directors,
Agi and Logu. The company wants to
Directors as trustees
start its business operation in state of Directors are trustees of the company’s
Karnataka and for that they need an office money and property and they have to safeguard
accommodation. Agi goes to Karnataka them and use them for the sake of the company
and buys a property in Bangalore to house and on behalf of the company. According to Law
the office. Although the purchase has of trust, the equitable ownership of the trust
been made by Agi the property belongs property is vested with the beneficiary only,
to the company. Agi has just acted as an Hence directors cannot act as a full-fledged
agent of the company. trustee.

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Companies Act, when the provisions of the Act

Example  3: Eswar Company has two are not strictly complied with.
directors Deepa and Mani. The directors
issue 1,000 shares to the public and
27.07 Appointment of Directors
receive Rs.100 each per share from the under Companies Act 2013
shareholders as share application, share - Section 152
allotment and share first call money. Generally, in a public company or a private
However they themselves do not pay company subsidiary of a public company, two-
Rs.100 for each of the shares taken by thirds of the total numbers of Directors are
them. This amounts to breach of trust appointed by the shareholders and the remaining
and hence they are required to pay one-third’s appointment is made as per Articles
Rs.100 each for the shares held by them. and failing which, shareholders shall appoint the
remaining one-third.
Directors as employees In a private company, which is not a
Directors are professionals who manage subsidiary of a public company, the Articles can
the company for the benefit of themselves and prescribe the manner of appointment of any or all
the Directors. In case the Articles are silent, the
for the benefit of the shareholders. However,
Directors must be appointed by the shareholders.
if a director accepts employment in the same
company under a separate contract of service, Any company which wants to follow the
then, in addition to the directorship, he is also principle of Proportional representation, the
treated as an employee or servant of the company. Companies Act also permits the Articles to
In other words, when the director is appointed provide for the appointment of two-thirds of the
Directors accordingly.
as whole time employee of the company, then
that particular director shall be considered as Nominee Directors can be appointed by a
employee director or whole time director. third party or by the Central Government in the
event of oppression or mismanagement.
Example  4: Gunalan is a director of a General provisions relating to appointment of
company who has also taken an extra charge directors
to act as a manager of the company. But as 1. Every director should be appointed by the
per the contract of service as a manager he company in general meeting as per the
is entitled to receive a remuneration. Hence provision of the Act.
he is a director who also happens to be an 2. Director Identification Number is
employee of the company. compulsory for appointment of director of a
company.
Directors as officers 3. Every person proposed to be appointed
“Officer” includes any director, manager as a director shall furnish his Director
or key managerial personnel or any person in Identification Number and a declaration that
accordance with the directions or instructions he is not disqualified to become a director
the Board of Directors or any one or more of under the Act.
the directors who is or are accustomed to act. 4. A person appointed as a director should give
Therefore Director is treated as officers of an his consent to hold the office of director in
company. Sometimes, they may be also liable physical form on or before his appointment
for punishments in form of penalties, under i.e., Consent to act as a director of a company.
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5. Company should file Form with the Registrar 5. A director should not be convicted by the
of Companies mentioning particulars Court for any offence, etc.
of appointment of directors and Key
Managerial Persons along with the Consent 27.09 Disqualifications of a
form signed by Directors, as an attachment director
within 30 days of the appointment of a
Section 164 of Companies Act, 2013, has
director with necessary fee.
mentioned the disqualification as mentioned
6. Articles of the Company may provide the below:
provisions relating to retirement of the
a) A person shall not be capable of being
all directors. If such provision relating to
appointed director of a company, if the
retirement are not made in the articles.
director is
Provision in the Act will be applicable.
(a)  Of unsound mind
First Director (b)  An undercharged insolvent;
“First directors” mean those directors who (c) Has been convicted by a court for any
hold office from the date of incorporation of the offence involving moral turpitude
company. The first directors are usually named and sentenced in respect thereof to
in the articles of association or are appointed by imprisonment for not less than six
the directors. months
In the case of a One Person Company, an (d) Has not paid any call in respect of shares
individual being a member shall be deemed to of the company held by him, whether
be its first director until the director(s) are duly alone or jointly with others.
appointed by the member in accordance with (e) 
An order disqualifying him for
the provisions of Section 152. 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 (g) He has not got the Director Identification
shall possess appropriate skills, experience and Number.
knowledge in one or more fields of finance, law,
management, sales, marketing, administration, 27.10  Removal of Director
research, corporate governance, technical
A Director of Company can be removed
operations or other disciplines related to the
from his Office before the expiry of his term by
company’s business. According to the different
provisions relating to the directors; the following a) the Shareholders
qualifications may be mentioned: b) the Central Government
1. A director must be a person of sound mind. c) the Company Law Board
2. A director must hold share qualification, if A director can be removed from his
the article of association provides such. office in any of the following three
3. A director must be an individual. ways:
4. A director should be a solvent person.
a) Removal by shareholders 169

