CS EXECUTIVE

PART- I
MODULE 2 | JUNE 2024/DEC 2024

Adv. Chirag Chotrani

HIGHLIGHTS
Covers all the major concepts of the subject
Coloured book for better learning
Important concepts highlighted for quick revision
Special highlights for likely MCQs in exams
 A JOURNEY INTO THE HEART OF LAW
Dear Readers,

As I pen down these words, I am filled with a profound sense of gratitude and an
overwhelming surge of emotions. It is with great pleasure and heartfelt enthusiasm
that I present to you Economic, Commercial and Intellectual Property Laws (New
Syllabus).

It is a combination of countless hours, unwavering dedication, and an immeasurable

love for this subject and, most importantly, for my students.

Within these pages, you will find a wealth of legal knowledge carefully crafted to
ignite your passion, expand your understanding, and equip you with the most
practical aspects of this law. But this book aims to do more than impart knowledge; it
seeks to instill in you a profound appreciation for justice, integrity, and compassion —
the core values that underpin the law.

None of this would have been possible without the dedicated team who supported
me behind the scenes. Their expertise and commitment have been invaluable in
shaping the content and ensuring its accuracy and clarity. My heartfelt gratitude goes
out to each one of them.

To my students, I extend my deepest admiration and appreciation. Your thirst for

knowledge, resilience in the face of challenges, and determination to make a positive
impact have been my greatest inspiration. As you move in this legal journey, approach
each lesson with passion, embracing the complexities as opportunities for growth.

While this book has been meticulously crafted with utmost caution and attention to
detail, it is important to acknowledge that, despite our best efforts, there is always a
possibility of inadvertent errors. If you come across any inaccuracies or have any
suggestions for improvement, I wholeheartedly encourage you to reach out to me.
Your feedback is invaluable in ensuring the ongoing refinement and accuracy of this
work. Please feel free to contact me at 8446427759 or alternatively email me at
chirag.chotrani2@gmail.com. Your assistance in maintaining the quality of this book is
deeply appreciated.

In the end, I invite you to embark upon this literary voyage with an open heart and a
curious mind. Let the pages of this book be your guide, and let its creation remind you
of the unbreakable bond between you and me.

With utmost sincerity and an abundance of love,

Adv. Chirag Chotrani

 MESSAGE TO MY STUDENTS

To my beloved students, I am deeply grateful for your unwavering belief in me and

the unconditional love you have shown me. As you navigate through this course,
there may be moments when doubt creeps in—when you feel exhausted and
question the worth of pursuing this path. But I want you to recall the overwhelming
sense of accomplishment when you cleared your CSEET, and the sheer joy it brought
to your parents. Remember the enthusiasm that you felt that day.

This course is not solely for those deemed "geniuses," but rather for individuals with
perseverance and patience. When you find yourself feeling low, always remember
that I am here to support you, and together, we will overcome any obstacles that
come our way. No matter what it takes, I have faith that you will become a remarkable
Company Secretary. Go forth, my dear students, and pursue your dreams for the sake
of all of us.

शुरू तुमने किया है, पूरा हम करेंगे।

MY SINCERE THANKS TO:

My Mother - Sunita Chotrani

You have inculcated innocence in me, Mumma.

My Father - Omprakash Chotrani

You have taught me honesty and the value of hard work.

My Wife - Madhuri Chotrani

You have been the best thing that ever happened to me.

My Brother - Vikas Vohra

You are like a God to me.

My Brother - Harish
I am here just because of you. Thank you.
 Page

01. law relating foreign exchange management 1.1 - 1.24

02. foreign direct investments regulations and 2.1 - 2.57

policy
CONTENTS
03. overseas direct investment 3.1 - 3.16

04. external commercial borrowings 4.1 - 4.11

05. foreign trade policy and procedure 5.1 - 5.53

06. law relating to special economic zones 6.1 - 6.13

07. law relating to foreign contribution 7.1 - 7.16

08. prevention of money laundering 8.1 - 8.18

09. law relating to fugitive economic offenders 9.1 - 9.10

10. law relating to benami transactions and 10.1 - 10.12

prohibition

11. competition law 11.1 - 11.42

12. LAW RELATING TO CONSUMER PROTECTION 12.1 - 12.42

13. LEGAL METROLOGY 13.1 - 13.14

14. REAL ESTATE REGULATION AND DEVELOPMENT LAW 14.1 - 11.32

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CHAPTER 1 – LAW RELATING FOREIGN EXCHANGE MANAGEMENT

REGULATORY FRAMEWORK
Foreign Exchange Management Act, 1999 (FEMA)

The Foreign Exchange Management Act, 1999 enacted to consolidate and amend the law

relating to foreign exchange with the objective of facilitating external trade and payments

and for promoting the orderly development and maintenance of foreign exchange market in

India. In fact, it is the central legislation that deals with inbound investments into India

and outbound investments from India and trade and business between India and the other

countries.

IMPORTANT DEFINITIONS

AUTHORISED PERSON
The term ‘authorised person’ is defined to include an authorised dealer, money changer, offshore
banking unit or any other person for the time being authorised to deal in foreign exchange or
foreign securities.

EXPORT
‘Export’ means
1. The taking out of India to a place outside India any goods
2. Provision of services from India to any person outside India.

FOREIGN EXCHANGE
The term ‘foreign exchange’ has been defined to mean foreign currency and includes deposits,
credits, balance payable in foreign currency, drafts, travellers’ cheques, letters of credit, bills
of exchange expressed or drawn in Indian currency but payable in any foreign currency. Any
draft, travellers’ cheque, letters of credit or bills of exchange drawn by banks, institutions or
persons outside India but payable in Indian currency has also been included in the definition
of foreign exchange.

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FOREIGN SECURITY
The term ‘foreign security’ has been defined to mean any security, in the form of shares,
stocks, bonds, debentures or any other instrument denominated or expressed in foreign currency
and includes securities expressed in foreign currency but where redemption or any form of
return such as interest or dividend is payable in Indian currency.

PERSON
The definition of the term ‘person’ includes, an individual, a Hindu Undivided Family, a company,
a firm, an association of persons or body of individuals whether incorporated or not; any agency,
office or branch owned or controlled by such persons.

PERSON RESIDENT IN INDIA

The expression ‘person resident in India’ has been defined to mean:
A person residing in India for more than 182 days during the course of the preceding financial
year.

REPATRIATE TO INDIA
‘Repatriate to India’ means bringing into India the realised foreign exchange and
1. The selling of such foreign exchange to an authorised person in India in exchange for rupees,
or
2. The holding of realised amount in an account with an authorised person in India to the extent
notified by the Reserve Bank, and includes use of the realised amount for discharge of a debt
or liability denominated in foreign exchange and the expression “repatriation” shall be construed
accordingly.

SPECIAL DIRECTOR (APPEALS)

‘Special Director (Appeals)’ means an officer appointed under section 17. Section 17 empowers
Central Government which shall, by notification, appoint one or more Special Directors (Appeals)
to hear appeals against the orders of the Adjudicating Authorities under this section and shall
also specify in the said notification the matter and places in relation to which the Special
Director (Appeals) may exercise jurisdiction.

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CURRENT ACCOUNT TRANSACTIONS

The term current account transaction has been defined to mean a transaction other than
a capital account transaction and includes payments due in connection with foreign trade,
other current business, services and short term banking and credit facilities in the ordinary
course of business, payments due as interest on loan and as net income from investments,
remittances for living expenses of parents, spouse and children residing abroad and
expenses in connection with foreign travel, education and medical care of parents, spouse
and children.

Current Account Transactions are payment towards:

1. Private visits to any country,
2. Gift or donation,
3. Going abroad for employment,
4. Emigration,
5. Maintenance of close relatives abroad,
6. Travel for business,
7. for meeting expenses for meeting medical expenses,
8. for accompanying as attendant to a patient going abroad for medical treatment,
9. Studies abroad,
10. Any other current account transaction which is not covered under the definition of current
account in FEMA 1999.

PROHIBITION ON DRAWAL OF FOREIGN EXCHANGE FOR CERTAIN TRANSACTIONS

Rule 3 prohibits the drawal of foreign exchange for the purposes of transactions specified in
the Schedule I or a travel to Nepal and/or Bhutan or a transaction with a person resident in
Nepal or Bhutan.

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Schedule I to the Rules enumerate the situations in which the drawal of foreign exchange
is prohibited. These are as follows:
Remittance out of lottery winnings.

Remittance of income from racing/riding etc, or any other body

Remittance for purchase of lottery tickets, banned/prescribed magazine, football pools, sweep
stakes.

Payment of commission on exports made towards equity investment in joint venture/wholly

owned subsidiaries abroad of Indian Companies.

Payment of commission on exports under Rupee State Credit Route, except commission upto
10% of invoice value of exports of tea and tobacco.

Payment related to ‘call back service’ of telephone.

Remittance of interest income on funds held in Non-resident Special Rupee Scheme Account.

PRIOR APPROVAL OF GOVERNMENT OF INDIA FOR CERTAIN TRANSACTIONS

Rule 4 requires prior approval of the Government of India for the transactions as specified in
Schedule II. However, this does not apply to the cases where the payment is made out of
funds held in Resident Foreign Currency Account (RFC) of the remitter.

PRIOR APPROVAL OF RESERVE BANK FOR CERTAIN TRANSACTION

Rule 5 of the Foreign Exchange Management (Current Account Transactions) Amendment
Rules, 2015, governs every drawal of foreign exchange for transactions included in Schedule III.

TRANSACTIONS INCLUDED IN SCHEDULE III

1. Facilities for individuals
Individuals can avail of foreign exchange facility for the following purposes within the limit of
USD 2,50,000 only. Any additional remittance in excess thereof requires prior approval of the
Reserve Bank of India.
i. Private visits to any country (except Nepal and Bhutan).
ii. Gift or donation.
iii. Going abroad for employment.

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iv. Emigration.
v. Maintenance of close relatives abroad.
vi. Travel for business,
vii. Expenses in connection with medical treatment abroad.
viii. Studies abroad.
ix. Any other current account transaction.

Furthermore, a person who is resident but not permanently resident in India and
i. is a citizen of a foreign State other than Pakistan, or
ii. is a citizen of India, who is on deputation to the office or branch of a foreign company or
subsidiary or joint venture in India of such foreign company, may make remittance up to his
net salary.
Explanation: a person resident in India on account of his employment or deputation of a
specified duration or for a specific job or assignments, the duration of which does not exceed
three years.

2. Facilities for persons other than individual

The following remittances by persons other than individuals require prior approval of the Reserve
Bank of India.
i. Donations exceeding one per cent. of their foreign exchange earnings during the previous three
financial years or USD 5,000,000, whichever is less, for:
a. creation of Chairs in reputed educational institutes,
b. contribution to funds (not being an investment fund) promoted by educational institutes,
c. contribution to a technical institution or body or association in the field of activity of the
donor Company.
ii. Commission, per transaction, to agents abroad for sale of residential flats or commercial plots
in India exceeding USD 25,000 or five percent of the inward remittance whichever is more.
iii. Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of
infrastructure projects and USD 1,000,000 per project, for other consultancy services procured
from outside India.

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iv. Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever
is higher, by an entity in India by way of reimbursement of pre-incorporation expenses.

LIBERALISED REMITTANCE SCHEME (LRS)

Liberalised Remittance Scheme (LRS) of USD 2, 50,000 for resident individuals. Under the
Liberalised Remittance Scheme, Authorised Dealers may freely allow remittances by resident
individuals up to USD 2, 50,000 per Financial Year (April-March) for any permitted current or
capital account transaction or a combination of both. The Scheme is not available to corporates,
partnership firms, HUF, Trusts, etc.

1. Private visits
For private visits abroad, other than to Nepal and Bhutan, any resident individual can obtain
foreign exchange up to an aggregate amount of USD 2,50,000 from an Authorised Dealer, in
any one financial year, irrespective of the number of visits undertaken during the year.

2. Gift/donation
Any resident individual may remit up-to USD 2,50,000 in one FY as gift to a person residing
outside India or as donation to an organization outside India.

3. Going abroad on employment

A person going abroad for employment can draw foreign exchange up to USD 2,50,000 per FY
from any Authorised Dealer in India.

4. Emigration
A person who wants to emigrate can withdraw foreign currency from AD Category I banks and
AD Category II banks. The amount they can withdraw is determined by the country they are
emigrating to or a maximum limit of USD 250,000. If someone wants to send more money
abroad, it can only be used for covering additional expenses in the destination country and not
for earning points or credits to become eligible for immigration through investments in
government bonds, land, or commercial enterprises.

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5. Maintenance of relatives abroad

A resident individual can remit up-to USD 2,50,000 per FY towards maintenance of relative

6. Business trip
For business trips to foreign countries, resident individuals can avail of foreign exchange up to
USD 2,50,000 in a FY irrespective of the number of visits.

7. Medical treatment abroad

Authorised Dealers may release foreign exchange up to an amount of USD 2,50,000 or its
equivalent per FY without insisting on any estimate from a hospital/doctor. For amount
exceeding the above limit, Authorised Dealers may release foreign exchange under general
permission based on the estimate from the doctor in India or hospital/ doctor abroad. A person
who has fallen sick after proceeding abroad may also be released foreign exchange by an
Authorised Dealer for medical treatment outside India.
In addition to the above, an amount up to USD 250,000 per financial year is allowed to a
person for accompanying as attendant to a patient going abroad for medical treatment/check-
up.

8. Facilities available to students for pursuing their studies abroad.

AD Category I banks and AD Category II, may release foreign exchange up to USD 2,50,000 or
its equivalent to resident individuals for studies abroad without insisting on any estimate from
the foreign university. However, AD Category I bank and AD Category II may allow remittances
(without seeking prior approval of the Reserve Bank of India) exceeding USD 2,50,000 based
on the estimate received from the institution abroad. Further, a resident cannot gift to another
resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad
under LRS.

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The permissible capital account transactions by an individual under LRS are:

i. Opening of foreign currency account abroad with a bank,

ii. Acquisition of immovable property abroad, Overseas Direct Investment (ODI) and
Overseas Portfolio Investment (OPI),
iii. Extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who
are relatives.

CAPITAL ACCOUNT TRANSACTIONS

Capital account transaction’ has been defined to mean any transaction which alters the
assets or liabilities including contingent liabilities, outside India of persons resident in India
or assets or liabilities in India of person resident outside India.

PERMISSIBLE CAPITAL ACCOUNT TRANSACTIONS

CLASSES OF CAPITAL ACCOUNT TRANSACTIONS

Classes of capital account transactions

of persons resident in India

Classes of capital account transactions

of persons resident outside India

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CLASSES OF CAPITAL ACCOUNT TRANSACTIONS BY PERSONS RESIDENT IN INDIA

a. Investment by a person resident in India in foreign securities.

b. Foreign currency loans raised in India and abroad by a person resident in India.

c. Transfer of immovable property outside India by a person reident in India

d. Guarntees issued by a person resident in India in favour of a person resident outside India

e. Export,import and holding of currency/currency notes.

f. Loans and overdrafts by a person resident in India from a person resident outside India

g. Maintenence of foreign currency accounts in India and outside India by a person resident in
India

h. Taking out of insurance policy by a person resident in India from an insurance company
outside India

i. Loans and overdrafts by a person resident in India to a person resident outside India

j. Remittance outside India of capital assets of a person resident in India

k. Undertake derivative contracts

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CLASSES OF CAPITAL ACCOUNT TRANSACTIONS BY PERSONS RESIDENT OUTSIDE INDIA

a. Investment in India by a person resident outside India,

b. Acquisition and transfer of immovable property in India by a person resident outside India

c. Guarantee by a person resident outside India in favour of ,or on behalf of a person resident
outside India.

d. Import and export of currency/currency notes into / from India by a person resident outside
India

e. Foreign currency accounts in India of a person resident outside India.

f. Remittance outside India of capital asset in India of a person resident outside India

g. Undertake derivative contracts.

DUTY OF PERSONS TO REALISE FOREIGN EXCHANGE DUE

A person resident in India to whom any amount of foreign exchange is due or has accrued
shall, take all reasonable steps to realise and repatriate to India such foreign exchange, and
shall in no case do or refrain from doing anything, or take or refrain from taking any action,
which has the effect of securing:
1. That the receipt by him of the whole or part of that foreign exchange is delayed, or
2. That the foreign exchange ceases in whole or in part to be receivable by him.

MANNER OF REPATRIATION
On realisation of foreign exchange due, a person shall repatriate the same to India, namely
bring into, or receive in, India and
1. Sell it to an authorised person in India in exchange for rupees, or
2. Retain or hold it in account with an authorised dealer in India, or
3. Use it for discharge of a debt or liability denominated in foreign exchange.

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PERIOD FOR SURRENDER OF REALISED FOREIGN EXCHANGE

A person not being an individual resident in India shall sell the realised foreign exchange to an
authorised person, within the period specified below:
1. Foreign exchange due or accrued as remuneration for services rendered, whether in or outside
India, or in settlement of any lawful obligation, or an income on assets held outside India, or
as inheritance, settlement or gift, within seven days from the date of its receipt,
2. In all other cases within a period of ninety days from the date of its receipt.

PERIOD FOR SURRENDER IN CERTAIN CASES

1. Any person not being an individual resident in India who has acquired or purchased foreign
exchange for any purpose mentioned in the declaration made by him to an authorised person
does not use it for such purpose or for any other purpose for which purchase or acquisition of
foreign exchange is permissible under the provisions of the Act or the rules or regulations or
direction or order made thereunder, shall surrender such foreign exchange or the unused portion
thereof to an authorised person within a period of sixty days from the date of its acquisition
or purchase by him.
2. Where the foreign exchange acquired or purchased by any person not being an individual resident
in India from an authorised person is for the purpose of foreign travel, then, the unspent
balance of such foreign exchange shall, be surrendered to an authorised person:
i. within ninety days from the date of return of the traveller to India, when the unspent
foreign exchange is in the form of currency notes and coins, and
ii. within one hundred eighty days from the date of return of the traveller to India, when the
unspent foreign exchange is in the form of traveller’s cheques.

PERIOD FOR SURRENDER OF RECEIVED/REALISED/UNSPENT/UNUSED FOREIGN EXCHANGE

BY RESIDENT INDIVIDUALS
A person being an individual resident in India shall surrender the received/ realised/ unspent/
unused foreign exchange whether in the form of currency notes, coins and traveller’s cheques,
etc. to an authorised person within a period of 180 days from the date of such receipt/
realisation/ purchase/ acquisition or date of his return to India, as the case may be.

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EXEMPTION
The Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign
Exchange) Regulations, 2015 does not apply to foreign exchange in the form of currency of
Nepal or Bhutan.

REMITTANCE OF ASSETS

REMITTANCES BY INDIVIDUALS NOT BEING NRIS/ PIOS

‘Remittance of assets’ means remittance outside India of funds in a deposit with a bank/ firm/
company, provident fund balance or superannuation benefits, sale proceeds of shares, securities,
immovable property or any other asset held in India.
Authorised Dealer (AD) may allow remittance of assets by a foreign national where:
1. The person has retired from employment in India,
2. The person has inherited,
3. The person is a non-resident widow/widower and has inherited assets from her/his deceased
spouse who was an Indian national resident in India,
The remittance should not exceed USD one million per financial year. This limit, however, will
not cover sale proceeds of assets held on repatriation basis.
4. The remittance is in respect of balances held in a bank account by a foreign student who has
completed his/ her studies, provided such balance represents proceeds of remittances received
from abroad through normal banking channels or out of stipend/scholarship received from the
Government or any organisation in India.
These facilities are not available for citizens of Nepal or Bhutan or a PIO.

REMITTANCES BY NRIS/ PIOS

‘Non-Resident Indian’ (NRI) means a person resident outside India who is a citizen of India.
A 'Person of Indian Origin (PIO)' is someone who lives outside India and holds citizenship of
any country except Bangladesh or Pakistan. To qualify as a PIO, they must meet one of the
following conditions:
1. They were an Indian citizen as per the Constitution of India or the Citizenship Act, 1955.
2. They come from a territory that became part of India after August 15, 1947.

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3. They are a child, grandchild, or great-grandchild of an Indian citizen.

4. They are a foreign spouse of an Indian citizen.

ADs may allow NRIs/ PIOs, on submission of documentary evidence, to remit up to USD one
million, per financial year:
1. Out of balances in their non-resident (ordinary) (NRO) accounts/ sale proceeds of assets/
assets acquired in India by way of inheritance/ legacy;
2. In respect of assets acquired under a deed of settlement made by either of his/ her parents
or a relative.
In case the remittance is made in more than one instalment, the remittance of all instalments
should be made through the same AD. Where the remittance is to be made from the balances
held in the NRO account, the Authorised Dealer should obtain an undertaking from the account
holder stating that the said remittance is sought to be made out of the remitter’s balances
held in the account arising from his/ her legitimate receivables in India and not by borrowing.

REMITTANCES BY COMPANIES/ ENTITIES

ADs may allow remittances by Indian companies under liquidation on directions issued by a
Court in India/ orders issued by official liquidator in case of voluntary winding up on submission
of:
1. Auditor’s certificate confirming that all liabilities in India have been either fully paid or
adequately provided for.
2. Auditor’s certificate to the effect that the winding up is in accordance with the provisions of
the Companies Act.
3. In case of winding up otherwise than by a court, an auditor’s certificate to the effect that
there are no legal proceedings pending in any court in India against the applicant or the
company under liquidation.

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REMITTANCES/ WINDING UP PROCEEDS OF BRANCH/ OFFICE

ADs may permit remittance of assets on closure or remittance of winding up proceeds of
branch office/ liaison office (other than project office) on submission of the following
documents:
1. A copy of the Reserve Bank’s permission for establishing the branch/ office in India.
2. Auditor’s certificate:
i. indicating the manner in which the remittable amount has been arrived,
ii. confirming that all liabilities in India including arrears of gratuity and other benefits to
the employees etc., of the branch/ office have been either fully met or adequately provided
for,
iii. confirming that no income accruing from sources outside India (including proceeds of
exports) has remained un-repatriated to India,
iv. confirming that the branch/office has complied with all regulatory requirements
3. A confirmation from the applicant that no legal proceedings are pending in any Court in India
and there is no legal impediment to the remittance; and
4. A report from the Registrar of Companies regarding compliance with the provisions of the
Companies Act, 2013, in case of winding up of the office in India.

REMITTANCE OF ASSETS REQUIRING RBI APPROVAL

Prior approval of the Reserve Bank is necessary for remittance of assets where:
1. Remittance is in excess of USD 1,000,000 (US Dollar One million only) per financial year.
2. Hardship will be caused to a person if remittance from India is not made to such a person.
Remittance of funds from the sale of assets in India held by a person, whether resident in or
outside India, not covered under the directions stipulated above will require approval of the
Reserve Bank.

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POSSESSION AND RETENTION OF FOREIGN CURRENCY OR FOREIGN COINS

Under Regulation 3 the Reserve Bank has specified following limits for possession or retention
of foreign currency or foreign coins, namely:
1. Possession without limit of foreign currency and coins by an authorised person within the scope
of his authority,
2. Possession without limit of foreign coins by any person,
3. Retention by a person resident in India of foreign currency notes, bank notes and foreign
currency traveller’s cheques not exceeding US $ 2000 or its equivalent in aggregate.
Regulation 4 deals with possession of foreign exchange by a person resident in India but not
permanently resident therein and provides that he may possess without limit foreign currency
in the form of currency notes, bank notes and traveller’s cheques, if such foreign currency was
acquired, held or owned by him when he was resident outside India and, has been brought into
India in accordance with the law for the time being in force.

ACQUISITION OR TRANSFER OF IMMOVABLE PROPERTY IN INDIA

1. An NRI or an OCI can acquire by way of purchase any immovable property (other than
agricultural land/ plantation property/ farm house) in India.
2. An NRI or an OCI can acquire by way of gift any immovable property (other than agricultural
land/ plantation property/ farm house) in India from person resident in India or from an NRI
or an OCI who is a relative.
3. An NRI or an OCI can acquire any immovable property in India by way of inheritance from a
person resident outside India who had acquired the property in accordance with the provisions
of the foreign exchange law
4. An NRI or an OCI can acquire any immovable property in India by way of inheritance from a
person resident in India.
5. An NRI or an OCI may transfer any immovable property in India to a person resident in India.
6. An NRI or an OCI may transfer any immovable property (other than agricultural land or
plantation property or farmhouse) to an NRI or an OCI.

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JOINT ACQUISITION BY THE SPOUSE OF AN NRI OR AN OCI

1. A person resident outside India, not being a Non-Resident Indian, who is a spouse of a Non-
Resident Indian may acquire one immovable property (other than agricultural land/ farm house/
plantation property), jointly with his/ her NRI/ OCI spouse.
2. The marriage should have been registered and subsisted for a continuous period of not less
than two years immediately preceding the acquisition of such property.
3. The non-resident spouse should not otherwise be prohibited from such acquisition.

ACQUISITION BY A LONG-TERM VISA HOLDER

A person being a citizen of Afghanistan, Bangladesh or Pakistan belonging to minority
communities in those countries viz., Hindus, Sikhs, Jains, Buddhists, Parsis and Christians, who
is residing in India and has been granted a Long-Term Visa (LTV) by the Central Government
may purchase only one residential immovable property in India as dwelling unit for self-
occupation and only one immovable property for self-employment.

AUTHORISED PERSON
1. Authorised Person include an authorised dealer, money charger, offshore banking unit or any
other person for the time being authorised to deal in foreign exchange or foreign securities.
2. An Authorised Dealer is any person specifically authorized by the Reserve Bank under Section
10(1) of FEMA, 1999, to deal in foreign exchange or foreign securities.
3. Normally, nationalised banks, leading non nationalized banks and foreign banks are appointed
as authorized persons.
4. Reserve Bank of India has been empowered to revoke the authorisation granted to any person
at any time in the public interest. It may also revoke the authorisation after giving an
opportunity, if the authorised person failed to comply with the conditions subject to which the
authorisation was granted or contravened any of the provisions of the Act, rules, notifications
or directions.
5. An authorised person, before undertaking any transaction on behalf of any person shall, require
that person to make such declaration and give such information as will reasonably satisfy the
authorised person that the transaction will not involve or is not intended to violate or contravene
any provisions of the Act.

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6. Any person, other than an authorised person who has acquired or purchased foreign exchange
for any purpose mentioned in the declaration made by him to the authorised person does not
use it for such purpose, or does not surrender it to authorised person such person shall be
deemed to have committed contravention of the provisions of the Act.

POWER OF THE RESERVE BANK TO ISSUE DIRECTIONS TO AUTHORISED PERSON

1. Section 11 of the Act empowers the RBI to issue directions to the authorised person in regard
to making of payment or doing or desist from doing any act relating to foreign exchange or
foreign security.
2. Reserve Bank has also been empowered to issue directions to the authorised persons to furnish
such information in such manner as it deems fit.
3. If any authorised person contravenes any direction given by the RBI or fails to file the return
as directed by RBI, he may be liable to a fine not exceeding Rs. 10,000/- and in the case of
continuing contravention, with an additional penalty which may extend to Rs. 2,000 for every
day during which such contravention continues.

ADJUDICATION AND APPEAL

APPOINTMENT OF ADJUDICATING AUTHORITY

1. Section 16 empowers the Central Government to appoint by notification in the Official Gazette
as many Adjudicating Authorities as it may think fit for holding enquiries;
2. The Adjudicating Authority has been empowered to hold any enquiry on a complaint made in
writing by an officer authorised by a general or special order by the Central Government.
3. The Adjudicating Authority has discretion to demand from the persons against whom a
complaint is made a bond or guarantee for any such amount as he thinks fit, if he is of the
opinion that such persons likely to abscond or evade the payment of penalty, if imposed.

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APPEAL TO SPECIAL DIRECTOR (APPEALS)

1. Section 17 of the Act provides for appointment of one or more Special Directors (Appeals) to
hear appeals against the orders of the Adjudicating Authorities.
2. An appeal to the Special Director (Appeals) may be made against the orders of the Assistant
Director or Deputy Director of enforcement, acting as Adjudicating Authority.
3. The appeal against the order of Adjudicating Authority shall be made in the prescribed form
along with requisite fee, within forty five days from the date of the receipt of the order by
aggrieved person.
4. The Special Director (Appeals) has however, been empowered to entertain appeal after the
expiry of the said period of forty five days.

ESTABLISHMENT OF APPELLATE TRIBUNAL

Section 18 of the Act provides that the Appellate Tribunal constituted under Smugglers and
Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976, shall be the Appellate
Tribunal for the purposes of this Act.

APPEAL TO APPELLATE TRIBUNAL

1. The Central Government or any person aggrieved by an order made by an Adjudicating Authority,
or the Special Director (Appeals), may prefer an appeal to the Appellate Tribunal.
2. Provided that any person appealing against the order of the Adjudicating Authority or the
Special Director (Appeals) levying any penalty, shall while filing the appeal, deposit the amount
of such penalty with such authority as may be notified by the Central Government:
3. Provided further that where in any particular case, the Appellate Tribunal is of the opinion that
the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal
may dispense with such deposit subject to such conditions as it may deem fit to impose so as
to safeguard the realisation of penalty.
4. Every appeal under sub-section (1) shall be filed within a period of forty-five days from
the date on which a copy of the order made by the Adjudicating Authority or the Special
Director (Appeals) is received by the aggrieved person.

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5. Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard,
pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order
appealed against.
6. The appeal filed before the Appellate Tribunal under sub-section (1) shall be dealt with by it
as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally
within one hundred and eighty days from the date of receipt of the appeal.
7. Provided that where any appeal could not be disposed of within the said period of one hundred
and eighty days, the Appellate Tribunal shall record its reasons in writing for not disposing off
the appeal within the said period.

APPEAL TO HIGH COURT

1. A right to appeal to High Court lies with the appellant who is aggrieved by the decision of the
Tribunal. Such appeal must be filed within 60 days from the date of communication of the
decision or order of the Tribunal.
2. The appeal to the High Court can be made on any question of law arising out of such order.
3. A relaxation for a maximum period of sixty days for making an appeal may be granted by the
High Court, if it is satisfied that the appellant was prevented by sufficient cause from filing
the appeal within the specified period.

DIRECTORATE OF ENFORCEMENT
Section 36 of the Act empowers the Central Government to establish a Directorate of
Enforcement with a Director and other officers or class of Officers, for the purposes of the
enforcement of the Act. The Central Government has also been empowered to authorise
Director, Additional Director, Special Director or Deputy Director to appoint officers of
enforcement below the rank of Assistant Director of Enforcement to exercise the powers and
discharge the duties conferred or imposed on him under the Act.

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CONTRAVENTION AND PENALTIES

1. If any person contravenes any provision of this Act, he shall, upon adjudication, be liable to a
penalty up to thrice the sum involved in such contravention where such amount is quantifiable,
or up to two lakh rupees where the amount is not quantifiable, and where such contravention
is a continuing one, further penalty which may extend to five thousand rupees for every day
after the first day during which the contravention continues.
2. If any person is found to have acquired any foreign exchange, foreign security or immovable
property, situated outside India, he shall be liable to a penalty up to three times the sum
involved in such contravention and confiscation of the value equivalent, situated in India,
punishable with imprisonment for a term which may extend to five years and with fine.

COMPOUNDING OF CONTRAVENTIONS
The provisions of section 15 of Foreign Exchange Management Act, 1999 permit compounding
of contraventions and, as such it empowers the Reserve Bank to compound any contravention
as defined under section 13 of the FEMA, 1999 on an application made by the person committing
such contravention. Willful, malafide and fraudulent transactions are, however, viewed seriously,
which will not be compounded by the Reserve Bank.
Any person who contravenes any provision of the FEMA, 1999 can apply for compounding to
the Reserve Bank.

RESERVE BANK OF INDIA

Section 11 of the Foreign Exchange Management Act empowers the RBI to issue directions to
the authorised person in regard to making of payment or doing or desist from doing any act
relating to foreign exchange or foreign security. The Reserve Bank of India was established on
April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The
Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:
“to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary
stability in India and generally to operate the currency and credit system of the country to its
advantage; to have a modern monetary policy framework to meet the challenge of an
increasingly complex economy, to maintain price stability while keeping in mind the objective
of growth.”

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CENTRAL BOARD OF DIRECTOR

The Reserve Bank’s affairs are governed by a Central Board of Directors. The board is appointed
by the Government of India in keeping with the Reserve Bank of India Act. They are
appointed/nominated for a period of four years. Constitution of Central Board of Directors are
as under:
Official Directors: Full-time: Governor and not more than four Deputy Governors.
Non-Official Directors:
i. Nominated by Government: ten Directors from various fields and two government Official
ii. Others: four Directors - one each from four local boards.

ORGANISATION STRUCTURE

CENTRAL BOARD OF DIRECTORS

Governor

Deputy Governor

Executive Directors

Principal Chief General Managers

Chief General Managers

General Managers

Deputy General Managers

Asstt. General Managers

Managers

Asstt. Managers

Support Staff

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MAIN FUNCTIONS RESERVE BANK OF INDIA

The main Functions of Reserve Bank of India are as follows:
Monetary Authority:
i. Formulates, implements and monitors the monetary policy.
ii. Objective: maintaining price stability while keeping in mind the objective of growth.

Regulator and Supervisor of the Financial System:

i. Prescribes broad parameters of banking operations within which the country’s banking and
financial system functions.
ii. Objective: maintain public confidence in the system, protect depositors’ interest and provide
cost effective banking services to the public.

Manager of Foreign Exchange:

i. Manages the Foreign Exchange Management Act, 1999.
ii. Objective: to facilitate external trade and payment and promote orderly development and
maintenance of foreign exchange market in India.

Issuer of Currency:
i. Issues, exchanges and destroys currency notes as well as puts into circulation coins minted
by Government of India.
ii. Objective: to give the public adequate quantity of supplies of currency notes and coins and
in good quality.

Developmental Role:
Performs a wide range of promotional functions to support national objectives.

Regulator and Supervisor of Payment and Settlement Systems:

i. Introduces and upgrades safe and efficient modes of payment systems in the country to
meet the requirements of the public at large.
ii. Objective: maintain public confidence in payment and settlement system.

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Related Functions:
i. Banker to the Government: performs merchant banking function for the central and the
state governments; also acts as their banker.
ii. Banker to banks: maintains banking accounts of all scheduled banks.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 2 – FOREIGN DIRECT INVESTMENTS REGULATIONS & POLICY

INTRODUCTION
a. Foreign Direct Investment (‘FDI’) means investment through equity instruments by a person
resident outside India in an unlisted Indian company, or in 10% or more of the post issue paid-
up equity capital on a fully diluted basis of a listed Indian company.
b. In case an existing investment by a person resident outside India in equity instruments of a
listed Indian company falls to a level below 10% of the post issue paid-up equity capital on a
fully diluted basis, the investment shall continue to be treated as FDI.
c. ‘Fully diluted’ basis means the total number of shares that would be outstanding if all possible
sources of conversion are exercised.
d. To attract higher levels of FDI, Government has put in place a liberal policy on FDI, under
which FDI up to 100%, is permitted, under the automatic route, in most sectors/activities.

GENERAL CONDITIONS ON FDI

ELIGIBLE INVESTORS
1. A non-resident entity can invest in India, except in those sectors/activities which are prohibited.
However, an entity of a country, which shares land border with India or where the beneficial
owner of an investment into India is situated in or is a citizen of any such country, can invest
only under the Government route. Further, a citizen of Pakistan or an entity incorporated in
Pakistan can invest, only under the Government route, in sectors/activities other than defence
space, atomic energy and sectors/activities prohibited for foreign investment.
2. NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to
invest in the capital of Indian companies on repatriation basis.
3. OCBs are no longer recognized as a category of investors in India. However, previously recognized
OCBs that are incorporated outside India and do not have any adverse notice from the Reserve
Bank of India (RBI) can now make new investments as non-resident entities incorporated in
accordance with the Foreign Direct Investment (FDI) Policy.

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Overseas Corporate Body’ (OCB) means a company, partnership firm, society and other
corporate body owned directly or indirectly to the extent of at least sixty percent by non-
resident Indians and includes overseas trust in which not less than sixty percent benefi-
cial interest is held by non-resident Indians.

4. A company, trust and partnership firm incorporated outside India and owned and controlled by
NRIs can invest in India.
5. Foreign Portfolio Investors (FPI) may make investments.
6. A Foreign Venture Capital Investor (FVCI) may make investments.
7. An NRI or an OCI may subscribe to National Pension System governed and administered by
Pension Fund Regulatory and Development Authority (PFRDA).

ELIGIBLE INVESTEE ENTITIES

1. Indian Company
Indian companies can issue capital against FDI.

2. Partnership Firm/Proprietary Concern

i. A Non-Resident Indian (NRI) can invest in the capital of a firm or a proprietary
concern in India on non- repatriation basis provided: Amount is invested by inward
remittance or out of NRE/FCNR(B)/NRO account.
(Here, NRE (Non-Resident External) Account: A bank account for NRIs to hold and
manage their foreign income in India, FCNR(B): A term deposit account in foreign currency
for NRIs, allowing them to hold and manage foreign currency deposits in India with fully
repatriable principal and interest, NRO Account: A bank account for NRIs to manage their
income earned in India)

ii. Investments with repatriation option: NRIs may seek prior permission of Reserve Bank
for investment in sole proprietorship concerns/partnership firms with repatriation option.
The application will be decided in consultation with the Government of India.

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iii. Investment by non-residents other than NRIs: A person resident outside India other
than NRIs may make an application and seek prior approval of Reserve Bank for making
investment in the capital of a firm or a proprietorship concern or any association of persons
in India.

iv. Restrictions: An NRI is not allowed to invest in a firm or proprietorship concern engaged
in any agricultural/plantation activity or real estate business or print media.

3. Trusts
Investment by a person resident outside India is not permitted in Trusts other than in ‘VCF’
registered and regulated by SEBI and ‘Investment vehicle’

4. Limited Liability Partnerships (LLPs)

Foreign Investment in LLPs is permitted subject to the following conditions:
i. Foreign Investment is permitted under the automatic route in Limited Liability Partnership
(LLPs) operating in sectors/ activities where 100% FDI is allowed through the automatic
route and there are no FDI-linked performance conditions.
ii. Indian companies and LLPs with foreign investment can make downstream investments
in other companies or LLPs operating in sectors where 100% FDI is allowed under the
automatic route, without any FDI-linked performance conditions. Moreover, an LLP with
foreign investment, operating in sectors/activities with 100% FDI allowed through the
automatic route and no FDI-linked performance conditions, can be converted into a com-
pany under the automatic route. Similarly, a company with foreign investment, operating
in sectors/activities where 100% FDI is allowed through the automatic route and no FDI-
linked performance conditions, can be converted into an LLP under the automatic route.

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5. Investment Vehicle
An entity being ‘investment vehicle’ registered and regulated under relevant regulations framed
by SEBI or any other authority designated for the purpose including Real Estate Investment
Trusts (REITs).
Infrastructure Investment Trusts (InvIts), Alternative Investment Funds (AIFs) is permitted to
receive foreign investment from a person resident outside India (other than an individual who
is citizen of or any other entity which is registered / incorporated in Pakistan or Bangladesh).

6. Startup Companies
Start-ups can issue equity or equity linked instruments or debt instruments, In addition,
start-ups can issue convertible notes to person resident outside India subject to the following
conditions:
i. A person resident outside India may purchase convertible notes issued by an Indian startup
company for an amount of twenty-five lakh rupees or more in a single tranche.
ii. A startup company engaged in a sector where foreign investment requires Government
approval may issue convertible notes to a non-resident only with approval of the Govern-
ment.
iii. A startup company issuing convertible notes to a person resident outside India shall receive
the amount of consideration by inward remittance through banking channels or by debit
to the NRE / FCNR (B) / Escrow account maintained by the person concerned.
iv. NRIs may acquire convertible notes on non-repatriation basis as per Schedule IV.
v. A person resident outside India may acquire or transfer, by way of sale, convertible notes,
from or to, a person resident in or outside India, provided the transfer takes place in
accordance applicable pricing guidelines under FEMA. Prior approval from the Government
shall be obtained for such acquisitions or transfers in case the startup company is engaged
in a sector which requires Government approval.

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‘Convertible Note’ means an instrument issued by a startup company acknowledging

receipt of money initially as debt, which is repayable at the option of the holder, or which
is convertible into such number of equity shares of such startup company, within a period
not exceeding five years from the date of issue of the convertible note.

7. Other Entities
FDI in resident entities other than those mentioned above is not permitted.

ENTRY ROUTES FOR INVESTMENT

ENTRY ROUTES Automatic Route

FOR
INVESTMENTS Government Route

Automatic Route: It means the entry route through which investment by a person resi-
dent outside India does not require the prior approval of the Reserve Bank of India or the
Central Government.
Government Route: It means the entry route through which investment by person resi-
dent outside India requires prior Government approval and foreign investment received un-
der this route shall be in accordance with the conditions stipulated by the Government
in its approval.

Foreign investment in sectors/activities under government approval route will be subject

to government approval where:
1. An Indian company is being established with foreign investment and is not owned by a resident
entity or
2. An Indian company is being established with foreign investment and is not controlled by a
resident entity or

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3. Resident Indian citizens and Indian companies, currently controlling an Indian company, are
transferring control to a non-resident entity through the transfer or issuance of shares to non-
resident entities. This transfer is happening through processes such as amalgamation, merger,
demerger, acquisition, etc. or
4. Resident Indian citizens and Indian companies, currently owning an Indian company, are trans-
ferring ownership to a non-resident entity through the transfer or issuance of shares to non-
resident entities. This transfer is happening through processes such as amalgamation, merger,
demerger, acquisition, etc. or
5. FCCBs and DRs having underlying of instruments in the nature of debt, shall not be treated
as foreign investment. However, any equity holding by a person resident outside India resulting
from conversion of any debt instrument under any arrangement shall be reckoned as foreign
investment,
6. A company, trust and partnership firm incorporated outside India and owned and controlled by
non-resident Indians will be eligible for investments.

FOREIGN INVESTMENT INTO/DOWNSTREAM INVESTMENT BY ELIGIBLE INDIAN ENTITIES

Downstream investment means investment made by an Indian entity which has foreign
investment in it, or an Investment Vehicle in the capital instruments or the capital, as
the case may be, of another Indian entity. It means indirect foreign investment, by an
eligible Indian entity, into another Indian Company/LLP, by way of subscription or acqui-
sition.

“Indirect foreign investment” means downstream investment received by an Indian entity

from:
1. Another Indian Entity (IE) which has received foreign investment and
i. the IE is not owned and not controlled by resident Indian citizens or
ii. is owned or controlled by persons resident outside India.

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2. An investment vehicle whose sponsor or manager or investment manager

i. is not owned and not controlled by resident Indian citizens or
ii. is owned or controlled by persons resident outside India.

A. Total Foreign Investment i.e. Direct and Indirect Foreign Investment in eligible Indian
entities
1. Non-resident and resident Indian entities can invest in eligible Indian companies.
2. Non-resident investment in an Indian company is considered direct foreign investment. Resident
Indian entities' investment can include both resident and non-resident investment.
3. Thus, such an Indian company would have indirect foreign investment if the Indian investing
company has foreign investment in it.
4. For the purpose of computation of indirect foreign investment in an Indian company, foreign
investment in an Indian company shall include all types of foreign investments, i.e., FDI,
investment by FPIs, NRIs, ADRs, GDRs, FCCBs, fully, compulsorily and mandatorily convertible
preference shares and fully, compulsorily and mandatorily convertible Debentures.

GUIDELINES FOR CALCULATION OF TOTAL FOREIGN INVESTMENT I.E. DIRECT AND INDI-
RECT FOREIGN INVESTMENT
1. Counting of direct foreign investment
All investment directly by a non-resident entity into the Indian company/ LLP would be counted
towards foreign investment.

2. Counting of indirect foreign investment

i. The foreign investment through the investing Indian company/LLP would not be considered
for calculation of the indirect foreign investment in case of Indian companies/LLPs which
are ‘owned and controlled’ by resident Indian citizens and/or Indian Companies/LLPs which
are owned and controlled by resident Indian citizens.
ii. For cases where condition (i) above is not satisfied or if the investing company is owned
or controlled by ‘non-resident entities’, the entire investment by the investing com-
pany/LLP into the subject Indian Company would be considered as indirect foreign invest-
ment, provided that, as an exception, the indirect foreign investment in only the 100%

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owned subsidiaries of operating cum- investing/investing companies, will be limited to the

foreign investment in the operating-cuminvesting/ investing company. This exception is
made since the downstream investment of a 100% owned subsidiary of the holding company
is akin to investment made by the holding company and the downstream investment should
be a mirror image of the holding company. This exception, however, is strictly for those
cases where the entire capital of the downstream subsidiary is owned by the holding
company.

ILLUSTRATION
If the indirect foreign investment is being calculated for Company X which has
investment through an investing Company Y having foreign investment, the following
would be the method of calculation:
F a. Where Company Y has foreign investment less than 50%: Company X would not be
approval taken
where:as having any indirect foreign investment through Company Y.
b. Indian
(i) An Wherecompany
Company isY being
has foreign investment
established with of say 75%
foreign and:
investment and is not owned by
a residenti. entity;
investsor26% in Company X, the entire 26% investment by Company Y would be
treated as indirect foreign investment in Company X;
(ii) An Indian company is being established with foreign investment and is not controlled
ii. invests 80% in Company X, the indirect foreign investment in Company X would
by a resident
be taken as 80%;
entity; oriii. Where Company X is a wholly owned subsidiary of Company Y (i.e., Company Y
(iii) The control
ownsof100%
an existing Indian
shares of company,
Company currently
X), then owned
only 75% or controlled
would be treatedbyasresident
indirect
foreign equity and the balance 25% would be treated as resident held equity.
Indian citizens
iv. companies,
and Indian The total foreign
which investment would
are owned or be the sum
controlled total of Indian
by resident direct and indirect
citizens, willforeign
be/is
investment.
being

B. Foreign investment into an Indian company engaged only in the activity of investing in
the capital of other Indian company(ies) (regardless of its ownership or control)
1. Foreign Investment in Investing Companies registered as Non-Banking Financial Companies
(NBFC) with the RBI, being overall regulated, would be under 100% automatic route.
2. Foreign Investment in Core Investment Companies (CICs), engaged in the activity of investing
in the capital of other Indian company/LLPs, is permitted under Government approval route.
CICs will have to additionally follow RBI’s regulatory framework for CICs.

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C. Downstream investment by an eligible Indian entity which is not owned and/or controlled
by resident entity(ies)
1. Downstream investment by an eligible Indian entity, which is not owned and/or controlled by
resident entity(ies), into another Indian company, would be in accordance/compliance with the
relevant sectoral conditions on entry route, conditionalities and caps, with regard to the sectors
in which the latter Indian company is operating.

2. Downstream investments by eligible Indian entities/LLPs will be subject to the following

conditions:
i. Such an entity is required to notify its downstream investment to RBI in Form DI as
well as on Foreign Investment Facilitation Portal in the form available at www.fifp.gov.in
within 30 days of such investment, even if capital instruments have not been allotted
along with the modality of investment in new/existing ventures (with/without expansion
programme);
ii. Downstream investment by way of induction of foreign investment in an existing Indian
Company to be duly supported by a resolution of the Board of Directors as also a
shareholders agreement, if any;
iii. Issue/transfer/pricing/valuation of capital shall be in accordance with applicable
FEMA/SEBI guidelines;
iv. For the purpose of downstream investment, the eligible Indian entities making the down-
stream investments would have to bring in requisite funds from abroad and not leverage
funds from the domestic market.

a. In case of proposals involving total foreign equity inflow of more than Rs. 5000 crore,
competent authority shall place the same for consideration of Cabinet Committee on
non-resident entity as a consequence of transfer of shares and/or fresh
Economic Affairs (CCEA).
issue of shares to non- resident entities through amalgamation, merger/demerger, acqui-
b. The CCEA would also consider the proposals which may be referred to it by the
sitionMinister-in-charge
etc.; or of the concerned competent authority.
(

v) The ownership of an existing Indian company, currently owned or controlled by re

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CASES WHICH DO NOT REQUIRE FRESH APPROVAL

Companies may not require fresh approval of the Government for bringing in additional foreign
investment into the same entity, in the following cases:
1. Entities, the activities of which had earlier required the prior approval of the Government and
which had, accordingly, earlier obtained the prior approval of the Government for their initial
foreign investment but subsequently such activities/sectors have been placed under automatic
route,
2. Entities, the activities of which had sectoral caps earlier and which had, accordingly, earlier
obtained the prior approval of the Government for their initial foreign investment but subse-
quently such caps were removed/ increased and the activities placed under the automatic route,
provided that such additional investment along with the initial/original investment does not
exceed the sectoral caps,
3. Additional foreign investment up to cumulative amount of Rs 5000 crore into the same entity
within an approved foreign equity percentage/or into a wholly owned subsidiary.

PROHIBITED SECTORS
FDI is prohibited in:
1. Lottery Business including Government/private lottery, online lotteries, etc.
2. Gambling and Betting including casinos etc.
3. Chit funds
4. Nidhi company
5. Trading in Transferable Development Rights (TDRs)
6. Real Estate Business or Construction of Farm Houses
‘Real estate business’ shall not include development of townships, construction of residential /
commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered
and regulated under the SEBI (REITs) Regulations, 2014.
7. Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
8. Activities/ sectors not open to private sector investment e.g. (I) Atomic Energy and (II)
Railway operations.

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AGRICULTURE & ANIMAL HUSBANDRY

Sector/Activity % of Equity/ Entry Route

FDI Cap
a. Floriculture, Horticulture, and Cultivation of 100% Automatic
Vegetables & Mushrooms under controlled
Conditions,
b. Development and Production of seeds and planting
material,
c. Animal Husbandry (including breeding of dogs),
Pisciculture, Aquaculture, Apiculture, and
d. Services related to agro and allied sectors
Note: Besides the above, FDI is not allowed in any
other agricultural sector/Activity

PLANTATION SECTOR

Sector/Activity % of Equity/FDI Entry Route

Cap
a. Tea sector including tea plantations 100% Automatic
b. Coffee plantations
c. Rubber plantations
d. Cardamom plantations
e. Palm oil tree plantations
f. Olive oil tree plantations
Note: Besides the above, FDI is not allowed in any
other plantation sector/activity.

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MINING

Sector/Activity % of Equity/ Entry Route

FDI Cap
Mining and Exploration of metal and non-metal ores 100% Automatic
including diamond, gold, silver and precious ores but
excluding titanium bearing minerals and its ores; sub-
ject to the Mines and Minerals (Development
& Regulation) Act, 1957.
Coal & Lignite 100% Automatic
Mining and Mineral Separation of titanium bearing 100% Automatic
minerals and ores, its value addition and integrated
activities

PETROLEUM & NATURAL GAS

Sector/Activity % of Entry Route

Equity/FDI Cap
Exploration activities of oil and natural gas fields, 100% Automatic
infrastructure related to marketing of petroleum
products and natural gas, marketing of natural gas
and petroleum products, petroleum product pipe-
lines, natural gas/pipelines, LNG Regasification in-
frastructure, market study and formulation and Pe-
troleum refining in the private sector
Petroleum refining by the Public Sector Undertakings 49% Automatic
(PSU),without any disinvestment or dilution of do-
mestic equity in the existing PSUs.

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DEFENCE

Sector/Activity % of Equity/ Entry Route

FDI Cap
Defence Industry subject to Industrial license under 100% Automatic up
the Industries (Development & Regulation) Act, 1951 to 74%
and Manufacturing of small arms and ammunition Government
under the Arms Act, 1959. Defence Industry subject to route beyond
Industrial license 74% wherever
it is likely to
result in access
to modern
technology or
for other
reasons to be
recorded.

Citizens
OTHER CONDITIONS:
1. FDI up to 74% under automatic route shall be permitted for companies seeking new industrial
licenses.
2. Infusion of fresh foreign investment up to 49%, in a company not seeking industrial license or
which already has Government approval for FDI in Defence, shall require mandatory submission
of a declaration with the Ministry of Defence in case change in equity /shareholding pattern
or transfer of stake by existing investor to new foreign investor for FDI up to 49%, within 30
days of such change. Proposal for raising FDI beyond 49% from such companies will require
Government approval.
3. Licence applications will be considered by the Department for Promotion of Industry and
Internal Trade.
4. Investee company should be structured to be self-sufficient in the areas of product design and
development. The investee/joint venture company along with the manufacturing facility, should
also have maintenance and life cycle support facility.

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5. Foreign Investments in the Defence Sector shall be subject to scrutiny on grounds of National
Security and Government reserves the right to review any foreign investment in the Defence
Sector that affects or may affect national security.
CASES WHICH DO NOT REQUIRE FRESH APPROVAL
BROADCASTING CARRIAGE SERVICESRVICES

Sector/Activity % of Equity/ FDI Entry Route

Cap
1. Teleports 100% Automatic
2. Direct to Home Route
3. Cable Networks
4. Mobile TV;
5. Headend-in-the Sky Broadcasting Service
Cable Networks 100% Automatic
Route
Note:
Infusion of fresh foreign investment, beyond 49% in a company not seeking license/per-
mission from sectoral Ministry, resulting in change in the ownership pattern or transfer
of stake by existing investor to new foreign investor, will require Government approval.

BROADCASTING CONTENT SERVICES

ASTING CONTENT SERVICESROADCASTING CONTENT SERVICES
Sector/Activity % of Equity/ FDI Entry Route
Cap
Terrestrial Broadcasting FM 49% Government
Up-linking of ‘News & Current Affairs’ TV Channels 49& Government
Uploading/Streaming of News & Current Affairs 26% Government
through Digital Media
Up-linking of Non- ‘News & Current Affairs’ TV 100% Automatic
Channels/ Downlinking of TV Channels

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CONDITIONS FOR BROADCASTING SECTOR

1. Foreign investment (FI) in companies engaged in all the aforestated services will be subject
to relevant regulations and such terms and conditions, as may be specified from time to
time, by the Ministry of Information and Broadcasting.
2. Foreign investment in the aforestated broadcasting carriage services will be subject to the
following security conditions/terms:

Mandatory Requirement for Key Executives of the Company

i. The majority of Directors on the Board of the Company shall be Indian citizens.
ii. The Chief Executive Officer (CEO), Chief Officer in-charge of technical network operations
and Chief Security Officer should be resident Indian citizens.

Security Clearance of Personnel

i. The Company, all Directors on the Board of Directors and such key executives like Managing
Director/ Chief Executive Officer, Chief Financial Officer (CFO), Chief Security Officer (CSO),
Chief Technical Officer (CTO), Chief Operating Officer (COO), shareholders who individually
hold 10% or more paid-up capital in the company and any other category, as may be specified
by the Ministry of Information and Broadcasting from time to time, shall require to be security
cleared.
It shall be obligatory on the part of the company to also take prior permission from the
Ministry of Information and Broadcasting before effecting any change in the Board of Directors.
ii. The Company shall be required to obtain security clearance of all foreign personnel likely to be
deployed for more than 60 days in a year by way of appointment, contract, and consultancy
or in any other capacity for installation, maintenance, operation or any other services prior to
their deployment. The security clearance shall be required to be obtained every two years.

Permission vis-à-vis Security Clearance

1. In case the security clearance is withdrawn, the permission granted is liable to be terminated
forthwith.

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2. In the event of security clearance of any of the persons associated with the permission
holder/licensee or foreign personnel being denied or withdrawn for any reasons whatsoever, the
permission holder/ licensee will ensure that the concerned person resigns or his services termi-
nated forthwith after receiving such directives from the Government, failing which the permis-
sion/license granted shall be revoked and the company shall be disqualified to hold any such
Permission/license in future for a period of five years.

Monitoring, Inspection and Submission of Information

1. The Company should ensure that necessary provision (hardware/software) is available in their
equipment for doing the lawful interception and monitoring from a centralized location as and
when required by Government.
2. The company, at its own costs, shall, on demand by the government or its authorized repre-
sentative, provide the necessary equipment, services and facilities at designated place(s) for
continuous monitoring or the broadcasting service by or under supervision of the Government
or its authorized representative.
3. The Government of India, Ministry of Information & Broadcasting or its authorized representa-
tive shall have the right to inspect the broadcasting facilities. No prior permission/intimation
shall be required to exercise the right of Government or its authorized representative to carry
out the inspection.
4. The inspection will ordinarily be carried out by the Government of India, Ministry of Information
& Broadcasting or its authorized representative after reasonable notice, except in circumstances
where giving such a notice will defeat the very purpose of the inspection.

National Security Conditions

1. It shall be open to the licensor to restrict the Licensee Company from operating in any sensitive
area from the National Security angle. The Government of India, Ministry of Information and
Broadcasting shall have the right to temporarily suspend the permission of the permission
holder/Licensee in public interest or for national security for such period or periods as it may
direct. The company shall immediately comply with any directives issued in this regard failing
which the permission issued shall be revoked and the company disqualified to hold any such
permission in future for a period of five years.

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2. The company shall not import or utilize any equipment, which are identified as unlawful and/or
render network security vulnerable.

PRINT MEDIA

Sector/Activity % of Equity/ Entry Route

FDI
Publishing of newspaper and periodicals dealing 26% Government
with news and current affairs
Publication of Indian editions of foreign magazines 26% Government
dealing with news and current affairs

Sector/Activity % of Equity/ Entry Route

FDI Cap
Publishing/printing of scientific and technical 100% Government
magazines/specialty journals/ periodicals, subject to
compliance with the legal framework as applicable
and guidelines issued in this regard from time to
time by Ministry of Information and Broadcasting
Publication of facsimile edition of foreign newspa- 100% Government
pers

CIVIL AVIATION SECTOR

AIRPORTS
Sector/Activity % of Equity/ Entry Route
FDI Cap
a. Greenfield projects 100% Automatic
b. Existing projects 100% Automatic

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AIR TRANSPORT SERVICES

Sector/Activity % of Equity/ Entry Route
FDI Cap
1. 100% Automatic up to
i. Scheduled Air Transport Service/ Domestic 49%
Scheduled Passenger Airline (Automatic up to
ii. Regional Air Transport Service 100% for NRIs)
Government route
beyond 49%
2. Non-Scheduled Air Transport Services 100% Automatic
3. Helicopter services/seaplane services 100% Automatic
requiring DGCA approval

Air Operator Certificate to operate Scheduled air transport services may be granted to a
company or a body corporate provided that:
a. It is registered and has its principal place of business within India;
b. The Chairman and at least two-thirds of its Directors are citizens of India; and
c. Its substantial ownership and effective control is vested in Indian nationals.

OTHER SERVICES UNDER CIVIL AVIATION SECTOR

Sector/Activity % of Equity/ Entry Route

FDI Cap
1. Ground Handling Services subject to sectoral 100% Automatic
regulations and security clearance
2. Maintenance and Repair organizations, flying 100% Automatic
training institutes, and technical training
institutions.

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The Civil Aviation sector includes Airports, Scheduled and Non-Scheduled domestic passenger
airlines, Helicopter services/Seaplane services, Ground Handling Services, Maintenance and Repair
organizations, Flying training institutes and Technical training institutions.

For the purposes of the Civil Aviation sector:

i. “Aerodrome” means any definite or limited ground or water area intended to be used, either
wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds,
vessels, piers and other structures thereon or pertaining thereto,
ii. “Aircraft component” means any part, the soundness and correct functioning of which, when
fitted to an aircraft,
iii. “Helicopter” means a heavier-than-air aircraft supported in flight by the reactions of the air
on one or more power driven rotors on substantially vertical axis,
iv. “Scheduled air transport service” means an air transport service undertaken between the same
two or more places and operated according to a published time table or with flights so regular
or frequent that they constitute a recognizably systematic series, each flight being open to
use by members of the public,
v. “Seaplane” means an aeroplane capable normally of taking off from and alighting solely on
water.

OTHER CONDITIONS
1. Foreign airlines are also allowed to invest in the capital of Indian companies, operating scheduled
and non- scheduled air transport services, up to the limit of 49% of their paid-up capital.
Such investment would be subject to the following conditions:
i. It would be made under the Government approval route,
ii. The 49% limit will subsume FDI and FPI investment,
iii. All foreign nationals likely to be associated with Indian scheduled and non-scheduled air
transport services, as a result of such investment shall be cleared from security view
point before deployment, and
iv. All technical equipment that might be imported into India as a result of such investment
shall require clearance from the relevant authority in the Ministry of Civil Aviation.

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CONSTRUCTION DEVELOPMENT: TOWNSHIPS, HOUSING, BUILT-UP INFRASTRUCTURE

Sector/Activities % of Entry Route

Equity/FDI
Construction-development projects (which would in- 100% Automatic
clude development of townships, construction of
residential/commercial premises, roads or bridges,
hotels, resorts, hospitals, educational institutions, recre-
ational facilities, city and regional level infra-
structure, townships)

Investment will be subject to the following conditions:

1.
i. The investor will be permitted to exit on completion of the project or after
development of trunk infrastructure i.e. roads, water supply, street lighting, drainage and
sewerage.
ii. Notwithstanding anything contained above, a foreign investor will be permitted to exit
and repatriate foreign investment before the completion of project under automatic route,
provided that a lock-in-period of three years, has been completed. Further, transfer of
stake from one non-resident to another non-resident, without repatriation of investment
will neither be subject to any lock-in period nor to any government approval.
2. The project shall conform to the norms and standards, including land use requirements and
provision of community amenities and common facilities,
3. The Indian investee company will be permitted to sell only developed plots.
4. The Indian investee company shall be responsible for obtaining all necessary approvals, in-
cluding those of the building/layout plans, developing internal and other infrastructure fa-
cilities, payment of development, external development and other charges and complying with
all other requirements.
5. The State Government will monitor compliance of the above conditions by the developer.

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NOTE
A. It is clarified that 100% FDI under automatic route is permitted in completed projects for
operation and management of townships, malls/ shopping complexes and business centres.
However, there would be a lock-in-period of three years, and transfer of immovable property or
part thereof is not permitted during this period.
B. It is clarified that real-estate broking service does not amount to real estate business and
100% foreign investment is allowed in the activity under automatic route

INDUSTRIAL PARKS

Sector/Activities % of Entry Route

Equity/FDI
Industrial Parks -new and existing 100% Automatic

CONDITIONS FOR INDUSTRIAL PARKS

1. “Industrial Park” is a project in which quality infrastructure in the form of plots of developed
land or built up space or a combination with common facilities, is developed and made available
to all the allottee units for the purposes of industrial activity.
2. “Allocable area” in the Industrial Park means:
i. in the case of plots of developed land- the net site area available for allocation to the
units, excluding the area for common facilities.
ii. in the case of built up space- the floor area and built up space utilized for providing
common facilities.
3. “Industrial Activity” means manufacturing; electricity; gas and water supply; post and tele-
communications, software publishing, consultancy and supply; data processing, database
activities and distribution of electronic content, other computer related activities, basic and
applied R&D on bio-technology, pharmaceutical sciences/life sciences, natural sciences and
engineering, business and management consultancy activities, and architectural, engineering
and other technical activities.

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FDI in Industrial Parks would not be subject to the conditionalities applicable for construction
development projects, provided the Industrial Parks meet with the under-mentioned conditions:
i. It would comprise of a minimum of 10 units and no single unit shall occupy more than 50%
of the allocable area,
ii. The minimum percentage of the area to be allocated for industrial activity shall not be less
than 66% of the total allocable area.

SATELLITES- ESTABLISHMENT AND OPERATION

Sector/Activities % of Entry Route

Equity/FDI
Satellites- establishment and operation, subject to 100% Automatic
the sectoral guidelines of Department of Space/ISRO

PRIVATE SECURITY AGENCIES

Sector/Activities % of Entry Route

Equity / FDI
Private Security Agency 74% Automatic up to
49%
Government route
beyond 49% and
up to 74%

OTHER CONDITIONS
1. “Private Security Agency” means a person or body of persons other than a government agency,
department or organisation engaged in the business of providing private security services in-
cluding training to private security guards or their supervisor or providing private security guards
to any industrial or business undertaking or a company or any other person or property,

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2. “Armoured Car Service” means the service provided by deployment of armed guards along with
armoured car and such other related services which may be notified by the Central Government
or as the case may be, the State Government from time to time.

TELECOM SERVICES

Sector/Activities % of Entry Route

Equity/FDI
Telecom Services 100% Automatic

TRADING

Sector/Activities % of Entry Route

Equity/FDI
Cash & Carry Wholesale Trading/Wholesale Trading 100% Automatic
(including sourcing from MSEs)

Cash & Carry Wholesale trading/Wholesale trading, would mean sale of goods/merchandise to
retailers, industrial, commercial, institutional or other professional business users or to other
wholesalers and related subordinated service providers. Wholesale trading would, accordingly,
imply sales for the purpose of trade, business and profession, as opposed to sales for the
purpose of personal consumption.

E-COMMERCE ACTIVITIES

Sector/Activities % of Entry Route

Equity/FDI
E –Commerce Activities 100% Automatic

Subject to provisions of FDI Policy, e-commerce entities would engage only in Business to
Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.

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B2B (business-to-business) is a sort of electronic commerce (e-commerce) that involves

the exchange of goods, services, or information between businesses instead of between busi-
nesses and consumers. Example: Companies like Microsoft, Salesforce, India MART.
B2C (business-to-consumer) is the type of commerce transaction that involves the exchange
of goods, services, or information between businesses and consumers instead of just among
businesses themselves. Example: Meta, Walmart.
E-commerce- E-commerce means buying and selling of goods and services including digital
products over digital & electronic network.
Inventory based model of e-commerce- Inventory based model of e-commerce means an e-
commerce activity where inventory of goods and services is owned by e-commerce entity and
is sold to the consumers directly.
Marketplace based model of e-commerce- Marketplace based model of e-commerce means
providing of an information technology platform by an e-commerce entity on a digital &
electronic network to act as a facilitator between buyer and seller.

Guidelines for Foreign Direct Investment on E-Commerce Sector

i. 100% FDI under automatic route is permitted in marketplace model of e-commerce.
ii. FDI is not permitted in inventory-based model of e-commerce.

OTHER CONDITIONS
1. Marketplace e-commerce entity will be permitted to enter into transactions with sellers regis-
tered on its platform on B2B basis.
2. E-commerce marketplace may provide support services to sellers in respect of warehousing,
logistics, order fulfilment, call centre, payment collection and other services.
3. E-commerce entity providing a marketplace will not exercise ownership or control over the
inventory i.e. goods purported to be sold. Such an ownership or control over the inventory will
render the business into inventory-based model. Inventory of a vendor will be deemed to be
controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor
are from the marketplace entity or its group companies.

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4. An entity having equity participation by e-commerce marketplace entity or its group companies,
or having control on its inventory by e-commerce marketplace entity or its group companies,
will not be permitted to sell its products on the platform run by such marketplace entity.
5. In marketplace model goods/services made available for sale electronically on website should
clearly provide name, address and other contact details of the seller. Post sales, delivery of
goods to the customers and customer satisfaction will be responsibility of the seller.
6. In marketplace model, payments for sale may be facilitated by the e-commerce entity in
conformity with the guidelines of the Reserve Bank of India.
7. In marketplace model, any warrantee/ guarantee of goods and services sold will be re-
sponsibility of the seller.
8. E-commerce entities providing marketplace will not directly or indirectly influence the sale price
of goods or services and shall maintain level playing field. Services should be provided by e-
commerce marketplace entity or other entities in which e-commerce marketplace entity has
direct or indirect equity participation or common control, to vendors on the platform at arm’s
length and in a fair and non-discriminatory manner. Such services will include but not limited
to fulfilment, logistics, warehousing, advertisement/ marketing, payments, financing etc. Cash
back provided by group companies of marketplace entity to buyers shall be fair and non-
discriminatory.
9. E-commerce marketplace entity will not mandate any seller to sell any product exclusively on
its platform only.
10. E-commerce marketplace entity with FDI shall have to obtain and maintain a report of stat-
utory auditor by 30th of September every year for the preceding financial year confirming
compliance of the e-commerce guidelines.

SINGLE BRAND PRODUCT RETAIL TRADING (SBRT)

Sector/Activities % of Equity/FDI Entry Route

Single Brand Product Retail Trading 100% Automatic

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1. FDI in Single Brand product retail trading would be subject to the following conditions:
i. Products to be sold should be of a ‘Single Brand’ only.
ii. Products should be sold under the same brand internationally i.e. products should be sold
under the same brand in one or more countries other than India.
iii. ‘Single Brand’ product-retail trading would cover only products which are branded during
manufacturing.
iv. A non-resident entity or entities, whether owner of the brand or otherwise, shall be
permitted to undertake ‘single brand’ product retail trading in the country for the specific
brand, either directly by the brand owner or through a legally tenable agreement executed
between the Indian entity undertaking single brand retail trading and the brand owner.
v. In respect of proposals involving foreign investment beyond 51%, sourcing of 30% of the
value of goods purchased, will be done from India, preferably from MSMEs, village and
cottage industries, artisans and craftsmen, in all sectors. This procurement requirement
would have to be met, in the first instance, as an average of five years’ total value of
the goods procured, beginning 1st April of the year of the commencement of SBRT
business (i.e. opening of the first store or start of online retail, whichever is earlier).
Thereafter, SBRT entity shall be required to meet the 30% local sourcing norms on an
annual basis.
vi. All procurements made from India by the SBRT entity for that single brand shall be
counted towards local sourcing, irrespective of whether the goods procured are sold in
India or exported.

MULTI BRAND RETAIL TRADING (MBRT)

Multi-brand retail trading (“MBRT”) refers to the sale of various different products from
several brands using a single platform. Example: Amazon, Flipkart

Sector/Activities % of Equity/FDI Entry Route

Multi
Multi Brand Product Retail Trading 51% Government

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FDI in multi brand retail trading, in all products, will be permitted, subject to the following
conditions:
i. Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poul-
try, fishery and meat products, may be unbranded.
ii. Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100
million.
iii. At least 50% of total FDI brought in the first tranche of US $ 100 million, shall be
invested in ‘back-end infrastructure’ within three years, where ‘back-end infrastructure’
will include capital expenditure on all activities, excluding that on front-end units; for
instance, back-end infrastructure will include investment made towards processing, man-
ufacturing, distribution, design improvement, quality control, packaging, logistics, storage,
ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and
rentals, if any, will not be counted for purposes of backend infrastructure.
iv. At least 30% of the value of procurement of manufactured/processed products purchased
shall be sourced from Indian micro, small and medium industries, which have a total
investment in plant & machinery not exceeding US $ 2.00 million.
v. Retail sales outlets may be set up only in cities with a population of more than 10 lakh
or any other cities as per the decision of the respective State Governments, and may
also cover an area of 10 kms around the municipal/urban limits of such cities.
vi. Government will have the first right to procurement of agricultural products.
vii. Retail trading, in any form, by means of e-commerce, would not be permissible, for
companies with FDI, engaged in the activity of multi-brand retail trading.

DUTY FREE SHOPS

Sector/Activities % of Equity/FDI Entry Route

Duty Free Shop 100% Automatic

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RAILWAY INFRASTRUCTURE

Sector/Activities % of Equity/FDI Entry Route

Railway Infrastructure Construction, operation and 100% Automatic
maintenance of the following:
i. Suburban corridor projects through PPP,
ii. High speed train
iii. Dedicated freight lines,
iv. Rolling stock including train sets, and
locomotives/coaches manufacturing and
maintenance facilities,
v. Railway Electrification,
vi. Signalling systems,
vii. Freight terminals,
viii. Passenger terminals,
ix. Infrastructure in industrial park
pertaining to railway line/sidings including
electrified railway lines and connectivities to
main railway line and
x. Mass Rapid Transport Systems.

NOTE
Proposals involving FDI beyond 49% in sensitive areas from security point of view, will be
brought by the Ministry of Railways before the Cabinet Committee on Security (CCS) for
consideration on a case to case basis.

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ASSET RECONSTRUCTION COMPANIES

Sector/Activities % of Equity/FDI Entry Route

Asset Reconstruction Company’ (ARC) means a 100% Automatic
company registered with the Reserve Bank of
India under Section 3 of the Securitisation and
Reconstruction of Financial Assets and Enforce-
ment of Security Interest Act, 2002 (SARFAESI
Act).

OTHER CONDITIONS
i. The total shareholding of an individual FPI shall be below 10% of the total paid-up capital.
ii. FPIs can invest in the Security Receipts (SRs) issued by ARCs. /FPIs may be allowed to
invest up to 100 per cent of each tranche in SRs issued by ARCs, subject to directions/guidelines
of Reserve Bank of India. Such investment should be within the relevant regulatory cap as
applicable.

BANKING- PRIVATE SECTOR

Sector/Activities % of Entry Route

Equity/FDI
Banking- Private Sector 74% Automatic up to
49%
Government route
beyond 49% and
up to 74%.

OTHER CONDITIONS
i. The aggregate foreign investment in a private bank from all sources will be allowed up to a
maximum of 74 per cent of the paid-up capital of the Bank.
ii. The stipulations as above will be applicable to all investments in existing private sector banks

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BANKING- PUBLIC SECTOR

Sector/Activities % of Entry Route

Equity/FDI
Banking- Public Sector 20% Government

CREDIT INFORMATION COMPANIES (CIC)

Sector/Activities % of Entry Route

Equity/FDI
Credit Information Company 100% Automatic

OTHER CONDITIONS
Such FPI investment would be permitted subject to the conditions that:
i. A single entity should directly or indirectly hold below 10% equity.
ii. Any acquisition in excess of 1% will have to be reported to RBI as a mandatory requirement,
and
iii. FPIs investing in CICs shall not seek a representation on the Board of Directors based upon
their shareholding.

INFRASTRUCTURE COMPANY IN THE SECURITIES MARKET

Sector/Activities % of Entry Route

Equity/FDI
Infrastructure companies in Securities Markets, 49% Automatic
namely, stock exchanges, commodity exchanges,
depositories and clearing corporations, in compliance
with SEBI Regulations.

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INSURANCE

Sector/Activities % of Entry Route

Equity/FDI
Insurance Company 74% Automatic
Intermediaries or Insurance Intermediaries including 100% Automatic
insurance brokers, re-insurance brokers, insurance
consultants, corporate agents, third party administra-
tor, Surveyors and Loss Assessors and such other en-
tities, as may be notified by the Insurance
Regulatory and Development Authority of India from
time to time.

OTHER CONDITIONS
1. No Indian Insurance company shall allow the aggregate holdings by way of total foreign in-
vestment in its equity shares by foreign investors, including portfolio investors, to exceed
seventy four percent of the paid-up equity capital of such Indian Insurance company.
2. The foreign investment up to seventy four percent of the total paid-up equity of the Indian
Insurance Company shall be allowed on the automatic route subject to approval/verification by
the Insurance Regulatory and Development Authority of India.
3. An Indian Insurance company having foreign investment:
i. Majority of its Directors,
ii. Majority of its Key Managerial Persons, and
iii. At least one among the Chairperson of its Board, its MD & its CEO shall be resident
Indian citizen.
4. Any increase in foreign investment in an Indian Insurance company shall be in accordance with
the pricing guidelines specified by Reserve Bank of India under the FEMA Regulations.
5. The foreign equity investment cap of 100 percent shall apply on the same terms as above to
insurance brokers, re-insurance brokers, insurance consultants, corporate agents, However, the
condition of Indian owned and controlled, as specified in Clause (d) above, shall not be
applicable to Intermediaries and Insurance Intermediaries and composition of the Board of

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Directors and key management persons shall be as specified by the concerned regulators from
time to time.
6. Provided that where an entity like a bank, whose primary business is outside the insurance
area, is allowed by the Insurance Regulatory and Development Authority of India to function
as an insurance intermediary, the foreign equity investment caps applicable in that sector shall
continue to apply, subject to the condition that the revenues of such entities from their primary
(i.e., non-insurance related) business must remain above 50 percent of their total revenues in
any financial year.
7. The insurance intermediary that has majority shareholding of foreign investors shall undertake
the following:
i. be incorporated as a limited company under the provisions of the Companies Act, 2013,
ii. at least one from among the Chairman of the Board of Directors or the Chief Executive
Officer or Principal Officer or Managing Director of the insurance intermediary shall be a
resident Indian citizen,
iii. shall take prior permission of the Authority for repatriating dividend,
iv. shall bring in the latest technological, managerial and other skills,
v. shall not make payments to the foreign group or promoter or subsidiary or interconnected
or associate entities beyond what is necessary or permitted by the Authority,
vi. composition of the Board of Directors and key management persons shall be as specified
by the concerned regulators.

LIC (LIFE INSURANCE CORPORATION)

Sector/Activities % of Entry Route

Equity/FDI
Life Insurance Corporation of India 20% Automatic

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PENSION SECTOR

Sector/Activities % of Entry Route

Equity/FDI
Pension Sector 49% Automatic

OTHER CONDITIONS
An Indian pension fund shall ensure that its ownership and control remains at all times in the
hands of resident Indian entities as determined by the Government of India

POWER EXCHANGES

Sector/Activities % of Entry Route

Equity/FDI
Power Exchanges 49% Automatic

OTHER CONDITIONS
1. No non-resident investor/entity, including persons acting in concert, will hold more than 5%
of the equity in these companies; and
2. The foreign investment would be in compliance with SEBI Regulations; other applicable
laws/regulations; security and other conditionalities.

WHITE LABEL ATM OPERATIONS

Sector/Activities % of Entry Route

Equity/FDI
White Label ATM Operations 100% Automatic

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OTHER CONDITIONS
i. Any non-bank entity intending to set up WLAs should have a minimum net worth of Rs. 100
crore as per the latest financial year’s audited balance sheet, which is to be maintained at all
times.

OTHER FINANCIAL SERVICES

Sector/Activities % of Entry Route

Equity/FDI
Financial Services activities regulated by financial sector 100% Automatic
regulators, viz., RBI, SEBI, IRDA, PFRDA, NHB or any
other financial sector regulator as may be notified by
the Government of India.

PHARMACEUTICALS

Sector/Activities % of Entry Route

Equity/FDI
Greenfield 100% Automatic
Brownfield 74% Automatic Automatic up to
74% Government
route beyond 74%

OTHER CONDITIONS
1. ‘Non-compete’ clause would not be allowed in automatic or government approval route except
in special circumstances with the approval of the Government.
2. The prospective investor and the prospective investee are required to provide a certificate along
with the application for foreign investment.
3. Government may incorporate appropriate conditions for FDI in brownfield cases, at the time of
granting approval.

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4. FDI in brownfield pharmaceuticals, under both automatic and government approval routes, is
further subject to compliance of following conditions:
i. The production level of National List of Essential Medicines (NLEM) drugs and/or con-
sumables and their supply to the domestic market at the time of induction of FDI, being
maintained over the next five years at an absolute quantitative level. The benchmark for
this level would be decided with reference to the level of production of NLEM drugs and/or
consumables in the three financial years, immediately preceding the year of induction of
FDI. Of these, the highest level of production in any of these three years would be taken
as the level.
ii. R&D expenses being maintained in value terms for 5 years at an absolute quantitative
level at the time of induction of FDI. The benchmark for this level would be decided with
reference to the highest level of R&D expenses which has been incurred in any of the
three financial years immediately preceding the year of induction of FDI.
iii. The administrative Ministry will be provided complete information pertaining to the transfer
of technology, if any, along with induction of foreign investment into the investee company.

Note:
FDI up to 100%, under the automatic route is permitted for manufacturing of medical devices.
The above mentioned conditions will, therefore, not be applicable to greenfield as well as
brownfield projects of this industry.

TYPES OF INSTRUMENTS
1. Indian companies can issue equity shares, fully, compulsorily and mandatorily convertible de-
bentures and fully, compulsorily and mandatorily convertible preference shares subject to pricing
guidelines/ valuation norms prescribed under FEMA Regulations.
2. The price/conversion formula of convertible capital instruments should be determined upfront
at the time of issue of the instruments. The price at the time of conversion should not in any
case be lower than the fair value worked out, at the time of issuance of such instruments, in
accordance with the extant FEMA rules/regulations.

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3. Optionality clauses are allowed in equity shares, fully, compulsorily and mandatorily convertible
debentures and fully, compulsorily and mandatorily convertible preference shares under FDI
scheme, subject to the following conditions:
i. There is a minimum lock-in period of one year which shall be effective from the date of
allotment of such capital instruments.
ii. After the lock-in period and subject to FDI Policy provisions, if any, the non-resident invest
or exercising option/right shall be eligible to exit without any assured return, as per pric-
ing/valuation guidelines issued under FEMA from time to time.
4. Other types of Preference shares/Debentures i.e. non-convertible, optionally convertible or par-
tially convertible for issue of which funds have been received.
5. The inward remittance received by the Indian company vide issuance of DRs and FCCBs are
treated as FDI and counted towards FDI.
6. Acquisition of Warrants and Partly Paid Shares - An Indian Company may issue warrants
and partly paid shares to a person resident outside India subject to terms and conditions as
stipulated by the Reserve Bank of India in this behalf, from time to time.
7. Issue of Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts (DRs)
i. DRs are foreign currency denominated instruments issued by a foreign Depository.
ii. A person will be eligible to issue or transfer eligible securities to a foreign depository, for
the purpose of converting the securities so purchased into depository receipts.
iii. A person can issue DRs, if it is eligible to issue eligible instruments to person resident
outside India.
iv. The aggregate of eligible securities which may be issued or transferred to foreign deposi-
tories, along with eligible securities already held by persons resident outside India, shall
not exceed the limit on foreign holding of such eligible securities under the relevant
regulations framed under FEMA, 1999.
v. The pricing of eligible securities to be issued or transferred to a foreign depository for the
purpose of issuing depository receipts should not be at a price less than the price applicable
to a corresponding mode of issue or transfer of such securities to domestic investors.

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8. Scheme and types of DRs

i. Two-way Fungibility Scheme: A limited two-way Fungibility scheme has been put in
place by the Government of India for ADRs/GDRs. Under this Scheme, a stock broker in
India, registered with SEBI, can purchase shares of an Indian company from the market
for conversion into ADRs/GDRs based on instructions received from overseas investors.
Re-issuance of ADRs/GDRs would be permitted to the extent of ADRs/GDRs which have
been redeemed into underlying shares and sold in the Indian market.
ii. Sponsored ADR/GDR issue: An Indian company can also sponsor an issue of ADR/GDR.
Under this mechanism, the company offers its resident shareholders a choice to submit
their shares back to the company so that on the basis of such shares, ADRs/GDRs can
be issued abroad. The proceeds of the ADR/GDR issue are remitted back to India and
distributed among the resident investors who had offered their Rupee denominated shares
for conversion. These proceeds can be kept in Resident Foreign Currency (Domestic)
accounts in India by the resident shareholders who have tendered such shares for con-
version into ADRs/GDRs.

PROVISIONS RELATING TO ISSUE/ TRANSFER OF SHARES

1. The capital instruments should be issued within 60 days from the date of receipt of the inward
remittance received through normal banking channels. In case, the capital instruments are not
issued within 60 days from the date of receipt of the inward remittance or date the amount
of consideration so received should be refunded within fifteen days from the date of completion
of sixty days to the non-resident investor by outward remittance, as the case may be.