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A company (whether public or private) director. Such order can effect the removal of
may, by giving a special notice and passing an the director from his office.
ordinary resolution, remove a director before
the expiry of his period of office without the 27.11  Remuneration of Director
proof of mismanagement, breach of trust, Managerial Persons covered are
misfeasance or other misconduct on the part Managing Director, Whole-time Director, Part
of the director. If the shareholders feel that time Directors and managers who shall be paid
the policies pursued by the director are not remuneration in accordance with provisions of
appropriate, then director can be removed. The Section 197 of the Companies Act, 2013.
shareholders can do so by passing an ordinary
Managerial Remuneration
resolution in a general meeting.
b) Removal by the Central Government The Managerial remuneration is payable
The Central Government has been to a person's appointed u/s 196 of the Act.
empowered to remove managerial personnel The Term remuneration means any money
from office on the recommendation of the or its equivalent given or passed to any person
Company Law Board under the following for services rendered by him and includes
circumstances. perquisites.
(i) Where a person concerned in the conduct 1. Value of rent-free or concession accom­
and management of the affairs of a company modation
has been guilty of fraud, misfeasance,
2. Value any other items provided at free of
persistent negligence in carrying out his
cost or at concessional rate. .
obligations.
3. value of securities / sweat equity shares
(ii) Where the business of a company has not
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
by a director, then the Company Law Board A Public Company can pay remuneration
may order for the termination of the director’s to its directors including Managing Director
tenure or set aside any agreement that has been and Whole-time Directors, and its managers
entered into between the company and the which shall not exceed 11% of the net profit and
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it may also be noted, when a Company has only Statutory Powers of Directors
one Managing Director or Whole-time Director In the General Body Meeting of the
or manager the remuneration payable shall not Company the following powers must be
exceed 5% of net profits if it is more than one exercised by the Board of Directors by passing
11% as calculated in a manner laid down in a resolution.
section 198 of the Companies Act, 2013. (i) Power to make calls on shareholders in
respect of money unpaid on their shares 
Remuneration Payable by a company
in case where is no profit or inadequacy of (ii) Power to issue debentures
profit without Central Government and to pay (iii) Power to borrow moneys otherwise than
remuneration in excess of the above limit is on debentures
detailed below: (iv) Power to invest the funds of the company
(v) Power to make loans
Limit of yearly (vi) Power to diversify the company business
Where Effective Remuneration (vii) Power to approve amalgamation, Merger
Capital is payable shall not or reconstruction
exceed (Rupees) (viii) Power to approve Financial Statement
(i) Negative or less and Board reports.
₹30 lakh
than ₹5 Crore
(ii) 
₹5 Crore and Managerial Powers of Directors
above but less ₹42 lakh (i) Power to contract with the third party.
than ₹100 Crore
(ii) Power to allot, forfeit or transfer shares of
(iii) 
₹100 Crores and ₹60 lakh company
above but less
(iii) Power to decide the terms and conditions
than ₹250 Crore
to issue debentures.
(iv) 
₹250 Crore and ₹60 lakh plus 9.91% of
(iv) Power to frame new policies and to issue
above the effective capital in
excess of ₹250 Crore. instructions for the efficient running of
the business.
27.12  Powers of Director (v) power to appoint Managing Director,
Manager, Secretary of the company.
Directors should have a vision to frame
policies to achieve high level of performance. (vi) power of Control and supervision of work
To achieve high level of performance, they must of subordinates.
set the goals of the company.  They must have Powers only with a resolution
powers to carry on objectives of the company.
(i) To sell or lease any asset of the company
The power of the Directors grouped into four
different heads viz., (ii) To allow time to the director for repayment
of the loan
(i) Statutory Powers of Directors
(iii) To borrow money in excess of paid up
(ii) Managerial Powers of Directors
Capital and free reserves
(iii) Powers only with a resolution
(iv) To appoint a sole agent for more than 5
(iv) Other Powers years.

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(v) To issue bonus shares and for are entitled to elect a chairman for the
reorganization of share capital board meetings.
(vi) To contribute money for charitable (iii) Right to appoint a Managing director:
purposes exceeding ₹50,000 or 5% of the The Board has the right to appoint the
average profits of 3 years whichever is managing director/ manager of the
greater. company.
(iv) Right to recommend dividend: The
Other Powers
Board is entitled to decide whether
(i) Power to fill casual vacancy dividend is to be paid or not. Shareholders
(ii) Power to appoint the first auditor of the cannot compel the directors to pay
company dividend. However they can reduce the
(iii) Power to appoint alternative directors, rate of recommended dividend. Payment
additional directors and Key managerial of dividend is the prerogative of the board
personnel.
27.14  Duties of Director
(iv) Power to remove Key managerial
personnel Directors act as agents of the shareholders
(v) Power to recommend the Interim and and act as a trustees of shareholders. Thus they
final dividend to shareholders. have a fiduciary duty to protect the property of
(vi) Power to declare solvency position of the the company. Simply stated the following are
company. the duties of Directors.

(vii) Power to make political contribution Collective Duties of Directors: Directors as a

part of Board perform certain duties collectively. 
27.13  Rights of Director The following are some of those duties exercised
Rights can be categorized into individual collectively:-
rights and collective rights. (i) Approval of  annual accounts and
Individual rights are such as authentication of annual accounts
(i) Right to inspect books of accounts  (ii) Directors report to shareholders
(ii) Right to receive notices of board meetings highlighting performance of the company,
(iii) Right to participate in proceedings and transfers to reserves, investment of
cast vote in favour or against resolutions surplus funds, borrowings
(iv) Right to receive circular resolutions (iii) Appointment of First Auditors
proposed to be passed (iv) Issuance of Notice  and Holding of Board
(v) Right to inspect minutes of board meetings and shareholders meetings
meetings. (v) Passing of resolutions at board meetings
Collective rights are as follows or by circulation.
(i) Right to refuse to transfer shares: General duties of Directors:
Directors of private companies and (i) Structuring or new policy to reach the
deemed public companies are entitled to objectives of a company.
refuse registration of transfer of shares to (ii) Delegating power to any committee if
a person whom they do not approve. the Articles Permits for well being of the
(ii) Right to elect a Chairman: The directors company

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(iii) Issuing instructions to employees for specified in the Act in time.

implementation of policy to review (xiv) Duty to call on an Extraordinary General
company's progress. Body Meeting, if necessary.
(iv) Appointing their subordinates like (xv) Duty to call statutory and annual general
Managing director, Manager, Secretary meeting of the company
and other employees.
(v) Acting in accordance with the Articles of 27.15  Liabilities of director
the company The liabilities of directors may be
(vi) Act in Good faith in order to promote the discussed under three heads:
objects of the company
1. Liability to outsiders:
(vii) Perform duties with due and reasonable
care and diligence. The directors are not personally liable to
outsiders if they act within the scope of powers
Specific Duties of Directors vested in them. The general rule in this regard in
(i) Duty to disclose his name, address and that wherever an agent is liable, those directors
occupation would be liable, but where the liability would attach
(ii) Duty to disclose his shareholding and to the principal only, the liability is the liability of
interest in Contracts of the company. the company. The directors are personally liable to
(iii) Duty to hold minimum qualification third parties of contracts in the following cases:
shares within two months after his a. They contract with outsiders in their
appointment. personal capacity
(iv) Duty to issue prospectus and fix the b. They contract as agents of an undisclosed
minimum subscription. principal
(v) Duty to take care that prospectus should
c. They enter into a contract on behalf of a
not contain any false or misleading
prospective company.
statement.
(vi) Duty to confirm the required disclosure d. When the contract is ultra-vires the
in the prospectus as required by the Act. company.
(vii) Duty to sign in the prospectus before In default of statutory duties, the directors
submitting it to the Registrar of shall be personally liable to third parties in the
Companies following cases:
(viii) Duty to deposit application money in 1. Mis-statement in prospectus.
a scheduled Bank and its utilisation in 2. Irregular allotment.
accordance with the specification given
3. Failure to repay application money if the
in the Act.
minimum subscription is not received.
(ix) Duty to file Return of Allotment of
4. Failure to repay application money if
Securities with the Registrar.
allotment of shares and debentures is not
(x) Duty to arrange for making payment of
dealt in on the stock exchange as specified
Dividend declared.
in the prospectus.
(xi) Duty to forfeit and transfer shares.
(xii) Duty to file all the reports and resolutions 2. Liability to company
as required by the Act with the Registrar
The directors shall be liable to the
of Companies.
company for in the following cases:
(xiii) Duty to carry out all other activities as

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(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
In corporate law, the directors register
memorandum of association or when they pay
refers to a list of the directors elected by
dividends out of capital.
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
recovery of debts due to the company does not (iv) father’s name, mother’s name and spouse’s
name(if married) and surnames in full;
constitute misfeasance.
(v) date of birth;
3. Criminal liabilities of directors:
(vi) residential address (present as well as
Directors will be liable with a fine and permanent);
imprisonment or both for fraud of non- (vii) nationality (including the nationality of
compliance of any statutory provisions in the origin, if different);
following situations where
(viii) occupation;
(i) There is mis-statement in Prospectus
(ix) date of the board resolution in which the
(ii) There is failure to file return on allotment appointment was made;
with the registrar (x) date of appointment and reappointment
(iii) There is failure to give notice to the in the company;
registrar for conversion of share into stock (xi) date of cessation of office and reasons
(iv) There is failue to issue share Certificate therefor;
and Debenture certificate (xii) office of director or key managerial
(v) There is failure to maintain register of personnel held or relinquished in any
the members and register of debenture other body corporate;
holders (xiii) membership number of the Institute of
(vi) There is default in holding Annual Company Secretaries of India in case of
General Meeting Company Secretary, if applicable; and
(vii) There is failure to provide Financial (xiv) Permanent Account Number (mandatory
Statements for key managerial personnel if not having
DIN);
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(2) In addition to the details of the directors or 2. Register of investments not held in its own
KMPs, the company shall also include in the name by the company
aforesaid Register the details of securities 3. Register of contracts with related party and
held by them in the company, its holding contracts and Bodies etc. in which directors
company, subsidiaries, subsidiaries of the are interested
company’s holding company and associate
4. Register of directors and key managerial
companies relating to—
personnel
(i) the number, description and nominal
5. Register of details of securities held by
value of securities;
Directors and Key Management Personnel
(ii) the date of acquisition and the price or
other consideration paid; 6. Register of members
(iii) date of disposal and price and other 7. Register of debenture holders/ other
consideration received; securities holders
(iv) cumulative balance and number of 8. Notice of situation or change of situation or
securities held after each transaction; discontinuation of situation, of place where
(v) mode of acquisition of securities; foreign register shall be kept
(vi) mode of holding – physical or in 9. Declaration by the registered owner of shares
dematerialized form; and who does not hold the beneficial interest in
such shares
(vii) whether securities have been pledged or
any encumbrance has been created on the 10. Declaration by the beneficial owner who
securities. holds or acquires beneficial interest in shares
(3).Apart from the above the following but whose name is not entered in the register
Registers must be available in the company of members
Registrar Office:
1. Register of loans, guarantee, security and
acquisition made by the company

27.17 Differences betweeen 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
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
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.
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A manager comes under Directors comes under Top-level

Level of management executive level i.e at the Middle- management and play important
level management role in Decision making.
Managers are responsible for Directors responsible for
implementation of plans and formulation of plans and policies
Responsibility
policies approved by the Board time to time to achieve the goal of
of Directors the company.

27.18 Differences betweeen 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 The Power is stated in the term of

Power
with substantial powers. employment.

Section 197 Prohibits to act both a Sometimes a whole-time director

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
Appointment
not necessarily for the appointment is must for the appointment of a
of managing director whole- time director

No individual can be appointed for There is no such restriction

Duration of
more than five years at a time. regarding the appointment of a
Appointment
whole-time director.

As the salary of an average Indian CEO at top listed private companies is doubling from
Rs. 10 crore to Rs. 20 crore in just two years, it’s bound to trigger interests as we hope
for a legitimate raise in our paychecks this year. The analysis of CEOs salaries in top
listed companies for FY 2015-16 shows that the average remuneration paid to the top executives
was approximately Rs. 19 crore.
The payment includes their salary, commissions, allowances, value of all prerequisites and
ESOPs (Employee Stock Ownership Plans) exercised during the year and all other benefits.