2. Issue price of shares

Price of shares issued to persons resident outside India under the FDI Policy, shall not be less
than:
i. the price worked out in accordance with the SEBI guidelines, as applicable, where the
shares of the company are listed on any recognised stock exchange in India,
ii. the fair valuation of shares done by a SEBI registered Merchant Banker or a Chartered
Accountant, where the shares of the company are not listed on any recognised stock
exchange in India, and

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iii. the price as applicable to transfer of shares from resident to non-resident as per the
pricing guidelines laid down by the Reserve Bank from time to time, where the issue of
shares is on preferential allotment.

3. Foreign Currency Account

Indian companies which are eligible to issue shares to persons resident outside India under the
FDI Policy may be allowed to retain the share subscription amount in a Foreign Currency
Account.

4. Transfer of shares and convertible debentures

1. Subject to FDI sectoral policy non-resident investors can also invest in Indian companies by
purchasing/acquiring existing shares from Indian shareholders or from other non-resident share-
holders. General permission has been granted to non-residents/NRIs for acquisition of shares
by way of transfer subject to the following:
i. A person resident outside India (other than NRI and erstwhile OCB) may transfer by
way of sale or gift, the shares or convertible debentures to any person resident outside
India (including NRIs). Government approval is not required for transfer of shares in
the investee company from one non-resident to another non-resident in sectors which
are under automatic route. In addition, approval of Government will be required for
transfer of stake from one non-resident to another non-resident in sectors which are
under Government approval route.
ii. NRIs may transfer by way of sale or gift the shares or convertible debentures held by
them to another NRI.
iii. A person resident outside India can transfer any security to a person resident in India
by way of gift.
iv. A person resident outside India can sell the shares and convertible debentures of an
Indian company on a recognized Stock Exchange in India through a stock broker
v. A person resident in India can transfer by way of sale, shares/ convertible debentures,
of an Indian company under private arrangement to a person resident outside India,
subject to the guidelines.

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vi. General permission is also available for transfer of shares/convertible debentures, by way
of sale under private arrangement by a person resident outside India to a person resident
in India, subject to the guidelines.
vii. The above General Permission also covers transfer by a resident to a non-resident of
shares/ convertible debentures of an Indian company, engaged in an activity earlier
covered under the Government Route but now falling under Automatic Route, as well as
transfer of shares by a non- resident to an Indian company under buyback and/or capital
reduction scheme of the company.
viii. The Form FC-TRS should be submitted to the AD Category-I Bank, within 60 days of
transfer of capital instruments or receipt / remittance of funds whichever is earlier.

2. A person resident outside India including a Non-Resident Indian investor who has already
acquired and continues to hold the control in accordance with the SEBI (Substantial Acquisition
of Shares and Takeover) Regulations can acquire shares of a listed Indian company on the
stock exchange through a registered broker under FDI scheme provided that the original and
resultant investments are in line with the extant FDI policy and FEMA regulations.

3. Escrow: AD Category-I banks have been given general permission to open Escrow account and
Special account of non-resident corporate for open offers/exit offers and delisting of shares.

4. In case of transfer of shares between a resident buyer and a non-resident seller or vice-versa,
not more than twenty five per cent of the total consideration can be paid by the buyer on a
deferred basis within a period not exceeding eighteen months from the date of the transfer
agreement. For this purpose, if so agreed between the buyer and the seller, an escrow arrange-
ment may be made between the buyer and the seller. Provided the total consideration finally
paid for the shares must be compliant with the applicable pricing guidelines.

5. Prior permission of RBI in certain cases for transfer of capital instruments

The following cases require prior approval of RBI:
1. Transfer of capital instruments from resident to non-residents by way of sale where:
i. Transfer is at a price which falls outside the pricing guidelines

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ii. Transfer of capital instruments by the non-resident acquirer involving deferment of pay-
ment of the amount of consideration.
Further, in case approval is granted for a transaction, the same should be reported in Form
FC-TRS, to an AD Category-I bank for necessary due diligence, within 60 days from the
date of receipt of the full and final amount of consideration.

2. Transfer of any capital instrument, by way of gift by a person resident in India to a person
resident outside India. Reserve Bank considers the following factors while processing such ap-
plications:
i. The proposed transferee (donee) is eligible to hold such capital instruments.
ii. The gift does not exceed 5 per cent of the paid-up capital of the Indian company
iii. The applicable sectoral cap limit in the Indian company is not breached.
iv. The transferor (donor) and the proposed transferee (donee) are close relatives.
The value of capital instruments to be transferred together with any capital instruments already
transferred by the transferor, as gift, to any person residing outside India does not exceed the
rupee equivalent of USD 50,000 during the financial year.

6. Conversion of ECB/Lump-sum Fee/Royalty into Equity

1. Indian companies have been granted general permission for conversion of External Com-
mercial Borrowings (ECB) in convertible foreign currency into equity shares/ fully compul-
sorily and mandatorily convertible preference shares, subject to the following conditions
and reporting requirements:
i. The activity of the company is covered under the Automatic Route for FDI or the company
has obtained Government approval for foreign equity in the company,
ii. The foreign equity after conversion of ECB into equity is within the sectoral cap, if any,
iii. Pricing of shares is as per the provision,
iv. Compliance with the requirements prescribed under any other statute and regulation in
Force, and
v. The conversion facility is available for ECBs availed under the Automatic or Government
Route and is applicable to ECBs, due for payment or not, as well as secured/unsecured
loans availed from non-resident collaborators.

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2. General permission is also available for issue of shares/preference shares against lump sum
technical know-how fee, royalty due for payment, subject to entry route, sectoral cap and
pricing guidelines and compliance with applicable tax laws.
Further, issue of equity shares against any other funds payable by the investee company,
remittance of which does not require prior permission of the Government of India or Reserve
Bank of India is permitted provided that:
i. The equity shares shall be issued in accordance with the extant FDI guidelines on sectoral
caps, pricing guidelines.
ii. The issue of equity shares under this provision shall be subject to tax laws.

3. A wholly owned subsidiary set up in India by a non-resident entity, operating in a sector where
100 percent foreign investment is allowed in the automatic route and there are no FDI linked
conditionalities, may issue equity shares or preference shares or convertible debentures or
warrants to the said non-resident entity against pre-incorporation expenses up to a limit of
five percent of its capital or USD 500,000 whichever is less, subject to the condition that
within thirty days from the date of issue of equity instruments but not later than one year
from the date of incorporation, the Indian company shall report the transaction to the Re-
serve Bank.

4. Issue of equity shares for sectors requiring Government approval under the FDI policy is allowed
under the Government route for the following:
1. Import of capital goods/ machinery/ equipment (excluding second-hand machinery), subject to
compliance with the following conditions:
i. The application clearly indicating the beneficial ownership and identity of the Importer
Company as well as overseas entity.
ii. Applications complete in all respects, for conversions of import payables for capital goods
into FDI being made within 180 days from the date of shipment of goods.

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2. Pre-incorporation expenses subject to compliance with the following conditions:

i. Verification and certification of the pre-incorporation expenses by the statutory auditor.
ii. Payments should be made by the foreign investor to the company directly or through
the bank account opened by the foreign investor.
iii. The applications, complete in all respects, for capitalization being made within the period
of 180 days from the date of incorporation of the company.

General conditions:
i. All requests for conversion should be accompanied by a special resolution of the company.
ii. For sectors under automatic route, issue of equity shares against import of capital goods/
machinery/ equipment (excluding second-hand machinery) and pre-operative/pre-incorporation
expenses (including payments of rent etc.) is permitted under automatic route subject to
compliance with respective conditions mentioned above, and reporting to RBI in form FC-GPR
as per procedure prescribed under the FDI policy.

TERMS AND CONDITIONS FOR TRANSFER OF SHARES/CONVERTIBLE DEBENTURES, BY

WAY OF SALE, FROM A PERSON RESIDENT IN INDIA TO A PERSON RESIDENT OUTSIDE
INDIA AND FROM A PERSON RESIDENT OUTSIDE INDIA TO A PERSON RESIDENT IN INDIA
1. The parties involved in the transaction shall comply with the guidelines set out below:
Parties involved in the transaction are:
i. Seller (resident/non-resident),
ii. Buyer (resident/non-resident),
iii. Duly authorized agent/s of the seller and/or buyer,
iv. Authorised Dealer bank (AD) branch and
v. Indian company, for recording the transfer of ownership in its books.

2. Pricing Guidelines
2.1 The under noted pricing guidelines are applicable to the following types of transactions:
i. Transfer of shares by way of sale under private arrangement by a person resident in
India to a person resident outside India.

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ii. Transfer of shares by way of sale under private arrangement by a person resident outside
India to a person resident in India.
iii. Exit by non-resident investor.

2.2 Transfer by Resident to Non-resident, Price of shares transferred by way of sale by resident
to a non-resident where the shares of an Indian company are:
i. listed on a recognized stock exchange in India, shall not be less than the price at which
the preferential allotment of shares can be made.
ii. not listed on a recognized stock exchange in India, shall not be less than the fair value
to be determined by a SEBI registered Merchant Banker or a Chartered Accountant.

2.3 Transfer by Non-resident to Resident shall not be more than the minimum price at which the
transfer of shares can be made from a resident to a non-resident

2.4 After the lock-in period, as applicable above, and subject to FDI Policy provisions, if any, in
this regard, the non- resident investor exercising option/right in shares or convertible debentures
issued under FDI Scheme shall be eligible to exit without any assured return, as per pricing/val-
uation guidelines issued by RBI from time to time.

3. Method of payment and remittance/credit of sale proceeds

3.1 The sale consideration in respect of the shares purchased by a person resident outside India
shall be remitted to India through normal banking channels. In case the buyer is a, FPI,
payment should be made by debit to its Special Non-Resident Rupee Account. In case the
buyer is an NRI, the payment may be made by way of debit to his NRE/FCNR (B) accounts.
3.2 The sale proceeds of shares (net of taxes) sold by a person resident outside India may be
remitted outside India. In case of FPI, the sale proceeds may be credited to its foreign currency
account or special Non-Resident Rupee Account. In case of NRI, if the shares sold were held
on repatriation basis, the sale proceeds (net of taxes) may be credited to his NRE /FCNR(B)
accounts.

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4. Documentation
4.1 Besides obtaining a declaration in the enclosed Form FC-TRS (in quadruplicate), the AD
branch should arrange to obtain and keep on record the following documents:
i. Consent Letter duly signed by the seller and buyer or their duly appointed agent
indicating the details of transfer i.e. number of shares to be transferred, the name of
the investee company and the price.
ii. Where Consent Letter has been signed by their duly appointed agent, the Power of
Attorney.
iii. The shareholding pattern of the investee company after the acquisition of shares by a
person resident outside India
iv. Certificate indicating fair value of shares from a Chartered Accountant.
v. Copy of Broker’s note if sale is made on Stock Exchange.
vi. Undertaking from the buyer to the effect that he is eligible to acquire shares/
convertible debentures under FDI policy.

4.2 For sale of shares by a person resident outside India:

i. Consent Letter duly signed by the seller and buyer or their duly appointed agent indicating
the details of transfer i.e. number of shares to be transferred, the name of the investee
company and the price.
ii. Where the Consent Letter has been signed by their duly appointed agent, the Power of
Attorney.
iii. The sale proceeds shall be credited NRE/NRO account, as applicable.
iv. Certificate indicating fair value of shares from a Chartered Accountant.
v. No Objection / Tax Clearance Certificate from Income Tax authority/Chartered Account.
vi. Undertaking from the buyer to the effect that the Pricing Guidelines have been adhered
to.

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5. Reporting requirements
5.1 Reporting of transfer of shares between residents and non-residents and vice versa is to be
done in Form FC- TRS. The Form FC-TRS should be submitted to the AD Category-I bank,
within 60 days of transfer of capital instruments or the date of receipt of the amount of
consideration, whichever is earlier.

5.2 When the transfer is on private arrangement basis, on settlement of the transactions, the
transferee/ his duly appointed agent should approach the investee company to record the
transfer in their books along with the certificate in the Form FC-TRS from the AD branch
that the remittances have been received by the transferor/ payment has been made by the
transferee. On receipt of the certificate from the AD, the company may record the transfer in
its books.

5.3 The actual inflows and outflows on account of such transfer of shares shall be reported by the
AD branch in the R-returns in the normal course.

5.4 Shares purchased / sold by FPIs under private arrangement will be by debit / credit to their
Special Non- Resident Rupee Account. Therefore, the transaction should also be reported in
Form LEC by the designated bank of the /FPI concerned.

5.5 Shares/convertible debentures of Indian companies purchased under Portfolio Investment

Scheme by NRIs, OCBs cannot be transferred, by way of sale under private arrangement.

DOCUMENTS TO BE SUBMITTED BY A PERSON RESIDENT IN INDIA FOR TRANSFER OF

SHARES TO A PERSON RESIDENT OUTSIDE INDIA BY WAY OF GIFT
1. Name and address of the transferor (donor) and the transferee (donee).
2. Relationship between the transferor and the transferee.
3. Reasons for making the gift.
4. In case of Government dated securities and treasury bills and bonds, a certificate issued by a
Chartered Accountant on the market value of such security.

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5. In case of shares and convertible debentures, a certificate from a Chartered Accountant on the
value of such securities according to the guidelines issued by Securities & Exchange Board of
India.
6. Certificate from the concerned Indian company certifying that the proposed transfer of shares/
convertible debentures by way of gift from resident to the non-resident shall not breach the
applicable sectoral cap.
7. A declaration from the donee accepting partly paid shares or warrants that donee is aware of
the liability as regards calls in arrear and consequences thereof.

SPECIFIC CONDITIONS IN CERTAIN CASES OF RIGHTS/BONUS SHARES

FEMA provisions allow Indian companies to freely issue Rights/Bonus shares, subject to
adherence to sectoral cap, if any.
The offer on right basis to the persons resident outside India shall be:
i. In the case of shares of a company listed on a recognized stock exchange in India, at a price
as determined by the company;
ii. In the case of shares of a company not listed on a recognized stock exchange in India, at a
price which is not less than the price at which the offer on right basis is made to resident
shareholders.

ISSUE OF NON-CONVERTIBLE/REDEEMABLE BONUS PREFERENCE SHARES OR DEBENTURES

Indian companies are allowed to issue non-convertible/redeemable preference shares or deben-
tures to non-resident shareholders, by way of distribution as bonus from its general reserves
under a Scheme of Arrangement approved by a Court in India.

ISSUE OF EMPLOYEES STOCK OPTION SCHEME (ESOPS) / SWEAT EQUITY

An Indian company may issue “employees’ stock option” and/or “sweat equity shares” to its
employees/ directors or employees/directors of its holding company or joint venture or wholly
owned overseas subsidiary/ subsidiaries who are resident outside India, provided that:
1. The scheme has been drawn under the Securities Exchange Board of India Act, 1992 or the
Companies (Share Capital and Debentures) Rules, 2014.
2. The Schemes are in compliance with the sectoral cap applicable to the said company.

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3. Issue of shares by a company where foreign investment is under the approval route shall require
prior approval of Government of India.
4. Issue of “employee’s stock option”/ “sweat equity shares” under the applicable rules/regulations
to an employee/director who is a citizen of Bangladesh/Pakistan shall require prior approval of
the Government of India.
5. The issuing company shall within 30 days from the date of issue of employees’ stock option
or sweat equity shares, a return as per the Form-ESOP.

SHARE SWAP
In cases of investment by way of swap of shares, irrespective of the amount, valuation of the
shares will have to be made by a Merchant Banker registered with SEBI or an Investment
Banker outside India registered with the appropriate regulatory authority in the host country.

PLEDGE OF SHARES
The transfer of equity instruments of an Indian company or units of an investment vehicle by
way of pledge is subject to the following terms and conditions, namely:

1. A promoter of a company registered in India (borrowing company), which has raised External
commercial borrowing in compliance with the Foreign Exchange Management (Borrowing and
Lending in Foreign Exchange) Regulations, 2000 may pledge the shares of the borrowing
company or that of its associate resident companies for the purpose of securing the external
commercial borrowing raised by the borrowing company subject to the following further condi-
tions, namely:
i. the period of such pledge shall be co-terminus with the maturity of the underlying
external commercial borrowing,
ii. in case of invocation of pledge, transfer shall be made in accordance with these rules
and directions issued by the Reserve Bank,
iii. the statutory auditor has certified that the borrowing company has utilised the proceeds
of the external commercial borrowing for the permitted end-use only,
iv. no person shall pledge any such share unless a no-objection has been obtained from an
authorised dealer bank.

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2. Any person resident outside India holding equity instruments in an Indian company or units of
an investment vehicle may pledge the equity instruments or units, as the case may be:
i. In favour of a bank in India to secure the credit facilities being extended to such Indian
company for bona fide purposes,
ii. In favour of an overseas bank to secure the credit facilities being extended to such person
or a person resident outside India who is the promoter of such Indian company or the
overseas group company of such Indian company,
iii. In favour of a non-banking financial company to secure the credit facilities being extended
to such Indian company for bona fide purposes.

3. In case of invocation of pledge, transfer of equity instruments of an Indian company or units

shall be in accordance with entry routes, sectoral caps or investment limits, pricing guidelines
and other attendant conditions at the time of creation of pledge.

REMITTANCE, REPORTING AND VIOLATION

REMITTANCE AND REPATRIATION

REMITTANCE OF SALE PROCEEDS/REMITTANCE ON WINDING UP/LIQUIDATION OF

COMPANIES:
AD Category-I bank can allow the remittance of sale proceeds of a security (net of applica-
ble taxes) to the seller of shares resident outside India, provided the security has been held
on repatriation basis, and NOC/tax clearance certificate from the Income Tax Department has
been produced.

REMITTANCE ON WINDING UP/LIQUIDATION OF COMPANIES

AD Category-I banks have been allowed to remit winding up proceeds subject to payment of
applicable taxes. AD Category-I banks shall allow the remittance provided the applicant submits:
i. No objection or Tax clearance certificate from Income Tax Department for the remittance.
ii. Auditor’s certificate confirming that all liabilities in India have been either fully paid or ade-
quately provided for.

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iii. Auditor’s certificate to the effect that the winding up is in accordance with the provisions of
the Companies Act, as applicable.
iv. In case of winding up otherwise than by a court, an auditor’s certificate to the effect that
there are no legal proceeding pending in any court in India against the applicant or the company
under liquidation and there is no legal impediment in permitting the remittance.

REPATRIATION OF DIVIDEND
Dividends are freely repatriable without any restrictions (net after Tax deduction at source or
Dividend Distribution Tax, if any, as the case may be).

REPATRIATION OF INTEREST
Interest on fully, mandatorily & compulsorily convertible debentures is also freely repatriable
without any restrictions (net of applicable taxes).

REPORTING OF FDI
All the reporting is required to be done through the Single Master Form (SMF) available on
the Foreign Investment Reporting and Management System (FIRMS) platform at
https://firms.rbi.org.in.

ADHERENCE TO GUIDELINES/ORDERS AND CONSEQUENCES OF VIOLATION

‘Capital Account Transaction’ means a transaction which alters the assets or liabilities,
including contingent liabilities, outside India of persons resident in India or assets or lia-
bilities in India of persons resident outside India’.

“FDI is a capital account transaction and thus any violation of FDI regulations are
covered by the penal provisions of the FEMA. Reserve Bank of India administers the
Foreign Exchange Management Act (FEMA) and Directorate of Enforcement under the
Ministry of Finance is the authority for the enforcement of FEMA”.
The Directorate takes up investigation in any contravention of FEMA.”

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PENALTIES
1. If a person violates/contravenes any FDI Regulations, he shall, upon adjudication, be liable to a
penalty up to thrice the sum involved in such contraventions where such amount is quantifiable,
or up to two lakh Rupees where the amount is not quantifiable, and where such contraventions
is a continuing one, further penalty which may extend to five thousand Rupees for every day
after the first day during which the contraventions continues.

2. Where a person committing a contravention of any provisions of this Act or of any rule,
every person who, at the time the contravention was committed, was in charge of, and was
responsible to, the company for the conduct of the business shall be liable to be proceeded
against and punished accordingly.

ADJUDICATION AND APPEALS

1. For the purpose of adjudication of any contravention of FEMA, the Ministry of Finance Appoints
officers of the Central Government as the Adjudicating Authorities for holding an enquiry in
the manner prescribed.
2. A reasonable opportunity has to be given to the person alleged to have committed contraven-
tions against whom a complaint has been made for being heard before imposing any penalty.
3. The Central Government may appoint an Appellate Authority/ Appellate Tribunal to hear appeals
against the orders of the adjudicating authority.

COMPOUNDING PROCEEDINGS
1. The Central Government may appoint ‘Compounding Authority’ an officer either from
Enforcement Directorate or Reserve Bank of India for any person contravening any provisions
of the FEMA.
2. The Compounding Authorities are authorized to compound the amount involved in the contra-
vention to the Act made by the person.
3. No contravention shall be compounded unless the amount involved in such contravention is
quantifiable.

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4. Any second or subsequent contravention committed after the expiry of a period of three years
from the date on which the contravention was previously compounded shall be deemed to be
a first contravention.
5. The Compounding Authority may call for any information, record or any other documents
relevant to the compounding proceedings. The Compounding Authority shall pass an order of
compounding after affording an opportunity of being heard to all the concerns as expeditiously
as and not later than 180 days from the date of application made to the Compounding
Authority.

PERMISSIBLE LIMITS UNDER PORTFOLIO INVESTMENT SCHEMES THROUGH STOCK

EXCHANGES FOR FPIs and NRIs
The permissible limits under portfolio investment schemes through stock exchanges for /FPIs
and NRIs will be as follows:
1. The total holding by each FPI, shall be less than 10 per cent of the total paid-up capital on a
fully diluted basis, aggregate limit for all /FPIs cannot exceed 24 per cent of the total paid-
up capital on a fully diluted basis. With effect from the 1st April, 2020, the aggregate limit
shall be the sectoral caps applicable to the Indian company. The aggregate limit as provided
above may be decreased by the Indian company concerned to a lower threshold limit of 24%
or 49% or 74% as deemed fit, with the approval of its Board of Directors and its General Body
through a resolution and a special resolution, respectively before 31st March, 2020.
The Indian company which has decreased its aggregate limit to 24% or 49% or 74%, may
increase such aggregate limit to 49% or 74% or the sectoral cap or, with the approval of its
Board of Directors and its General Body through a resolution and a special resolution,
respectively. Once the aggregate limit has been increased to a higher threshold, the Indian
company cannot reduce the same to a lower threshold. However, the aggregate limit with
respect to an Indian company in a sector where FDI is prohibited shall be 24 percent.

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2. In the case of NRIs, individual holding is restricted to 5 per cent of the total paid-up capital
on fully diluted basis and the total holdings of all NRIs and OCIs put together shall not exceed
10 per cent of the total paid-up capital both on repatriation and non-repatriation basis.
However, NRI holding can be allowed up to 24 per cent of the total paid-up capital both on
repatriation and non-repatriation basis provided the banking company passes a special resolution
to that effect in the General Body.

3. Transfer of shares under FDI from residents to non-residents shall require approval of RBI
and/or Government wherever applicable.

4. Setting up of a subsidiary by foreign banks:

i. Foreign banks will be permitted to either have branches or subsidiaries but not both.
ii. Foreign banks regulated by banking supervisory authority in the home country and
meeting Reserve Bank’s licensing criteria will be allowed to hold 100 per cent paid up
capital to enable them to set up a wholly-owned subsidiary in India.
iii. A foreign bank may operate in India through only one of the three channels viz.:
a. Branches
b. Wholly-owned subsidiary and
c. Subsidiary with aggregate foreign investment up to a maximum of 74 per cent in a
private bank.
iv. A foreign bank will be permitted to establish a wholly-owned subsidiary either through
conversion of existing branches into a subsidiary or through a fresh banking license. A
foreign bank will be permitted to establish a subsidiary through acquisition of shares of
an existing private sector bank provided at least 26 per cent of the paid capital of the
private sector bank is held by residents at all times consistent.
v. A subsidiary of a foreign bank will be subject to the licensing requirements and condi-
tions broadly consistent with those for new private sector banks.
vi. Guidelines for setting up a wholly-owned subsidiary of a foreign bank will be issued
separately by RBI.
At present there is a limit of ten per cent on voting rights in respect of banking companies.

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REPORTING REQUIREMENTS

1. Form Foreign Currency-Gross Provisional Return (FC-GPR): An Indian Company issuing equity
instruments to a person resident outside India and where such issue is reckoned as Foreign
Direct Investment, defined under the rules, shall report such issue in Form FC-GPR, not later
than thirty days from the date of issue of equity instruments.

2. Annual Return on Foreign Liabilities and Assets (FLA): An Indian Company which has
received FDI or an LLP which has received investment by way of capital contribution in the
previous year including the current year, shall submit form FLA to the Reserve Bank on or
before the 15th day of July of each year.

3. Form Foreign Currency-Transfer of Shares (FC-TRS):

Form FCTRS shall be filed for transfer of equity instruments in accordance with the rules,
between:
i. a person resident outside India holding equity instruments in an Indian company on
a repatriable basis and person resident outside India holding equity instruments on a
non-repatriable basis, and
ii. a person resident outside India holding equity instruments in an Indian company on
a repatriable basis and a person resident in India,
Transfer of equity instruments on a recognised stock exchange by a person resident outside
India shall be reported by such person in Form FC-TRS.
The form FCTRS shall be filed within sixty days of transfer of equity instruments or receipt/re-
mittance of funds whichever is earlier.

3. Form Employees’ Stock Option (ESOP): An Indian company issuing employees’ stock option
to persons resident outside India who are its employees/directors or employees/directors of its
holding company/ joint venture / wholly owned overseas subsidiary/subsidiaries shall file Form-
ESOP, within 30 days from the date of issue of employees’ stock option.

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4. Form Depository Receipt Return (DRR): The Domestic Custodian shall report in Form DRR,
the issue / transfer of depository receipts issued in accordance with the Depository Receipt
Scheme, 2014 within 30 days of close of the issue.

5. Form LLP (I): A Limited Liability Partnerships (LLP) receiving amount of consideration for
capital contribution and acquisition of profit shares shall file Form LLP (I), within 30 days
from the date of receipt of the amount of consideration.

6. Form LLP (II): The disinvestment/transfer of capital contribution or profit share between a
resident and a non-resident (or vice versa) shall be filed in Form LLP(II) within 60 days from
the date of receipt of funds.

7. LEC (FII): The Authorised Dealer Category I banks shall report to the Reserve Bank in Form
LEC (FII) the purchase/transfer of equity instruments by FPIs on the stock exchanges in India.

8. LEC (NRI): The Authorised Dealer Category I banks shall report to the Reserve Bank in Form
LEC (NRI) the purchase/transfer of equity instruments by Non-Resident Indians or Overseas
Citizens of India on stock exchanges in India.

9. Form InVI: An Investment vehicle which has issued its units to a person resident outside India
shall file Form InVI within 30 days from the date of issue of units

10. Downstream Investment

i. An Indian entity or an investment vehicle making downstream investment in another
Indian entity which is considered as indirect foreign investment for the investee Indian
entity in terms of the Rules, shall notify DPIIT within 30 days of such investment, even
if equity instruments have not been allotted, along with the modality of investment in
new/ existing ventures

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ii. Form DI: An Indian entity or an investment Vehicle making downstream investment in
another Indian entity which is considered as indirect foreign investment for the investee
Indian shall file Form DI with the Reserve Bank within 30 days from the date of allotment
of equity instruments.

11. Form Convertible Notes (CN):

i. The Indian Start-up Company issuing Convertible Notes to a person resident outside India
shall file Form CN within 30 days of such issue.
ii. A person resident in India, who may be a transferor or transferee of Convertible Notes
issued by an Indian start-up company shall report such transfers to or from a person
resident outside India, as the case may be, in Form CN within 30 days of such transfer.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 3 - OVERSEAS DIRECT INVESTMENT

INTRODUCTION
In view of the evolving needs of businesses in India, in an increasingly integrated global market,
there is need of Indian corporates to be part of global value chain and in keeping with the
spirit of liberalisation and to promote ease of doing business, the Central Government and the
Reserve Bank of India have been progressively simplifying the procedures and rationalising the
rules and regulations under the Foreign Exchange Management Act, 1999. In this direction, a
significant step has been taken with operationalisation of a new Overseas Investment regime.
Foreign Exchange Management (Overseas Investment) Rules, 2022 have been notified by the
Central Government on August 22, 2022.

Overseas Direct Investment (ODI) means:

i. Acquisition of any unlisted equity capital or subscription as a part of the
Memorandum of Association of a foreign entity, or
ii. Investment in 10% or more of the paid-up equity capital of a listed foreign
entity, or
iii. Investment with control where investment is less than 10% of the paid-up equity
capital of a listed foreign entity.

For better understanding of Overseas Direct Investment (ODI), foreign entity means an entity
formed or registered or incorporated outside India, including in International Financial Services
Centre (IFSC) in India, that has limited liability.
Further, Control means the right to appoint majority of the directors or to control the
management.

“Overseas Investment” means financial commitment and Overseas Portfolio

Investment by a person resident in India.

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Financial commitment by a person resident in India:

1. Aggregate amount of investment by way of ODI,
2. Debt other than Overseas Portfolio Investment (OPI) and
3. Non-fund-based facility or facilities extended by it to all foreign entities.
An Indian entity may lend or invest in any debt instruments issued by a foreign entity or
extend non-fund-based commitment to or on behalf of a foreign entity, including overseas
SDSs of such Indian entity, subject to the following conditions:
i. the Indian entity is eligible to make ODI;
ii. the Indian entity has made ODI in the foreign entity;
iii. the Indian entity has acquired control in the foreign entity on or before the date of making
such financial commitment.

Entities eligible to invest

1. Companies
2. Body Corporate
3. LLP
4. Registered Partnership

“Overseas Portfolio Investment”(OPI) means investment, other than ODI, in foreign

securities, but not in any unlisted debt instruments or any security issued by a person resident
in India who is not in an IFSC:
Provided that OPI by a person resident in India in the equity capital of a listed entity, even
after its delisting shall continue to be treated as OPI until any further investment is made in
the entity.
Debt instruments are:
1. Government bonds,
2. Corporate bonds,
3. Units out of securitisation which are not equity,
4. Borrowings by firms through loans, and
5. Depository receipts whose underlying securities are debt securities.

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PERMISSION FOR OVERSEAS INVESTMENT

A person resident in India may make any investment or financial commitment outside India
under general permission/automatic route. Accordingly, overseas investment may be made in a
foreign entity engaged in a bona fide business activity, directly or through Step Down Subsidiary
(SDS).

PROCEDURE FOR MAKING OVERSEAS INVESTMENT

1. The person intending to make any financial commitment shall fill up the Form FC duly
supported by the requisite documents and approach the designated Authorised Dealer (AD)
bank for making the investment/remittance.
2. In respect of any case under the approval route, the applicant shall approach their designated
AD bank who shall forward the proposal to the Reserve Bank after due scrutiny and with its
specific recommendations. The application for overseas investment under the approval route
would continue to be submitted to the Reserve Bank in physical/electronic form through email
as hitherto, in addition to the online reporting.
3. The designated AD bank before forwarding the proposal shall submit the relevant sections of
the Form FC in the online OID application and the transaction number generated by the
application shall be mentioned in their reference
4. The following documents shall be submitted along with the proposal:
Background and brief details of the transaction.
Reason(s) for seeking approval mentioning the extant FEMA provisions.
Observations of the designated AD bank with respect to the following:
i. Prima facie viability of the foreign entity;
ii. Benefits which may accrue to India through such investment;
iii. Financial position and business track record of the Indian entity and the foreign entity;
iv. Any other material observation.
5. Recommendations of the designated AD bank with confirmation that the applicant’s board
resolution or resolution from an equivalent body, as applicable, for the proposed transaction(s)
is in place.
6. Diagrammatic representation of the organisational structure indicating all the subsidiaries of
the Indian entity horizontally and vertically with their stake (direct and indirect)

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7. Valuation certificate for the foreign entity (if applicable).

8. Other relevant documents properly numbered, indexed and flagged.
9. The proposal shall be submitted to the Reserve Bank of India.

APPROVAL FROM THE CENTRAL GOVERNMENT

1. The applications for overseas investment/financial commitment in Pakistan/other jurisdiction
as may be advised by the Central Government from time to time or in strategic sectors/specific
geographies shall be forwarded by the AD banks from their constituents to the Reserve Bank
as per the laid down procedure for onward submission to the Central Government.
2. It may be noted that strategic sector shall include energy and natural resources sectors such
as Oil, Gas, Coal, Mineral Ores, submarine cable system and start-ups and any other sector or
sub-sector as deemed fit by the Central Government.
3. The restriction of limited liability structure of foreign entity shall not be mandatory for entities
with core activity in any strategic sector. Accordingly, Overseas Direct Investment (ODI) can
be made in such sectors in unincorporated entities as well.

APPROVAL FROM THE RESERVE BANK

Financial commitment by an Indian entity, exceeding USD 1 (one) billion (or its
equivalent) in a financial year shall require prior approval of the Reserve Bank even
when the total financial commitment (400% of Net Worth) of the Indian entity is
within the eligible limit under the automatic route.

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NO OBJECTION CERTIFICATE (NOC) FROM THE LENDER BANK/REGULATORY

BODY/INVESTIGATIVE AGENCY
Any person resident in India having an account appearing as a Non-Performing Asset (NPA)
or is classified as wilful defaulter or is under investigation by a financial sector regulator/
investigative agency shall obtain an NOC from the lender bank/regulatory body/investigative
agency concerned before making financial commitment or undertaking disinvestment.
Where an Indian entity has already issued a guarantee in accordance with the FEMA provisions
before an investigation has begun or account is classified as NPA/wilful defaulter and
subsequently is required to honour such contractual obligation, such remittance due to the
invocation will not constitute fresh financial commitment and hence NOC shall not be required.

MODE OF PAYMENT

A person resident in India making Overseas Investment may make payment –

i. By remittance made through banking channels;
ii. From funds held in an account maintained in accordance with the provisions of the
Foreign Exchange Management Act;
iii. By swap of securities;
iv. By using the proceeds of American Depository Receipts or Global Depositary Receipts
or stock swap of such receipts or external commercial borrowings raised in
accordance with the provisions of the Act and the rules and regulations made
thereunder for making ODI or financial commitment by way of debt by an Indian
entity.

It is further provided that:

1. Overseas investment by way of cash is not permitted.
2. An Indian entity can make remittances to its office/branch outside India only for the purpose
of normal business operations of such branch or office. Accordingly, no remittance shall be
made by any Indian entity to its branch/office outside India for making any overseas
investment.
3. A person resident in India shall not make any payment on behalf of any foreign entity other
than by way of financial commitment as permitted under the OI Rules/Regulations.

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4. Any investment/financial commitment in Nepal and Bhutan shall be done in a manner as

provided in the Foreign Exchange Management (Manner of Receipt and Payment) Regulations,
2016.

PRICING GUIDELINES
The AD bank, before facilitating an overseas investment related transaction, shall ensure
compliance with the provisions of Overseas Investment Rules. With respect to the documents
to be taken by the AD bank, they shall be guided by their board approved policy, which may,
inter alia, provide for taking into consideration the valuation as per any internationally
accepted pricing methodology for valuation.
Such policy may also provide for scenarios where the valuation may not be insisted upon,
such as:
1. Transfer on account of merger, amalgamation or demerger or liquidation, where the price has
been approved by the competent Court/Tribunal as per the laws in India and/or the host
jurisdiction or
2. Price is readily available on a recognised stock exchange, etc.

TRANSFER OR LIQUIDATION
1. A person resident in India holding equity capital in accordance with OI Rules may transfer such
investment, in compliance with the limits and subject to the conditions for such investment
or disinvestment, pricing guidelines or documentation and reporting requirements, in the manner
provided in these rules and the Foreign Exchange Management (Overseas Investment)
Regulations, 2022.
2. A person resident in India may transfer equity capital by way of sale to a person resident in
India, who is eligible to make such investment under these rules, or to a person resident outside
India.
3. In case the transfer is on account of merger, amalgamation or demerger or on account of
buyback of foreign securities, such transfer or liquidation in case of liquidation of the foreign
entity, shall have the approval of the competent authority as per the applicable laws in India
or the laws of the host country or host jurisdiction, as the case may be.

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RESTRUCTURING
1. A person resident in India who has made ODI in a foreign entity may permit restructuring of
the balance sheet by such foreign entity, which has been incurring losses for the previous
two years as evidenced by its last audited balance sheets, subject to ensuring compliance
with reporting, documentation requirements and subject to the diminution in the total value of
the outstanding dues towards such person resident in India on account of investment in equity
and debt, after such restructuring not exceeding the proportionate amount of the accumulated
losses.
2. It may be noted that in case of such diminution where the amount of corresponding original
investment is more than USD 10 million or in the case where the amount of such diminution
exceeds twenty per cent of the total value of the outstanding dues towards the Indian entity
or investor, the diminution in value shall be duly certified on an arm’s length basis by a
registered valuer as per the Companies Act, 2013 or corresponding valuer registered with the
regulatory authority or certified public accountant in the host Jurisdiction.
3. The certificate dated not more than six months before the date of the transaction shall be
submitted to the designated AD bank.
4. The certificate shall mention the amount of accumulated losses as per the audited balance
sheet of the foreign entity, the proportionate amount of accumulated losses based upon the
share of the Indian entity/investor, the amount of diminution in the value of the outstanding
dues towards the Indian entity/investor post restructuring and that such diminution does not
exceed the proportionate amount of accumulated losses.
5. The above stated provisions shall not be used where the assets are simply revalued in the
books of the Indian entity without any restructuring of the balance sheet of the foreign entity.

OPENING OF FOREIGN CURRENCY ACCOUNT ABROAD BY AN INDIAN ENTITY

An Indian entity may open, hold and maintain Foreign Currency Account (FCA) abroad for the
purpose of making ODI in accordance with the provisions contained in Foreign Exchange
Management (Foreign Currency Accounts by a resident in India) Regulations, 2015.

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OBLIGATIONS OF THE PERSON RESIDENT IN INDIA

1. A person resident in India acquiring equity capital in a foreign entity, which is reckoned as
ODI, shall submit the evidence of investment to the AD bank within six months, failing which
the funds remitted overseas shall be repatriated within the said period of six months.
2. The evidence of investment shall be retained by the designated AD bank, who shall monitor
the receipt of required documents and satisfy themselves about the bona fides of the documents
so received.
3. Form FC shall be submitted along with requisite documents to AD bank for obtaining UIN on
or before making initial ODI.
4. The AD bank after due verification shall report the details in the OID application for allotment
of UIN.
5. Any remittance towards a foreign entity shall be facilitated by the AD bank only after obtaining
the necessary UIN for such entity.
6. The allotment of UIN does not constitute an approval from the Reserve Bank for the investment
made/to be made in the foreign entity.
7. The issue of UIN only signifies taking on record of the investment for maintaining the database.

MANNER OF MAKING OVERSEAS DIRECT INVESTMENT BY INDIAN ENTITY

Manner of making ODI
1. An Indian entity may make ODI by way of investment in equity capital for the purpose of
undertaking bonafide business activity in the manner and subject to the limits and prescribed
conditions.
2. The ODI may be made or held by way of:
i. Subscription as part of memorandum of association or purchase of equity capital, listed or
unlisted,
ii. Acquisition through bidding or tender procedure,
iii. Acquisition of equity capital by way of rights issue or allotment of bonus shares,
iv. Capitalisation, within the time period, if any, specified for realisation under the Act, of any
amount due towards the Indian entity from the foreign entity, the remittance of which is
permitted under the Act or does not require prior permission of the Central Government or

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the Reserve Bank under the Act or any rules or regulations made or directions issued
thereunder,
v. The swap of securities,
vi. Merger, demerger, amalgamation or any scheme of arrangement as per the applicable laws
in India or laws of the host country or the host jurisdiction, as the case may be.

ODI IN FINANCIAL SERVICES ACTIVITY

1. An Indian entity engaged in financial services activity in India may make ODI in a foreign
entity, which is directly or indirectly engaged in financial services activity, subject to the
following conditions, namely:
i. The Indian entity has posted net profits during the preceding three financial years,
ii. The Indian entity is registered with or regulated by a financial services regulator in India,
iii. The Indian entity has obtained approval as may be required from the regulators of such
financial services activity, both in India and the host country or host jurisdiction, as the
case may be, for engaging in such financial services.

2. An Indian entity not engaged in financial services activity in India may make ODI in a foreign
entity, which is directly or indirectly engaged in financial services activity, except banking or
insurance, subject to the condition that such Indian entity has posted net profits during the
preceding three financial years.
Provided that an Indian entity not engaged in the insurance sector may make ODI in general
and health insurance where such insurance business is supporting the core activity undertaken
overseas by such an Indian entity.

3. Overseas Investment by banks and non-banking financial institutions regulated by the Reserve
Bank shall be subject to the conditions laid down by the Reserve Bank under applicable laws
in this regard.

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Limit for Financial Commitment

1. The total financial commitment made by an Indian entity in all the foreign entities taken
together at the time of undertaking such commitment shall not exceed 400 percent of its net
worth as on the date of the last audited balance sheet or as directed by the Reserve Bank, in
consultation with Central Government from time to time.
2. The total financial commitment shall not include capitalisation of retained earnings for
reckoning such limit but shall include:
i. utilisation of the amount raised by the issue of American Depository Receipts or Global
Depositary Receipts and stock-swap of such receipts, and
ii. utilisation of the proceeds from External Commercial Borrowings to the extent the
corresponding pledge or creation of charge on assets to raise such borrowings.