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Key words
Board of Directors Management
Managers Managing Director Exercise
Promoter

Wouldn’t it be interesting to know who are I.  Choose the Correct Answer:
these highest paid CEOs in India? 1. A person Shall hold office as a director in
________ companies as per the Companies
Annual
Name Salary in Company Name
Act, 2013.
Crores (a) 5 companies (b) 10 companies
M. Naik Rs. 66.14 L&T (c) 20 companies (d) 15 companies
Rs. 2. Which _________ Director is appointed
Vishal Sikka Infosys by a Financial institution.
48.73
Desh Bandhu Rs. (a) Nominee (b) Additional
Lupin Ltd.,
Gupta 44.80 (c) Women (d) Shadow
Rs. 3. A Private Company shall have a minimum
Chandrasekaran TCS
25.60 of ________.
Rs. (a) Seven directors (b) Five directors
Rahul Bajaj Bajaj Group
22.32 (c) Three directors (d) Two directors
Yogesh Chander Rs. 4. A Public Company shall have a minimum
ITC Ltd.,
Deveshwar 15.15 of ________ Directors.
Rs. (a) Twelve (b) Seven
Mukesh Ambani RIL,
15.00 (c) Three (d) Two
Hindustan 5. A Public Company having a paid up Share
Rs.
Sanjiv Mehta Unilever Capital of Rs. ___________ or more may
13.87
Ltd., have a Director, elected by such small
Abidali Rs. shareholders.
Wipro (a) One crore (b) Three crores
Neemuchwala 11.96
Rs. (c) Five crores (d) Seven crores
Gopal Vittal Bharti Airtel
10.40 6. Under the companies Act, which one of
the following powers can be exercised by
the Board of Directors?
(a) Power to sell the company’s undertakings.
(b) Power to make call.
(c) Power to borrow money in excess of the
paid up capital.
(d) Power to reappoint an auditor.

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7. Which director need not hold qualifying II.  Very Short Answer Questions:
shares.
1. Define Director.
(a)  
Directors appointed to Central 2. Name the companies required to appoint
Government KMP.
(b) Directors appointed to Shareholders. 3. Who is whole time Director?
(c)  
Directors appointed to Managing 4. Who is called as Managing Director?
Director 5. Who can be Executive Director?
(d)  
Directors appointed to Board of
III.  Short Answer Questions:
Directors
1. When are alternative directors appointed ?
8. What is the statue of Directors who
2. Who is a shadow director?
regulate money of the company.
3. State the minimum number of Directors for
(a) Banker (b) Holder a Private company.
(c) Agent (d) Trustees
IV.  Long Answer Questions:
9. According to Companies Act, the
Directors must be appointed by the. 1. Who are the KMP?
(a) Central Government 2. Brief different types of Directors.
(b) Company Law Tribunal 3. State the qualification of Directors.
(c) Company in General Meeting 4. State the Criminal liabilities of Directors.
(d) Board of Directors.
10. The Board of Directors can exercise the
power to appoint directors in the case of.
(a) Additional Directors
(b) Filling up the Casual vacancy
(c) Alternate Directors
(d) All the above.
Answers:
1 c 2 a 3 d 4 c 5 c
6 b 7 a 8 d 9 c 10 d

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COMPANY LAW AND

UNIT MANAGEMENTPRACTICE
SECRETARIAL PROCESS
10
I

28
1
CHAPTER
PRINCIPLES
COMPANY OFSECRETARY
MANAGEMENT

அறனறிந்து ஆன்றைமந்த ெசால்லான்எஞ் ஞான்றுந்

திறனறிந்தான் ேதர்ச்சித் துைண.
- 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).

Chapter Synopsis
Learning Objectives 28.01 Company Secretary
28.02 Qualifications of Company
To enable the students to understand the Secretary
■ Meaning and Definition of company 28.02.01 Statutory Qualifications
secretary 28.02.02 Other Qualifications
■ Qualifications of the Secretary
28.03 Appointment of Company Secretary
■ Appointment and Dismissal
28.04 Functions/ Duties of Company
■ Functions of Company secretary Secretary
■ Rights and L iabilities 28.04.01 Statutory Functions
■ Company Meetings –Meaning and 28.04.02 Non-Statutory Functions
Types 28.05 Powers and Rights of Company
■ Resolutions – Meaning and Types Secretary
■ Voting – Meaning and Methods 28.06 Removal / Dismissal of Company
Secretary
28.07 Company Meetings
28.08 Kinds of Company Meetings
28.08.01 Shareholders Meetings
28.08.02 Meeting of the Board of
Directors
28.08.03 Special Meeting
28.09 Resolution 
28.09.01 Kinds of Resolution
28.10 Voting

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28.01  Company Secretary 28.02 Qualifications of

A company is an artificial being, though Company Secretary
a company is a legal entity; it has no physical Since the
personality such as neither a mind nor body of its amendment of the
own. Though not visible, company having an image Companies Act in
or appearance exists only with its rules and by laws. 1994, only a person
Any company cannot act by itself; it needs one or having prescribed
group of people to operate it. Besides operating qualifications can be
the company there are numbers of functions appointed secretary
holding responsibility and need to take care such of a company. Apart
as directing the work force towards productivity, from the statutory
managing the smooth functioning, supervising the qualifications, he should also have other
overall performance of the company. The person qualifications as may be necessary to conduct
who is responsible for the general performance the affairs of the company.
of an organization is called company secretary.
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 28.02.01  Statutory Qualifications
performance of the company is called company
  
secretary. 