OVERSEAS INVESTMENT BY PERSON RESIDENT IN INDIA OTHER THAN INDIAN ENTITY AND
RESIDENT INDIVIDUAL

ODI by Registered Trust or Society:

Any person being a registered Trust or a registered Society engaged in the educational
sector or which has set up hospitals in India may make ODI in a foreign entity with the
prior approval of the Reserve Bank, subject to the following conditions, namely:
i. the foreign entity is engaged in the same sector that the Indian Trust or Society
is engaged in,
ii. the Trust or the Society, as the case may be, should have been in existence for at
least three financial years before the year in which such investment is being made,
iii. the trust deed in case of a Trust, and the memorandum of association or rules or
bye-laws in case of a Society shall permit the proposed ODI,
iv. such investment has the approval of the trustees in case of a Trust and the
governing body or council or managing or executive committee in case of a Society,
v. In case the Trust or the Society require special licence or permission either from
the Ministry of Home Affairs, Central Government or from the relevant local
authority, as the case may be, the special licence or permission has been obtained
and submitted to the designated AD bank.

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OVERSEAS INVESTMENT IN IFSC BY PERSON RESIDENT IN INDIA

A person resident in India may make Overseas Investment in an IFSC in India.
Provided that:
1. In the case of an ODI made in an IFSC, the approval by the financial services regulator
concerned, wherever applicable, shall be decided within forty-five days from the date of
application complete in all respects failing which it shall be deemed to be approved.
2. An Indian entity not engaged in financial services activity in India, making ODI in a foreign
entity, which is directly or indirectly engaged in financial services activity, except banking or
insurance, who does not meet the net profit condition as required under these rules, may make
ODI in an IFSC.
3. A person resident in India may make contribution to an investment fund or vehicle set up in
an IFSC as OPI.

REPORTING
1. All reporting with respect to overseas investment by a person resident in India shall be made
through the designated AD bank in the prescribed manner and in the format provided by the
Reserve Bank.

2. A person resident in India who has made ODI or making financial commitment or undertaking
disinvestment in a foreign entity shall report the following, namely:
i. Financial commitment, whether it is reckoned towards the financial commitment limit or
not,
ii. Disinvestment within thirty days of receipt of disinvestment proceeds,
iii. Restructuring within thirty days from the date of such restructuring.

3. A person resident in India other than a resident individual making any Overseas Portfolio
Investment (OPI) or transferring such OPI by way of sale shall report such investment or
transfer of investment within sixty days from the end of the half-year in which such
investment or transfer is made as of September or March-end.

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4. Provided that in case of OPI by way of acquisition of shares or interest under Employee Stock
Ownership Plan or Employee Benefits Scheme, the reporting shall be done by the office in
India or branch of an overseas entity or a subsidiary in India of an overseas entity or the
Indian entity in which the overseas entity has direct or indirect equity holding where the
resident individual is an employee or director.

5. Any acquisition of foreign securities through conversion of Indian Depository Receipts (IDRs)
shall be duly reported as ODI or OPI, as applicable.

6. The Annual Performance Report (APR) shall be certified by a chartered accountant where the
statutory audit is not applicable, including in case of resident individuals. It is also clarified
that where APR is required to be filed jointly, either one investor may be authorised by other
investors for filing APR, or such persons may jointly file the APR.

DELAY IN REPORTING
In case a person resident in India has made a delay in filing/submitting the requisite
form/return/document, such person may file/submit the requisite form/return/ document, etc.
and pay the Late Submission Fee (LSF) through the designated AD bank in accordance with
OI Regulations.

RESTRICTION ON FURTHER FINANCIAL COMMITMENT OR TRANSFER

A person resident in India who has made a financial commitment in a foreign entity in
accordance with the Act or rules or regulations made thereunder, shall not make any further
financial commitment, whether fund-based or non-fund-based, directly or indirectly, towards
such foreign entity or transfer such investment till any delay in reporting is regularised.
AD bank shall not facilitate any outward remittance/further financial commitment by a person
resident in India towards a foreign entity until any delay in reporting is regularised.

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RESTRICTIONS AND PROHIBITIONS

1. Unless otherwise provided in the FEMA or these ODI Rules, no person resident in India shall
make ODI in a foreign entity engaged in:
i. Real estate activity;
ii. Gambling in any form; and
iii. Dealing with financial products linked to the Indian rupee without specific approval of the
Reserve Bank.
2. Any ODI in start-ups recognised under the laws of the host country or host jurisdiction as the
case may be, shall be made by an Indian entity only from the internal accruals whether from
the Indian entity or group or associate companies in India and in case of resident individuals,
from own funds of such an individual.
3. No person resident in India shall make financial commitment in a foreign entity that has
invested or invests into India, at the time of making such financial commitment or at any
time thereafter, either directly or indirectly, resulting in a structure with more than two layers
of subsidiaries.
4. It may be noted that such restriction shall not apply to the following classes of companies,
namely:
i. a banking company,
ii. a non-banking financial company and considered as systematically important non-banking
financial company by the Reserve Bank,
iii. an insurance company,
iv. a Government company.

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RESTRICTION ON ACQUISITION OR TRANSFER OF IMMOVABLE PROPERTY OUTSIDE INDIA

1. A person resident in India shall not acquire or transfer any immovable property situated outside
India without general or special permission of the Reserve Bank. However, following property
excluded:
i. Held by a person resident in India who is a national of a foreign State,
ii. Acquired by a person resident in India on or before the 8th day of July, 1947 and
continued to be held by such person with the permission of the Reserve Bank,
iii. Acquired by a person resident in India on a lease not exceeding five years.
2. A person resident in India may acquire immovable property outside India by way of inheritance
or gift or purchase from a person resident in India who has acquired such property as per the
foreign exchange provisions in force at the time of such acquisition. Further, a person resident
in India may acquire immovable property outside India from a person resident outside India–
i. by way of inheritance,
ii. by way of purchase out of foreign exchange held in RFC account,
iii. by way of purchase out of the remittances sent under the Liberalised Remittance Scheme
instituted by the Reserve Bank. Provided that such remittances under the Liberalised
Remittance Scheme may be consolidated in respect of relatives if such relatives, being
persons resident in India, comply with the terms and conditions of the Scheme,
iv. jointly with a relative who is a person resident outside India,
v. out of the income or sale proceeds of the assets, other than ODI, acquired overseas under
the provisions of the Act.
3. An Indian entity having an overseas office may acquire immovable property outside India for
the business and residential purposes of its staff, as per the directions issued by the Reserve
Bank from time to time.
4. A person resident in India who has acquired any immovable property outside India in accordance
with the foreign exchange provisions in force at the time of such acquisition may:
i. transfer such property by way of gift to a person resident in India who is eligible to
acquire such property under these rules or by way of sale,
ii. create a charge on such property in accordance with the Act or the rules or regulations
made thereunder or directions issued by the Reserve Bank from time to time.

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5. The holding of any investment in immovable property or transfer thereof in any manner shall
not be permitted if the initial investment in immovable property was not permitted under the
Foreign Exchange Management Act.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 4 - EXTERNAL COMMERCIAL BORROWINGS

(ECB)
External Commercial Borrowings are commercial loans raised by eligible resident
entities from recognised non- resident entities and should conform to parameters
such as minimum maturity, permitted and nonpermitted end- uses, maximum all-in-
cost ceiling.

ECB FRAMEWORK
The framework for raising loans through ECB comprises the following two options:

Parameters Foreign Currency denominated ECB Indian Rupee denominated

ECB
Currency of Any freely convertible Foreign Currency Indian Rupee (INR)
Borrowing
Forms of Loans including bank loans, floating/ fixed Loans including bank loans,
ECB rate notes, bonds, debentures (other than floating or fixed rate notes,
fully and compulsorily convertible bonds, debentures,
instruments), Trade credits beyond 3 preference shares (other
years, Foreign Currency Convertible Bonds, than fully and compulsorily
Foreign Currency Exchangeable Bonds and convertible instruments),
Financial Lease. Trade credits beyond
3 years and Financial Lease.
Also, plain vanilla Rupee
denominated bonds issued
overseas, which can be
either placed privately or
listed on exchanges
Eligible All entities eligible to receive Foreign a. All entities eligible to
Borrowers Direct Investment. Further, the following raise Foreign Currency
entities are also eligible to ECB and
raise ECB: b. Registered entities
engaged in micro-finance

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i. Port Trusts, activities:

ii. Units in SEZ, Not for Profit companies,
iii. SIDBI, and registered societies/trusts/
iv. EXIM Bank of India. cooperatives and
Non-Government
Organisations.

RECOGNISED LENDERS
The lender should be resident of Financial Action Task Force (FATF) or International
Organisation of Securities Commission’s IOSCO compliant country, including on transfer of ECB.
However,
i. Multilateral and Regional Financial Institutions where India is a member country will also be
considered as recognised lenders;
ii. Individuals as lenders can only be permitted if they are foreign equity holders and
iii. Foreign branches / subsidiaries of Indian banks are permitted as recognised lenders only for
Foreign Currency ECB (except FCCBs and FCEBs). Foreign branches of Indian banks, subject
to applicable prudential norms, can participate as arrangers/underwriters/market-makers/traders
for Rupee denominated Bonds issued overseas. However, underwriting by foreign branches of
Indian banks for issuances by Indian banks will not be allowed.

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MINIMUM AVERAGE MATURITY PERIOD (MAMP)

Minimum Average Maturity Period (MAMP) for ECB will be 3 years.
However, for the specific categories mentioned below, the Minimum Average Maturity Period
are:

Category Minimum
Average
Maturity
Period
(MAMP)
1. ECB raised by manufacturing companies up to USD 50 million. 1 year
2. ECB raised from foreign equity holder for working capital purposes, 5 years
general corporate purposes or for repayment of Rupee loans
3. ECB raised for 10 years
i. Working capital purposes or general corporate purposes.
ii. on-lending by NBFCs for working capital purposes or general
corporate purposes.
4. ECB raised for 7 years
i. repayment of Rupee loans availed domestically for capital
expenditure.
ii. on-lending by NBFCs for the same purpose.
5. ECB raised for 10 years
i. repayment of Rupee loans availed domestically for purposes
other than capital expenditure.
ii. on-lending by NBFCs for the same purpose.
It may be noted that for the categories mentioned at (B) to (E) –
i. ECB cannot be raised from foreign branches / subsidiaries of
Indian banks.
ii. the prescribed MAMP will have to be strictly complied with
under all circumstances.

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END-USES (NEGATIVE LIST)

The negative list, for which the ECB proceeds cannot be utilised, would include the following:
a. Real estate activities.
b. Investment in capital market.
c. Equity investment.
d. Working capital purposes,
e. General corporate purposes,
f. Repayment of Rupee loans,
g. For clause (d) and (e) mentioned above ECB raised from foreign equity holder for
working capital purposes, general corporate purposes or for repayment of Rupee loans is
allowed.
h. For clause (f) ECB raised for:
• repayment of Rupee loans availed domestically for capital expenditure
• on lending by NBFCs for the same purpose
• repayment of Rupee loans availed domestically for purposes other than capital
expenditure
• on-lending by NBFCs for the same purpose.
i. On-lending to entities for the above activities.

EXCHANGE RATE
Change of currency of Foreign Currency ECB into Indian Rupee ECB can be at the exchange
rate prevailing on the date of the agreement for such change between the parties concerned
or at an exchange rate, which is less than the rate prevailing on the date of the agreement,
if consented to by the ECB lender.

LIMIT AND LEVERAGE

All eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year
under the automatic route. Further, in case of Foreign Currency denominated ECB raised from
direct foreign equity holder, ECB liability-equity ratio for ECB raised under the automatic route
cannot exceed 7:1

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However, this ratio will not be applicable if the outstanding amount of all ECB, including the
proposed one, is up to USD 5 million

Issuance of Guarantee, etc. by Indian banks and Financial Institutions

Issuance of any type of guarantee by Indian banks, All India Financial Institutions and NBFCs
relating to ECB is not permitted.
Further, financial intermediaries shall not invest in Foreign Currency Convertible Bonds/ Foreign
Currency Exchangeable Bonds

PARKING OF ECB PROCEEDS

ECB proceeds are permitted to be parked abroad as well as domestically:
Parking of ECB proceeds abroad:
ECB proceeds meant only for foreign currency expenditure can be parked abroad pending
utilisation. Till utilisation, these funds can be invested in the following liquid assets:
a. Deposits or other products offered by banks rated not less than AA (-)
b. Treasury bills and other monetary instruments of one-year maturity having minimum rating as
indicated above and
c. Deposits with foreign branches of Indian banks abroad.

Parking of ECB proceeds domestically:

ECB proceeds meant for Rupee expenditure should be repatriated immediately for credit to
their Rupee accounts with AD Category I banks in India. ECB borrowers are also allowed to
park ECB proceeds in term deposits with AD Category I banks in India for a maximum period
of 12 months cumulatively. These term deposits should be kept in unencumbered position.

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PROCEDURE OF RAISING ECB

Serial Activities
Number
1. All ECB can be raised under the automatic route if they conform to the
parameters.
2. For approval route cases, the borrowers may approach the RBI with an
application in prescribed format (Form ECB) for examination through their AD
Category I bank.
3. ECB proposals received in the Reserve Bank above certain threshold limit
would be placed before the Empowered Committee set up by the Reserve Bank.
4. The Empowered Committee will have external as well as internal members and
the Reserve Bank will take a final decision in the cases taking into account
recommendation of the Empowered Committee.
5. Entities desirous to raise ECB under the automatic route may approach an AD
Category I bank with their proposal along with duly filled in Form ECB.

REPORTING REQUIREMENTS

Loan Registration Number (LRN): Any draw-down in respect of an ECB should happen only
after obtaining the LRN from the Reserve Bank. To obtain the LRN, borrowers are required to
submit duly certified Form ECB, which also contains terms and conditions of the ECB.
In turn, the AD Category I bank will forward one copy to the Director, Reserve Bank of India.

Changes in terms and conditions of ECB: Changes in ECB parameters, should be reported to
the Department of Statistics and Information Management through revised Form ECB at the
earliest, in any case not later than 7 days from the changes effected.

Monthly Reporting of actual transactions: The borrowers are required to report actual ECB
transactions through Form ECB 2 Return through the AD Category I bank on monthly basis
so as to reach Department of Statistics and Information Management within seven working

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days from the close of month to which it relates. Changes, if any, in ECB parameters should
also be incorporated in Form ECB 2 Return.

Late Submission Fee (LSF) for delay in reporting: Any borrower, who is otherwise in
compliance of ECB guidelines, can regularise the delay in reporting of drawdown of ECB
proceeds before obtaining LRN or delay in submission of ECB returns, by payment of prescribed
late submission fees.

Standard Operating Procedure (SOP) for Untraceable Entities:

1. If a borrower has taken External Commercial Borrowings (ECB) and cannot be contacted for
at least two consecutive quarters despite multiple attempts through email, letters, and phone
calls (with a documented record of at least 6 communications), they will be considered an
"untraceable entity."
2. This applies if the entity is not found operational at its registered office and has not submitted
the Statutory Auditor's Certificate for the past two years or more.
3. Actions to be taken regarding "untraceable entities" are as follows:
I. File Revised Form ECB (if necessary) and the last Form ECB 2 Return without company
certification, clearly stating "UNTRACEABLE ENTITY" in bold at the top. The
outstanding amount will be considered written off from the country's external debt
liability but can still be pursued by the lender through legal or non-legal means.
II. The Authorized Dealer (AD) bank should not process any new ECB applications from
the entity.
III. Notify the Directorate of Enforcement whenever an entity is designated as an
"UNTRACEABLE ENTITY."
IV. Inward remittances or debt servicing will not be permitted under the automatic route.

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CONVERSION OF ECB INTO EQUITY

Conversion of ECB, including those which are matured but unpaid, into equity is permitted
subject to the following conditions:
1. The activity of the borrowing company is covered under the automatic route for Foreign Direct
Investment or Government approval is received.
2. The conversion should be with the lender’s consent and without any additional cost, should
not result in breach of applicable sector cap on the foreign equity holding.
3. Applicable pricing guidelines for shares are complied with,
4. In case of partial or full conversion of ECB into equity, the reporting to the Reserve Bank will
be asunder:
I. For partial conversion, the converted portion is to be reported in Form FC-GPR
II. For full conversion, the entire portion is to be reported in Form FC-GPR, while reporting
to DSIM in Form ECB 2 Return should be done with remarks “ECB fully converted to
equity”.
5. If the borrower concerned has availed of other credit facilities from the Indian banking system
the applicable prudential guidelines issued by the Reserve Bank are complied with,
6. Consent of other lenders, if any, to the same borrower is available or at least information
regarding conversions is exchanged with other lenders of the borrower,
7. For conversion of ECB dues into equity, the exchange rate prevailing on the date of the
agreement between the parties concerned for such conversion or any lesser rate can be applied
with a mutual agreement with the ECB lender.

ECB FACILITY FOR OIL MARKETING COMPANIES

Public Sector Oil Marketing Companies (OMCs) can raise ECB for working capital purposes
with minimum average maturity period of 3 years from all recognised lenders under the
automatic route without mandatory hedging and individual limit requirements. The overall
ceiling for such ECB shall be USD 10 billion or equivalent

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ECB FACILITY FOR STARTUPS

AD Category-I banks are permitted to allow Startups to raise ECB under the automatic route
as per the following framework:
Eligibility: An entity recognised as a Startup.

Maturity: Minimum average maturity period will be 3 years.

Recognised lender: Lender shall be a resident of a FATF compliant country. However, foreign
branches of Indian banks and overseas entity in which Indian entity has made overseas
direct investment will not be considered as recognised lenders under this framework.

Forms: Loans or non-convertible, optionally convertible or partially convertible preference

shares.

Currency: The borrowing should be denominated in any freely convertible currency

Amount: The borrowing per Startup will be limited to USD 3 million or equivalent per
financial year

All-in-cost: Shall be mutually agreed between the borrower and the lender.

End uses: For any expenditure in connection with the business of the borrower.

Conversion into equity: Conversion into equity is freely permitted

Security: The choice of security to be provided to the lender is left to the borrowing entity.
Security can be in the nature of movable, immovable, intangible assets. However, issuance of
guarantee, standby letter of credit, letter of undertaking or letter of comfort by Indian banks,
all India Financial Institutions and NBFCs is not permitted.

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Hedging: The overseas lender, in case of INR denominated ECB, will be eligible to hedge its
INR exposure through permitted derivative products with AD Category I banks in India.

Conversion rate: In case of borrowing in INR, the foreign currency - INR conversion will be
at the market rate as on the date of agreement.

Other Provisions: Other provisions like parking of ECB proceeds, reporting arrangements,
powers delegated to AD banks, borrowing by entities under investigation, conversion of ECB
into equity will be as included in the ECB framework.

BORROWING BY ENTITIES UNDER INVESTIGATION

All entities against which investigation / adjudication / appeal by the law enforcing agencies
for violation of any of the provisions of the Regulations under FEMA are pending, may raise
ECB as per the applicable norms, if they are otherwise eligible.
The borrowing entity shall inform about pendency of such investigation / adjudication /
appeal to the AD Category-I bank / RBI as the case may be.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 5 - FOREIGN TRADE POLICY & PROCEDURE

INTRODUCTION
The FTP 2023 is all about making things easier for exporters. It focuses on process re-
engineering and automation to improve the business environment. The plan includes areas like
handling advanced technology items, supporting e-commerce exports, and teaming up with
states and districts to promote exports.
The FTP 2023 also encourages recognizing new towns for export excellence and gives special
status to high-performing exporters.

KEY HIGHLIGHTS OF FTP 2023

1. Process Re-Engineering and Automation
Greater faith is being reposed on exporters through automated IT systems with risk management
system for various approvals in the new FTP. Considering the effectiveness of some of the
ongoing schemes like Advance Authorisation under FTP 2015-20, they will be continued along
with substantial process re-engineering and technology enablement for facilitating the
exporters.
FTP 2023 codifies implementation mechanisms in a paperless, online environment, building on
earlier 'ease of doing business' initiatives. Reduction in fee structures and IT-based schemes
will make it easier for MSMEs and others to access export benefits.
2. Towns of Export Excellence
Four new towns, namely Faridabad, Mirzapur, Moradabad, and Varanasi, have been designated
as Towns of Export Excellence (TEE) in addition to the existing 39 towns. The TEEs will have
priority access to export promotion funds.
3. Recognition of Exporters
Status recognition norms have been re-calibrated to enable more exporting firms to achieve 4
and 5-star ratings, leading to better branding opportunities in export markets.

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4. Promoting Exports from district

The FTP aims at building partnerships with State governments and taking forward the Districts
as Export Hubs (DEH) initiative to promote exports at the district level and accelerate the
development of grassroots trade ecosystem. Efforts to identify export worthy products &
services and resolve concerns at the district level will be made through an institutional
mechanism – State Export Promotion Committee and District.
Export Promotion Committee at the State and District level, respectively. District specific export
action plans to be prepared for each district outlining the district specific strategy to promote
export of identified products and services.
5. Merchanting trade
To develop India into a merchanting trade hub, the FTP 2023 has introduced provisions for
merchanting trade. Merchanting trade of restricted and prohibited items under export policy
would now be possible. Merchanting trade involves shipment of goods from one foreign country
to another foreign country without touching Indian ports, involving an Indian intermediary. This
will be subject to compliance with RBI guidelines, and won’t be applicable for goods/items
classified in the CITES(The Convention on International Trade in Endangered species of wild
Fauna and Flora) and SCOMET list. In course of time, this will allow Indian entrepreneurs to
convert certain places like GIFT city etc. into major merchanting hubs as seen in places like
Dubai, Singapore and Hong Kong.

TRADE FACILITATION AND EASE OF DOING BUSINESS

National Committee on Trade Facilitation (NCTF)
India has ratified the World Trade Organization’s Trade Facilitation Agreement (TFA) in April
2016. To facilitate coordination and implementation of the TFA provisions, an inter-ministerial
body i.e. National Committee on Trade Facilitation (NCTF) has been constituted.

Four pillars of TFA

1. Transparency: focus on improved access to accurate and complete information.
2. Technology: development and use of digital and detection technologies to ease out trade
bottlenecks and improve efficiency.

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3. Simplification of Procedures and Risk based Assessments: simplified, uniform and

harmonised procedures with increased adoption of a risk based management approach.
4. Infrastructure Augmentation: enhancement of infrastructure, particularly the road and rail
infrastructure leading to ports and the infrastructure within ports, airports, ICDs, Land Customs
Stations is a major enabler for growth in trade that cuts across all stakeholders.

National Trade Facilitation Action Plan aims to achieve:

1. Improvement in Ease of Doing Business through reduction in transaction cost and time
2. Reduction in cargo release time
3. A paperless regulatory environment
4. A transparent and predictable legal regime
5. Improved investment climate through better infrastructure

IMPORTANT POINTS
1. DGFT has a commitment to function as a facilitator of exports and imports.
2. Consignments of items meant for exports shall not be withheld/ delayed for any reason by any
agency of Central/ State Government. In case of any doubt, authorities concerned may ask for
an undertaking from exporter and release such consignment.
3. No seizure shall be made by any agency so as to disrupt manufacturing activity and delivery
schedule of exports. In exceptional cases, concerned agency may seize the stock. However, such
seizure should be lifted within 7 days unless the irregularities are substantiated.
4. Importer Exporter Code (IEC) is mandatory for export/ import from/to India, DGFT issues
Importer Exporter Code in electronic form (e-IEC)

TRADE FACILITATION AT CUSTOMS

CBIC has undertaken a number of initiatives to facilitate Trade. Some of these are as
follows:
1. 24X7 Customs Clearance:
i. Implemented at 20 sea ports and 17 airports.
ii. Extended clearance in ICDs based on Trade needs.

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2. Single Window in Customs:

Streamlining processes for a unified customs experience.
3. E-Sanchit:
Facilitating a paperless clearance environment.
4. Faceless e-Assessment:
Pan-India implementation for imports.
5. TURANT Customs:
Aimed at expediting customs procedures.
6. Electronic Messages Implementation:
From document clearance to cargo movement.
7. Paperless Customs Initiatives:
Issuance of electronic documents like e-LEO SB, e-Gatepass, e-OOC, etc.
8. Contactless Customs Initiatives:
Introduction of Turant Suvidha Kendras (TKSs).
9. Direct Port Delivery (DPD) and Direct Port Entry (DPE):
Implemented on imports and exports respectively.
10. Compliance Information Portal (CIP):
Providing comprehensive compliance information.
11. End-to-End Automated Procedure:
Simplified process for the import of specified goods at concessional rates or for specified end-
use.

AUTHORISED ECONOMIC OPERATOR (AEO) PROGRAMME

1. Authorised Economic Operator (AEO) programme’ has been developed by Indian Customs to
enable business involved in the international trade to reap the following benefits:
i. Secure supply chain from point of export to import,
ii. (Ability to demonstrate compliance with security standards when contracting to supply
overseas importers /exporters
iii. Enhanced border clearance privileges in Mutual Recognition Agreement (MRA),
iv. Minimal disruption to flow of cargo after a security related disruption;
v. Reduction in dwell time and related costs; and

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vi. Customs advice / assistance if trade faces unexpected issues with Customs of countries
with which India have MRA.

STATUS HOLDER CERTIFICATION

1. The certification of certain exporter firms as "Status Holder" aims to acknowledge them as
leaders in international trade, recognizing their excellence and significant contributions to the
country's foreign trade.
2. Status Holders are expected not only to boost India's exports but also to guide and support
new entrepreneurs.
3. To qualify for recognition as a status holder, all exporters of goods, services, and technology
with an Import-Export Code (IEC) number on the application date must meet the export
performance criteria.
4. Export performance is evaluated based on the FOB of export earnings in freely convertible
foreign currencies or in Indian Rupees.
5. To qualify for status, exporters must demonstrate export performance in the three preceding
financial years (and in the two preceding financial years for the Gems & Jewellery Sector).

STATUS HOLDER CATEGORIES

Status Category Export Performance Threshold In USD
Million

One Star Export House 3

Two Star Export House 15

Three Star Export House 50

Four Star Export House 200

Five Star Export House 800

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GRANT OF DOUBLE WEIGHTAGE

Double Weightage shall be available for grant of One Star Export House Status category only.
Such benefit of double weightage shall not be admissible for grant of status recognition of
other categories namely Two Star Export House, Three Star Export House, Four Star export
House and Five Star Export House. The exports by IEC holders under the following categories
shall be granted double weightage for calculation of export performance for grant of status:
i. Micro and Small Enterprises
ii. Manufacturing units having ISO/BIS Certification
iii. Units located in North Eastern States including Sikkim, and Union Territories of Jammu ,

Kashmir and Ladakh

iv. Export of fruits and vegetables

A merchandise shipment/ service rendered can get double weightage only once in any one of
above categories.

Other Conditions:
1. Export performance of one IEC holder shall not be permitted to be transferred to another IEC
holder.
2. Export of items under Authorisation, including SCOMET items, would be included for calculation
of export performance.
3. Exports made on re-export basis shall not be counted for recognition.

PRIVILEGES OF STATUS HOLDERS

1. Companies can obtain authorization and customs clearances for both imports and exports
through self-declaration.
2. The Norms Committee will prioritize setting input-output norms within 60 days. DGFT will
notify a special scheme for input-output norms for specified status holders.
3. Bank Guarantee is not required for schemes under FTP unless specified otherwise in FTP or
HBP.
4. While compulsory negotiation of documents through banks is exempted, remittances and receipts
must still go through banking channels.

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5. Export houses with a rating of two stars and above can establish Export Warehouses following
Department of Revenue guidelines.
6. Status holders are entitled to preferential treatment and priority handling of their consignments
by relevant agencies.
7. Status holders can freely export items (excluding Gems, Jewellery, Articles of Gold, and precious
metals) for export promotion up to an annual limit of either Rs. One Crore or 2% of the
average annual export realization in the past three years, whichever is lower. For pharmaceutical
companies exporting pharma products, the limit is 2% of the average annual export realization
in the preceding three years. If supplying pharmaceutical products to international health
programs, the limit is up to 8% of the average annual export realization in the past three
years.

SKILLING AND MENTORSHIP OBLIGATIONS

To improve the trade ecosystem by enhancing the available skilling opportunities, Status Holders
are being made “partners” in providing mentoring and training in international trade. Status
Holders will endeavour to provide skill upgradation/ training in international trade as detailed
below:
Status Number of Trainees per year

Two Star Export House 5

Three Star Export House 10

Four Star Export House 20

Five Star Export House 50

A model training program of a minimum duration of 6 weeks would be put up in public domain
for guidance.

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GENERAL PROVISIONS REGARDING IMPORTS AND EXPORTS

1. Exports and Imports shall be ‘Free’ except when regulated by way of ‘Prohibition’, ‘Restriction’
or ‘Exclusive trading through State Trading Enterprises (STEs)’ as laid down in Indian Trade
Classification (Harmonized System) [ITC (HS)] of Exports and Imports.
It may be noted that-
“Restricted” is a term indicating the import or export policy of an item, which can be
imported into the country or exported outside, only after obtaining an Authorisation from the
offices of DGFT.

INDIAN TRADE CLASSIFICATION (HARMONISED SYSTEM) [ITC (HS)] OF EXPORTS AND

IMPORTS
1. ITC(HS) is a compilation of codes for all merchandise / goods for export/ import. Goods are
classified based on their group or sub-group at 2/4/6/8 digits.
2. ITC(HS) is aligned at 6-digit level with international Harmonized System goods nomenclature
maintained by World Customs Organization.
3. However, India maintains national Harmonized System of goods at 8-digit level
4. The import/export policies for all goods are indicated against each item as per its ITC (HS).
Schedule 1 of ITC (HS) lays down the Import Policy regime while Schedule II of ITC(HS) lays
down the Export Policy regime.
5. Except where it is clearly specified, Schedule 1 of ITC (HS), Import Policy is for new goods
and not for Second Hand goods.

IMPORTER-EXPORTER CODE (IEC)

An IEC is a 10-character alpha-numeric number allotted to an entity (firm/company/LLP etc.)
and is mandatory for undertaking any export/import activities. With a view to maintain the
unique identity of an entity, consequent upon introduction / implementation of GST, IEC shall
be same as Permanent Account Number(PAN) and shall be separately issued by DGFT based
on an online application.
1. No export or import of goods shall be made by any person without obtaining an IEC unless
specifically exempted.
2. Application process for IEC and updation in IEC is completely online.

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3. An IEC holder has to ensure that details in its IEC is updated electronically every year. In
cases where there are no changes in IEC details same also needs to be confirmed online.
4. An IEC shall be de-activated, if it is not updated within the prescribed period. An IEC so de-
activated may be activated, on its successful updation.
5. An IEC may also be flagged for scrutiny.

Mandatory documents for export/ import of goods from/into INDIA

1. Mandatory documents required for export of goods from India:
i. Bill of Lading/ Airway Bill/ Lorry Receipt/ Railway Receipt/Postal Receipt
ii. Commercial Invoice cum Packing List*
iii. Shipping Bill/Bill of Export/ Postal Bill of Export
2. Mandatory documents required for import of goods into India
i. Bill of Lading/Airway Bill/Lorry Receipt/ Railway Receipt/Postal Receipt in form CN-22 or
CN 23 as the case may be.
ii. Commercial Invoice cum Packing List
iii. Bill of Entry
3. For export or import of specific goods or category of goods, which are subject to any restrictions/
policy conditions, the regulatory authority concerned may notify additional documents for
purposes of export or import.
4. In specific cases of export or import, the regulatory authority concerned may electronically or
in writing seek additional documents or information, as deemed necessary to ensure legal
compliance.

PRINCIPLES OF RESTRICTIONS
DGFT may, through a Notification, impose ‘Prohibition’ or ‘Restriction’:
1. On export of foodstuffs or other essential products for preventing or relieving critical shortages,
2. On imports and exports necessary for the application of standards or regulations for the
classification, grading or marketing of commodities in international trade,
3. On imports of fisheries product,
4. On import to safeguard country’s external financial position and to ensure a level of reserves,
5. On imports to promote establishment of a particular industry,

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6. For preventing sudden increases in imports from causing serious injury to domestic producers
or to relieve producers who have suffered such injury,
7. For protection of public morals or to maintain public order,
8. For protection of human, animal or plant life or health,
9. Relating to the importations or exportations of gold or silver,
10. For the conservation of exhaustible natural resources;
11. For ensuring essential quantities for the domestic processing industry.

EXPORT/IMPORT OF RESTRICTED GOODS/ SERVICES

Any goods /service, the export or import of which is ‘Restricted’ may be exported or imported
only in accordance with an Authorisation / Permission or in accordance with the Procedures
prescribed in a Notification / Public Notice issued in this regard.

Actual User Condition

Goods which are importable freely without any ‘Restriction’ may be imported by any person.
However, if such imports require an Authorisation, Actual User alone may import such good(s)
unless Actual User condition is specifically dispensed with by DGFT.

It may be noted that –

“Actual User” is a person (either natural & legal) who is authorized to use imported goods in
his/ its own premise which has a definitive postal address.
1. “Actual User (Industrial)” is a person (either natural & legal) who utilizes imported goods for
manufacturing in his own industrial unit or manufacturing for his own use in another unit
including a jobbing unit which has a definitive postal address.
2. Actual User (Non-Industrial)” is a person (either natural & legal) who utilizes the imported
goods for his own use in.
i. any commercial establishment, carrying on any business, trade or profession, which has a
definitive postal address, or
ii. any laboratory, Scientific or Research and Development(R&D) institution, university or
other educational institution or hospital which has a definitive postal address, or
iii. Any service industry which has a definitive postal address.

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APPLICATION FEE
1. Application for IEC/Authorisation/License/ Registration must be accompanied by application
fees as indicated in the Appendix 2K of Appendices and Aayat Niryat Forms.
2. The fee once received will not be refunded except in certain circumstances.

AUTHORISATION - NOT A RIGHT

No person can claim an Authorisation as a right and DGFT or RA shall have power to refuse
to grant or renew the same.

PENAL ACTION AND PLACING OF AN ENTITY IN DENIED ENTITY LIST (DEL)

1. If an Authorisation holder violates any condition of such Authorisation or fails to fulfil export
obligation or fails to deposit the requisite amount within the period specified in demand notice
issued by Department of Revenue and /or DGFT, he shall be liable for action.
2. With a view to raising ethical standards and for ease of doing business, DGFT has provided for
self- certification system under various schemes. In such cases, applicants shall undertake self-
certification with sufficient care and caution in filling up information/ particulars. Any
information/particulars subsequently found untrue/incorrect will be liable for action.
3. A firm may be placed under Denied Entity List (DEL), on issuance of such an order, for
reasons to be recorded in writing, a firm may be refused grant or renewal of a licence,
authorisation, certificate or any instrument bestowing financial or fiscal benefits. If a firm is
placed under DEL, all new licences, authorisations, scrips, certificates, instruments etc. will be
blocked from printing/ issue/renewal.
It may be noted that:
“Export Obligation” means obligation to export product or products covered by Authorisation or
permission in terms of quantity, value or both, as may be prescribed or specified by Regional
or competent authority.

PROHIBITIONS ON TRADE
Prohibition on Import and Export of ‘Arms and related material’ from / to Iraq
The import/export of Arms and related material from/to Iraq is ‘Prohibited’. However, export of
Arms and related material to Government of Iraq shall be permitted subject to NOC.

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PROHIBITION ON IMPORT OF CHARCOAL FROM SOMALIA

Direct or indirect import of charcoal is prohibited from Somalia, irrespective of whether or not
such charcoal has originated in Somalia.

IMPORT / EXPORT THROUGH STATE TRADING ENTERPRISES

State Trading Enterprises (STEs)
1. State Trading Enterprises (STEs) are governmental and non-governmental enterprises, including
marketing boards, which deal with goods for export and /or import. Any good, import or export
of which is governed through exclusive or special privilege granted to State Trading Enterprise
(STE), may be imported or exported by the concerned STE.
2. Such STE(s) shall make any such purchases or sales involving imports or exports solely in
accordance with commercial considerations, including price, quality, availability, marketability,
transportation and other conditions of purchase or sale in a non-discriminatory manner and
shall afford enterprises of other countries adequate opportunity, in accordance with customary
business practices, to compete for participation in such purchases or sales.
3. DGFT may, however, grant an authorisation to any other entity to import or export any of the
goods notified for exclusive trading through STEs.
It may be noted that-
State Trading Enterprises (STEs), for the purpose of this FTP, are those entities which are
granted exclusive right/privileges export and /or import.

IMPORT OF SPECIFIC CATEGORIES OF GOODS

IMPORT OF SAMPLES
No Authorisation shall be required for Import of bonafide technical and trade samples of items
“restricted” in ITC (HS) except defence/security items, seeds, bees and new drugs.

IMPORT OF GIFTS
Import of goods, including those purchased from e-commerce portals, through post or courier,
where Customs clearance is sought as gifts, is prohibited except for life saving drugs/ medicines
and Rakhi (but not gifts related to Rakhi).

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Explanation:
1. Rakhi (but not gifts related to Rakhi) will be covered under Section 25(6) of Customs Act,
1962 that reads that “no duty shall be collected if the amount of duty leviable is equal to or
less than Rs. 100/-”
2. Import of goods as gifts with payment of full applicable duties is allowed.

IMPORT THROUGH PASSENGER BAGGAGE

1. Bona-fide household goods and personal effects may be imported as part of passenger baggage
as per limits, terms and conditions thereof in Baggage Rules notified by Ministry of Finance.
2. Samples of such items that are otherwise freely importable under FTP may also be imported
as part of passenger baggage without an Authorisation subject to Baggage Rules as notified by
Customs from time to time.
3. Exporters coming from abroad are also allowed to import drawings, patterns, labels, price tags,
buttons, belts, trimming and embellishments required for export, as part of their passenger
baggage, without an authorization subject to value limit.
4. Any item(s) including Samples or Prototypes of items whose import policy is “restricted” or
“prohibited” or is canalised through STEs are not permitted as part of passenger baggage
except with a valid authorization/ permission issued by DGFT.

RE – IMPORT OF GOODS REPAIRED ABROAD

Capital goods, equipment, components, parts and accessories, whether imported or indigenous,
except those restricted under ITC (HS) may be sent abroad for repairs, testing, quality
improvement or upgradation or standardization of technology and re-imported without an
Authorisation.

IMPORT OF GOODS USED IN PROJECTS ABROAD

Project contractors after completion of projects abroad, may import without an Authorisation,
goods including capital goods used in the project, provided they have been used for at least
one year.

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IMPORT POLICY FOR SECOND HAND GOODS

Second Hand Goods Categories of Import Policy Conditions, if any

Sl. No. Second-Hand
Goods
I. Second Hand Capital Goods

I(a) • Desktop Restricted Importable against

Computers Authorisation
• Air
Conditioners

I(b) All electronics and IT Restricted Importable against

Goods Authorisation

I(c) Refurbished / re- Free Subject to

conditioned spares of production of
Capital Goods Chartered Engineer
certificate to the
effect that such
spares have at least
80% residual life of
original spare
I(d) All other second-hand capital goods {other Free
than (a) (b) & (c) above}
II Second Hand Goods Restricted Importable against
other than capital Authorisation
goods
III Second Hand Goods Free
imported for the
purpose of
repair/refurbishing

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OTHER PROVISIONS RELATED TO IMPORTS

PRIVATE/PUBLIC BONDED WAREHOUSES FOR IMPORTS

1. Private/ Public bonded warehouses may be set up in DTA. Any person may import goods except
prohibited items, arms and ammunition, hazardous waste and chemicals and warehouse them
in such bonded warehouses.
2. Such goods may be cleared for home consumption in accordance with provisions of FTP and
against Authorisation, wherever required. Customs duty as applicable shall be paid at the time
of clearance of such goods.

MERCHANTING TRADE
Merchanting trade involving shipment of goods from one foreign country to another foreign
country without touching Indian ports, involving an Indian intermediary is allowed subject to
compliance with RBI guidelines, except for goods/items in the SCOMET list.
It may be noted that-
“SCOMET” is the nomenclature for dual use items of Special Chemicals, Organisms, Materials,
Equipment and Technologies (SCOMET). Export of dual-use items and technologies under
India’s FTP is regulated. It is either prohibited or is permitted under an Authorisation.

EXPORTS
Free Exports
All goods may be exported without any restriction except to the extent that such exports are
regulated by ITC(HS) or any other provision of FTP or any other law for the time being in
force. DGFT may, however, specify through a Public Notice such terms and conditions according
to which any goods, not included in ITC(HS), may be exported without an Authorisation.

BENEFITS FOR SUPPORTING MANUFACTURERS

For any benefit to accrue to the supporting manufacturer, the names of both supporting
manufacturer as well as the merchant exporter must figure in the concerned export documents,
especially in Tax Invoice / Shipping Bill / Airway Bill.

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It may be noted that:

“Merchant Exporter” means a person engaged in trading activity and exporting or in tending
to export goods.
1. “Supporting Manufacturer” is one who manufactures goods/products or any
part/accessories/components of a good/ product for a merchant exporter or a manufacturer
exporter under a specific Authorisation.
2. “Supporting Manufacturer” for the EPCG Scheme shall be one in whose premises/ factory
Capital Goods imported/ procured under EPCG Authorisation is installed.

THIRD PARTY EXPORTS

Third party exports (except Deemed Export) as defined in Chapter 11 shall be allowed under
FTP.
It may be noted that:
“Third-party exports” means exports made by an exporter or manufacturer on behalf of another
exporter(s). In such cases, export documents such as shipping bills shall indicate names of
both manufacturer exporter/manufacturer and third party exporter(s).

EXPORTS OF SPECIFIC CATEGORIES

Export of Samples
1. Exports of bonafide trade and technical samples of freely exportable item shall be allowed
without any limit.

EXPORT OF GIFTS
Goods including edible items, of value not exceeding Rs.5, 00,000/- in a licensing year, may be
exported as a gift.
It may be noted that:
“Licensing Year” means period beginning on the 1st April of a year and ending on the 31st
March of the following year.