 
()

According to Section 2(24) of the Companies
 Qualifications specified
Act, 2013 defines “Company Secretary” or   in clause (a) above
“Secretary” means any individual possess­ing the 
()
A degree in law granted by
prescribed qualifications, appointed to per­form 


any university

the duties which may be performed by a sec­ 


 Membership of the Institute
of Chartered Accountants
retary under this Act and any other ministerial of India
or administrative duties”. Membership of the Institute
of Cost and Works
According to explanation from Oxford Accountants of India
Dictionary, “a secretary is a person who is A post-graduate degree or
employed to conduct correspondence on behalf diploma in Management or
Commerce
of an individual or a company and also to execute
A diploma in company Law
filing, documentation and administrative granted by any Indian
functions”. Law Institute

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According to Section 2(45) of the Companies 28.03 Appointment of Company

Act 2013, a Company Secretary must possess the Secretary
qualifications prescribed by the Central Government
As per section 2(24), 203, 204 of Companies
from time to time.The qualifications prescribed by
Act 2013 the provisions regarding appointment
the Companies Secretary’s Qualifications) Rules
of company secretary are Every listed Company
1975, for the Secretary of a Company are:
must have full-time Company Secretary.
A (i) In case of a company having a paid-up share
capital of ₹5 crore or more, the Secretary must Every unlisted company and every private
be a member of the Institute of Company company having a paid up capital of ₹5 crore or
Secretaries of India incorporated under the more must also have a full time secretary.
Companies Act, 1956, and licensed under Only an individual who is a member of
Sec. 25 of that Act. institute of company secretaries of India can be
(ii) A person who is a member of the Institute appointment as a company secretary.
of Chartered Secretaries of London
a) By the Promoters: The first secretary of a
shall also be eligible for appointment as
company is appointed by the promoters at pre-
Secretary of such a company.
(B) In the case of any other company, one or incorporation stage and such name is mentioned
more of the following qualifications shall in the Articles of Association.
have to be possessed by the Secretary: b) By the First board of Directors: After the
(i) Qualifications specified in clause (a) above; company has been registered, the first board of
(ii) A degree in law granted by any university. directors appoints the secretary at the first board
(iii) Membership of the Institute of Chartered meeting. The board of directors can continue
Accountants of India. the existing secretary appointed by promoters
(iv) Membership of the Institute of Cost and or can appoint a new company secretary.
Works Accountants of India.
(v) A post-graduate degree or diploma in 28.04 Functions/ Duties of
Management or Commerce granted by Company Secretary
any university or the Indian Institute of Functions of the Company Secretary may be
Management. discussed under two headings:
(vi) A diploma in Company Law granted by (i) Statutory Functions or Duties and
any Indian Law Institute. (ii) Non-statutory Functions or Duties.
28.02.02 Other Qualifications
The Secretary also hold the following
qualifications.

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28.04.01  Statutory Functions stamps are affixed on the company’s documents

As the principal officer of the company, the like letter of allotment and share certificate
secretary must observe all the legal formalities or not. He is also complying with Minimum
in respect of the provisions of the Companies Wages Act, Industrial Disputes Act, Employee
Act and other laws (e.g., Income-tax Act, Stamp State Insurance Act etc.
Act, Sales-tax Acts, etc.) which have a bearing Under the Sales-Tax Act: He must ensure
on the activities of the company. timely submission of tax returns to the Sales-tax
authorities and payment of tax.
According to Companies Act 2013
Under Other Acts: He must see that the
(i) To sign document and proceedings provisions of any other Act applicable to the
requiring authentication by the company company, e.g., Foreign Exchange Regulation
(ii) To maintaining share registers and register Act, Industries (Development and Regulation)
of Directors and of contracts Act, and Rules, are also complied with. Where
(iii) To give notice to register for increase in the company is carrying on manufacturing
the share capital business, he must also comply with the
(iv) To deliver share certificate of allotment provisions of the Factories Act, Payment of
within 2 months after transfer Wages Act, Industrial Disputes Act and other
labour laws.
(v) To sign and send annual return
(vi) To make a statutory declaration for 28.04.02  Non-Statutory Functions
receiving certificate of commencement of Secretary has to discharge non-statutory
business functions in relation to directors, shareholders
(vii) To send notice of general meeting to every and office and staff. These functions are briefly
member of the company mentioned.
(viii) To make statutory books (1) Functions as agent of directors;
(ix) To prepare minutes of every general (2) Functions towards shareholders;
meeting and board meeting within 30 (3) Functions towards office and staff.
days
1. Functions in Relation to Directors
(x) To file a resolution with the registrar
A company secretary acts under the full
(xi) To assist in preparing the statement of control of the board of directors and carry out
affairs in a winding up the instructions of the directors. The secretary
Under the Income-tax Act: He is responsible for provides necessary advice and information to the
deduction of requisite income tax from salaries board to formulate company policy and arrive at
of employees, dividends and interests payable. decisions. It is the secretary’s duty to implement
He has to ensure that the tax deducted is the decisions taken by the board of directors.
deposited at government treasury. Sec­retary has The duties of the secretary includes
to submit and verify various forms for timely arranging board meetings, issuing notice and
filing of income tax returns to the authorities in preparing agenda of such meetings, recording
ac­cordance with the law. He has to see that the the attendance of the direc­tors and the minutes
certificate of Tax Deducted at Source (TDS) is and resolutions of the meeting in consultation
issued to every employees and shareholders. with the Chairman. He maintains all important
Under Indian Stamp Act: The company correspond­ence, files, documents and records
secretary has to ensure that whether proper in the board office.
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2. Functions in Relation to Shareholders breach of contract. Before his services are