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EXPORT OF PASSENGER BAGGAGE

1. Bona-fide personal baggage may be exported either along with passenger or, if unaccompanied,
within one year before or after passenger’s departure from India. Government of India officials
proceeding abroad on official postings shall, however, be permitted to carry along with their
personal baggage, food items (free, restricted or prohibited) strictly for their personal
consumption.
2. Samples of such items that are otherwise freely exportable under FTP may also be exported as
part of passenger baggage without an Authorisation.

IMPORT FOR EXPORT

I.
1. Goods imported, in accordance with FTP, may be exported in same or substantially the same
form without an Authorisation provided that item to be imported or exported is not in the
restricted for import or export in ITC(HS) Schedules.
2. Goods, including capital goods (both new and second hand), may be imported for export
provided:
i. Importer clears goods under Customs Bond,
ii. Goods are freely exportable,
3. Export is against freely convertible currency
4. Notwithstanding the above, goods which are freely importable may be re-exported except items
as in the Prohibited or SCOMET List of exports, in same or substantially same form even
though such goods are under “Restricted list” for export, subject to the following conditions:
i. Goods are not of Indian Origin,
ii. Goods imported shall be kept in bonded warehouse under supervision of Customs,
iii. Goods to be exported have never been cleared for home consumption,
5. Export of such goods to the notified countries (presently only Iran) would be permitted against
payment in Indian Rupees, subject to minimum 15% value addition.
6. However, re-export of food, medicine and medical equipment will not be subject to minimum
value addition requirement for export to Iran. Exports of these items to Iran shall, however, be
subject to all other conditions of FTP and ITC (HS), as applicable.

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EXPORT OF REPLACEMENT GOODS

Goods or parts thereof on being exported and found defective/damaged or otherwise unfit for
use may be imported for replacement free of charge by the exporter in accordance with the
relevant Customs Notification, and such goods shall be allowed for export by Customs
authorities, provided that replacement goods are not under the restricted or SCOMET items for
exports in ITC(HS). If the export item is ‘Restricted’ or under SCOMET list, the exporter shall
require an Authorisation for export of such replacement goods.

EXPORT OF REPAIRED GOODS

Goods or parts thereof, except restricted under ITC (HS), on being exported and found defective,
damaged or otherwise unfit for use may be imported for repair and subsequent reexport. Such
goods shall be allowed clearance without an Authorisation and in accordance with the relevant
customs notification. To that extent the exporter shall return the benefits /incentive availed
on the returned goods. If the item is ‘restricted’ for import, the exporter shall require an import
license. However, re-export of such defective parts/ spares by the Companies/firms and Original
Equipment Manufacturers shall not be mandatory if they are imported exclusively for
undertaking root cause analysis, testing and evaluation purpose.

EXPORT OF SPARES
Warranty spares (whether indigenous or imported) of plant, equipment, machinery, automobiles
or any other goods may be exported along with main equipment or subsequently but within
contracted warranty period of such goods, subject to approval of RBI.

PAYMENTS AND RECEIPTS ON IMPORTS / EXPORTS

Denomination of Export Contracts
1. All export contracts and invoices shall be denominated either in freely convertible currency or
Indian rupees but export proceeds shall be realized in freely convertible currency.
2. However, export proceeds against specific exports may also be realized in rupees, provided it is
through a freely convertible Vostro account of a non-resident bank situated in any country.
Additionally, rupee payment through Vostro account must be against payment in free foreign
currency by buyer in his non-resident bank account. Free foreign exchange remitted by buyer

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to his non-resident bank (after deducting bank service charges) on account of this transaction
would be taken as export realization under export promotion schemes of FTP.
3. Invoicing, payment and settlement of exports and imports is also permissible in INR.
Accordingly, settlement of trade transactions in INR shall take place through the Special Rupee
Vostro Accounts opened by AD banks in India, in accordance to the following procedures:
i. Indian importers undertaking imports through this mechanism shall make payment in INR
which shall be credited into the Special Vostro account of the correspondent bank of the
partner country, against the invoices for the supply of goods or services from the overseas
seller /supplier.
ii. Indian exporters, undertaking exports of goods and services through this mechanism, shall
be paid the export proceeds in INR from the balances in the designated Special Vostro
account of the correspondent bank of the partner country.

NON-REALISATION OF EXPORT PROCEEDS

1. If an exporter fails to realize export proceeds within time specified by RBI, he shall, without
prejudice to any liability or penalty under any law in force, be liable to return all benefits /
incentives availed against such exports.
2. In case an Exporter is unable to realize the export proceeds for reasons beyond his control
(force majeure), he may approach RBI for writing off the unrealized amount.

EXPORT CREDIT AGENCIES (ECAS)

1. Export Credit Agencies (ECAs) are policy instruments for Government to support exports. ECAs
support exports by insurance, guarantee and also direct lending. Export Credit Agencies (ECAs)
like Export Credit Guarantee Corporation of India Ltd. (ECGC) provides credit insurance support
to exports. Covers issued by ECGC to exporters, protect against losses arising out of payment
failures due to insolvency or default of the buyers or due to political risks. Exporters can
diversify their markets in addition to protecting existing markets through such covers. ECGC
also supports Medium and Long term (MLT) exports including project exports. Exim Bank is
the other ECA in the business of lending for MLT exports and fronting the government’s line
of credit.

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2. ECGC indemnifies losses of exporters in export trade due to insolvency or default of the buyer.
Additionally, losses due to political risk like war, sudden import restriction, promulgation of law
or decree after the shipment has been affected are also covered. Some of the anti- dumping
measures or non-tariff barriers introduced after a shipment has been made will come under
the purview of the political risk. In such cases exporter’s interest are protected by ECGC.
It may be noted that:
“Project Exports” refers to export of engineering goods on deferred payment terms and execution
of turnkey projects and civil construction contracts abroad collectively.

EXPORT PROMOTION COUNCILS

Recognition of EPCs to function as Registering Authority for issue of RCMC
1. Export Promotion Councils (EPCs) are organizations of exporters, set up with the objective to
promote and develop Indian exports. Each Council is responsible for promotion of a particular
group of products/ projects/services as given in Appendix 2T of ANF.
2. EPCs are also eligible to function as Registering Authorities to issue Registration-cum-
Membership Certificate (RCMC) to its members.

REGISTRATION-CUM-MEMBERSHIP CERTIFICATE (RCMC)

1. Any person, applying for an Authorisation to import/ export under the FTP (except items listed
as ‘Restricted’ items in ITC (HS)) or applying for any other benefit or concession under FTP,
shall be required to provide, the RCMC granted by competent authority.
2. Certificate of Registration as Exporter of Spices (CRES) issued by Spices Board and Certificate
of Registration as Exporter of Coir & Coir products issued by the Coir Board shall be treated
as Registration-Cum- Membership Certificate (RCMC) for the purposes under this Policy.

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INTERPRETATION OF POLICY
1. The decision of DGFT shall be final and binding on all matters relating to interpretation of
Policy.
2. A Policy Interpretation Committee (PIC) may be constituted to aid and advice DGFT. The
composition of the PIC would be as follows:
i. DGFT: Chairman
ii. All Additional DGFTs in Headquarters: Members
iii. All Joint DGFTs in Headquarters looking after Policy matters: Members
iv. Joint DGFT (PRC/PIC): Member Secretary
v. Any other person / representative of the concerned Ministry / Department, to be co-opted
by the Chairman.

Exemption from Policy/Procedures

DGFT may in public interest pass such orders or grant such exemption, relaxation or relief, as
he may deem fit and proper, on grounds of genuine hardship and adverse impact on trade to
any person or class or category of persons from any provision of FTP or any Procedures. While
granting such exemption, DGFT may impose such conditions as he may deem fit after consulting
the Committees as under:
Sl. No. Description Committee
1 Fixation/modification of Norms Committees
product norms under all
schemes
2 Nexus with Capital Goods EPCG Committee
(CG) and benefits under
EPCG Schemes
3 All other issues Policy Relaxation Committee
(PRC)

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PERSONAL HEARING BY DGFT FOR GRIEVANCE REDRESSAL

1. Government is committed to easy and speedy redressal of grievances from Trade and Industry.
If an importer/exporter is aggrieved by any decision taken by Policy Relaxation Committee
(PRC), or a decision/order by any authority in the Directorate General of Foreign Trade, a
specific request for Personal Hearing (PH) along with the prescribed application fee has to be
made to DGFT. DGFT may consider request for relaxation after consulting concerned Norms
Committee, EPCG Committee or Policy Relaxation Committee (PRC) and the decision conveyed
in pursuance to the personal hearing shall be final and binding.

SELF-CERTIFICATION OF ORIGINATING GOODS

Approved Exporter Scheme for Self- Certification of Certificate of Origin
1. Currently, Certificates of Origin are issued by designated agencies. A new optional system of
self-certification is being introduced with a view to reducing transaction cost.
2. The Manufacturers who are also Status Holders shall be eligible for Approved Exporter Scheme.
Approved Exporters will be entitled to self-certify their manufactured goods as originating from
India with a view to qualifying for preferential treatment. Self-certification will be permitted
only for the goods that are manufactured as per the Industrial Entrepreneurs Memorandum
(IEM) / Industrial License (IL) /Letter of Intent (LOI) issued to manufacturers.
3. Status Holders will be recognized by DGFT as Approved Exporters for self-certification based
on availability of required infrastructure, capacity and trained manpower.
4. The details of the Scheme, along with the penalty provisions, are provided in Appendix 2F of
Appendices and Aayaat Niryat Forms.

DEVELOPING DISTRICTS AS EXPORT HUBS

Objective
1. To galvanise districts of the country to become export hubs by identifying products and services
with export potential in the district, addressing bottlenecks for exporting these
products/services, supporting local exporters/ manufacturers to scale and find potential buyers
outside India with the aim of promoting exports, manufacturing & services industry in the
District.

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2. This is intended to bring greater level of awareness and commitment regarding exports at the
district level, build capacity to create new exporters and identify new markets for the focused
products and services.
3. This will also empower MSMEs, farmers and small scale industries to get benefit of export
opportunities in the overseas markets. This decentralised and focused approach will shift the
focus on district led export growth for self-sufficiency and self- reliance by providing global
platform to products and services from the districts.

DISTRICT EXPORT PROMOTION COMMITTEES - INSTITUTIONAL MECHANISM AT DISTRICT

LEVEL
1. Every district has products and services which are being exported, and can be further promoted,
along with new products / services, to increase production, grow exports, generate economic
activity and achieve the goal of Atma Nirbhar Bharat, Vocal for local and Make in India.
2. Products/services (GI products, agricultural clusters, toy clusters etc.) with export potential in
each District have to be identified and institutional mechanism in the form of District Export
Promotion Committees (DEPCs) at the district level is to be created to provide support for
export promotion and address the bottlenecks for export growth in the Districts.
3. Each District shall constitute a District Export Promotion Committee (DEPC) chaired by
Collector/DM/DC of the District and co-chaired by designated DGFT Regional Authority with
various other stakeholders as its members.
4. The primary function of the DEPC will be to prepare and implement district specific Export
Action Plans in collaboration with all the relevant stakeholders at the Central, State and the
District level.
5. DGFT Regional Authorities will be engaging with all the relevant State and Central agencies to
take forward this initiative in each district.

DISTRICT EXPORT ACTION PLANS FOR EACH DISTRICT

The District Export Action Plan (DEAP) may be prepared for each district. 2-3 high potential
products/services from the districts may be prioritised and comprehensive plan for their export
growth may be prepared. It may include the support required by the local industry in boosting
their manufacturing and exports with impetus on supporting the industry from the production

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stage to the exporting stage. The DEAPs may also include specific quantifiable targets to be
achieved in the short term and long term. These plans may outline the interventions that are
required to promote the export of identified products and services from the district. Each DEAP
may be deliberated by the DEPC and various stakeholders before it is formally adopted by the
DEPC of each District. DEAP of each District, once adopted, may be published in the public
domain on a dedicated Portal.

NODAL DGFT REGIONAL AUTHORITY

Districts of the States/UTs have been assigned to the Jurisdictional DGFT Regional Authority
and the nodal RA shall be responsible for the Districts under their jurisdiction for all activities
related to Districts as Export Hubs initiative in those Districts.

EXPORT PROMOTION ACTIVITIES IN DISTRICTS

Support in the form of product/sector specific training and development needs of local
industries, dissemination of information through outreach activities including buyer- seller
meets, trade fairs, workshops etc. may be provided in each District. The training and
development needs of District industries may be identified and trainings may be coordinated
with other departments. DGFT RAs through DEPCs may facilitate such buyer-seller meets,
exhibitions, trade fairs etc. in the District to encourage the industries to showcase their
products/services to the world.

DUTY EXEMPTION / REMISSION SCHEMES

Schemes
1. Duty Exemption Schemes.- The Duty Exemption schemes consist of the following:
• Advance Authorisation (AA) (which will include Advance Authorisation for Annual
Requirement).
• Duty Free Import Authorisation (DFIA).
2. Duty Remission Scheme- Duty Drawback (DBK) Scheme, administered by Department of
Revenue.
3. Scheme for Rebate on State and Central Taxes and Levies (RoSCTL), as notified by the
Ministry of Textiles.

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4. Schemes for Remission of Duties and Taxes on Exported Products (RoDTEP) notified by
Department of Commerce and administered by Department of Revenue.

ADVANCE AUTHORISATION
1. Advance Authorisation is issued to allow duty free import of input, which is physically
incorporated in export product (making normal allowance for wastage). In addition, fuel, oil,
catalyst which is consumed / utilized in the process of production of export product, may also
be allowed.
2. Advance Authorisation is issued for inputs in relation to resultant product, on the following
basis:
i. As per Standard Input Output Norms (SION) notified, or
ii. On the basis of self-declaration, or
iii. On the basis of Self Ratification Scheme
It may be noted that:
“SION” means Standard Input Output Norms notified by DGFT.

ADVANCE AUTHORISATION FOR SPICES

Duty free import of spices covered under Chapter-9 of ITC (HS) shall be permitted only for
activities like crushing / grinding / sterilization / manufacture of oils. Authorisation shall not
be available for simply cleaning, grading, re-packing, etc.

ELIGIBLE APPLICANT / EXPORT /SUPPLY

1. Advance Authorisation can be issued either to a manufacturer exporter or merchant exporter
tied to supporting manufacturer.
2. Advance Authorisation for pharmaceutical products manufactured through Non-Infringing (NI)
process shall be issued to manufacturer exporter only.
3. Advance Authorisation shall be issued for:
i. Physical export (including export to SEZ)
ii. Intermediate supply, and/or
iii. Supply of ‘stores’ on board of foreign going vessel / aircraft, subject to condition that
there is specific Standard Input Output Norms in respect of item supplied.

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SELF-RATIFICATION SCHEME
1. Where there is no SION/valid Adhoc Norms for an export product or where SION has been
notified but exporter intends to use additional inputs in the manufacturing process, eligible
exporter can apply for an Advance Authorisation under this scheme on self-declaration and
self-ratification basis. The expression “additional inputs” refers not to additionality in terms
of quantity/value of an input specified in a norm, but to another additional input. Say, if the
inputs specified in the norm are X1 and X2 only, then input Y would represent an additional
input. RA may issue Advance Authorisations and such cases need not be referred to Norms
Committees for ratification of norms. Application under this scheme shall be made along with
a Certificate from Chartered Engineer in the prescribed format.
2. A Certificate from a Chartered Engineer who has been not been penalised in the last five years
under FT(D&R) Act 1992,Customs Act 1962, Central Excise Act 1944, GST Acts and allied acts
and rules made there under shall only be accepted for grant of Authorisation under this scheme.
3. Detailed procedure for administering the scheme shall be prescribed in the Handbook of
Procedures.
4. An exporter (manufacturer or merchant), who holds AEO Certificate under Common
Accreditation Programme of CBEC is eligible to opt for this scheme.
5. A status holder who is a manufacturer cum actual user and holds valid 2-star or above status
of FTP and who has already submitted its application for grant of AEO on CBIC’s AEO portal
is also eligible to apply for this scheme subject to following conditions:
i. Status holder submits copy of numbered and dated acknowledgement of its application for
grant of AEO.
ii. Status holder undertakes to the DGFT that:
a. Their application for grant of AEO certification has not yet been rejected;
b. There is no case of infringement of Customs and allied laws against the status
holder in the current year and last three FYs.
c. Status holder has not been issued show cause notice by Customs or GST
authorities in the current year and last three FYs.
d. Status holder has positive net current assets.
e. There are no insolvency, bankruptcy or liquidation proceedings taken against the
status holder in the current year and last three FYs.

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iii. If status holder is unable to obtain the AEO certification within 120 days from date of
application under this scheme para, the exporter agrees that the facility under this para
shall stand withdrawn and he (status holder) will be bound to approach the concerned
Norms Committee of DGFT for fixation of norms and to abide by the decision of the said
Committee.
iv. In case of situation as at above, no further authorisation under this scheme para will be
issued.
v. The DGFT may deny authorisation under this scheme para to two star and above status
holder based on its risk management principles.
vi. Status holder shall be audited by the DGFT as laid down in the Handbook of Procedures.
vii. The scheme shall not be available for the following export products:
a. All items covered under ITC (HS) Classification,
b. Biotechnology items and related products, and
c. SCOMET items.
viii. The scheme shall not be available for the following inputs:
a. All vegetable / edible oils
b. All types of cereals
c. Horn, hoof and any other organ of animal,
d. Wild animal products, organs and waste thereof,
e. Honey,
f. All items with basic customs duty of 30% or more,
g. All types of fruits/ nuts/ vegetables,
h. Vitamins,
i. Biotechnology items and related products,
j. Waste/Scrap of all types, and
k. Second hand goods.
ix. Inputs imported shall be subject to pre import condition and they shall be physically
incorporated in the export product (making normal allowance for wastage). In case of local
procurement under invalidation/ARO, the inputs shall be procured prior to manufacture of
export item and shall be physically incorporated in the export product.

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x. Wherever value of by-products and recoverable wastage generated during manufacturing

process is more than 5% of CIF value, corresponding quantity of main input shall be
reduced from the entitlemen to the extent that value of disallowed quantity is equal to
the value of by-products and recoverable wastage generated during manufacturing process.
xi. Concerned Norms Committee may conduct audit of the manufacturer. The frequency and
manner of audit shall be prescribed by DGFT in Handbook of Procedures. The manufacturer
shall be required to provide the necessary facility to verify the books of account/other
documents as required, give information and assistance for timely completion of the audit.
Non-availability of production and consumption documents/data shall be treated as
misdeclaration and indulgence in fraudulent activities and shall be penalised under FT
(D&R) Act, as amended and rules made there under.
xii. Concerned Norms Committee may initiate special audit, considering the nature and
complexity of the case and revenue of government, if he is of the opinion at any stage of
scrutiny/enquiry/investigation that the norms have not been claimed correctly or the excess
benefit has been availed. Special audit can be conducted even if the manufacturer has
already been audited before.
xiii. If the audit results in detection of mis-declaration and/ or instances of claiming of inputs
which are not used in manufacturing process or excess quantity of inputs than consumed,
demand and recovery actions will be initiated in addition to initiation of action against the
authorisation holder, manufacturer and Chartered Engineer in terms of Foreign Trade
Development and Regulation Act 1992 and/or Customs Act 1962, as amended and rules
made there under.
xiv. In cases where Chartered Engineer has not exercised due diligence or has wilfully become
party to mis-declaration action will be initiated under against such person under FT(D&R)
Act 1992, as amended and rules made there under. In addition, such cases shall also be
referred to ‘The Institute of Engineers India’ for taking action as warranted under the
bylaws of the institute
xv. All the provisions applicable for Advance Authorisation Scheme shall be applicable to this
scheme also in so far they are not inconsistent with this scheme.

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ADVANCE AUTHORISATION FOR ANNUAL REQUIREMENT AND ELIGIBILITY CONDITION

1. Advance Authorisation for Annual Requirement shall only be issued for items notified in
Standard Input Output Norms (SION). And it shall not be available in case of adhoc norms.
2. Exporters having past export performance (in at least preceding two financial years) shall be
entitled for Advance Authorisation for Annual requirement.
3. Entitlement in terms of CIF value of imports shall be up to 300% of the FOB value of physical
export and / or FOR value of deemed export in preceding financial year or Rs 1 Crore, whichever
is higher.

Value Addition
Value Addition for the purpose of this (except for Gems and Jewellery sector) shall be:
VA = A-B x 100, where
A =FOB value of export realized/FOR value of supply received.
B =CIF value of inputs covered by Authorisation, plus value of any other input used on which
benefit of DBK is claimed or intended to be claimed.

MINIMUM VALUE ADDITION

1. Minimum value addition required to be achieved under Advance Authorisation is 15%.
2. In case of Tea, minimum value addition shall be 50%.
3. In case of spices, minimum value addition shall be 25%.
4. Import of mandatory spares which are required to be exported / supplied with the resultant
product shall be permitted duty free to the extent of 10% of CIF value of Authorisation.

INELIGIBLE CATEGORIES OF IMPORT ON SELF DECLARATION BASIS

1. Import of following products shall not be permissible on self-declaration basis:
i. All vegetable / edible oils
ii. All types of cereals
iii. All Spices other than light black pepper (light berries) having a basic customs duty of
more than 30%
iv. All types of fruits/ vegetables
v. Horn, Hoof and any other organ of animal,

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vi. Honey,
vii. Rough Marble Blocks/Slabs,
viii. Rough Granite,
ix. Vitamins except for use in pharmaceutical industry, and
x. All items with a basic custom duty of more than 30%.

DETAILS OF DUTIES EXEMPTED

Imports under Advance Authorisation are exempted from payment of Basic Customs Duty,
Additional Customs Duty, Education Cess, Anti- dumping Duty, Countervailing Duty, Safeguard
Duty, Transition Product Specific Safeguard Duty, wherever applicable.

ACTUAL USER CONDITION FOR ADVANCE AUTHORISATION

1. Advance Authorisation and / or material imported under Advance Authorisation shall be subject
to ‘Actual User’ condition. The same shall not be transferable even after completion of export
obligation. However, Authorisation holder will have option to dispose of product manufactured
out of duty free input once export obligation is completed.
2. In case where CENVAT/input tax credit facility on input has been availed for the exported
goods, even after completion of export obligation, the goods imported against such Advance
Authorisation shall be utilized only in the manufacture of dutiable goods whether within the
same factory or outside (by a supporting manufacturer). For this, the Authorisation holder
shall produce a certificate from Chartered Accountant at the time of filing application for
Export Obligation Discharge Certificate to Regional Authority concerned. An AEO having valid
certificate has the option to produce self-declaration to this effect.
3. Waste / Scrap arising out of manufacturing process, as allowed, can be disposed off on payment
of applicable duty even before fulfilment of export obligation.

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IMPORTABILITY / EXPORTABILITY OF ITEMS THAT ARE PROHIBITED/ RESTRICTED / STE

1. No export or import of an item shall be allowed under Advance Authorisation / DFIA if the
item is prohibited for exports or imports respectively. Export of a prohibited item may be
allowed under Advance Authorisation provided it is separately so notified.
2. Items reserved for imports by STEs cannot be imported against Advance Authorisation / DFIA.
However, those items can be procured from STEs, STEs are also allowed to sell goods on High
Sea Sale basis to holders of Advance Authorisation / DFIA holder. STEs are also permitted to
issue “No Objection Certificate (NOC)” for import by Advance Authorisation / DFIA holder and
may charge a reasonable fee subject to a maximum of ₹5000 from the applicant.
3. Items reserved for export by STE can be exported under Advance Authorisation / DFIA only
after obtaining a ‘No Objection Certificate’ from the concerned STE.
4. Import of restricted items shall be allowed under Advance Authorisation/DFIA unless specifically
disallowed.

FREE OF COST SUPPLY BY FOREIGN BUYER

Advance Authorisation shall also be available where some or all inputs are supplied free of cost
to exporter by foreign buyer. In such cases, notional value of free of cost input shall be added
in the CIF value of import and FOB value of export for the purpose of computation of value
addition. However, realization of export proceeds will be equivalent to an amount excluding
notional value of such input.

EXPORT OBLIGATION PERIOD AND ITS EXTENSION

Period for fulfilment of export obligation and its extension under Advance Authorisation shall
be as prescribed in Handbook of Procedures.

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DUTY FREE IMPORT AUTHORISATION SCHEME (DFIA)

DFIA Scheme
1. Duty Free Import Authorisation is issued to allow duty free import of inputs. In addition, import
of oil and catalyst which is consumed/ utilised in the process of production of export product,
may also be allowed.
2. Import of Tyre under DFIA scheme is not allowed.

DUTIES EXEMPTED
1. Duty Free Import Authorisation shall be exempted only from payment of Basic Customs Duty.

ELIGIBILITY
1. Duty Free Import Authorisation shall be issued on post export basis for products for which
Standard Input Output Norms have been notified.
2. Merchant Exporter shall be required to mention name and address of supporting manufacturer
of the export product on the export document viz. Shipping Bill/ Bill of Export / Tax Invoice
for export prescribed under the GST rules.
3. Application is to be filed with concerned Regional Authority before effecting export under Duty
Free Import Authorisation.

MINIMUM VALUE ADDITION

Minimum value addition of 20% shall be required to be achieved.

VALIDITY &TRANSFERABILITY OF DFIA

1. Applicant shall file online application to Regional Authority concerned before starting export
under DFIA.
2. Export shall be completed within 12 months from the date of online filing of application and
generation of file number.
3. While doing export/supply, applicant shall indicate file number on the export /supply documents
viz. Shipping Bill / Bill of Export / Tax invoice for supply prescribed under GST rules.
4. Separate DFIA shall be issued for each SION.
5. Exports under DFIA shall be made from any port listed

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6. Regional Authority shall issue transferable DFIA with a validity of 12 months from the date of
issue. No further revalidation shall be granted by Regional Authority.

SCHEMES FOR EXPORTERS OF GEMS AND JEWELLERY

Import of Input
Exporters of Gems and Jewellery can import / procure duty free input for manufacture of export
product.

ITEMS OF EXPORT
1. “Gold jewellery, including partly processed jewellery, and articles including medallions and coins
(excluding legal tender coins), whether plain or studded, containing gold of 8 carats and above
up to a maximum limit of 22 carats.
Gold religious idols (only gods and goddess) of 8 carats and above (up to 24 carats) subject
to the following conditions:
i. Exports would be subject to 100% examination by the Approved Government Valuer.
ii. Foreign remittance has to be realized within a period of 3 months from the date of export.
iii. Exporters must submit confirmed export order before effecting export.
iv. Distinction must be made between a religious idol and simply moulded gold article/idol.
v. Exports may be allowed only be actual manufactures of such idols. The findings like posts,
push backs, locks which help in collating the jewellery pieces together, containing gold of
3 carats and above up to a maximum limit of 22 carats.
2. Silver jewellery including partly processed jewellery, silverware, silver strips and articles including
medallions and coins (excluding legal tender coins and any engineering goods) containing more
than 50% silver by weight;
3. Platinum jewellery including partly processed jewellery and articles including medallions and
coins (excluding legal tender coins and any engineering goods) containing more than 50%
platinum by weight.

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SCHEMES
The schemes are as follows:
Schemes
Advance Procurement/ Replenishment of Precious Metals from Nominated Agencies;
Replenishment Authorisation for Gems,
Replenishment Authorisation for Consumables,
Advance Authorisation for Precious Metals.

ADVANCE AUTHORISATION FOR PRECIOUS METALS

1. Advance Authorisation shall be granted on pre-import basis with ‘Actual User’ condition for
duty free (excluding Integrated Tax and Compensation Cess leviable under Section 3(7) and
3(9) of Customs Tariff Act) import of:
i. Gold of fineness not less than 0.995 and mountings, sockets, frames and findings of 8
carats and above,
ii. Silver of fineness not less than 0.995 and mountings, sockets, frames and findings
containing more than 50% silver by weight,
iii. Platinum of fineness not less than 0.900 and mountings, sockets, frames and findings
containing more than 50% platinum by weight.
2. Advance Authorisation Scheme is not available where the item of export is ‘Gold Medallions
and Coins’ or ‘Gold jewellery/articles manufactured by fully mechanized process’.

VALUE ADDITION
Minimum Value Addition norms for gems and jewellery sector are given in paragraph 4.60 of
Handbook of Procedures. It would be calculated as under:
VA = A-B x 100, where
B
A = FOB value of the export realised/ FOR value of supply received.
B= Value of inputs (including domestically procured) such as gold/silver/platinum content in
export product plus admissible wastage along with value of other items such as gemstone etc.
Wherever gold has been obtained on loan basis, value shall also include interest paid in free
foreign exchange to foreign supplier.

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EXPORT PROMOTION TOURS/ EXPORT OF BRANDED JEWELLERY

1. Nominated Agencies and their associates, with approval of Department of Commerce and with
approval of Gem & Jewellery Export Promotion Council (GJEPC), may export gold / silver /
platinum jewellery and articles thereof for exhibitions abroad.
2. Personal carriage of gold / silver / platinum jewellery, precious, semi-precious stones, beads and
articles and export of branded jewellery is also permitted.

EXPORT BY POST
Export of jewellery through Foreign Post Office including via Speed Post is allowed. The jewellery
parcel shall not exceed 20 kgs by weight.

PRIVATE / PUBLIC BONDED WAREHOUSE

Private / Public Bonded Warehouses may be set up in SEZ/ DTA for import and re-export of
cut and polished diamonds, cut and polished coloured gemstones, uncut & unset precious &
semi- precious stones, subject to achievement of minimum value addition of 5% by DTA units.

SPECIAL NOTIFIED ZONE (SNZ)

Import, auction/sale and re-export of rough diamonds by entities, as notified vide RBI on
consignment or outright basis, will be permitted in Special Notified Zone (SNZ) administered
by the operator of SNZ, under supervision of Customs. The procedure of import, auction/ sale
and re- export of rough diamonds (unsold) would be as specified by CBIC.

SCHEME FOR REMISSION OF DUTIES AND TAXES ON EXPORTED PRODUCTS

Scheme Objective and Operating Principles
1. The Scheme’s objective is to refund, currently unrefunded:
i. Duties/ taxes / levies, at the Central, State and local level, borne on the exported product,
including prior stage cumulative indirect taxes on goods and services used in the production
of the exported product and
ii. Such indirect Duties/ taxes / levies in respect of distribution of exported product.
2. The rebate under the Scheme shall not be available in respect of duties and taxes already
exempted or remitted or credited.

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3. The determination of ceiling rates under the Scheme will be done by a Committee in the
Department of Revenue/Drawback Division with suitable representation of the DoC/DGFT, line
ministries and experts, on the sectors prioritized by Department of Commerce and Department
of Revenue.
4. The overall budget/outlay for the RoDTEP Scheme would be finalized by the Ministry of Finance
in consultation with Department of Commerce (DoC), taking into account all relevant factors.
5. The Scheme will operate in a Budgetary framework for each financial year and necessary
calibrations and revisions shall be made to the Scheme benefits, as and when required, so that
the projected remissions for each financial year are managed within the approved Budget of
the Scheme. No provision for remission of arrears or contingent liabilities is permissible under
the Scheme to be carried over to the next financial year.
6. The sequence of introduction of the Scheme across sectors, prioritization of the sectors to be
covered, degree of benefit to be given on various items within the rates recommended by the
Committee and within a ceiling as may be prescribed, on the per item/total overall benefit
amount permissible, within the overall budget/ outlay finalized, will be decided and notified by
the Department of Commerce (DoC) in consultation with Department of Revenue.
7. Under the Scheme, a rebate would be granted to eligible exporters at a notified rate as a
percentage of FOB value with a value cap per unit of the exported product, wherever required,
on export of items which are categorized under the notified 8 digit HS Code. However, for
certain export items, a fixed quantum of rebate amount per unit may also be notified. Rates
of rebate / value cap per unit under RoDTEP will be notified in Appendix 4R. In addition to
necessary changes which may be brought in view of budget control measures as mentioned
above, efforts would be made to review the RoDTEP rates on an annual basis and to notify
them well in advance before the beginning of a financial year.
8. The rebate allowed is subject to the receipt of sale proceeds within time allowed under the
Foreign Exchange Management Act, 1999 failing which such rebate shall be deemed never to
have been allowed. The rebate would not be dependent on the realization of export proceeds
at the time of issue of rebate. However, adequate safeguards to avoid any misuse on account
of non-realization and other systemic improvements as in operation under Drawback Scheme,
IGST and other GST refunds relating to exports would also be applicable for claims made under
the RoDTEP Scheme.

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9. Mechanism of Issuance of Rebate: Scheme would be implemented through end to end

digitization of issuance of rebate amount in the form of a transferable duty credit/electronic
scrip (e-scrip), which will be maintained in an electronic ledger by the Central Board of
Indirect Taxes & Customs (CBIC). Necessary rules and procedure regarding grant of RoDTEP
claim under the Scheme and implementation issues including manner of application, time period
for application and other matters including export realization, export documentation, sampling
procedures, record keeping etc. would be notified by the CBIC, Department of Revenue on an
IT enabled platform with a view to end to end digitization. Necessary provisions for recovery
of rebate amount where foreign exchange is not realized, suspension/withholding of RoDTEP in
case of frauds and misuse, as well as imposition of penalty will also be built suitably by CBIC.

INELIGIBLE SUPPLIES/ ITEMS/CATEGORIES UNDER THE SCHEME

The following categories of exports/ exporters shall not be eligible for rebate under RoDTEP
Scheme:
1. Export of imported goods
2. Exports through trans-shipment, meaning thereby exports that are originating in third country
but trans-shipped through India.
3. Export products which are subject to Minimum export price or export duty.
4. Products which are restricted for export.
5. Products which are prohibited for export
6. Supplies of products manufactured by DTA units to SEZ.
7. Products manufactured partly or wholly in a warehouse
8. Products manufactured or exported in discharge of export obligation against an Advance
Authorisation or Duty Free Import Authorization or Special Advance Authorisation issued under
a duty exemption scheme of relevant Foreign Trade Policy.
9. Products manufactured or exported by a unit licensed as hundred per cent Export Oriented Unit
(EOU) in terms of the provisions of the Foreign Trade Policy.
10. Products manufactured or exported by any of the units situated in Free Trade Zones or Export
Processing Zones or Special Economic Zones.
11. Goods which have been taken into use after manufacture.

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EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME

Objective
The objective of the EPCG Scheme is to facilitate import of capital goods for producing quality
goods and services and enhance India’s manufacturing competitiveness.

EPCG SCHEME
1. EPCG Scheme allows import of capital goods (except those specified in negative list in Appendix
5 F) for pre-production, production and post-production at zero customs duty. Capital goods
imported under EPCG Authorisation for physical exports are also exempt from IGST and
Compensation Cess.
2. Capital goods for the purpose of the EPCG scheme shall include:
i. Capital Goods as defined in Chapter 11 including in CKD/SKD condition thereof,
ii. Computer systems and software which are a part of the Capital Goods being imported,
iii. Spares, moulds, dies, jigs, fixtures, tools & refractories, and
iv. Catalysts for initial charge plus one subsequent charge.
3. Import under EPCG Scheme shall be subject to an Export Obligation (EO) equivalent to 6
times of duties, taxes and cess saved on capital goods, to be fulfilled in 6 years reckoned from
date of issue of Authorisation.
4. Import/procurement under EPCG scheme shall also be subjected to Average Export Obligation
(AEO)
5. Authorisation shall be valid for import for 24 months from the date of issue of Authorisation.
Revalidation of EPCG Authorisation shall not be permitted.
6. Import of items which are restricted for import shall be permitted under EPCG Scheme only
after approval from Exim Facilitation Committee (EFC) at DGFT Headquarters.
7. If the goods proposed to be exported under EPCG Authorisation are restricted for export, the
EPCG Authorisation shall be issued only after approval for issuance of Export Authorisation
from Exim Facilitation Committee (EFC) at DGFT Headquarters.

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EXPORT OBLIGATION
Following conditions shall apply to the fulfilment of Export obligation:
1. Export obligation shall be fulfilled by the Authorisation holder through export of goods which
are manufactured by him or his supporting manufacturer / services rendered by him, for which
the EPCG authorisation has been granted.
2. For export of goods, EPCG Authorisation holder may export either directly or through third
party(ies).
3. EO under the scheme shall be, over and above, the average level of exports achieved by the
applicant in the preceding three licensing years for the same and similar products within the
overall EO period including extended period, if any.
4. In case of indigenous sourcing of Capital Goods, specific EO shall be 25% less than the EO
5. Exports under Advance Authorisation, DFIA, Duty Drawback, RoSCTL and RoDTEP Schemes
would also be eligible for fulfilment of EO under EPCG Scheme.
6. Export obligation may be fulfilled both by physical exports as well as deemed exports.
7. Royalty payments received by the Authorisation holder in freely convertible currency and foreign
exchange received for R&D services shall also be counted for discharge under EPCG.

INCENTIVE FOR EARLY EO FULFILLMENT

With a view to accelerating exports, in cases where Authorisation holder has fulfilled 75% or
more of specific export obligation and 100% of Average Export Obligation till date, if any, in
half or less than half the original export obligation period specified, remaining export obligation
shall be condoned and the Authorisation redeemed by RA concerned.

REDUCED EO FOR GREEN TECHNOLOGY PRODUCTS

For exporters of Green Technology Products, Specific EO shall be 75% of EO. There shall be
no change in average EO imposed, if any.

REDUCED EO FOR NORTH EAST REGION AND UTS OF JAMMU & KASHMIR AND LADAKH
For manufacturing units located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Jammu & Kashmir and Ladakh, specific EO shall be 25% of the
EO.

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EXEMPTION FROM MAINTENANCE OF AVERAGE EXPORT OBLIGATION

1. In case of export of goods relating to the following, the EPCG Authorisation holder shall not
be required to maintain average export obligation.
i. Handicrafts,
ii. Handlooms,
iii. Industries covered under Khadi and Village Industries Commission (KVIC)
iv. Agriculture
v. Aquaculture (including Fisheries),Pisciculture,
vi. Animal husbandry and Dairying,
vii. Floriculture & Horticulture,
viii. Poultry,
ix. Viticulture,
x. Sericulture,
xi. Carpets,
xii. Coir, and
xiii. Jute
2. However, this exemption from maintenance of average export obligation shall not be allowed
for import of fishing trawlers, boats, ships and other similar items.
3. Goods, excepting tools imported under EPCG scheme by sectors specified in sub-paragraph (a)
above, shall not be allowed to be transferred for a period of five years from date of imports
even in cases where export obligation has been fulfilled.

NET FOREIGN EXCHANGE EARNINGS

EOU/EHTP/STP/BTP unit shall be a positive net foreign exchange earner. In addition sector
specific provision of Appendix 6B of Appendices & ANFs, where a higher value addition and
other conditions are given, shall be required to be followed. NFE Earnings shall be calculated
cumulatively in blocks of five years, starting from commencement of production. Whenever a
unit is unable to achieve NFE due to prohibition / restriction imposed on export of any product
mentioned in LoP, the five year block period for calculation of NFE earnings may be suitably
extended by BoA. Further, wherever a unit is unable to achieve NFE due to adverse market
condition or any grounds of genuine hardship having adverse impact on functioning of the unit,

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the five year block period for calculation of NFE earnings may be extended by BoA for a period
of upto one year, on a case to case basis.

SUB–CONTRACTING
1.
i. EOU/EHTP/STP/BTP units, including gems and jewellery units, may be on the basis of
annual permission from Customs authorities, subcontract production processes to DTA
through job work which may also involve change of form or nature of goods, through job
work by units in DTA.
ii. These units may sub–contract upto 50% of overall production of previous year in value
terms in DTA with permission of Customs authorities.
2.
i. EOU may, with annual permission from Customs authorities, under take job work for export,
on behalf of DTA exporter, provided that goods are exported directly from EOU and export
document shall jointly be in name of DTA/ EOU. For such exports, DTA units will be
entitled for refund of duty paid on inputs by way of brand rate of duty drawback. However,
such brand rate of drawback shall be as per Customs and Central Excise Duties Drawback
Rules, 2017 and shall be limited to Customs duties and Central Excise Duties (in respect
of eligible items covered under Schedule IV of Central Excise Act, 1944).
ii. Import of goods for execution of export order placed on EOU by foreign supplier on job
work basis, would be allowed with or without payment of duties and/or taxes as provided
under Para 6.01(d)(ii) above subject to condition that no DTA clearance shall be allowed.
iii. Sub-contracting of both production and production processes may also be under taken
without any limit through other EOU/EHTP/STP/ BTP/SEZ units, on the basis of records
maintained in unit.
iv. EOU/EHTP/STP/BTP units may sub-contract part of production process abroad and send
intermediate products abroad as mentioned in LoP. No permission would be required when
goods are sought to be exported from sub-contractor premises abroad. When goods are
sought to be brought back, prior intimation to concerned DC and Customs authorities shall
be given.

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3. Scrap/waste/remnants generated through job work may either be cleared from job worker’s
premises on payment of applicable duty and/or taxes, as provided under Para 6.07 above on
transaction value or destroyed in presence of Customs authority or returned to unit. Destruction
shall not apply to gold, silver, platinum, diamond, precious and semi-precious stones.
4. Sub-contracting/ exchange by gems and jewellery EOUs through other EOUs or SEZ units or
units in DTA, shall be as per procedure indicated in HBP.