The company secretary must serve in the terminated, he can demand a reasonable
best interests of the shareholders. He also must notice and claim damages for his wrongful
safeguard the shareholders’ interest. Under dismissal.
the Companies Act 2013, secretary should act
f) Preferential creditor:  During winding up
as link between the board of directors and the
of a company, company secretary can claim
shareholders and also ensure that the shareholder’s
his legal dues on a preferential basis.
rights are violated. He has to arrange the issue
allotment letters, call letters, letters of regret, g) Attending meeting: He has the right to be
share certificates, share warrants to Shareholders. physically present in the meetings of the
Besides he has to issue notices and agenda of all shareholders and board of directors.
meeting of shareholders and also send replies to
the inquiries and complaints of the shareholders 28.06 Removal / Dismissal of
on behalf of the board of directors. Company Secretary
3. Functions in Relation to Office and Staff In accordance with the law governing
The Secre­tary is the kingpin of the whole
relationship between a master and servant,
corporate machin­ ery. He is responsible for
company secretary may be dismissed like an
smooth functioning of the office work. He
exercises an overall supervision, control and ordinary servant of a company. The Board of
co-ordination of all clerical activities in the office. directors of a company has absolute discretion
to remove a company secretary or to terminate
28.05 Powers and Rights of his services at any time for any reason or
Company Secretary without any reason. Generally secretary may be
A Company secretary is a high level terminated under the following situations:
officer. He enjoys certain rights and power as 1. when his term of appointment has expired;
per contract made with the company, which are
2. when he is given a proper notice of
as follows:
dismissal as per the terms of agreement of
a) Supervision and Control: As a head of the employment;
office, a company secretary has the rights
to supervise, direct and control all office 3. when he makes a secret profit;
activities of subordinate offices. 4. when he misconducts himself ;
b) Signing authority: Being a principal officer, 5. where he is found to be guilty of moral
a company secretary can sign contracts, turpitude, negligence, disobedience,
proceedings of the company meeting, files incompetence.
and documents on behalf of the company. 6. where he suffers from permanent mental
c) Exercising power:  He has the right to and physical disabilities.
exercise powers as granted by board of
directors. 28.07  Company Meetings
d) Issuing testimonial:  A company secretary A company meeting must be convened
can issue testimonials to employees on and held in perfect compliance with the
behalf of the company. various provisions of the Act and the rules
e) Claiming salary and damages:  As per framed thereunder. It is essential that the
contract, he has the right to claim his salary business dealt with at the meetings, should
and other allowances. He can also take legal be validly transacted and not liable to be
action against the company if there is any questioned later due to any irregularity.
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28.08 Kinds of Company This meeting is conducted only once in the

Meetings lifetime of the company. A private company
or a public company having no share capital
Under the Companies Act, 2013,
need not conduct a statutory meeting. The
Company meetings can be classified as under:
company gives the circular to shareholders
1.  Meetings of Shareholders: before 21 days of the meeting.
(a) Statutory Meeting
b)  Annual General Meeting [AGM]
(b) Annual General Meetings (AGM)
Every year a meet­i ng is held to transact
(c) Extraordinary General Meetings (EGM) the ordinary business of the company.
2. Meetings of the Directors Such meeting is called Annual General
(a) Board meetings Meeting of the company (AGM). Company
(b) Committees meetings is bound to invite the first general meeting
3. Special Meetings within eighteen months from the date of its
(a) Class Meetings. registration. Then the general meeting will
(b)  
Creditors and of Debenture/bond be held once in every year. The differences
holders meetings between two general meetings should not
be more than fifteen months. Every Annual
The following picture shows the General meeting shall be held during business
different types of company meetings
hours, on a day which is not a public holiday,
at the Reg­istered Office of the company or at
some other place within the town or village
where the Registered Office is situated.
AGM should be conducted by both private
and public Ltd companies.

c)  Extra-Ordinary General Meeting

Both Statutory meeting and annual
general meetings are called as ordinary
meetings of a company. All other general
28.08.01  Shareholders Meetings meetings other than statutory and annual
The meeting held with the shareholders general meetings are called extraordinary
of the company is called shareholders meeting. general meetings. If any meeting conducted
The shareholders meeting can be classified in between two annual general meeting
as statutory meeting, annual general meeting to deal with some urgent or special or
and extra ordinary general meeting. extraordinary na­ture of business is called as
a)  Statutory Meeting extra-ordinary general meetings.
According to Companies Act, every
public company, should hold a meeting of 28.08.02 Meeting of the Directors
the shareholders within 6 months but not Since the administration of the
earlier than one month from the date of company lies in the hands of the board of
commencement of business of the company. directors, they should meet frequently for
This is the first general meeting of the public the proper conduct of the business and to
company is called the Statutory Meeting. decide policy matters of the company.
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a) Board Meetings 28.09 Resolution 

Meetings of directors are called Board As per the Companies Act 2013, for taking
Meetings. Meetings of the directors provide any decision or executing any transaction,
a platform to discuss the business and take the consent of the shareholders, the Board
formal decisions. First meeting of directors of Directors and other specified is required.
The decisions taken at a meeting are called
should be convened within 30 (Thirty) days
resolutions. In other words a motion, with or
from the date of incorporation of the company.
without the amendments which is put to vote at
a meeting and passed with the required quorum
b) Committee Meetings
becomes resolution.
Every listed company and every other
public company having paid up share capital of 28.09.01  Kinds of Resolution
₹10 crore is required to have audit committee. There are broadly three types of
This committee should meet at least four times resolutions, namely ordinary resolution, special
in a year. In case of other companies, the board resolution and resolution requiring special
of directors shall nominate a director to play the notice.
role of audit committee which is functioning a)  Ordinary Resolution:
as a vigil mechanism. An ordinary resolution is one which
can be passed by a simple majority. i.e. if the
28.08.03  Special Meeting members of votes cast by members, entitled to
vote in favour of the resolution is more than the
a) C lass Meeting (Meetings of Particular votes cast against the resolution.
Share or Debenture Holders)
Ordinary Resolution is required for the
Meetings, which are held by a particular following Matters
class of share or debenture holders e.g.
(i) To change or rectify the name of the
preference shareholders or debenture holders
company
is known as class meeting. The debenture
(ii) To alter the share capital of the company
holders of a particular class conduct these
meetings. These meetings are held according (iii) To redeem the debentures
to the rules and regulations laid by the Trust (iv) To declare the dividends
Deed or Debenture Bond, from time to time, (v) To approve annual accounts and
where the interests of the debenture holders balance sheet
play vital role at the time of re-organisation, (vi) To appoint the directors
reconstruction, amalgamation or winding-
(vii) To increase or decrease the number of
up of the company. directors within the limits prescribed
b)  Meetings of the Creditors (viii) To remove a director and appoint
another director in his place
Strictly speaking, these are not
meetings of a company. Unlike the meetings (ix) To make inter corporateinvestment,
within the limits
of a company, there arise situation in which a
company may wish to arrive at a consensuses (x) To approve voluntary winding up if the
with the creditors to avoid any crisis or to articles authorise
evolve compromise or to introduce any new (xi) To fill up the vacancy in the office of
proposals. liquidator, etc.,