EXPORT THROUGH EXHIBITIONS/ EXPORT PROMOTION TOURS/ SHOWROOMS ABROAD /DUTY

FREE SHOPS
EOU / EHTP / STP / BTP are permitted to:
1. Export goods for holding/participating in Exhibitions abroad with permission of DC /Designated
officer.
2. Personal carriage of gold / silver / platinum jewellery, precious, semi-precious stones, beads and
articles.
3. Export goods for display / sale in permitted shops set up abroad.
4. Display / sell in permitted shops set up abroad, or in showrooms of their distributors / agents.
5. Set up showrooms / retail outlets at International Airports.

PERSONAL CARRIAGE OF IMPORT / EXPORT PARCELS INCLUDING THROUGH FOREIGN

BOUND PASSENGERS
Import/ export through personal carriage of gems and jewellery items may be undertaken as
per Customs procedure. However, export proceeds shall be realized through normal banking
channel. Import/ export through personal carriage by units, other than gems and jewellery units,
shall be allowed provided goods are not in commercial quantity. An authorized person of Gems
& Jewellery EOU may also import gold in primary form, upto 10 Kgs in a financial year through
personal carriage, as per guidelines prescribed by RBI and DoR.

EXPORT /IMPORT BY POST/ COURIER

Goods including free samples, may be exported/imported by air freight or through foreign post
office or through courier, as per Customs procedure.

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DEEMED EXPORTS
Objective
To provide a level-playing field to domestic manufacturers and to promote Make in India, in
certain specified cases, as may be decided by the Government from time to time.

Deemed Exports
1. “Deemed Exports” for the purpose of this FTP refer to those transactions in which goods
supplied do not leave country, and payment for such supplies is received either in Indian rupees
or in free foreign exchange.

CATEGORIES OF SUPPLY
Supply of goods under following categories (a) to (c) by a manufacturer and under categories
(d) to (g) by main / sub-contractors shall be regarded as ‘Deemed Exports’:
A. Supply by manufacturer:
1. Supply of goods against Advance Authorisation / Advance Authorisation for annual requirement
/ DFIA.
2. Supply of goods to EOU / STP / EHTP / BTP.
3. Supply of capital goods against EPCG Authorisation.

B. Supply by main / sub-contractor(s):

4.
i. Supply of goods to projects financed by multilateral or bilateral Agencies / Funds as notified
by Department of Economic Affairs (DEA), MoF, where legal agreements provide for tender
evaluation without including customs duty.
ii. Supply and installation of goods and equipment (single responsibility of turnkey contracts)
to projects financed by multilateral or bilateral Agencies/Funds as notified by Department
of Economic Affairs (DEA), MoF, for which bids have been invited and evaluated on the
basis of Delivered Duty Paid (DDP) prices for goods manufactured abroad.
iii. Supplies covered in this paragraph shall be under International Competitive Bidding (ICB)
in accordance with procedures of those Agencies / Funds.

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5.
i. Supply of goods to any project or for any purpose in respect of which the Ministry of
Finance, as amended from time to time, permits import of such goods at zero basic customs
duty subject to conditions mentioned therein. Benefits of deemed exports shall be available
only if the supply is made under procedure of ICB.
ii. Supply of goods required for setting up of any mega power project, shall be eligible for
deemed export benefits provided such mega power project conforms to the threshold
generation capacity specified in the above said Notification.
iii. For mega power projects, ICB condition would not be mandatory if the requisite quantum of
power has been tied up through tariff based competitive bidding or if the project has been
awarded through tariff based competitive bidding.
6. Supply of goods to nuclear power projects.

BENEFITS FOR DEEMED EXPORTS

Deemed exports shall be eligible for any / all of following benefits in respect of manufacture
and supply of goods, qualifying as deemed exports, subject to terms and conditions as given:
1. Advance Authorisation / Advance Authorisation for annual requirement / DFIA.
2. Deemed Export Drawback.
3. Refund of terminal excise duty for excisable goods

It may be noted that –

“Excisable goods” means any goods produced or manufactured in India and subject to duty of
excise under Central Excise and Salt Act 1944(1of 1944).

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COMMON CONDITIONS FOR DEEMED EXPORT BENEFITS

1. Supplies shall be made directly to entities listed. Third party supply shall not be eligible for
benefits/exemption.
2. In all cases, supplies shall be made directly to the designated Projects / Agencies/ Units/
Advance Authorisation/ EPCG Authorisation holder. Sub-contractors may, however, make
supplies to main contractor instead of supplying directly to designated Projects/ Agencies.
Payments in such cases shall be made to sub-contractor by main-contractor and not by project
Authority.
3. Supply of domestically manufactured goods by an Indian Subcontractor to any Indian or foreign
main contractor, directly at the designated project’s/ Agency’s site, shall also be eligible for
deemed export benefit provided name of sub- contractor is indicated either originally or
subsequently (but before the date of supply of such goods) in the main contract. In such
cases payment shall be made directly to sub-contractor by the Project Authority.

BENEFITS ON SPECIFIED SUPPLIES

1. Deemed export benefits shall be available for supplies of “Cement” only.
2. Deemed export benefit shall be available on supply of “Steel”:
i. As an inputs to Advance Authorisation/ Annual Advance Authorisation/DFIA holder/ an EOU.
ii. To multilateral/ bilateral funded Agencies.
3. Deemed export benefit shall be available on supply of “Fuel” (in respect of eligible fuel items
covered under Schedule 4 of Central Excise Act, 1944) provided supplies are made to:
i. EOUs.
ii. Advance Authorisation holder / Annual Advance Authorisation holder.

LIABILITY OF INTEREST
Incomplete/deficient application is liable to be rejected. However, simple interest @ 6% per
annum will be payable on delay in refund of duty drawback and terminal excise duty under the
scheme, provided the claim is not settled within 30 days from the date of issue of final
Approval Letter by RA.

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RISK MANAGEMENT AND INTERNAL AUDIT MECHANISM

1. A Risk Management system shall be in operation, wherein every month, Computer system in
DGFT headquarters, on random basis, will select 10% of cases, for each RA, where benefit(s)
under this Chapter has/have already been granted. Such cases shall be scrutinized by an
internal Audit team, headed by a Joint DGFT, in the office of respective Zonal Addl. DGFT.
The team will be responsible to audit claims of not only for its own office but also the claims
of all RAs falling under the jurisdiction of the Zone.
2. The respective RA may also, either on the basis of report from Internal Audit/ External Audit
Agency(ies) or Suo-motu, re-assess any case, where any erroneous/ in-eligible payment has
been made/claimed. RA will take necessary action for recovery of payment along with interest
at the rate of 15% per annum on the recoverable amount.

QUALITY COMPLAINTS AND TRADE DISPUTES

Objective
Exporters need to project a good image of the country abroad to promote exports. Maintaining
an enduring relationship with foreign buyers is of utmost importance, and complaints or trade
disputes, whenever they arise, need to be settled amicably as soon as possible. Importers too
may have grievances as well.
In an endeavour to resolve such complaints or trade disputes and to create confidence in the
business environment of the country, a mechanism is being laid down to address such
complaints and disputes in an amicable way.
Complaints/Disputes between two or more Indian entities are not covered under this mechanism.
Similarly, complaints/disputes between two or more foreign entities are also not covered.

QUALITY COMPLAINTS/ TRADE DISPUTES

The following type of complaints may be considered:
1. Complaints received from foreign buyers in respect of quality of goods or services or technology
supplied by exporters from India,
2. Complaints of importers against foreign suppliers in respect of quality of the goods or services
or technology supplied, and

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3. Complaints of unethical commercial dealings categorized mainly as non-supply/ partial supply

of goods or services or technology after confirmation of order; supplying goods or services or
technology other than the ones as agreed upon; non- payment; non-adherence to delivery
schedules, etc.

MECHANISM FOR HANDLING OF COMPLAINTS/ DISPUTES

1. Committee on Quality complaints and Trade Disputes (CQCTD)
To deal effectively with the increasing number of complaints and disputes, a ‘Committee on
Quality Complaints and Trade Disputes’ (CQCTD) will be constituted in the Regional Authorities
(RAs) of DGFT. Names of RAs, where CQCTD has been constituted and jurisdiction of CQCTD
is given in Chapter 8 of the Handbook of Procedures.
2. Composition of the CQCTD
The CQCTD would be constituted under the Chairpersonship of the Head of Office.
3. Functions of CQCTD
The Committee (CQCTD) will be responsible for enquiring and investigating into all Quality
related complaints and other trade related complaints falling under the jurisdiction of the
respective RAs. It will take prompt and effective steps to redress and resolve the grievances of
the importers/ exporters and overseas buyers/ sellers preferably within three months of receipt
of the complaint. Wherever required, the Committee (CQCTD) may take the assistance of the
Export Promotion Councils/FIEO/Commodity Boards or any other agency as considered
appropriate for settlement of these disputes.
CQCTD will hold its meetings at regular intervals and at least four in a year given the pendency
of complaints/disputes.

PROCEEDINGS UNDER CQCTD

CQCTD proceedings are conciliatory in nature and the aggrieved party, whether the foreign
entity or the Indian entity, is free to pursue any legal recourse against the other erring party.

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PROCEDURES TO DEAL WITH COMPLAINTS AND TRADE DISPUTES

The procedure for making an application for such complaints or trade disputes and the procedure
to deal with such quality complaints and disputes is given in the Handbook of Procedures.

CORRECTIVE MEASURES
1. The Committee at RA level can authorize the Export Inspection Agency or any technical
authority to assess whether there has been any technical failure of not meeting the standards,
manufacturing/ design defects, etc. for which complaints have been received;
2. Initially, efforts will be made to settle the complaint/ dispute amicably. In case the matter is
not settled amicably, action may be taken against the erring Indian entity in terms of the
Foreign Trade (Development & Regulation) Act, 1992, as amended, and the Foreign Trade
(Regulation) Rules, 1993, as amended;
3. Complaints against foreign entities would be taken up for settlement by the respective ‘Foreign
Trade Division’ in the Department of Commerce, Vanijya Bhavan, New Delhi through Indian
Missions abroad. Indian Missions Abroad will take up the complaints against the foreign entities
with authorities concerned;
4. In case, the Indian Missions abroad are satisfied about the malafide of any foreign entity, they
shall send such information to DGFT for circulation amongst the EPCs/Commodity Boards,
ECGC and other regulatory authorities.

CASE OFFICER
A Case Officer will be assigned for monitoring purposes in the designated Regional Authorities
for resolving complaints and trade disputes in a time bound manner.

NODAL OFFICER
Director General of Foreign Trade would appoint an officer, not below the rank of Joint Director
General, in the Headquarters, to function as the ‘Nodal Officer’ for monitoring the trade
disputes and coordinating with Regional Authorities of DGFT, Foreign Trade Divisions of
Department of Commerce, Indian Missions and other agencies.

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PROMOTING CROSS BORDER TRADE IN DIGITAL ECONOMY

Objective
The objective of this chapter is to provide a framework for cross-border trade of goods and
services from India in the digital economy and the promotion of e-Commerce and other
emerging channels of exports from India.
It may be noted that:
“e-commerce” means buying and selling of goods through the internet on an e-commerce
platform, the payment for which shall be done through international credit or debit cards, or
other authorised electronic payment channels and as specified by the Reserve Bank of India
from time to time.

E-COMMERCE EXPORTS OF GOODS

Export of goods where selling is through the internet on an e-Commerce platform, the payment
for which shall be done through international credit or debit cards, or other authorised electronic
payment channels and as specified by the RBI from time to time.

E-COMMERCE EXPORTS OF SERVICES

Exports of services where selling is through the internet on an e-Commerce platform, the
payment for which shall be done through international credit or debit cards, or other authorised
electronic payment channels and as specified by the RBI from time to time.

E-COMMERCE PLATFORM
E-Commerce platform is an electronic platform, including a web-portal, that enables the
commercial process of buying and selling through the internet.

E-COMMERCE EXPORT LOGISTICS PROVIDER

Any service provider who provides logistics services towards exports of goods or services for e-
Commerce Exports.

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EXPORT THROUGH COURIER SERVICE/POST

Exports through a registered courier service/Foreign Post Office is permitted as per
Notification(s) issued under Customs Act, 1962. However, exportability of such items shall be
regulated in accordance with FTP/Export Policy in ITC(HS) as notified. The value limit for
exports through courier service shall be Rs. 10,00,000 per consignment.

IMPORT THROUGH COURIER SERVICE/POST

1. Imports through a registered courier service or Post are permitted as per Notification(s) issued
under the Customs Act, 1962. However, importability of such items shall be regulated in
accordance with FTP and the ITC(HS) based Import Policy as notified.
2. Exports by courier mode of precious Metal Jewellery through E-commerce and re-import of
such export shipments returned by the buyer shall be allowed as per the Notification(s) issued
and procedures prescribed under the Customs Act, 1962.

A. PROMOTION OF E-COMMERCE EXPORTS

Handholding and outreach to promote e-Commerce Exports
1. The Niryat Bandhu Scheme (NBS) as defined under Chapter 1 of the Policy shall have a
component for the promotion of e-Commerce and other emerging channels of exports. Under
the given NBS component, DGFT shall organise outreach activities/workshops in partnership
with Customs Authorities, Department of Post, ‘Industry Partners’ and ‘Knowledge Partners’
for promotion of e-Commerce exports. Besides outreach/ workshops, specific focus may be on
creation of electronic content as well.
2. In addition to increasing awareness on e-Commerce related rules and processes, actions may
be undertaken under the said NBS component for capacity building and skill development for
promotion of e-Commerce exports, in partnership with Customs Authorities, Department of
Post, ‘Industry Partners’ or the ‘Knowledge Partners’.

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B. E-COMMERCE EXPORT HUBS (ECEHs)

Objective of E-Commerce Export Hubs
The objective is to establish designated areas as E-Commerce Export Hubs (hereafter called
“ECEH”), which would act as a centre for favourable business infrastructure and facilities for
Cross Border E-Commerce activities.

CREATION OF ECEH
1. The ECEH shall ordinarily be setup through private initiative. It may also be setup in Public-
Private- Partnership (PPP) mode in partnership with the State governments/Central
government. Request for approval of an ECEH proposed shall be submitted to the notified
committee to be constituted by DGFT.
2. Existing facility with the required infrastructure may also apply to be designated as ECEH.

Nature of ECEH Operations

1. ECEH will function to achieve agglomeration benefits for e-commerce exporters. The ECEH
may provide for storage (including cold storage facilities), packaging, labelling, certification &
testing and other common facilities for the purposes of export.
2. The ECEH shall also provide for dedicated logistics infrastructure for connecting to and
leveraging the services of the nearest Logistics hub(s).
3. All goods, including SCOMET and Restricted goods (subject to suitable compliance of regulations
and conditions) and except goods which are prohibited or otherwise disallowed, may be handled
at ECEH.
4. Capital goods brought to a ECEH shall be utilized only for activities as mentioned at (i) above
on payment of the duties and taxes, as applicable, in terms of extant laws.

Entitlement under ECEHs

ECEH may be provided financial assistance under MAI scheme, for e-Commerce export
promotion projects for marketing, capacity building and technological services such as imaging,
cataloguing, product video creation of e-Commerce Goods.

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C. PROMOTION OF E-COMMERCE EXPORTS THROUGH POSTAL ROUTE

Dak Niryat Kendras
Dak Ghar Niryat Kendras shall be operationalised throughout the country to work in a hub-
and-spoke model with Foreign Post Offices (FPOs) to facilitate cross-border e-Commerce and
to enable artisans, weavers, craftsmen, MSMEs in the hinterland and land-locked regions to
reach international markets.

SCOMET: SPECIAL CHEMICALS, ORGANISMS, MATERIALS, EQUIPMENT AND TECHNOLOGIES

Objective
The general provisions governing the export of dual use items, munitions and nuclear related
items, including software and technology viz. SCOMET, are dealt with in this Chapter. 74

Brief Background
1. India is a signatory to international conventions on disarmament and non-proliferation, viz. the
Chemical Weapons Convention (CWC) and Biological and Toxin Weapons Convention (BWC).
2. The United Nations Security Council Resolution 1540 obliges all countries to prohibit access of
weapons and mass destruction and their delivery systems to non-state actors (in particular for
terrorist purposes);and prescribed measures and controls on weapons of mass destruction, their
delivery systems and related materials, equipment and technology. India is also a member of
the major multilateral export control regimes, viz. the Missile Technology Control Regime
(MTCR), Wassenaar Arrangement (WA) and Australia Group (AG); and has harmonized its
guidelines and control lists with that of the Nuclear Suppliers Group (NSG).
3. In consonance with the guidelines and control lists of these international conventions and
obligations as well as multilateral export control regimes, India has regulated the exports of
dual use items, nuclear related items, including software and technology.
4. In respect of controls on export of specified goods, services and technology, the Weapons of
Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005
(21 of 2005) shall apply to exports, transfers, re-transfers, brought in transit, trans-shipment
of, and brokering in specified goods, technology or services.
5. These provisions have been incorporated in Chapter IVA of Foreign Trade (Development &
Regulation) Act, 1992, as amended in 2010.

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SCOMET LIST
Export of dual-use items, including software and technologies, having potential civilian /
industrial applications as well as use in weapons of mass destruction is regulated. It is either
prohibited or is permitted under an Authorization unless specifically exempted.
SCOMET is an acronym for Special Chemicals, Organisms, Materials, Equipment and
Technologies. Accordingly, the SCOMET list is our National Export Control List of dual use
items munitions and nuclear related items, including software and technology and is aligned to
the control lists of the all the multilateral export control regimes and conventions.

CLASSIFICATION OF SCOMET CATEGORIES AND LICENSING JURISDICTION

The SCOMET List is divided into nine categories of items from Category 0 to Category 8.
However, Category 7 is presently ‘Reserved’ and has not been populated. The broad classification
of different categories under SCOMET List and their jurisdictional licensing authorities are
tabulated as under:

EXPORT OF IMPORTED SCOMET ITEMS

Imported goods covered under the SCOMET list are not permitted for export, even from the
Customs bonded ware house, without an export authorization, unless specifically exempted.

OUTREACH PROGRAMMES ON SCOMET AND EXPORT CONTROL FRAMEWORK

DGFT in association with Administrative Ministries/ Departments and Trade Associations will
organize Industry Outreach Programmes on regular basis for effective awareness among the
exporters/importers dealing with trade and manufacture, in particular, of SCOMET items.
Institutional mechanism will be adopted to organize sector specific / region specific outreach
programmes with focus on MSMEs and Startups.

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CHAPTER 6 - LAW RELATING TO SPECIAL ECONOMIC ZONES

What is Special Economic Zone?

Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall be
deemed to be foreign territory for the purposes of trade operations and duties and tariffs.

The salient features of the Act are as under:

1. Matters relating to establishment of Special Economic Zone and for setting up of units
therein,
2. Single window clearance mechanism at the Zone level,
3. Establishment of an Authority for each Special Economic Zone set up by the Central
Government,
4. Designation of special courts and single enforcement agency to ensure speedy trial and
investigation of notified offences committed in Special Economic Zones.

Who can set up SEZs?

Any private/public/joint sector or State Government or its agencies can set up Special Economic
Zone (SEZ).

Section 3 of the Act provides that the Central Government,State Government,or any other person,
jointly or severally, may establish a SEZ. Any person who, intends to set up a SEZ, may after
identifying the area , make a proposal to the State Government concerned for the purposes of setting
up a SEZ.

It also allows a person , at his option to make a proposal directly to the Board for the purpose of
setting up SEZ . In cases where such proposal has been received directly from a person, the Board may
grant approval and after receipt of such approval, the person cconcerned is required to obtain the
concurrence of the State Government within prescribed time.

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In case a State Government intends to set up the SEZ, It may after identifying the area, forward the
proposal directly to the Board of Approval for setting up of SEZ.

Central Government has been empowered to set up and notify the SEZ without consulting the State
Government concerned,without referring the proposal to the Board.

The State Government may, on receipt of the proposal for setting up a SEZ forward the propasal
together with its recommendations to the Board of Approval within the specified time

The Board of Approval may, after receipt of the proposal for setting up a SEZ either approve the
proposal or, approve the proposal subject to such terms and conditions as it may deem fit to impose. It
can also modify or reject the proposal for setting up a SEZ

If the Board approves the proposal without any modifications, it shall communicate the same to Central
Government. If it approves the proposal with modification,it shall, communicate the same to the person
or the State Government concerned if the modifications are accepted by the person or State
Government, the Board of Approval shall communicate the approval to the Central Government, If it
rejects the proposal, it shall record the reasons therefor and communicate the rejection to the person or
the State Government concerned.

Central Government to grant on receipt of communication from the Board of Approval, a letter of
approval on such terms and conditions and obligations and entitlements,as approved by Board of
Approval, to the person or the State Government concerned.

Any person or a State Government, who intends to provide any infrastructure facilities in the identified
area or undertaken any authorised operations may, after entering into an agreement with the developer,
make a proposal for the same to the Board of Approval , for its approval.

Every such person or State Government, whose proposal has been approved by the Board and who, or
which , has been granted letter of approval by the Central Government, shall be considered a Co-
Developer of the SEZ

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What is Infrastructure Facilities?

Infrastructure facilities means industrial, commercial or social infrastructure or other facilities
necessary for the development of a Special Economic Zone or such other facilities which may
be prescribed.

Section 5 stipulates broader guidelines to be considered by the Central Government,

while notifying any area as a Special Economic Zone. These include:
i. Generation of additional economic activity,
ii. Promotion of exports of goods and services,
iii. Promotion of investment from domestic and foreign sources,
iv. Creation of employment opportunities,
v. Development of infrastructure facilities, and
vi. Maintenance of sovereignty and integrity of India, the security of the State and
friendly relations with foreign States.

THE PROCESSING AND NON-PROCESSING AREAS

Section 6 empowers the Central Government or any specified authority to demarcate the
areas falling within the Special Economic Zones as:

• The processing area for setting up units for activities, being the
a. manufacture of goods, rendering of service.

• The area exclusively for trading or warehousing purposes.

b.

• The non processing areas for activities other than those specified
c. under a & b

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EXEMPTION FROM TAXES, DUTIES OR CESS

Section 7 exempts all goods or services exported out of, or imported into, or procured from the
Domestic Tariff Area, by a Unit or Developer in a Special Economic Zone from the payment of
taxes, duties or cess under all enactments specified in the First Schedule.

“Export” means:
i. Taking goods, or providing services, out of India, from a Special Economic Zone, by
land, sea or air or by any other mode, whether physical or otherwise, or
ii. Supplying goods, or providing services, from the Domestic Tariff Area to a Unit or
Developer, or
iii. Supplying goods, or providing services, from one Unit to another Unit or Developer,
in the same or different Special Economic Zone.
“Import” means:
i. Bringing goods or receiving services, in a Special Economic Zone, by a Unit or
Developer from a place outside India by land, sea or air or by any other mode,
whether physical or otherwise or
ii. Receiving goods, or services by a Unit or Developer from another Unit or Developer
of the same Special Economic Zone or a different Special Economic Zone.

CONSTITUTION OF BOARD OF APPROVAL

The Central Government to constitute, by notification, the Board of Approval within fifteen
days of the commencement of the Act.

DUTIES, POWERS AND FUNCTIONS OF BOARD OF APPROVAL

Section 9 casts upon the Board the duty to promote and ensure orderly development of the
Special Economic Zones.

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The powers and functions of the Board, inter alia, include:

i. Granting of approval or rejecting proposal or modifying such proposals for establishment
of the Special Economic Zones,
ii. Granting approval of authorised operations to be carried out in the Special Economic
Zones by the Developer,
iii. Granting of approval to the Developers or Units for foreign collaborations and foreign
direct investments (including investments by a person resident outside India) in the
Special Economic Zone for its development, operation and maintenance,
iv. Granting of approval or rejecting proposal for providing infrastructure facilities in a
Special Economic Zone,
v. Suspension of the letter of approval granted to a Developer,
vi. Disposing of appeals.

SUSPENSION OF LETTER OF APPROVAL AND TRANSFER OF SPECIAL ECONOMIC ZONE IN

CERTAIN CASES
Section 10 empowers the Board to suspend the letter of approval granted to the Developer for
a whole or part of his area established as Special Economic Zone for a period not exceeding
one year and appoint an Administrator to discharge the functions of the developer. The
suspension may be ordered by the Board, if in its opinion following circumstances exist:
The developer is unable to discharge the functions for perform the duties imposed on
him.
The developer has persistently defaulted in complying with the directions of the board.
The financial position of the developer is such that he is unable fully and efficiently
discharge the duties and obligations imposed on him by the letter of approval.

However, no letter of approval can be suspended unless the Board has given to the Developer
not less than three months’ notice, in writing, stating the grounds on which it proposes to
suspend the letter of approval, and has considered any cause shown by the Developer within
the period of that notice, against the proposed suspension.

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DEVELOPMENT COMMISSIONER
Section 11 empowers the Central Government to appoint the Development Commissioner for
one or more Special Economic Zones and such Officers and other employees as it considers
necessary to assist the Development Commissioner. It also contains provisions for salary and
allowances and other terms and conditions of service in respect of leave, pension, provident
fund and other matters of the Development Commissioner, officers and other employees.

The functions of the Development Commissioner include:

i. Guide the entrepreneurs for setting up of Units in the Special Economic Zone,
ii. Ensure and take suitable steps for effective promotion of exports from the Special
Economic Zone,
iii. Ensure proper coordination with the Central Government or State Government
Departments,
iv. Monitor the performance of the Developer and the Units in SEZ,
v. Discharge such other functions as may be assigned to him by the Central
Government.

This section entitles the Development Commissioner to be overall in charge of the Special
Economic Zone and to exercise administrative control and supervision over the officers and
employees. The section further empowers the Development Commissioner to call for such
information from a Developer or Unit from time to time as may be necessary to monitor the
performance of the Developer and the Unit.

CONSTITUTION OF APPROVAL COMMITTEE

Section 13 empowers the Central Government to constitute by notification, a Committee for
every Special Economic Zone, to be called the Approval Committee to exercise the powers and
perform the functions as specified. In the case of existing Special Economic Zones, the Approval
Committee is required to be constituted within six months from the date of commencement
of the Act and in case of other Special Economic Zones established after the commencement
of the Act within six months from the date of establishment of such Special Economic Zone.

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POWERS AND FUNCTIONS OF APPROVAL COMMITTEE

Section 14 empowers every Approval Committee to discharge the functions and exercise the
powers in respect of the following matters:
1. Approve, the import or procurement of goods from the Domestic Tariff Area, for carrying on
the authorised operations by a Developer in the Special Economic Zone,
2. Approve providing of services by a service provider from outside India or from the Domestic
Tariff Area for carrying on the authorised operations by the Developer, in the Special Economic
Zone,
3. Monitor the utilisation of goods or services or warehousing or trading in the Special Economic
Zone,
4. Approve, modify or reject proposals for setting up Units for manufacturing or rendering of
services or warehousing or trading in SEZ in accordance with the provisions of Section 15(8)
of the Act,
5. Allow on receipt of approval foreign collaborations and foreign direct investments, including
investments by a person outside India for setting up a Unit,
6. Monitor and supervise compliance of conditions subject to which the letter of approval or
permission, if any, is granted to the Developer or entrepreneur.

SETTING UP OF UNIT
1. Any person, who intends to set up a Unit for carrying on the authorised operations in a Special
Economic Zone, to submit a proposal to the Development Commissioner concerned.
2. The Development Commissioner in turn place the proposal before the Approval Committee for
its approval. The Approval Committee may, approve the proposal with or without modification,
or reject the same.
3. In case of modification or rejection of a proposal, the Approval Committee has been put under
obligation to afford a reasonable opportunity of being heard to the person concerned
and after recording the reasons therefor, either modify or reject the proposal.
4. Sub-section (4) entitles a person aggrieved by an order of the Approval Committee, to make
an appeal to the Board of Approvals.
5. The Development Commissioner may, after the approval of the proposal, grant a letter of
approval to the person concerned to set up a Unit and undertake in the Unit such operations

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which the Development Commissioner may authorise and every such operation so authorised is
mentioned in the letter of approval.

CANCELLATION OF LETTER OF APPROVAL GRANTED TO ENTREPRENEUR

Section 16 empowers the Approval Committee to cancel the letter of approval of an entrepreneur
after reasonable opportunity of being heard has been afforded to the entrepreneur. The Approval
Committee may, at any time, cancel the letter of approval if it has any reason or cause to
believe that the entrepreneur has persistently contravened any of the terms and conditions or
its obligation subject to which the letter of approval was granted to the entrepreneur. Any
person aggrieved from an order of the Approval Committee to make an appeal to the Board of
Approval within the prescribed time.

What do you mean by Offshore Banking Unit?

“Offshore Banking Unit” means a branch of a bank located in a Special Economic
Zone and which has obtained the permission under of Section 23 of the Banking
Regulation Act, 1949.

SETTING UP OF INTERNATIONAL FINANCIAL SERVICES CENTRE

Section 18 empowers the Central Government to approve setting up of an International Financial
Services Centre in a Special Economic Zone and to specify requirements for setting up the
operation of such Centre. However, the Central Government may approve only one international
Financial Services Centre in a Special Economic Zone.

INVESTIGATION, INSPECTION, SEARCH OR SEIZURE

Section 22 empowers the agency or officer, with prior intimation to the Development
Commissioner concerned to carry out the investigation, inspection, search or seizure in the
Special Economic Zone or in a Unit if such agency or officer has reason to believe that a
notified offence has been committed or is likely to be committed in the Special Economic
Zone.

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DESIGNATED COURTS TO TRY SUITS AND NOTIFIED OFFENCES

Section 23 empowers the concerned State Government, in which SEZ is situated, to designate,
with the concurrence of the Chief Justice of the High Court of that State, one or more Courts
to try all suits of a civil nature arising out of offences committed in the Special Economic
Zone. No court, other than the designated court shall try any suit or conduct the trial of any
notified offence.

APPEAL TO HIGH COURT

Section 24 entitles any person aggrieved by any decision or order of the designated Court to
file an appeal to the High Court within sixty days from the date of communication of the
decision or order of the said court to him on any question of fact or law arising out of such
orders. However the High Court can, if it is satisfied that the appellant was prevented by
sufficient cause from filing an appeal within the prescribed period of sixty days, allow it to be
filed within a further period not exceeding sixty days.

SPECIAL ECONOMIC ZONE AUTHORITY

1. Section 31 dealing with the Constitution of Authority empowers the Central Government to
constitute by notification in the Official Gazette, an Authority for every SEZ to exercise powers
conferred on and discharge the functions assigned to it.
2. In the case of an existing SEZ established by the Central Government the Central Government
has been empowered to establish such authority within six months from the date of
commencement of the Act.
3. It is further provided that the person or authority (including Development Commissioner) which
is exercising control over an existing SEZ, shall continue to do so till the authority is constituted.
4. Every authority shall be a body corporate by name as assigned, having perpetual succession
and a common seal, with power to acquire, hold and dispose of property, both movable and
immovable and to contract and shall sue and be sued. No act or proceedings of an authority
shall be invalidated merely by reason of:
i. any vacancy in or any defect,
ii. any defect in the appointment of a person as its member, or
iii. any irregularity in the procedure of the authority not affecting the merits of the case.

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FUNCTIONS OF AUTHORITY
Section 34 casts upon the Authority a duty to undertake such measures as it thinks fit for
the development, operation and management of the respective Special Economic Zone.
Section 34(2) provides for following measures:
1. The development of infrastructure in the Special Economic Zone,
2. Promoting exports from the Special Economic Zone,
3. Reviewing the functioning and performance of the Special Economic Zone,
4. Levy user or service charges or fees or rent for the use of properties belonging to the Authority,
5. Performing such other functions as may be prescribed.

POWER OF THE CENTRAL GOVERNMENT TO SUPERSEDE AUTHORITY

1. Section 40 empowers the Central Government to supersede an Authority for a maximum period
of six months if at any time, it is of the opinion that an Authority is unable to perform, or
has persistently made default in the performance of the duty imposed on it or has exceeded
or abused its powers, or has wilfully or without sufficient cause, failed to comply with any
direction issued by it.
2. However, before issuing a notification superseding an authority, the Central Government is
required to give reasonable time to that Authority to make representation against the proposed
suppression and consider the representations, if any, of the Authority.
3. Section 40(2) dealing with the consequences of publication of the notification superseding the
Authority, provides that:
i. The Chairperson and other Members of the Authority shall, notwithstanding that their
term of office has not expired as from the date of supersession, vacate their offices as
such,
ii. All the powers, functions and duties which may, by or under the provisions of the Act, be
exercised or discharged by or on behalf of the Authority shall, during the period of
supersession, be exercised and performed by such person or persons as the Central
Government may direct,
iii. All property vested in the Authority shall, during the period of supersession, vest in the
Central Government.

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4. Section 40(3) also provides that on the expiration of the period of supersession specified in
the notification, the Central Government may extend the period of supersession for such further
period not exceeding six months or reconstitute the Authority in the prescribed manner.

REFERENCE OF DISPUTE AND LIMITATION

Section 42 requires any dispute of civil nature arising among two or more entrepreneurs or two
or more Developers or between the entrepreneur and Developer in the Special Economic Zone
to be referred to arbitration.

IDENTITY CARD

Section 46 requires that every person whether employed or residing or required to

be present in a Special Economic Zone be provided an identity card by every
Development Commissioner in prescribed form and containing specified particulars.

SEZ ACT TO HAVE OVERRIDING EFFECT

Section 51 giving overriding effect to this Act provides that the provisions of this
Act shall have effect notwithstanding anything inconsistent therewith contained
in any other law for the time being in force or in any instrument having effect
by virtue of any law other than this Act.

SPECIAL ECONOMIC ZONES RULES, 2006

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RIGHTS OF APPELLANT TO APPEAR BEFORE THE BOARD

According to Rules 61 of the Special Economic Zones Rules, 2006 every appellant may
appear before the Board in person or authorize one or more Chartered Accountants or
Company Secretaries or Cost Accountants or legal practitioners or any of his or its officers
to present his or its case before the Board.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 7 - LAW RELATING TO FOREIGN CONTRIBUTION

REGULATION LESSON 7

The Foreign Contribution (Regulation) Act, 2010 was enacted to

• Regulate the acceptance and utilisation of foreign contribution or foreign hospitality
by certain individuals or associations or companies and to prohibit acceptance, and
• Utilisation of foreign contribution or foreign hospitality for any activities detrimental
to the national interest and for matters connected therewith or incidental thereto.

The Foreign Contribution (Regulation) Amendment Act, 2020 was passed by Parliament to
simplify the provisions of the Foreign Contribution (Regulation) Act. It aims to strengthen
compliance, promote transparency, and ensure accountability in the receipt and use of foreign
contributions.

The salient features of the Foreign Contribution (Regulation) Amendment Act, 2020
inter alia, are as under:
i. To include “public servant” also within its ambit, to provide that no foreign
contribution shall be accepted by any public servant,
ii. To prohibit any transfer of foreign contribution to any association/ person,
iii. To reduce the limit for defraying administrative expenses from existing “50%” to
“20%”,
iv. Inserted a new Section 14A enabling the Central Government to permit any person
to surrender the certificate granted under the Act.

What is foreign contribution?

“Foreign Contribution” means the donation, delivery or transfer made by any foreign
source:
Of any article, not being an article given to a person as a gift for his personal use, if the
market value, in India, of such article, on the date of such gift, is not more than 10
Lakhs,
i. of any currency, whether Indian or foreign,
ii. of any security.

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Note: Any person in India receiving money from a foreign source as a fee (including educational
fees from foreign students) or in exchange for goods or services provided as part of their
regular business activities, whether within or outside India, will not be considered a foreign
contribution under this clause. This also applies to contributions received from foreign agents
towards such fees or costs.

What is foreign source?

“Foreign Source” includes:
i. The Government of any foreign country and any agency of such Government,
ii. Any international agency, except for the United Nations, its specialized agencies, the
World Bank, International Monetary Fund, or any other agency specified by the
Central Government through notification, falls under the scope of this provision,
iii. A foreign company,
iv. A corporation, not being a foreign company, incorporated in a foreign country or
territory,
v. A multi-national corporation,
vi. A company whose more than one-half of the nominal value of its share capital is
held, either singly or in the aggregate, by one or more of the following, namely:
a. the Government of a foreign country,
b. the citizens of a foreign country,
c. corporations incorporated in a foreign country,
d. trusts, societies or other associations of individuals ,formed or registered in a
foreign country.
vii. A trade union in any foreign country or territory, whether or not registered in such
foreign country or territory,
viii. A foreign trust or a foreign foundation,
ix. A society, club or other association of individuals formed or registered outside India,
x. A citizen of a foreign country.

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WHO CAN RECEIVE FOREIGN CONTRIBUTION

Any “Person” can receive foreign contribution subject to the following conditions:
i. It must have a definite cultural, economic, educational, religious or social programme.
ii. It must obtain the FCRA registration/prior permission from the Central Government
iii. It must not be prohibited under Section 3 of FCRA, 2010.

WHO CANNOT RECEIVE FOREIGN CONTRIBUTION

Section 3(1) prohibits following person to accept foreign contribution:
1. Candidate for election,
2. Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered
newspaper,
3. Public servant, Judge, Government servant or employee of any corporation or any other body
controlled or owned by the Government,
4. Member of any Legislature,
5. Political party or office-bearer thereof,
6. Organisation of a political nature,
7. Association or company engaged in the production or broadcast of audio news or audio visual
news or current affairs programmes through any electronic mode,
8. Correspondent or columnist, cartoonist, editor, owner of the association or company.

Section 3(2) states that:

1. No person, resident in India, and no citizen of India resident outside India, shall accept any
foreign contribution, or acquire or agree to acquire any currency from a foreign source, on behalf
of any political party, or any person referred to in sub-section (1) or both.
2. No person, resident in India, shall deliver any currency, whether Indian or foreign, which has
been accepted from any foreign source, to any person if he knows or has reasonable cause to
believe that such other person intends, or is likely, to deliver such currency to any political
party or any person referred to in sub-section (1) or both.
3. No citizen of India resident outside India shall deliver any currency, whether Indian or foreign,
which has been accepted from any foreign source, to:

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i. any political party, or

ii. any other person, if he knows or has reasonable cause to believe that such other person
intends, or is likely, to deliver such currency to a political party or to any person referred
to in sub-section (1) or both.

According to Section 3(3) of the Act, no person receiving any currency, whether Indian or
foreign, from a foreign source on behalf of any person or class of persons, shall deliver such
currency:
i. to any person other than a person for which it was received, or
ii. to any other person, if he knows or has reasonable cause to believe that such other
person intends, or is likely, to deliver such currency to a person other than the person for
which such currency was received.

PERSONS TO WHOM SECTION 3 SHALL NOT APPLY

According to Section 4 of the Act, nothing contained in section 3 shall apply to the acceptance,
by any person specified in that section, of any foreign contribution where such contribution is
accepted by him:
1. By way of salary, wages due to him or to any group of persons working under him, from any
foreign source or by way of payment in the ordinary course of business, or
2. By way of payment, in the course of international trade or commerce, or in the ordinary course
of business transacted by him outside India, or
3. As an agent of a foreign source in relation to any transaction made by such foreign source
with the Central Government or State Government, or
4. By way of a gift or presentation made to him as a member of any Indian delegation, provided
that such gift or present was accepted in accordance with the rules made by the Central
Government with regard to the acceptance or retention of such gift or presentation, or
5. From his relative, or
6. By way of any scholarship, stipend or any payment of like nature.

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PROCEDURE TO NOTIFY AN ORGANISATION OF A POLITICAL NATURE

1. The Central Government may, having regard to the activities of the organisation or the ideology
propagated by the organisation or the association of the organisations with the activities of
any political party, by an order published in the Official Gazette, specify such organisation as
an organisation of a political nature not being a political party.
2. The Central Government shall give the organisation in respect of whom the order is proposed
to be made, a notice in writing informing it of the ground or grounds, on which it is proposed
to be specified as an organisation of political nature.
3. The organisation to whom a notice has been served, may, within a period of thirty days from
the date of the notice, make a representation to the Central Government giving reasons for
not specifying such organisation as an organisation.
4. The Central Government may entertain the representation after the expiry of the said period
of thirty days, if it is satisfied that the organisation was prevented by sufficient cause from
making the representation within thirty days.
5. The Central Government may, if it considers it appropriate, forward the representation to any
authority to report on such representation and after considering the representation and the
report of the authority ,specify such organisation as an organisation of a political nature not
being a political party.
6. Every order shall be made within a period of one hundred and twenty days from the date of
issue of notice.
7. In case no order is made within the said period of one hundred and twenty days, the Central
Government shall, after recording the reasons therefor, make an order within a period of sixty
days from the expiry of the said period of one hundred and twenty days.

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Indian Social Action Forum (INSAF) vs. Union of India

i. Hon’ble Supreme Court of India inter-alia observed that the object sought to be
achieved by the Act is to ensure that Parliamentary institutions, political associations
and academic and other voluntary organisations as well as individuals working in the
important areas of national life should function in a manner consistent with the
values of a sovereign democratic republic without being influenced by foreign
contributions or foreign hospitality.
ii. Candidates for election and political parties or office bearers of political parties are
barred from accepting any foreign contribution. The legislative intent is also to
prohibit organisations of a political nature from receiving foreign contributions. It is
clear that preventing foreign contribution into the political arena is the object sought
to be achieved by the Act.

RESTRICTION ON ACCEPTANCE OF FOREIGN HOSPITALITY

1. No member of a Legislature or office-bearer of a political party or Judge or Government servant
or employee of any corporation or any other body owned or controlled by the Government shall,
while visiting any country or territory outside India, accept, except with the prior permission of
the Central Government, any foreign hospitality.
2. Provided that it shall not be necessary to obtain any such permission for an emergent medical
aid needed on account of sudden illness contracted during a visit outside India, but, where such
foreign hospitality has been received, the person receiving such hospitality shall give, within
one month from the date of receipt of such hospitality an intimation to the Central
Government.