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b)  Special Resolution 28.10 Voting

A special resolution is the one which The word ‘Vote’
is passed by a not less than 75% of majority. originated in Latin word
The number of votes, cast in favour of the ‘Votum’ indicating one’s
resolution should be three times the number of wishes or desire. By casting
votes cast against it. The intention of proposing his vote one formally
a resolution as a special resolution must be declaring his opinion or wish in favour of or
specifically mentioned in the notice of the against a proposal or a candidate to be elected
general meeting. for an office. The proposals passed across the
table of any company depend mainly on the
Special Resolution is required for the votes cast by the board of directors. Every
following Matters motion or proposal is subject to the approval
(i) To change the registered office of the of the majority of the members or shareholders
company from one state to another can cast their votes only on the occasions in
which they want establish their rights according
(ii) To change the objectives of the company to the section 47 of the company Act, 2013.
(iii) To change the name of the company
Procedures of Voting
(iv) To alter the Articles of Association There are two distinct procedures of voting
(v) To reduce the share capital subject to viz., Open and Secret procedures.
the confirmation of the court I.  Open Procedure
(vi) To commence any new business This type of voting has no secrecy as the
(vii) To appoint the auditor for the company all the members assembled can see voting. There
are two popular methods of open voting namely
(viii) To appoint the sole selling agents in
voice voting and voting by show of hands.
specified cases
(ix) To determine the remuneration of the (a) By Voice:
Voice voting
Director and the Managing Director
is a popular type of
c)  Resolution requiring Special Notice: voting in which the
There are certain matters specified chairman allows
in the Companies Act, 2013 which may the members to
be discussed at a general meeting only if a raise their voice
special notice is given at least 14 days before in favour or against an issue ‘Yes’ for approval
the meeting.The intention to propose any and ‘No’ for rejection. Chairman announces the
result of voice voting on the basis of strength
resolution must be notified to the company.
of words shouted. It is an unscienfic method. It
The following matters require special notice
cannot be employed for deciding complex issue.
before they are discussed in the meeting:-
(b) By Show of Hands:
(i) To appoint an auditor, a person other
than a retiring auditor Under this method the chairman, requests
(ii) To provide expressly that a retiring the members to raise their hands of those who
Auditor shall not be reappointed are in favour of the proposal or candidate and
then requests those are against. Then the
(iii) To remove a director before the expiry
chairman counts the number of hands raised
of his period of office
for Yes and No respectively can announce the
(iv) To appoint a director in the place of a
result on the basis of hands counted.
director so removed
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II. Secret Procedure

PROXY
Secret procedure is adopted to decide
Proxy means a person being the
certain vital issues. It is a popular voting method
representative of a shareholder at the
that could maintain the secrecy of the voter.
meeting of the company who may be
a) By Ballot described as his agent to carry out
Under this which the shareholder has himself
system, ballot decided upon. Proxy can be present at
paper bearing the meeting and he cannot vote.
serial number
is given to the
Key words
members to record
Secretary Meetings Committee
their opinion by marking with the symbol or
Motion Resolution
Shareholders have to cast their vote in a secret
chamber and put the ballot paper into the ballot
box. The chairman opens the ballot box in the
presence of tellers or scrutinizers and counts For Future learning
the votes. He rejects the defective or wrongly 1. Study the websites which are
marked ballot papers. The votes are counted related to company functions
and the results are announced. www.bseindia.com
b) Postal Ballot
Big companies or big associations having
members scattered Case Study
all over the country
follow this method 1. Mr R, as the secretary of the Muraliviki
of voting. Under Co., signed a letter to its bank,
this method serially forwarding a ‘resolution' of the board of
numbered ballot papers are sent by post in directors. The resolution named three
sealed covers to the members,who, living at a directors and instructed the bank to
distant place, are unable to attend the meeting pay cheques signed by any two of them
physically. The members or voters fill in the and countersigned by the secretary.
ballot papers and return them in sealed covers Specimen signatures were attached. The
which are opened when the ballot box is opened instruction was entirely in accordance
for counting the votes. with the company's memorandum and
articles. However, there had never been
QUORUM any proper appointment of directors or a
There is another requirement secretary by the company. Those who had
of quorum. A single person does not formed the company had assumed their
contain a meeting so it has to be seen roles. Following the letter, the bank had
that the required number of people are honoured cheques in accordance with
present. Requisite number of person at the instructions contained in the letter.
the meeting is called as quorum. The question was, whether, the company
was bound by the cheques. Comment.

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2. A contract between Muthumani Ltd and 5. Who is not entitled to speak at the annual
Mr. V, one of its director is referred to a general meeting of the company.
general meeting for its approval. At the
a) Auditor b) Shareholder
meeting, Mr. V voted for the resolution
and all others against it. But as V held c) Proxy d) Directors
majority of shares and was entitled to 6. Mention the company which need not
majority of votes, the resolution was convene the Statutory Meeting.
passed. Is the contract binding on the
a) Widely held public
company?
b) Private Limited
Stakeholders of the company c) Public Limited
include shareholders, employees, d) Guarantee having a share capital
customers, suppliers, financiers,
governments and the society. 7. From the date of its incorporation the
First Annual General Meeting is to be
conducted within __________ months.
(a) Twelve (b) Fifteen
Exercise (c) Eighteen (d) Twenty one
8. What percentage of shareholders is
needed to pass special resolution?
I.  Choose the Correct Answer:
a) It must be unanimous
1. Mention the status of a Company Secretary
b) Not less than 90%.
in a company.
c) Not less than 75%.
a) A member b) A director
c) An independent d) An employee d) More than 50%.
contractor 9. A special resolution must be filed with the
2. Who can become a secretary for a Registrar within
company?
a) 7 days b) 14 days
a) Individual person b) Partnership firm
c) 30 days d) 60 days
c) Co-operative societies d) Trade unions
10. A special resolution is required to
3. Which meeting will be held only once in
a) redeem the debentures
the life time of the company?
b) declare dividend
a) Statutory b) Annual General
c) appoint directors
c) Extra - ordinary d) Class General
d) appoint auditor
4. Board Meetings to be conducted minimum
__________ times in a year.
Answers:
a) 2 b) 3
1 d 2 a 3 a 4 c 5 c
c) 4 d) 5
6 b 7 c 8 c 9 c 10 d

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II.  Very Short Answer Questions: References

1. Who is a Secretary? Company Law and Secretarial Practice Dr. G.K.
2. What is meant by Meeting? Varshney -SahityaBhawan Publications.

3. What is Resolution? 1. Company Meetings - KR Chandratre

LexisNexis India Publications.
4. Write short note on ‘Proxy’?
5. What is Voting? 2. Company Law and Secretarial Practice by J.
Santhi  - Margham Publications.
III.  Short Answer Questions:
3. Secretarial Practice - M C Kuchhal – Vikas
1. What is Special Resolution?
Publishers.
2. What do you mean by Statutory Meeting?
4. Company Law - Dr. S.R. Myneni - Asia Law
3. Give any three cases in which an ordinary House Publishers.
resolution need to be passed.
5. Company Law and Secretarial Practice
4. What resolution is requires special notice? - Dr. PMS .Abdul Gaffoor and Dr.S.
IV.  Long Answer Questions: Thothadrivijay Nicole imprints private
limited.
1. Elaborate the functions of the Company
Secretary 6. Company Law and Secretarial Practice
– N.D.Kapoor – Sultan chand& Sons
2. Briefly state different types of company Publications.
meetings.
3. Explain different types of open and secret
types of voting.

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.

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Specimen of Resolution for Appointment of Secretary

“Resolved that the appointment of ShriJayabharathi who possesses the requisite qualifications
under the Companies (Appointment and Qualifications of Secretary) Rules, 2013 be and is hereby,
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.

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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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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COMMERCE – Class XII

List of Authors and Reviewers
Domain Expert Authors
Dr. Prof. D. Ilangovan Dr. Vidya Srinivasan
Prof & Head, Dept of Commerce, Head, Dept of Commerce, Stella Maris College,
Annamalai University, Annamalai Nagar Chennai.
Chidamparam.
Dr. M. Thirunarayanasamy
Reviewers Assistant Professor,
Department of Commerce, Annamalai University,
Dr. K. Padhmanaban
Annamalai Nagar, Chidambaram.
Professor of Commerce,
Annamalai University, Annamalai Nagar, Dr. J. Paramasivam
Chidambaram. Assistant Professor,
Dr. K. Sundar Dept. of Commerce,
Associate Prof. of Commerce, Thirukolanjiappar Govt. Arts College, Vriddhachalam.
Annamalai University, Annamalai Nagar, Dr. M. Jaya
Chidambaram. Head, Dept. of Commerce, Asan Memorial College of
Arts and Science, Chennai.
Dr. Jayanthi Lakshmanasamy
Associate Prof. of Commerce, Mr. R. Ramesh
Govt Arts College (Autonomous) PGT in Commerce,
Nandhanam, Chennai. Trinity Academy Mat. Hr. Sec. School,
Mohanur Road, Namakkal – 637002.
Dr. K. Murugadoss
Head, Dept. of Commerce, Mr. S. Rajendran
Periyar Arts College, PGT in Commerce,
Cuddalore – 1. GKHSS, V. Kallapatty, Madurai – 625 529.

Dr. T. Thirupathi Mr. R. Shanmugasundaram

Head, Dept. of Commerce, PGT in Commerce,
Govt Arts College, GBHSS, Pandamanagalam, Namakkal – 637 208.
Salem -7. Dr. J. Anand
SCERT Co-ordinator PGT in Commerce,
Maharishi Vidhya Mandir Hr.Sec.School,
Mr. P. Ravi Chetpet, Chennai-31.
PGT in Commerce,
Presidency Girls Hr.Sec.School, Dr. P. Senthil Kumar
Chennai. Guest Lecturer in Commerce,
Thiruvalluvar Govt Arts College,
Art and Design Team Rasipuram, Namakkal-Dt.

Layout QR CODE Management Team

Prasanth C
R. Jaganathan, SGT,
Mathan Raj PUMS -  Ganesapuram, Polur , Thiruvannamalai.
Adison Raj J.F. Paul Edwin Roy, B.T, Assistant,
Adaikkala Stephen S. PUMS -Rakkipatty, Veerapandi, Salem.
In-House A. Devi Jesintha, B.T, Assistant,
QC - Arun Kamaraj Palanisamy G.H.S, N.M. Kovil, Vellore.
- Kamatchi Balan Arumugam
This book has been printed on 80 G.S.M.
Co-ordination Elegant Maplitho paper.
Ramesh Munisamy Printed by offset at:

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