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What is foreign hospitality?

Foreign Hospitality means any offer, not being a purely casual one, made in cash or
kind by a foreign source for providing a person with the costs of travel to any foreign
country or territory or with free board, lodging, transport or medical treatment.
The following categories of persons require prior approval from Ministry of Home Affairs
before accepting Foreign Hospitality:
i. Members of a Legislature
ii. Office bearers of political parties
iii. Judges
iv. Government servants, Public Servants
v. Employees of any corporation or any other body owned or controlled by the
Government.

PROHIBITION TO TRANSFER FOREIGN CONTRIBUTION TO OTHER PERSON

Section 7 of the Act provides that person who:
1. Is registered and granted a certificate or has obtained prior permission under the Act, and
2. Receives any foreign contribution, shall not transfer such foreign contribution to any other
person.

RESTRICTION TO UTILISE FOREIGN CONTRIBUTION FOR ADMINISTRATIVE PURPOSE

Every person, who is registered and granted a certificate or given prior permission under the
Act and receives any foreign contribution:
1. Shall utilise such contribution for the purposes for which the contribution has been received,
2. Shall not defray as far as possible such sum, not exceeding twenty percent of such contribution,
received in a financial year, to meet administrative expenses.
Administrative expenses exceeding twenty percent of such contribution may be defrayed
with prior approval of the Central Government.

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POWER OF CENTRAL GOVERNMENT TO PROHIBIT RECEIPT OF FOREIGN CONTRIBUTION, IN

CERTAIN CASES
The Central Government may:
1. Prohibit any person or organisation not specified in section 3, from accepting any foreign
contribution,
2. Require any person or class of persons, to obtain prior permission of the Central Government
before accepting any foreign hospitality,
3. Require any person or class of persons, to furnish intimation within such time and in such
manner as may be prescribed as to the amount of any foreign contribution received by
such person, and the source from which and the manner in which such contribution was
received and the purpose for which and the manner in which such foreign contribution was
utilised,
4. Require any person or class of persons, to furnish intimation, within such time and in such
manner as may be prescribed, as to the receipt of any foreign hospitality, the source from
which and the manner in which such hospitality was received,
Provided that no such prohibition shall be made unless the Central Government is satisfied
that it is likely to affect prejudicially:
i. The sovereignty and integrity of India, or
ii. public interest, or
iii. freedom or fairness of election to any Legislature, or
iv. friendly relations with any foreign State, or
v. harmony between religious, racial, social, linguistic or regional groups, castes or
communities.

POWER TO PROHIBIT PAYMENT OF CURRENCY RECEIVED IN CONTRAVENTION OF THE ACT

Where the Central Government is satisfied, after making inquiry, that any person has in his
custody or control any article or currency or security, whether Indian or foreign, which has
been accepted by such person in contravention of any of the provisions of this Act, it may, by
order in writing, prohibit such person from paying, delivering, transferring or otherwise dealing
with, such article or currency or security save in accordance with the written orders of the
Central Government.

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REGISTRATION

There are two modes of obtaining permission to accept foreign contribution

according to FCRA, 2010:
i. Registration
ii. Prior Permission

ELIGIBILITY CRITERIA FOR GRANT OF REGISTRATION

The association should:
1. Be registered under an existing law, like, the Societies Registration Act, 1860 or the Indian
Trusts Act, 1882 or Section 8 of Companies Act, 2013.
2. Be in existence for at least three years and has undertaken reasonable activity in its chosen
field for the benefit of the society for which the foreign contribution is proposed to be utilised.
The applicant NGO/ association will be free to choose its items of expenditure to become
eligible for the minimum threshold of Rs. 15.00 lakh spent during the last three years.

ELIGIBILITY CRITERIA FOR GRANT OF PRIOR PERMISSION

An organization in formative stage is not eligible for certificate of registration. Such organization
may apply for grant of prior permission. Prior permission is granted for receipt of a specific
amount from specific donor for carrying out specific activities/projects. For this purpose, the
association should meet following criteria:
1. Be registered under an existing law like the Societies Registration Act, 1860 or the Indian
Trusts Act, 1882 or Section 8 of Companies Act, 2013,
2. Submit a specific commitment letter from the donor indicating the amount of foreign
contribution and the purpose for which it is proposed to be given.

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FCRA Prior Permission shall be granted to the Indian recipient organizations subject to it
satisfying the following:
1. The Chief Functionary of the recipient Indian organization should not be a part of the donor
organization.
2. At least 75% of the office-bearers/ members of the Governing body of the Indian recipient
organization should not be members/employees of the foreign donor organization.
3. In case of a foreign donor, at least 75% office bearers/members of the governing body of the
recipient organization should not be the family members and close relatives of the donor.

CONDITIONS FOR THE GRANT OF REGISTRATION AND PRIOR PERMISSION

The following shall be the conditions for the grant of registration and prior permission:
1. The ‘person’ making an application for registration or grant of prior permission.
i. is not fictitious or benami,
ii. has not been prosecuted or convicted for indulging in activities aimed at conversion
through inducement or force, from one religious’ faith to another,
iii. has not been prosecuted or convicted for creating communal tension,
iv. has not been found guilty of diversion or mis-utilisation of its funds,
v. is not engaged or likely to engage in propagation of sedition or advocate violent methods
to achieve its ends,
vi. is not likely to use the foreign contribution for personal gains,
vii. has not been prohibited from accepting foreign contribution,
viii. has neither been convicted under any law for the time being in force nor any prosecution
for any offence is pending against him.

2. The acceptance of foreign contribution by the association/ person is not likely to affect
prejudicially:
i. the sovereignty and integrity of India,
ii. the public interest,
iii. freedom or fairness of election to any Legislature,
iv. friendly relation with any foreign State.

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3. The acceptance of foreign contribution.

i. shall not lead to incitement of an offence,
ii. shall not endanger the life or physical safety of any person.

SUSPENSION OF CERTIFICATE
1. The Central Government, for reasons to be recorded in writing, is satisfied that pending
consideration of the question of cancelling the certificate on any of the grounds mentioned, it
is necessary so to do, it may, by order in writing, suspend the certificate for a period of one
hundred and eighty days, or such further period, not exceeding one hundred and eighty days.
2. Every person whose certificate has been suspended shall not receive any foreign contribution
during the period of suspension of certificate.
3. It may be noted that the Central Government, if it considers appropriate, allow receipt of any
foreign contribution by such person.
4. Every person whose certificate has been suspended shall utilise, the foreign contribution in his
custody with the prior approval of the Central Government.

CANCELLATION OF CERTIFICATE
The Central Government may, if it is satisfied after making such inquiry as it may deem fit,
by an order, cancel the certificate if:
1. The holder of the certificate has made a statement in, or in relation to, the application for the
grant of registration or renewal thereof, which is incorrect or false, or
2. The holder of the certificate has violated terms and conditions of the certificate, or
3. It is necessary in the public interest to cancel the certificate, or
4. The holder of certificate has violated any of the provisions of this Act, or
5. If the holder of the certificate has not been engaged in any reasonable activity in its chosen
field for the benefit of the society for two consecutive years.
Any person whose certificate has been cancelled under this section shall not be eligible for
registration or grant of prior permission for a period of three years from the date of cancellation
of such certificate.

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SURRENDER OF CERTIFICATE
The Central Government may permit any person to surrender the certificate after making such
inquiry as it deems fit, it is satisfied that such person has not contravened any of the provisions
of this Act, and the management of foreign contribution and asset, if any, created out of such
contribution has been vested in the authority.

MANAGEMENT OF FOREIGN CONTRIBUTION OF PERSON WHOSE CERTIFICATE HAS BEEN

CANCELLED OR SURRENDERED
The foreign contribution and assets created out of the foreign contribution in the custody of
every person whose certificate has been cancelled or surrendered shall vest in such authority
as may be prescribed. The authority may, if it considers necessary and in public interest,
manage the activities of the person for such period and in such manner, as the Central
Government may direct. The authority shall return the foreign contribution and the assets
vested upon it to the person referred if such person is subsequently registered under this Act.

RENEWAL OF CERTIFICATE
1. Every person who has been granted a certificate shall have such certificate renewed within six
months before the expiry of the period of the certificate.
2. The Central Government shall renew the certificate, ordinarily within ninety days from the
date of receipt of application for renewal of certificate and grant a certificate of renewal for
a period of five years.
3. In case, the Central Government does not renew the certificate within the said period of ninety
days, it shall communicate the reasons therefor to the applicant.
4. The Central Government may refuse to renew the certificate in case where a person has violated
any of the provisions of this Act or rules made thereunder.

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FOREIGN CONTRIBUTION THROUGH SCHEDULED BANK

1. Every person who has been granted certificate or prior permission shall receive foreign
contribution only in an account designated as “FCRA Account” by the bank, which shall be
opened by him for the purpose of remittances of foreign contribution in such branch of the
State Bank of India at New Delhi,
2. Provided that such person may also open another “FCRA Account’’ in any of the scheduled
bank of his choice for the purpose of keeping or utilising the foreign contribution which has
been received from his ‘‘FCRA Account’’
3. Provided also that no funds other than foreign contribution shall be received or deposited in
any such account.
4. the specified branch of the State Bank of India or the branch of the scheduled bank where
the person has opened his foreign contribution account shall report to such authority as may
be specified:
i. the prescribed amount of foreign remittance,
ii. the source,
iii. other particulars as may be prescribed

OFFENCES AND PENALTIES

MAKING OF FALSE STATEMENT, DECLARATION OR DELIVERING FALSE ACCOUNTS

Any person who knowingly gives false intimation shall be liable to imprisonment for a term
which may extend to six months or with fine or with both.

PENALTY FOR ARTICLE OR CURRENCY OR SECURITY OBTAINED IN CONTRAVENTION

Any person, on whom any prohibitory order has been served, delivers, transfers or otherwise
deals with, any article or currency or security, whether Indian or foreign, in contravention of
such prohibitory order, he shall be punished with imprisonment for a term which may extend
to three years, or with fine, or with both.

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PUNISHMENT FOR CONTRAVENTION OF ANY PROVISION OF THE ACT

That whoever accepts, or assists any person, political party or organisation in accepting, any
foreign contribution, in contravention of any provision of this Act shall be punished with
imprisonment for a term which may extend to five years, or with fine, or with both.

POWER TO IMPOSE ADDITIONAL FINE WHERE ARTICLE OR CURRENCY OR SECURITY IS

NOT AVAILABLE FOR CONFISCATION
If a person's actions or omissions make an article, currency, or security eligible for confiscation
under this Act, and they are convicted, they can be fined up to five times the value of the
item or one thousand rupees, whichever is higher, if the item is not available for confiscation.

PENALTY FOR OFFENCES WHERE NO SEPARATE PUNISHMENT HAS BEEN PROVIDED

Whoever fails to comply with any provision of this Act shall be punished with imprisonment
for a term which may extend to one year, or with fine or with both.

PROHIBITION OF ACCEPTANCE OF FOREIGN CONTRIBUTION

Whoever, having been convicted for any such offence which relates to the acceptance or
utilisation of foreign contribution, is again convicted of such offence shall not accept any
foreign contribution for a period of five years from the date of the subsequent conviction.

BAR ON PROSECUTION OF OFFENCES UNDER THE ACT

No court shall take cognizance of any offence under this Act, except with the previous sanction
of the Central Government.

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COMPOSITION OF CERTAIN OFFENCES

1. Any offence punishable under this Act not being an offence punishable with imprisonment
only, may, before the institution of any prosecution, be compounded by such officers or
authorities and for such sums as the Central Government may, by notification in the Official
Gazette, specify in this behalf.
2. Nothing shall apply to an offence committed by an individual or association or its officer or
other employee within a period of three years from the date on which a similar offence
committed by it or him was compounded under this section.
3. Any second or subsequent offence committed after the expiry of a period of three years from
the date on which the offence was previously compounded, shall be deemed to be
a first offence.
4. Where any offence is compounded before the institution of any prosecution, no prosecution
shall be instituted in relation to such offence, against the offender in relation to whom the
offence is so compounded.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 8 - PREVENTION OF MONEY LAUNDERING

INTRODUCTION
Money laundering is the processing of criminal proceeds to disguise its illegal origin. Terrorism,
illegal arms sales, financial crimes, smuggling, and the activities of organised crime, including
drug trafficking and prostitution rings etc., generate huge sums. When a criminal activity
generates substantial profits, the individual or group involved in such activities route the funds
to safe heavens by disguising the sources, changing the form, or moving the funds to a place
where they are less likely to attract attention.

PROCESS OF MONEY LAUNDERING

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1. In the initial or placement stage of money laundering, the launderer introduces his illegal profits
into the financial system, by breaking up large amounts of cash into less conspicuous smaller
sums that are then deposited directly into a bank account, or by purchasing a series of
monetary instruments that are later collected and deposited into accounts at another location.
2. After the funds enter into the financial system, the layering takes place. In this stage, the
launderer engages in a series of conversions or movements of the funds to distance them from
their source the launderer might simply wire the funds through a series of accounts at various
banks across the globe.
3. After successful processing of criminal profits through the first two phases of the money
laundering process, the launderer moves them to integration. In this stage the funds re-enter
the legitimate economy. The launderer might choose to invest the funds into real estate, luxury
assets, or business ventures.

Three Stages of Money Laundering are:

i. Placement
ii. Layering
iii. Integration

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What is the connection of money laundering with society at large?

i. The possible social and political costs of money laundering, if left unchecked
or dealt with ineffectively, are serious. Organised crime can infiltrate financial
institutions, acquire control of large sectors of the economy through
investment, or offer bribes to public officials and indeed governments.
ii. The economic and political influence of criminal organisations can weaken the
social fabric, collective ethical standards, and ultimately the democratic
institutions of society.
iii. In countries transitioning to democratic systems, this criminal influence can
undermine the transition. Most fundamentally, money laundering is inextricably
linked to the underlying criminal activity that generated it. Laundering enables
criminal activity to continue.

PREVENTION OF MONEY LAUNDERING – GLOBAL INITIATIVES

The process of money laundering involves cleansing of money earned through illegal activities
like extortion, drug trafficking and gun running etc. The tainted money is projected as clean
money through intricate processes of placement, layering and laundering. The serious threat
posed by money laundering to the financial systems and sovereignty was being progressively
realized by various countries of the world. As a consequence of this realization, the international
community took the following initiatives to curb the menace of money laundering.

THE VIENNA CONVENTION

The first major initiative in the prevention of money laundering was the United Nations
Convention (popularly known as Vienna Convention). This convention laid the groundwork for
efforts to combat money laundering by obliging the member states to criminalize the laundering
of money from drug trafficking and confiscation of proceeds derived from such offence. It
promotes international cooperation in investigations and makes extradition between member
states applicable to money laundering. The convention also establishes the principle that
domestic bank secrecy provisions should not interfere with international criminal investigations.

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COUNCIL OF EUROPE CONVENTION

1. The Council of Europe Convention on Laundering, Search, Seizure and Confiscation of Proceeds
of Crime, 1990 establishes a common policy on money laundering.
2. It sets out a common definition of money laundering and common measures for dealing with
it. The Convention lays down the principles for international cooperation among the member
states, which may also include states outside the Council of Europe.
3. This convention came into force in September 1993. One of the purposes of the convention is
to facilitate international cooperation as regards investigative assistance, search, seizure and
confiscation of the proceeds of all types of criminality, particularly serious crimes, such as, drug
offences, arms dealing, terrorist offences etc. and other offences which generate large profits.

EUROPEAN UNION MONEY LAUNDERING DIRECTIVE

1. In response to the new opportunities for money laundering opened up by the liberalization of
capital movements and cross-border financial services in the European Union, the Council of
the European Communities in June, 1991 issued a directive on the Prevention of Use of the
Financial System for the Purpose of Money Laundering.
2. The directive requires member states to outlaw money laundering. The member states have
been put under obligation to require financial institutions to establish and maintain internal
systems to prevent laundering, to obtain the identification of customers with whom they enter
into transaction of more than a particular amount and to keep proper records for at least five
years. The financial institutions are also required to report suspicious transactions and ensure
that such reporting does not result in liability for the institution or its employees.

GLOBAL PROGRAMME AGAINST MONEY LAUNDERING (GPML)

1. The Global Programme against Money Laundering (GPML) was established in 1997 in response
to the mandate given by the 1988 Convention against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances. The broad objective of GPML, is to strengthen the ability of UN
Member States to implement measures in anti-money laundering.
2. GPML fulfils its mandate principally through technical cooperation and assistance. It focuses
on assisting legal, financial, law enforcement and judicial authorities, as well as the private
sector, to develop the necessary infrastructure.

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3. In response to countries or group of countries requesting more specialized and in–depth

assistance, GPML continues to deploy professional expertise in the form of mentors in the field
to train people and build institutions, delivering direct technical assistance in states and regions
to improve capacity.
4. The reaction to mentoring, from assisted states and donors alike, has been extremely positive.
Mentors don’t directly exercise sovereign national powers but they can advise, pass on the
know-how and train those officials who are empowered to do so.

THE FINANCIAL ACTION TASK FORCE (FATF)

1. The Financial Action Task Force (FATF) was established in July 1989 by a Group of Seven
(G-7) Summit in Paris, initially to examine and develop measures to combat money laundering.
2. The Financial Action Task Force (FATF) is the global money laundering and terrorist financing
watchdog. The inter-governmental body sets international standards that aim to prevent these
illegal activities and the harm they cause to society.
3. As a policy-making body, the FATF works to generate the necessary political will to bring about
national legislative and regulatory reforms in these areas.
4. The objectives of the FATF are to set standards and promote effective implementation of legal,
regulatory and operational measures for combating money laundering, terrorist financing and
other related threats to the integrity of the international financial system.
5. Starting with its own members, the FATF monitors countries’ progress in implementing the
FATF Recommendations, reviews money laundering and terrorist financing techniques and
counter-measures, and promotes the adoption and implementation of the FATF
Recommendations globally.
6. The FATF’s decision making body, the FATF Plenary, meets three times per year. With more
than 200 countries committed to implementing them, the FATF has developed the FATF
Recommendations, or FATF Standards, which ensure a co-ordinated global response to prevent
organised crime, corruption and terrorism. The FATF also works to stop funding for weapons of
mass destruction.
7. The FATF reviews new risks, such as the regulation of virtual assets, which have spread as
cryptocurrencies gain popularity. The FATF monitors countries to ensure they implement the
FATF Standards fully and effectively, and holds countries to account that do not comply.

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PREVENTION OF MONEY LAUNDERING – INDIAN INITIATIVES

1. Money laundering is posing threat to the financial systems and social order and integrity of
the country and the same needs to be tackled by way of a separate legislation in view of the
very fact that no comprehensive legislation is in force at present which can effectively deal
with the problem.
2. In view of an urgent need for the enactment of a comprehensive legislation for preventing
money-laundering, the Prevention of Money Laundering Bill, 1998 was introduced in the
Parliament on the 4th August, 1998.
3. The Bill was referred to the Standing Committee on Finance, which presented its report on
the 4th March, 1999 to Lok Sabha. After incorporating the recommendations of the Standing
Committee, the Government introduced the Prevention of Money Laundering Bill 1999 in the
Parliament on October 29, 1999.
4. The Bill received the assent of the President and became Prevention of Money Laundering Act,
2002 on 17th January 2003. The Act has come in force with effect from July 1, 2005.

PREVENTION OF MONEY LAUNDERING ACT, 2002

IMPORTANT DEFINITIONS

ATTACHMENT
‘Attachment’ means prohibition of transfer, conversion, disposition or movement of property by
an order.

PROCEEDS OF CRIME
‘Proceeds of crime’ means any property derived or obtained, directly or indirectly by any person
as a result of criminal activity.

PROPERTY
The term ‘property’ means any property or assets of every description, whether, corporeal or
incorporeal, movable or immovable, tangible or intangible and includes, deeds and instruments
evidencing title to, or interest in such property or assets wherever located.

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BENEFICIAL OWNER
The term Beneficial Owner means an individual who ultimately owns or the person on whose
behalf a transaction is being conducted and includes a person who exercises ultimate effective
control over a juridical person.

TRANSFER
Transfer includes sale, purchase, mortgage, pledge, gift, loan or any other form of transfer of
right, title, possession or lien.

VALUE
Value to mean the fair market value of any property on the date of its acquisition by any
person, or if such date cannot be determined, the date on which such property is possessed by
such person.

MONEY LAUNDERING
1. Section 3 of the Act states that whosoever directly or indirectly attempts to indulge or
knowingly assists or knowingly is a party involved in any process or activity connected with
the proceeds of crime including its concealment, possession, acquisition or use and projecting
it is an untainted property shall be guilty of offence of money laundering.
2. Section 4 provides that any person who commits the offence of money laundering shall be
punishable with rigorous imprisonment for a term which shall not be less than three years but
which may extend to seven years and also liable to fine.
3. However, where the proceeds of crime involved in money laundering relates to any offence
specified under the Narcotic Drugs and Psychotropic Substances Act, the punishment may
extend to rigorous imprisonment for ten years.

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ATTACHMENT OF PROPERTY INVOLVED IN MONEY LAUNDERING

1. Section 5 of the Act authorises the Director or any officer not below the rank of Deputy
Director authorised by him and who has reason to believe on the basis of material in his
possession that any person is in possession of any proceeds of money laundering, such person
has been charged of having committed a scheduled offence and such proceeds of crime are
likely to be concealed, transferred or dealt with in any manner which may result in frustrating
any proceedings relating to confiscation of such proceeds of crime to, provisionally attach
by order in writing such property for a period not exceeding 180 days from the date of the
order.
2. The said provisional attachment does not debar the person who has the possession of the
property from enjoying the same but the said person is prohibited from creating any third
party interest in the said property.
3. The Director or any other officer who provisionally attaches any property is required to forward
a copy of the order along with material in his possession to the Adjudicating Authority
immediately and thereafter required to file, within a period of thirty days from such attachment
file a complaint, stating the facts of such attachment before the Adjudicating Authority.

ADJUDICATING AUTHORITY
Section 6 empowers the Central Government to appoint, one or more persons, as the
Adjudicating Authority to exercise the jurisdiction, powers and authority conferred on or under
the Act.

ADJUDICATION
1. The Adjudicating Authority has reason to believe that any person has committed an offence
under section 3 or is in possession of proceeds of crime, it may serve a notice of not less than
thirty days on such person calling upon him to indicate the sources of his income, earning or
assets, out of which or by means of which he has acquired the property attached, and to show
cause why all or any of such properties should not be declared to be the properties involved in
money-laundering and confiscated by the Central Government.
2. Provided further that where such property is held jointly by more than one person, such notice
shall be served to all persons holding such property.

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3. The Adjudicating Authority shall, after considering the reply, if any, to the notice hearing the
aggrieved person and the Director, taking into account all relevant materials placed on record
before him, by an order, record a finding whether all or any of the properties referred to in
the notice are involved in money-laundering.
4. Provided that if the property is claimed by a person, other than a person to whom the notice
had been issued, such person shall also be given an opportunity of being heard to prove that
the property is not involved in money-laundering.

Where the Adjudicating Authority decides that any property is involved in money-
laundering, he shall, by an order in writing, confirm the attachment of the property
made and record a finding to that effect, such attachment or retention shall:
i. continue during investigation for a period not exceeding three hundred and sixty-
five days or the pendency of the proceedings relating to any offence under this Act
before a court or
ii. become final after an order of confiscation is passed

5. Where the provisional order of attachment has been confirmed, the Director or any other officer
authorised by him in this behalf shall forthwith take the possession of the property attached.
6. Provided that if it is not practicable to take possession of a property frozen, the order of
confiscation shall have the same effect as if the property had been taken possession of.
7. Where on conclusion of a trial of an offence, the Special Court finds that the offence of
money-laundering has been committed, it shall order that such property involved in the money
laundering or which has been used for commission of the offence of money-laundering shall
stand confiscated to the Central Government.
8. Where on conclusion of a trial under this Act, the Special Court finds that the offence of
money laundering has not taken place or the property is not involved in money-laundering, it
shall order release of such property to the person entitled to receive it.

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VESTING OF PROPERTY IN CENTRAL GOVERNMENT

Where an order of confiscation has been made in respect of any property of a person, all the
rights and title in such property shall vest absolutely in the Central Government free from all
encumbrances

OBLIGATION OF BANKING COMPANIES, FINANCIAL INSTITUTIONS AND INTERMEDIARIES

According to Section 12(1) requires every reporting entity shall:

i. maintain a record of all transactions,
ii. furnish to the Director within such time as may be prescribed, information relating
to such transactions, whether attempted or executed, the nature and value of
which may be prescribed,
iii. maintain record of documents evidencing identity of its clients and beneficial
owners as well as account files and business correspondence relating to its clients.

Every information maintained, furnished or verified, save as otherwise provided under any law
for the time being in force, shall be kept confidential. The records shall be maintained for a
period of 5 years from the date of transaction between a client and the reporting entity.

SUMMON, SEARCHES AND SEIZURES

1. Section 16 empowers an authority to enter, on having reason to believe that an offence under
Section 3 has been committed, any place within the limits of the area assigned to him or in
respect of which he is authorised.
2. Section 16(3) requires such authority to place marks of identification on the records inspected
by him and make or cause to be made extracts or copies therefrom, make an inventory of any
property checked or verified by him and record the statement of any person present in the
place which may be useful for, or relevant to, any proceedings under the Act. Section 17
empowers authority to search and seizure.
3. Section 18 provides that if an authority authorised in this behalf by the Central Government
has reason to believe that any person has secreted any record or proceeds of crime, he may
search that person and seize such record or property which may be useful.

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RETENTION OF PROPERTY
Section 20 of the Act deals with retention of property:
1. Where any property has been seized or frozen and the officer authorised by the Director in
this behalf has, on the basis of material in his possession, reason to believe, that such
property is required to be retained for the purposes of adjudication, such property may, if seized,
be retained or if frozen, may continue to remain frozen, for a period not exceeding one hundred
and eighty days from the day on which such property was seized or frozen, as the case may
be.
2. The officer authorised by the Director shall, immediately after he has passed an order for
retention or continuation of freezing of the property for purposes of adjudication, forward a
copy of the order along with the material in his possession, referred to , to the Adjudicating
Authority, in a sealed envelope, and such Adjudicating Authority shall keep such order and
material for such period as may be prescribed.
3. On the expiry of the period, the property shall be returned to the person from whom such
property was seized or whose property was ordered to be frozen unless the Adjudicating
Authority permits retention or continuation of freezing of such property beyond the said period.
4. After passing the order of confiscation, the Special Court shall direct the release of all property
other than the property involved in money-laundering to the person from whom such property
was seized or the persons entitled to receive it.
5. Where an order releasing the property has been made by the Special Court or by the
Adjudicating Authority, the Director or any officer authorised by him in this behalf may
withhold the release of any such property for a period of ninety days from the date of such
order, if he is of the opinion that such property is relevant for the appeal proceedings under
the Act.

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RETENTION OF RECORDS
1. Where any records have been seized, and the Investigating Officer has reason to believe that
any of such records are required to be retained for any inquiry under this Act, such records
may if seized, be retained or if frozen, may continue to remain frozen, for a period not exceeding
one hundred and eighty days from the day on which such records were seized.
2. The person, from whom records seized or frozen, shall be entitled to obtain copies of records.
3. On the expiry of the period specified, the records shall be returned to the person from whom
such records were seized or whose records were ordered to be frozen unless the Adjudicating
Authority permits retention or continuation of freezing of such records beyond the said period.
4. The Adjudicating Authority, before authorising the retention or continuation of freezing of such
records beyond the period specified , shall satisfy himself that the records are required for the
purposes of adjudication.
5. After passing of an order of confiscation, the Adjudicating Authority shall direct the release of
the records to the person from whom such records were seized.

APPELLATE TRIBUNAL
Central Government, to establish an Appellate Tribunal to hear appeals against the orders of
Adjudicating Authority and other authorities under the Act. The Appellate Tribunal constituted
under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976
shall be the Appellate Tribunal for hearing appeals against the orders of the Adjudicating
Authority. Further appeal from the orders of the Appellate Tribunal would lie to the High Court.

OFFENCES TRIABLE BY SPECIAL COURTS

The offence punishable under Section 4, shall be triable only by the Special Court constituted
for the area in which the offence has been committed, upon a complaint made by an authority
authorised in this behalf take cognizance of the offence for which the accused is committed
to it for trial.

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OFFENCES TO BE COGNIZABLE AND NON-BAILABLE

1. Every offence punishable under the Act shall be cognizable, no person accused of an offence
under this Act shall be released on bail unless the Public Prosecutor has been given an
opportunity to oppose the application for such release.
2. Provided that a person, who, is under the age of sixteen years, or is a woman or is sick or
infirm, or is accused either on his own or along with other co-accused of money-laundering a
sum of less than one crore rupees may be released on bail, if the Special Court so directs.

ASSISTANCE TO A CONTRACTING STATE IN CERTAIN CASES

Where a letter of request is received by the Central Government, from a court or authority in
a contracting State requesting for investigation into an and forwarding to such court, the
Central Government may forward such letter of request to the Special Court or to any authority
as it thinks fit for execution of such request.

RECIPROCAL ARRANGEMENTS FOR PROCESSES AND ASSISTANCE FOR TRANSFER OF

ACCUSED PERSONS
1. Where Special Court desires that a summon to an accused person or a warrant for the arrest
of an accused person or to produce it or a search warrant issued by it, shall be served or
executed at any place in any contracting state, it shall send such summons or warrant in
duplicate, to such court, Judge or Magistrate through such authorities as the Central
Government may by notification, specify in that behalf and that court, Judge or Magistrate,
as the case may be, shall cause the same to be executed.
2. Where a Special Court, in relation to an offence punishable under Section 4 has received for
service or execution, summon to an accused person or a warrant for the arrest of an accused
person or a summon to any person requiring him to attend and produce a document or other
things or to produce it or a search warrant issued by a court, Judge or Magistrate in a
contracting State, it shall cause the same to be served or executed as if it were a summon or
warrant received by it from another court in the said territories for service or execution within
its jurisdiction.

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AUTHORITIES UNDER PMLA

There shall be the following classes of authorities namely:
1. Director or Additional Director or Joint Director,
2. Deputy Director,
3. Assistant Director, and
4. Such other class of officers as may be appointed for the purposes of this Act.

JURISDICTION OF AUTHORITIES
The authorities shall exercise all or any of the powers and perform all or any of the functions
conferred on, or, assigned, as the case may be, to such authorities by or under this Act or the
rules framed thereunder.
In issuing the directions, the Central Government may have regard to any one or more of the
following criteria:
1. territorial area,
2. classes of persons,
3. classes of cases, and
4. any other criterion specified by the Central Government in this behalf.

ATTACHMENT, SEIZURE AND CONFISCATION OF PROPERTY

1. When a Director or Adjudicating Authority or Special Court in one country suspects that a
property related to a criminal case is located in another country, they can request the Special
Court in the other country to execute an order for the attachment of that property.
2. If a court or authority in another country requests the Indian government to take action, such
as attaching, seizing, freezing, or confiscating a property in India that was acquired through
an offense committed in that country, the Indian government can forward that request to the
Director for execution.
3. If a criminal case is closed or a trial concludes in a foreign country, and the court in that
country determines that money laundering has occurred under their own laws, the Special Court
in India can, upon receiving an application from the Director, confiscate the property involved
in money laundering or used for committing the offense of money laundering and transfer it
to the Central Government.

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RBI MASTER DIRECTION - KNOW YOUR CUSTOMER (KYC) DIRECTION

The objective of KYC Norms/ AML Measures/ CFT Guidelines

The objective of Know Your Customer (KYC) Norms is to prevent banks from being used,
intentionally or unintentionally, by criminal elements for money laundering or terrorist
financing activities. KYC procedures also enable banks to know/understand their
customers and their financial dealings better which in turn help them
manage their risks prudently.

Regulated Entities (REs) are required to follow certain customer identification procedures while
undertaking a transaction either by establishing an account-based relationship or otherwise
and monitor their transactions.
It may be noted that “Regulated Entities” (REs) means:
1. All Scheduled Commercial Banks / Regional Rural Banks / Local Area Banks / All Primary Co-
operative Banks /State and Central Co-operative Banks and any other entity, which as a group
shall be referred as ‘banks’.
2. All India Financial Institutions.
3. All Non-Banking Finance Companies (NBFCs), and Residuary Non-Banking Companies
(RNBCs).
4. All Payment System Providers
5. All authorised persons (APs) including those who are agents of Money Transfer Service Scheme

KNOW YOUR CUSTOMER (KYC) POLICY OF REGULATED ENTITIES (RES)

There shall be a Know Your Customer (KYC) policy duly approved by the Board of Directors
of Regulated Entities. The KYC policy shall include following four key elements:

Customer Customer
Monitoring of Risk
Acceptance Identification
transaction Management
Policy Procedures

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Money Laundering and Terrorist Financing Risk Assessment by Regulated Entities (REs)
1. REs shall carry out ‘Money Laundering (ML) and Terrorist Financing (TF) Risk Assessment’
exercise periodically to identify, assess and take effective measures to mitigate its money
laundering and terrorist financing risk for clients and countries.
The assessment process should consider all the relevant risk factors before determining the
level of overall risk and the appropriate level and type of mitigation to be applied.

2. The risk assessment by the RE shall be properly documented. Further, the periodicity of risk
assessment exercise shall be determined by the Board of the RE, in alignment with the outcome
of the risk assessment exercise. However, it should be reviewed at least annually.

3. The outcome of the exercise shall be put up to the Board, and should be available to competent
authorities and self-regulating bodies.

4. REs shall apply a Risk Based Approach (RBA) for mitigation and management of the identified
risk and should have Board approved policies, in this regard.

FINANCIAL INTELLIGENCE UNIT – INDIA (FIU-IND)

1. Financial Intelligence Unit - India (FIU-IND) is the central, national agency responsible for
receiving, processing, analyzing and disseminating information relating to suspect financial
transactions to enforcement agencies and foreign FIUs.

2. Financial Intelligence Unit – India was set by the Government. As the central national agency
responsible for receiving, processing, analyzing and disseminating information relating to suspect
financial transactions. FIU-IND is also responsible for coordinating and strengthening efforts
of national and international intelligence, investigation and enforcement agencies in pursuing
the global efforts against money laundering and financing of terrorism.

3. FIU-IND is an independent body reporting directly to the Economic Intelligence Council (EIC)
headed by the Finance Minister.

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4. The functions of FIU-IND are:

i. Collection of Information: Act as the central reception point for receiving Cash
Transaction reports, Non-Profit Organisation Transaction Report, Cross Border Wire
Transfer Reports, Reports on Purchase or Sale of Immovable Property and Suspicious
Transaction Reports from various reporting entities.
ii. Analysis of Information
iii. Sharing of Information: Share information with national intelligence/law enforcement
agencies, national regulatory authorities and foreign Financial Intelligence Units.
iv. Act as Central Repository: Establish and maintain national data base on the basis of
reports received from reporting entities.
v. Coordination: Coordinate and strengthen collection and sharing of financial intelligence.
vi. Research and Analysis: Monitor and identify strategic key areas on money laundering
trends.

FREEZING OF ASSETS UNDER SECTION 51A OF UNLAWFUL ACTIVITIES (PREVENTION) ACT,

1967
1. The Unlawful Activities (Prevention) Act, 1967 (UAPA) enacted by the Parliament for the more
effective prevention of certain unlawful activities of individual and association and for dealing
with terrorist activities.
2. According to the UAPA (Unlawful Activities Prevention Act), unlawful activity by an individual
or association means any action taken by them that:
i. Aims to bring about the separation of a part of India's territory or encourages others to
do so.
ii. Challenges, doubts, disturbs, or intends to disturb the sovereignty and integrity of India.
iii. Causes or intends to cause a feeling of disloyalty or discontentment towards India.
3. The Central Government has the authority to freeze, seize, or attach funds, financial assets,
and economic resources of individuals or entities listed in the Order's Schedule. This applies to
those involved in terrorism or suspected of being engaged in terrorism. Additionally, the
government can prohibit any person or entity from providing funds, financial assets, economic
resources, or related services to benefit the listed individuals/entities or anyone involved in
terrorism.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 9 - LAW RELATING TO FUGITIVE ECONOMIC OFFENDERS

INTRODUCTION
a. There have been several instances of economic offenders fleeing the jurisdiction of Indian
courts anticipating the commencement of criminal proceedings or sometimes during the
pendency of such proceedings.
b. Further, most of such cases of economic offences involve non-repayment of bank loans thereby
worsening the financial health of the banking sector in India. The existing civil and criminal
provisions in law were inadequate to deal with the severity of the problem.
c. In order to address the said problem and lay down measures to deter economic offenders from
evading the process of Indian law by remaining outside the jurisdiction of Indian courts,
Parliament enacted a legislation, namely, the Fugitive Economic Offenders Bill, 2018 to ensure
that fugitive economic offenders return to India to face the action in accordance with law.

Fugitive Economic Offenders Act, 2018 provides for measures to deter fugitive
economic offenders from evading the process of law in India by staying outside
the jurisdiction of Indian courts, to preserve the sanctity of the rule of law in
India.

FUGITIVE ECONOMIC OFFENDER

Any individual against whom a warrant for arrest in relation to a Scheduled

Offence has been issued by any Court in India, who:
i. has left India so as to avoid criminal prosecution, or
ii. being abroad, refuses to return to India to face criminal prosecution is a
fugitive economic offender.

It may be noted that Scheduled Offence means an offence specified in the Schedule appended
to the Fugitive Economic Offenders Act, 2018 if the total value involved in such offence or
offences is one hundred crore rupees or more.

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FOLLOWING OFFENCES ARE SCHEDULED OFFENCE

Certain offences under Indian Penal Code, 1860

Offences under the Negotiable Instruments Act, 1881

Offences under the Reserve Bank of India Act, 1934

Offences under the Central Excise Act, 1934

Offences under the Customs Act, 1962

Offences under Section 3 of the Prohibition of Benami Property Transactions Act, 1988

Offences under the Prevention of Corruption Act, 1988

Offences under Securities and Exchange Board of India, 1992

Offences under Limited Liability Partnership Act, 2008

Offences under Black Money(Undisclosed Foreign Income and Assets) and Impositionn of Tax
Act, 2015

Offences under Insolvency and Bankruptcy Code, 2016

Offences under the Central Goods and Services Tax, 2017

PROCEDURE FOR DECLARATION OF FUGITIVE ECONOMIC OFFENDER

1. Where the Director appointed for the purposes of the Prevention of Money-laundering Act,
2002 or any other officer not below the rank of Deputy Director authorised by the Director,
has reason to believe, on the basis of material in his possession, that any individual is a fugitive
economic offender, he may file an application in the Special Court that such individual may be
declared as a fugitive economic offender.

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2. The application shall contain:

i. reasons for the belief that an individual is a fugitive economic offender,
ii. any information available as to the whereabouts of the fugitive economic offender,
iii. a list of properties or the value of such properties believed to be the proceeds of crime,
including any property outside India,
iv. a list of properties or benami properties owned by the individual in India or abroad, and
v. a list of persons who may have an interest in any of the properties listed.

3. Where an application has been duly filed, the Special Court shall issue a notice to an individual
who is alleged to be a fugitive economic offender. The notice shall also be issued to any other
person who has any interest in the property mentioned in the application.

4. A notice of Special Court:

i. require the individual to appear at a specified place and time not less than six weeks
from the date of issue of such notice, and
ii. state that failure to appear on the specified place and time shall result in a declaration
of the individual as a fugitive economic offender and confiscation of property under the
Act.

5. A notice shall also be forwarded to such authority, as the Central Government may notify, for
effecting service in a contracting State. The authority shall make efforts to serve the notice
within a period of two weeks in such prescribed manner.

6. A notice may also be served to the individual alleged to be a fugitive economic offender by
electronic means to:
i. his electronic mail address submitted in connection with an application for allotment of
Permanent Account Number

7. Where any individual to whom notice has been issued by the Special Court shall appears in
person at the place and time specified in the notice, the Special Court may terminate the
proceedings under the Act.

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8. Where any individual to whom notice has been issued fails to appear at the place and time
specified in the notice, but enters appearance through counsel, the Special Court may in its
discretion give a period of one week to file a reply to the application.

9. Where any individual to whom notice has been issued fails to enter appearance either in person
or through counsel, and the Special Court is satisfied:
i. that service of notice has been effected on such party, or
ii. that notice could not be served in spite of best efforts because such individual has evaded
service of notice, it may, after recording reasons in writing, proceed to hear the application.

DECLARATION OF FUGITIVE ECONOMIC OFFENDER

After hearing the application, if the Special Court is satisfied that an individual is a fugitive
economic offender, it may, by an order, declare the individual as a fugitive economic offender.
On a declaration, the Special Court may order that any of the following properties stand
confiscated to the Central Government
The confiscation order of the Special Court shall, to the extent possible, identify the properties
in India or abroad that constitute proceeds of crime which are to be confiscated and in case
such properties cannot be identified, quantify the value of the proceeds of crime.
Where the Special Court has made an order for confiscation of any property and such property
is in a contracting State, the Special Court may issue a letter of request to a Court or
authority in the contracting State for execution of such order.
The Special Court may, while making the confiscation order, exempt from confiscation any
property which is a proceed of crime in which any other person, other than the fugitive
economic offender, has an interest if it is satisfied that such interest was acquired bona
fide and without knowledge of the fact that the property was proceeds of crime.
All the rights and title in the confiscated property shall, from the date of the confiscation
order, vest in the Central Government, free from all encumbrances.
Where on the conclusion of the proceedings, the Special Court finds that the individual is
not a fugitive economic offender, the Special Court shall order release of property
Where an order releasing the property has been made by the Special Court, the Director or
any other officer authorised by him in this behalf may withhold the release of any such
property or record for a period of ninety days from the date of receipt of such order, if he
is of the opinion that such property is relevant for the appeal proceedings under the Act.

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POWER TO DISALLOW CIVIL CLAIMS

1. If an individual is declared as a fugitive economic offender, any Court or tribunal in India,

during any ongoing civil case, has the authority to prevent that individual from presenting or
defending any civil claim.
2. Similarly, in any civil case in India, the Court or tribunal has the power to prevent a company
or limited liability partnership from presenting or defending a civil claim if the person filing
the claim on behalf of the company or partnership, or any promoter, key managerial personnel,
majority shareholder of the company, or an individual with significant control over the
partnership has been declared as a fugitive economic offender.
In simple terms, if someone is declared a fugitive economic offender, the Court can stop them
or any associated company/partnership from making any civil claims or defending themselves
in civil cases.

ATTACHMENT OF PROPERTY
1. The Director or any other officer authorised by the Director, not below the rank of Deputy
Director, may, with the permission of the Special Court, attach any property by an order in
writing in prescribed manner.
2. Director may by an order in writing, at any time prior to the filing of the application to the
Special Court, attach any property:
i. for which there is a reason to believe that the property is proceeds of crime, or is a
property or benami property owned by an individual who is a fugitive economic offender;
and
ii. which is being or is likely to be dealt with in a manner which may result in the property
being unavailable for confiscation.
3. Director or any other officer who provisionally attaches any property shall within a period of
thirty days from the date of such attachment, file an application before the Special Court.
4. The attachment of any property shall continue for a period of one hundred and eighty days
from the date of order of attachment or such other period as may be extended by the Special
Court before the expiry of such period.

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POWER OF SURVEY
Where a Director or any other officer authorised by the Director, on the basis of material in
his possession, has reason to believe, that an individual may be a fugitive economic offender,
he may enter any place:
i. within the limits of the area assigned to him, or
ii. in respect of which he is authorised for the purposes of this section, by such other authority,
who is assigned the area within which such place is situated.
Where the Director on the basis of material in his possession, has reason to believe that an
individual may be a fugitive economic offender and it is necessary to enter any place, he may
request any proprietor, employee or any other person who may be present at that time, to:
a. afford him the necessary facility to inspect such records,
b. afford him the necessary facility to check or verify the proceeds of crime or any transaction
related to proceeds of crime,
c. furnish such information as he may require.

The Director, or any other officer acting under this section may:
i. place marks of identification on the records inspected by him and make or cause to be
made extracts or copies,
ii. make an inventory of any property checked or verified by him,
iii. record the statement of any person present at the property which may be useful for, or
relevant to, any proceeding.

SEARCH AND SEIZURE

Where the Director or any other officer not below the rank of Deputy Director authorised by
him, on the basis of information in his possession, has reason to believe that any person:
1. May be declared as a fugitive economic offender,
2. Is in possession of any proceeds of crime,
3. Is in possession of any records which may relate to proceeds of crime, or
4. Is in possession of any property related to proceeds of crime, then, he may authorise any officer
subordinate to him to:

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i. enter and search any building, place, vessel, vehicle or aircraft where he has reason to
suspect that such records or proceeds of crime are kept,
ii. break open the lock of any door, box, locker, safe, almirah where the keys thereof are
not available,
iii. seize any record or property found as a result of such search,
iv. place marks of identification on such record or property,
v. make a note or an inventory of such record or property, and
vi. examine on oath any person, who is found to be in possession or control of any record or
property, in respect of all matters relevant for the purposes of any investigation under
this Act.
Where an authority, upon information obtained during survey, is satisfied that any evidence
shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in
writing, enter and search the building or place where such evidence is located and seize that
evidence.

SEARCH OF PERSONS
Notwithstanding anything contained in any other law for the time being in force:
1. If an authority, has reason to believe that any person has secreted about his person or anything
under his possession, ownership or control, any record or proceeds of crime which may be useful
for or relevant to any proceedings under this Act, he may search that person and seize such
record or property which may be useful for or relevant to any proceedings under the Act,
2. Where an authority is about to search any person, he shall, if such person so requires, take
such person within twenty-four hours to the nearest Magistrate,
It may be noted that the period of twenty-four hours shall exclude the time necessary for the
journey undertaken to take such person to the nearest Gazetted Officer, superior in rank to
him, or the Magistrate’s Court,
3. The authority shall not detain the person for more than twenty-four hours prior to taking him
before the Magistrate,
4. The Gazetted Officer or the Magistrate before whom any such person is brought shall, if he
sees no reasonable ground for search, forthwith search be made,

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5. Before making the search , the authority shall call upon two or more persons to attend and
witness the search and the search shall be made in the presence of such persons,
6. The authority shall prepare a list of record or property seized in the course of the search and
obtain the signatures of the witnesses on the list,
7. No female shall be searched by anyone except a female, and
8. The authority shall record the statement of the person searched.

Rules of Evidence
The burden of proof for Notwithstanding anything The standard of proof
establishing contained in any other law applicable to the
i. That an individual is a for the time being in force, determination of facts by
fugitive economic where any person claims the Special Court under the
offender, or that any interest in any Act shall be preponderance
ii. That a property is the property was acquired bona of probabilities
proceeds of crime or any fide and without knowledge
other property in which of the fact that, such
the individual alleged to property constitutes proceeds
be a fugitive economic of crime, the burden of
offender has an interest, proving such fact shall lie
shall be on the Director upon him.
or the person authorised
by the Director to file
the application.

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APPEAL

1. An appeal shall lie from any judgment or order, not being an interlocutory order, of
a Special Court to the High Court both on facts and on law.
2. Every appeal shall be preferred within a period of thirty days from the date of the
judgment or order appealed from.
3. High Court may entertain an appeal after the expiry of the said period of thirty
days, if it is satisfied that the appellant had sufficient cause for not preferring the
appeal within the period of thirty days.
4. No appeal shall be entertained after the expiry of period of ninety days.

BAR OF JURISDICTION
No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter
which the Special Court is empowered by or under the Act to determine.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 10 - LAW RELATING TO BENAMI TRANSACTIONS & PROHIBITION

Transactions & Prohibition

INTRODUCTION
In the case of Union of India & Anr. Vs. M/s. Ganpati Dealcom Pvt. Ltd, the Hon’ble Supreme
Court of India observed that the term ‘benami transaction’ generally implies that one purchases
the property in the name of somebody else, i.e., a name lender, the purchaser does not hold
beneficial interest in the property. Literally, ‘benami’ means ‘without a name’.

In Mohammedan law, such transactions were commonly referred as furzee or farzi,

derived from Arabic word furaz.
Conceptually, there are two views which arise from the Doctrine of Benami. The
first view is that the benamidar does not hold title over the property, and the
second view is that although the title passes to the benamidar, he holds it in
trust.

With a view to providing effective regime for prohibition of benami transactions, the said Act
was amended through the Benami Transactions (Prohibition) Amended Act, 2016.

The preamble of the Act reads as under:

An Act to prohibit benami transactions and the right to recover properly held benami
and for matters corrected therewith or incidental thereto.

SALIENT FEATURES OF THE BENAMI TRANSACTIONS (PROHIBITION) ACT, 1988

It defines a benami transaction and benami property.
It provides the consequences of entering into a prohibited benami transactions.
It lays down the procedure for determination and related penal consequences in the case of a
prohibited benami transaction.
It also provides that the powers of civil court shall be available to authorities under the said Act.
It enables the Central Government in consultation with the Chief Justice of the High Court to
designate one or more Courts of Session as Special Court or Special Courts for the purpose of the
Act.
It provides penalty for entering into benami transactions and for furnishing any false documents in
any proceeding under the Act.

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IMPORTANT DEFINITIONS

“ATTACHMENT”
Attachment means the prohibition of transfer, conversion, disposition or movement of property,
by an order issued under the Act.

“BENAMI PROPERTY”
Benami Property means any property which is the subject matter of a benami transaction and
also includes the proceeds from such property.

“BENAMI TRANSACTION”
As per Section 2 (9) of the benami transaction means-
1. a transaction or an arrangement –
i. where a property is transferred to, or is held by, a person, and the consideration for such
property has been provided, or paid by, another person; and
ii. the property is held for the immediate or future benefit, direct or indirect, of the person
who has provided the consideration,

Except when the property is held by –

i. a Karta, or a member of a Hindu undivided family, as the case may be, and the property
is held for his benefit or benefit of other members in the family and the consideration
for such property has been provided or paid out of the known sources of the Hindu
undivided family;
ii. a person standing in a fiduciary capacity for the benefit of another person towards whom
he stands in such capacity and includes a trustee, partner;
iii. any person being an individual in the name of his spouse or in the name of any child of
such individual and the consideration for such property has been provided or paid out of
the known sources of the individual;
iv. any person in the name of his brother or sister or lineal ascendant or descendant, where
the names of brother or sister or lineal ascendant or descendant and the individual appear

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as joint owners in any document, and the consideration for such property has been
provided or paid out of the known sources of the individual; or
2. A transaction or an arrangement in respect of a property carried out or made in a fictitious
name.
3. A transaction or an arrangement in respect of a property where the owner of the property is
not aware of, or, denies knowledge of, such ownership.
4. A transaction or an arrangement in respect of a property where the person providing the
consideration is not traceable or is fictitious.

“BENAMIDAR”
Benamidar means a person or a fictitious person, as the case may be, in whose name the
benami property is transferred or held and includes a person who lends his name

“BENEFICIAL OWNER”
“Beneficial Owner” means a person, whether his identity is known or not, for whose benefit
the benami property is held by a benamidar.

“FAIR MARKET VALUE”

Fair market value in relation to a property, means – (i) the price that the property would
ordinarily fetch on sale in the open market on the date of the transaction; and (ii) where the
price referred to in sub-clause (i) is not ascertainable, such price as may be determined in
accordance with such manner as may be prescribed.

“PROPERTY”
Property means assets of any kind, whether movable or immovable, tangible or intangible,
corporeal or incorporeal and includes any right or interest or legal documents or instruments
evidencing title to or interest in the property and where the property is capable of conversion
into some other form, then the property in the converted form and also includes the proceeds
from the property.

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“TRANSFER”
Transfer includes sale, purchase or any other form of transfer of right, title, possession or lien.

PROHIBITION OF BENAMI TRANSACTIONS-

As per Section 3(1) of the Act, no person shall enter into any benami transaction.
Section 3(2) provides that whoever enters into any benami transaction shall be punishable
with imprisonment for a term which may extend to three years or with fine or with both.
According to Section 3(3) where any person enters into any benami transaction on and after
the date of commencement of the Benami Transactions (Prohibition) Amendment Act, 2016,
shall be punishable in accordance with the provisions contained in Chapter VII.

Chapter VII deals with offences and prosecution. It provides that if a person is found
guilty of offence of benami transaction by the competent court, he shall be punishable
with rigorous imprisonment for a term not less than one year but which may extend to 7
years and shall also be liable to fine which may extend to 25% of the fair market value
of the property.

PROHIBITION OF THE RIGHT TO RECOVER PROPERTY HELD BENAMI

Section 4(1) provides that no suit, claim or action to enforce any right in respect of any
property held benami against the person in whose name the property is held by of a person
claiming to be the real owner of such property.
Further, Section 4(2) provides that no defense based on any right in respect of any property
held benami, whether against the person in whose name the property is held or against any
other person, shall be allowed.

PROPERTY HELD BENAMI LIABLE TO CONFISCATION

As per section 5 of the Act any property, which is subject matter of benami transaction, shall
be liable to be confiscated by the Central Government.

NOTE : Section 3(2) of the 2016 Act being punitive in nature, can only be applied prospectively
and not retroactively.

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PROHIBITION ON RE-TRANSFER OF PROPERTY BY BENAMIDAR

Section 6 provides that a person, being a benamidar shall not re-transfer the benami property
held by him to the beneficial owner or any other person acting on his behalf.
Where any property is re-transferred in contravention of the above the transaction of such
property shall be deemed to be null and void.

Authorities and Jurisdiction

The following shall be the Authorities for the purposes of Benami Transactions Prohibition Act
1. The Initiating Officer;
2. The Approving Authority;
3. The Administrator; and
4. The Adjudicating Authority.

The following officers shall assist the authorities in the enforcement of the Act, namely:
1. Income-tax authorities;
2. Officers of the Customs and Central Excise Departments;
3. Officers of the stock exchange;
4. Officers of the Reserve Bank of India constituted;
5. Officers of the Securities and Exchange Board of India
6. Such other officers of the Central Government, State Government, local authorities or banking
companies as the Central Government may, by notification, specify, in this behalf.

NOTICE AND ATTACHMENT OF PROPERTY INVOLVED IN BENAMI TRANSACTION

1. Section 24 relates to notice and attachment of property involved in benami transaction where
the Initiating Officer, on the basis of material in his possession, has reason to believe that
any person is a benamidar in respect of a property, he may, after recording reasons in writing,
issue a notice to such person to show cause.
2. Where the Initiating Officer is of the opinion that the person in possession of the property
held benami may alienate such property during the period specified in the notice, he may, with
the previous approval of the Approving Authority, by order in writing, attach provisionally such
property, for a period not exceeding ninety days from the date of issue of notice.

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The Initiating Officer, after making such inquires and calling for such reports or evidence as
he deems fit and taking into account all relevant materials, shall, within a period of ninety
days from the date of issue of notice.
a. where the provisional attachment has been made.
i. Pass an order continuing the provisional attachment of the property with the prior
approval of the Approving Authority, till the passing of the order by the Adjudicating
Authority; or
ii. Revoke the provisional attachment of the property with the prior approval of the
Approving Authority;
b. Where provisional attachment has not been made.
i. Pass an order provisionally attaching the property with the prior approval of the
Approving Authority, till the passing of the order made by the Adjudicating
Authority.
ii. Decide not to attach the property as specified in the notice.
3. Where the Initiating Officer passes an order continuing the provisional attachment of
the property or passes an order provisionally attaching the property, he shall, within
fifteen days from the date of the attachment, draw up a statement of the case and
refer it to the Adjudicating Authority.
NOTE: Initiating Officer means an Assistant Commissioner.

ADJUDICATION OF BENAMI PROPERTY

1. Section 26 relates to adjudication of benami property. Sub-section (1) of this section provides
that on receipt of a reference under sub-section (5) of section 24, the Adjudicating Authority
shall issue notice, to furnish such documents, particulars or evidence as is considered necessary
on a date to be specified therein, on the following persons:
i. The person specified as a benamidar therein,
ii. Any person referred to as the beneficial owner therein or identified as such,
iii. Any interested party, including a banking company,
iv. Any person who has made a claim in respect of the property.
2. The Adjudicating Authority shall issue notice within a period of thirty days from the date on
which a reference has been received. Further, the notice shall provide a period of time of not

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less than thirty days to the person to whom such notice is issued to furnish the information
sought.
3. Where such property is held jointly by more than one person, the Adjudicating Authority shall
make endeavours to serve notice to all persons holding such property. However, where the notice
is served on one of the aforesaid persons the service of notice shall not be invalid on the
ground that the said notice was not served to all the persons holding the property.
4. The Adjudicating Authority shall, after considering the reply, if any, to the notice issued making
or causing to be made such inquiries and calling for such reports or evidence as it deems fit;
and taking into account all relevant materials, provide an opportunity of being heard to the
person specified as a benamidar therein, the Initiating Officer, and any other person who claims
to be the owner of such property.
5. Thereafter, the Adjudicating Authority shall pass an order holding the property not to be a
benami property and revoking the attachment order; or holding the property to be a benami
property and confirming the attachment order in all other cases.
6. where the Adjudicating Authority is satisfied that some part of the properties in respect of
which reference has been made to him is benami property, but is not able to specifically
identify such part, he shall record a finding to the best of his judgment as to which part or
properties is held benami.
7. where in the course of proceedings before it, the Adjudicating Authority has reason to believe
that a property, other than a property referred to him by the Initiating Officer is benami
property, it shall provisionally attach the property.
8. The Adjudicating Authority may, at any stage of the proceedings, either on the application of
any party, or Suo moto, strike out the name of any party improperly joined or add the name
of any person whose presence before the Adjudicating Authority may be necessary to enable
it to adjudicate upon and settle all the questions involved in the reference.
9. No order shall be passed after the expiry of one year from the end of the month in which the
reference under section 24 was received.
NOTE: An Adjudicating Authority shall consist of a Chairperson and at least two other
Members.

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CONFISCATION AND VESTING OF BENAMI PROPERTY

1. Section 27 deals with confiscation and vesting of benami property. where an order is passed
in respect of any property of section 26 holding such property to be a benami property, the
Adjudicating Authority shall, after giving an opportunity of being heard to the person concerned,
make an order confiscating the property held to be a benami property. However, where an
appeal has been filed against the order of the Adjudicating Authority, the confiscation of
property shall be made subject to the order passed by the Appellate Tribunal under section 46.
2. The above shall not apply to a property held or acquired by a person from the benamidar for
adequate consideration, prior to the issue of notice under sub-section (1) of section 24
without his having knowledge of the benami transaction.
3. Where an order of confiscation has been made, all the rights and title in such property shall
vest absolutely in the Central Government free of all encumbrances and no compensation
shall be payable in respect of such confiscation.
4. Any right of any third person created in such property with a view to defeat the purposes of
this Act shall be null and void.
5. where no order of confiscation is made upon the proceedings under this Act attaining finality,
no claim shall lie against the Government.

POSSESSION OF THE PROPERTY

Section 29 relates to possession of the property. Sub-section (1) of this section provides that
where an order of confiscation in respect of a property, the Administrator shall proceed to take
the possession of such property.

Sub-section (2) of this section provides that the Administrator shall, -

a. By notice in writing, order within seven days of the date of the service of notice any
person, who may be in possession of the benami property, to surrender or deliver possession
thereof to the Administrator or any other person duly authorised in writing by him in this
behalf;
b. In the event of non-compliance of the order referred to in clause (a), or if in his opinion,
taking over of immediate possession is warranted, for the purpose of forcibly taking over

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possession, requisition the service of any police officer to assist him and it shall be the duty
such officer to comply with the requisition.

It may be noted that “Administrator” means an Income-tax Officer

APPELLATE TRIBUNAL
Section 30 deals with establishment of Appellate Tribunal, the Central Government shall, by
notification, establish an Appellate Tribunal to hear appeals against the orders of the
Adjudicating Authority and the authorities under this Act.

APPEAL TO HIGH COURT

1. Section 49 relates to appeal to High Court, any party aggrieved by any decision or order of the
Appellate Tribunal may file an appeal to the High Court within sixty days from the date of
communication of the decision or order of the Appellate Tribunal to him on any question of
law arising out of such order.
2. The High Court may entertain any appeal after the said period of sixty days, if it is satisfied
that the appellant was prevented by sufficient cause from filing the appeal within the period.
3. where the High Court is satisfied that a substantial question of law is involved in any case, it
shall formulate that question. The appeal shall be heard only on the question so formulated,
and the respondents shall, at the hearing of the appeal, be allowed to argue that the case
does not involve such question.
4. The High Court may determine any issue which,
a. has not been determined by the Appellate Tribunal; or
b. has been wrongly determined by the Appellate Tribunal, by reason of a decision on such
question of law as is referred to in sub-section (1).

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SPECIAL COURTS
1. The Central Government, in consultation with the Chief Justice of the High Court, shall for
trial of an offence punishable under this Act, by notification, designate one or more Courts of
Session as Special Court or Special Courts for such area or areas or for such case or class or
group of cases as may be specified in the notification.
2. The Special Court shall not take cognizance of any offence punishable under this Act except
upon a complaint in writing made by-
a. the authority; or
b. any officer of the Central Government or State Government authorised in writing by that
Government by a general or special order made in this behalf.
3. Every trial under this section shall be conducted as expeditiously as possible and an endeavour
shall be made by the Special Court to conclude the trial within six months from the date of
filing of the complaint.

OFFENCES AND PROSECUTION

1. Where any person enters into a benami transaction in order to defeat the provisions of any
law
or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner,
benamidar and any other person who abets or induces any person to enter into such benami
transaction, shall be guilty of the offence of benami transaction.
2. Whoever is found guilty of the offence of benami transaction referred to above shall be
punishable with rigorous imprisonment for a term which shall not be less than one year, but
which may extend to seven years and shall also be liable to fine which may extend to twenty-
five per cent. Of the fair market value of the property.
3. Section 54 relates to penalty for false information, any person who is required to furnishing
formation under this Act knowingly gives false information to any authority or furnishes any
false document in any proceeding under this Act, shall be punishable with rigorous imprisonment
for a term which shall not be less than six months but which may extend to five years and
shall also be liable to fine which may extend to ten per cent. of the fair market value of the
property.

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OFFENCES BY COMPANIES
Section 62 relates to consequences in case of offences by companies. Subsection (1) of this
section provides that where a person committing a contravention of any of the provisions of
this Act or of any rule, direction or order made thereunder is a company, every person who, at
the time the contravention was committed, was in charge of, and was responsible to, the
company, for the conduct of the business of the company as well as the company, shall be
deemed to be guilty of the contravention and shall be liable to be proceeded against and
punished accordingly.
That nothing contained in subsection (1) of this section shall render any person liable to
punishment, if he proves that the contravention took place without his knowledge.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 11 - COMPETITION LAW

The Competition Act, 2002 has been enacted to provide, keeping in view of the
economic development of the country, for the establishment of a Commission to
prevent practices having adverse effect on competition, to promote and sustain
competition in the markets, to protect the interest of consumers and to ensure
freedom of trade carried on by other participant in the markets in India and for
matters connected therewith or incidental thereto.

INTRODUCTION
a. There is a growing recognition that a flexible, dynamic and competitive private sector is essential
to fostering sustained economic development.
b. Promoting effective competition spurs firms to focus on efficiency and improves consumer
welfare by offering greater choice of higher-quality products and services at lower prices.
c. It also promotes greater accountability and transparency in government-business relations and
decision making, helps reduce corruption, lobbying, and rent seeking.
d. The competition being an essential element in the efficient working of markets encourages
enterprise and efficiency and widens choice. The full benefits of competition are, however, felt
in markets that are open to trade and investment.

COMPETITION, COMPETITION LAW AND COMPETITION POLICY

1. Competition is a complex and technical subject which does not lend itself to easy summary or
concise clarification. Of late, with globalisation and opening of the markets worldwide, it has
become a subject of great practical importance.
2. It involves the establishment and development of concepts, legal principles and policies for the
benefit of consumer interest.
3. The principles and policies are applied to a wide range of private agreements and arrangements,
which commercial undertakings enter into for themselves or with each other. In addition, they
also apply to the policies and directions of the Government.
4. In the absence of a generally accepted definition of the phenomenon of competition, it has to
be regarded as the object fostered and protected by competition policy and law.

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5. The World Bank and OECD defines competition as “a situation in a market in which firms or
sellers independently strive for the buyers’ patronage in order to achieve a particular business
objective, for example, profits, sales or market share.”
6. Competition can also be defined as a process of economic rivalry between market players to
attract customers. These market players can be multinational or domestic companies,
wholesalers, retailers, or even the neighbourhood shopkeeper.
7. In their pursuit to outdo rival enterprises, market players either adopt fair means (producing
quality goods, being cost efficient, adopting appropriate technologies) or indulge in unfair
measures (carrying out restrictive business practices - such as predatory pricing, exclusive
dealing, tied selling, collusion, cartelisation, abuse of dominant position)
8. However, in the interest of consumers, and the economy as a whole, it is necessary to promote
an environment that facilitates fair competitive outcomes in the market, curb anti-competitive
behaviour and discourage market players from adopting unfair measures.

What is competition in the market?

1. Competition refers to a situation in a market place in which firms/ entities or sellers
independently strive for the patronage of buyers in order to achieve a particular business
objective, such as profits, sales, market share etc.
2. By responding to demand for goods and services with lower prices and higher quality, competing
businesses are pressured to reduce costs, innovate in processes and products, invest in
technology and better managerial practices and increase productivity.
3. This process leads to achievement of static, dynamic as also resource/ allocative efficiencies,
sustainable economic growth, development, and poverty alleviation.
4. Competition is not an end in itself, rather a means to achieve economic efficiency and welfare
objectives. Importantly, competition is not automatic, and requires to be promoted, protected
and nurtured through appropriate regulatory frameworks, by minimising market restrictions and
distortions, and provision of related productive inputs such as infrastructure services, finance,
human capital etc.
5. However, a Competition Policy has to be evolved to imbibe the principles of competition in
various endeavours of the Government, of course in alignment with the national strategic
objectives, along with social, environmental, public safety, and other considerations.

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6. Competition Policy means government measures, policies, statutes, and regulations including a
competition law, aimed at promoting competitive market structure and behaviour of entities in
an economy.
7. Competition Law is but a sub-set of the Competition Policy. The Raghavan Committee had
observed that “Competition law must emerge out of a national competition policy, which must
be evolved to serve the basic goals of economic reforms by building a competitive market
economy.”

The basic purpose of Competition Policy and law is to preserve and promote
competition as a means of ensuring efficient allocation of resources in an economy.
Competition policy typically has two elements: one is a set of policies that enhance
competition in local and national markets. The second element is legislation designed
to prevent anti-competitive business practices with minimal Government
intervention, i.e., a competition law. Competition law by itself cannot produce or
ensure competition in the market unless this is facilitated by appropriate Government
policies. On the other hand, Government policies without a law to enforce such policies
and prevent competition malpractices would also be incomplete.

COMPETITION REGIME IN INDIA

HISTORICAL PERSPECTIVE
1. The Indian economy remained subject to controls and regulations for several decades, such as
industrial licensing, foreign exchange restrictions, small scale industry protection, control on
foreign investment and technologies, quantitative restrictions on imports, administered prices,
and control on capital issues.
2. The domestic industry was thus insulated from competition. The economic consequences of
this policy regime, though initially beneficial, were reflected in a poor rate of economic growth,
low levels of productivity and efficiency, absence of international competitiveness, suboptimal
size of businesses, and outdated and inefficient technologies in various sectors.
3. India has therefore witnessed two phases of development process with different policy regimes
and institutional frameworks.

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4. In the first phase, since independence, the transformation and development of the Indian
economy took place within a planned, rigidly regulated and relatively closed economic framework.
5. In the second phase, since 1991, when the country embarked upon reform process and embraced
market oriented policies.

Economic Reforms and Competition

1. Since 1991, the Government of India has introduced a series of economic reforms, including
policies of liberalisation, deregulation, disinvestment and privatisation.
2. The seriousness of macroeconomic imbalances and unanimity towards reform rendered this
possible.
3. The broad thrust of the new policies was a move away from the centralised allocation of
resources in some key sectors by the government to allocation by market forces.
4. Private participation in economic development has emerged as an alternative to the state-
oriented development strategy in the reform period.
5. After a decade of reforms, restraints to competition such as state monopolies and protective
measures and controls have been replaced by relatively more competitive and de-regulated open
market policies.
6. In the post reform period, the private sector participation in production and supply of utility
services has increased substantially.

COMPETITION LAW-EVOLUTION AND DEVELOPMENT

The first Indian competition law was enacted in 1969 as the Monopolies and Restrictive Trade
Practices Act, 1969 (MRTP Act). The genesis of the MRTP Act, 1969 is traceable to Articles
38 and 39 of the Constitution of India.
The principal objectives of the Act, as spelt out in the preamble were:
1. Prevention of concentration of economic power to the common detriment;
2. Control of monopolies;
3. Prohibition of monopolistic trade practice;
4. Prohibition of restrictive trade practices.

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Recommendations of Raghavan Committee

1. It was formed in the year 1999 under the chairmanship of SVS Raghavan, with the objective
that the current MRTP act was not able to cater many growing areas of competition, hence it
should be reviewed.
2. The committee in its report recommended that the current MRTP Act should be repealed with
a modern competition law for fostering competition and for eliminating anticompetitive practices
in the economy. After consulting the stakeholders, Competition Bill, 2001 was introduced in
the Parliament which eventually became the Competition Act, 2002
3. The objective of competition act being, “An Act to provide, keeping in view of the economic
development of the country, for the establishment of a Commission to prevent practices having
adverse effect on competition, to promote and sustain competition in markets, to protect the
interests of consumers and to ensure freedom of trade carried on by other participants in
markets, in India, and for matters connected therewith or incidental thereto”

Recommendations of Sachar Committee

1. It was formed in the year 1977 under the Chairmanship of Justice Rajinder Sachar.
2. Objective of the committee being:
i. Reviewing MRTP
ii. Promoting Simplification of working of companies with MRTP Act
3. Observation:
i. The Committee pointed out that advertisements and sales promotion having become well
established modes of modern business techniques, representations through such
advertisements to the consumer should not become deceptive, such a situation could not be
accepted. Therefore, an obligation is to be cast on the seller to speak the truth when he
advertises and also to avoid half-truths, the purpose being preventing false or misleading
advertisements.
ii. The Committee also noted that fictitious bargain was another common form of deception
and many ways were used to lure buyers into believing that they were getting something
for nothing or at a nominal value for their money. Unfortunately, our Act is totally silent
on this aspect.

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4. Recommendations:
The Committee specified certain unfair trade practices which were notorious and suggested
prohibition of such practices. The main category of unfair trade practices recommended for
prohibition by the Sachar Committee were:
i. misleading advertisements and false representations
ii. bargain sale, bait and switch selling,
iii. offering gifts or prizes with the intention of not providing them and conducting,
iv. promotional contests,
v. supplying goods not conforming to safety standards; and hoarding of goods.

Why do we need competition in the market?

Competition is now universally acknowledged as the best means of ensuring that
consumers have access to the broadest range of services at the most competitive prices.
Producers will have maximum incentive to innovate, reduce their costs and meet consumer
demand. Competition thus promotes allocative and productive efficiency. But all this
requires healthy market conditions and governments across the globe are increasingly
trying to remove market imperfections through appropriate regulations to promote
competition.

COMPETITION ACT, 2002

The Competition Act, 2002 was enacted to promote and sustain competition in the market
and is enforced by the Competition Commission of India. The provisions relating to prohibition
of anti-competitive agreements and abuse of dominant position came into effect from May 20,
2009 and the merger regulation regime has been enforced with effect from June 1, 2011.
Contravention of the provisions of the Act can lead to the imposition of sanctions including
monetary penalties.

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Hon’ble Supreme Court in CCI v. Bharati Airtel Civil Appeals observed that in the wake
of globalisation and keeping in view the economic development of the country,
responding to opening of its economy and resorting to liberalisation, need was felt to
enact a law that ensures fair competition in India by prohibiting trade practices which
cause an appreciable adverse effect on competition within markets in India and for
establishment of an expert body in the form of Competition Commission of India,
which would discharge the duty of curbing negative aspects of competition, the
Competition Act, 2002 has been enacted by the Parliament. The Act deals with three
kinds of practices which are treated as anti-competitive and are prohibited. These
are:
i. where agreements are entered into by certain persons with a view to cause an
appreciable adverse effect on competition,
ii. where any enterprise or group of enterprises, which enjoys dominant position,
abuses the said dominant position, and
iii. regulating the combination of enterprises by means of mergers or
amalgamations to ensure that such mergers or amalgamations do not become
anti-competitive or abuse the dominant position which they can attain.

In the case of Excel Crop Care Limited v. Competition Commission of India

The Hon’ble Supreme Court of India observed that the Act, which prohibits anti-competitive
agreements, has a laudable purpose behind it. It is to ensure that there is a healthy competition
in the market, as it brings about various benefits for the public at large as well as economy
of the nation. In fact, the ultimate goal of competition policy is to enhance consumer wellbeing.
These policies are directed at ensuring that markets function effectively. Competition policy
towards the supply side of the market aims to ensure that consumers have adequate and
affordable choices. Another purpose in curbing anti-competitive agreements is to ensure ‘level
playing field’ for all market players that helps markets to be competitive. It sets ‘rules of the
game’ that protect the competition process itself, other than competitors in the market.

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Main Objectives and Benefits of Competition Policy

i. Economic efficiency.
ii. Economic growth and development
iii. Consumer Welfare

COMPETITION CONTRIBUTES TO INCREASED PRODUCTIVITY THROUGH

a. Pressure on firms to control costs: In a competitive environment, firms must constantly strive
to lower their production costs so that they can charge competitive prices, and they must also
improve their goods and services so that they correspond to consumer demands.

b. Easy market entry and exit: When new companies enter and old companies leave the market,
resources shift from less efficient to more efficient firms. This process boosts overall
productivity, particularly when new companies are more efficient than the average existing ones
and when exiting companies are less efficient than the average existing ones. The entry of
new companies, as well as the potential for new companies to enter, motivates existing firms
to constantly improve in order to avoid losing market share or being pushed out of the market
by new competitors.

c. Encouraging innovation

d. Pressure to Improve Infrastructure: Competition puts pressure on communities to keep local

producers competitive by improving roads, bridges, docks, airports, and communications, as well
as improving educational opportunities.

e. Benchmarking: Competition also can contribute to increased productivity by creating the

possibility of benchmarking. The productivity of a monopolist cannot be measured against rivals
in the same geographic market, but a dose of competition quickly will expose inferior
performance.

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IMPORTANT DEFINITIONS

ENTERPRISE
Enterprise means a person or a department of the Government, who or which is, engaged in
any activity, relating to production, control of goods or articles or provision of services, of any
kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with
shares, debentures or other securities whether such unit or division or subsidiary is located at
the same place where the enterprise is located or at different place(s).
However, it does not include any activity of the Central Government relating to sovereign
functions of Government including all activities carried on by the Government Departments
dealing with atomic energy, currency, defence and space.

In the case of, Thupili Raveendra Babu v. Competition Commission of India Supreme
Court dismissed appeal against NCLAT’s ruling that Bar Council of India is a statutory
body established under section 4 of Advocate Act, which is an exclusive rule making
authority to set standards of legal education and, thus, it could not be said to be an
‘enterprise’ within meaning of section 2(h), which abused its dominant position.

AGREEMENT
The term includes any arrangement or understanding or action in concert:
1. whether or not, such arrangement, understanding or concert is in formal or in writing, or
2. whether or not such arrangement, understanding or concert is intended to be enforceable by
legal proceedings.
It implies that an arrangement need not necessarily be in writing. The term is relevant in the
context of Section 3, which envisages that anti-competitive agreements shall be void and
thereby prohibited by the law.

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CARTEL
1. Cartel includes an association of producers, sellers or distributors, traders or service providers
who, by agreement amongst themselves, limit control or attempt to control the production,
distribution, sale or price of or, trade in goods or provision of services.
2. The nature of a cartel is to raise price above competitive levels, resulting in injury to consumers
and to the economy. For the consumers, cartelisation results in higher prices, poor quality and
less or no choice for goods or/and services.
3. An international cartel is said to exist, when not all of the enterprises in a cartel are based in
the same country or when the cartel affects markets of more than one country.
4. An import cartel comprises enterprises that get together for the purpose of imports into the
country.
5. An export cartel is made up of enterprises based in one country with an agreement to cartelize
markets in other countries. In the Competition Act, cartels meant exclusively for exports have
been excluded from the provisions relating to anti-competitive agreements. This is because such
cartels do not adversely affect markets in India and are hence outside the purview of the
Competition Act.
6. If there is effective competition in the market, cartels would find it difficult to be formed and
sustained. Some of the conditions that are conducive to cartelization are:
i. High concentration - few competitors
ii. High entry and exit barriers
iii. Homogeneity of the products (similar products)
iv. Similar production costs
v. Excess capacity
vi. High dependence of the consumers on the product
vii. History of collusion

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CONSUMER
Consumer means any person who:
1. Buys any goods for a consideration which has been paid or promised or partly paid and partly
promised, or under any system of deferred payment and includes any user of such goods other
than the person who buys such goods for consideration, when such use is made with the
approval of such person, whether such purchase of goods is for resale or for any commercial
purpose or for personal use.
2. Hires or avails of any services for a consideration which has been paid or promised or partly
paid and partly promised, or under any system of deferred payment when such services are
availed of with the approval of the first mentioned person whether such hiring or availing of
services is for any commercial purpose or for personal use.

It may be noted that under the Competition Act even if a person purchases goods or avails of
services for commercial purpose, he will be a Consumer, whereas for purposes of Consumer
Protection Act, a person purchasing goods/ availing services for commercial purposes is not a
“Consumer” and can not seek relief under that Act.

SERVICE
1. Service means service of any description which is made available to potential users and includes
the provision of services in connection with business of any industrial or commercial matters
such as banking, communication, education, financing, insurance, real estate, transport, storage,
processing, supply of electrical or other energy, boarding, lodging, entertainment, construction,
repair, conveying of news or information and advertising.
2. It may be noted that under the Competition Act, the services of industrial or commercial
nature also fall within the scope of the Act whereas under the Consumer Protection Act, the
services of commercial nature or for business or industrial purposes are excluded for interpreting
deficiency in the supply thereof and for determining compensation, if any, payable to them.
3. It may also be noted that “education” has been specifically included in ambit of “Service” to
set at rest the dispute, if any, about the jurisdiction of Commission in such matters.

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Turnover
Turnover includes value of sale of goods or services.
The definition of the term ’turnover’, inter-alia, is relevant and significant in determining
whether the combination of merging entities exceeds the threshold limit of the turnover
specified in Section 5 of the Act. It is also relevant for the purpose of imposition of fines by
the Commission.

ANTI COMPETITIVE AGREEMENTS (SECTION 3)

No enterprise or association of enterprises or person or association of persons shall enter into
any agreement in respect of production, supply, distribution, storage, acquisition or control of
goods or provision of services, which causes or is likely to cause an appreciable adverse effect
on competition. Any anti-competitive agreement shall be void.

Appreciable Adverse effect on Competition

Following kinds of agreements entered into between enterprises or association of enterprises or
persons or associations of persons, including “cartels”, engaged in identical or similar goods or
services which:
1. Directly or indirectly determines purchase or sale prices,
2. Limits or controls production, supply, markets, technical development, investment or provision
of services,
3. Shares the market or source of production or provision of services by way of allocation of
geographical area of market, or type of goods or services, or number of customers in the market
or any other similar way, and
4. Directly or indirectly results in bid rigging or collusive bidding.
These shall be presumed to have an appreciable adverse effect on the competition and onus to
prove otherwise lies on the defendant.
Such agreements are known as horizontal agreements because they are entered into between
enterprises engaged in identical or similar goods or services.

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Section 3 defines the term ‘bid rigging’ as any agreement between enterprises or persons which
has the effect of eliminating or reducing competition for bids or adversely affecting or
manipulating the process for bidding. Efficiency enhancing joint ventures entered into by parties
engaged in identical or similar goods or services, shall not be presumed to have appreciable
adverse effect on competition but judged by rule of reason.
Bid rigging takes place when bidders collude and keep the bid amount at a pre-determined
level. Such predetermination is by way of intentional manipulation by the members of the
bidding group. Bidders could be actual or potential ones, but they collude and act in concert.

CCI in its order dated August 23, 2021 observed that Maruti Suzuki (MSIL) entered
into an agreement with its dealers for imposition of Discount Control Policy amounting
to Resale Price Maintenance (RPM) and also monitored same by appointing Mystery
Shopping Agencies (MSA) to keep a track of discounts offered by dealer and enforced
same through imposition of penalties, which resulted in appreciable adverse effect
on competition, MSIL was directed to cease and desist from indulging in such conduct
for contravention of provisions of section 3.

BID RIGGING IS ANTI-COMPETITIVE

1. Bidding, as a practice, is intended to enable the procurement of goods or services on the most
favourable terms and conditions. Invitation of bids is resorted to both by Government and
private bodies.
2. But the objective of securing the most favourable prices and conditions may be negated if the
prospective bidders collude or act in concert.

Some of the most commonly adopted ways in which collusive bidding or bid rigging
may occur are:
i. Agreements to submit identical bids,
ii. Agreements as to who shall submit the lowest bid,
iii. Agreements for the submission of cover bids (voluntarily inflated bids),
iv. Agreements not to bid against each other,
v. Agreements designating bid winners in advance on a rotational basis.

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3. Any agreement amongst enterprises or persons at different stages or levels of the production
chain in different markets, in respect of production, supply, distribution, storage, sale or price
of, or trade in goods or provision of services, including:

Tie-in
arrangement

Exclusive
Resale price
supply
maintenance
agreement

Exclusive
Refusal to
distribution
deal
agreement

4. Such agreements are known as vertical agreements as they are entered into enterprises at
different stages in the production or supply chain. Rule of reason is applicable to such
agreements in order to find appreciable adverse effect on competition.

5. The term “tie-in agreement” includes any agreement requiring a purchaser of goods, as a
condition of such purchase, to purchase some other goods.
A good example of tie-in agreement is where a gas distributor requires a consumer to buy a
gas stove as a pre-condition to obtain connection of domestic cooking gas.

6. “Exclusive supply agreement” includes any agreement restricting in any manner from acquiring
or otherwise dealing in any goods other than those of the seller or any other person.
Thus, where a manufacturer asks a dealer not to deal in similar products of its competitor
directly or indirectly and discontinues the supply on the ground that dealer also deals in product
of suppliers’ competitor’s goods is an illustration of exclusive dealing agreement.

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7. “Exclusive distribution agreement” includes any agreement to limit, restrict or withhold the
output or supply of any goods or allocate any area or market for the disposal or sale of the
goods.
Requiring a distributor not to sell the goods of the manufacturer beyond the prescribed territory
is a good example of exclusive distribution agreement.

8. “Refusal to deal” includes any agreement, which restricts, or is likely to restrict, by any
method the persons or classes of persons to whom goods are sold or from whom goods are
bought.
Thus an agreement which provides that the franchisees will not deal in products or goods of
similar nature for a period of three years from the date of determination of agreement within
a radius of five kms from showroom amounts to exclusive dealing agreement.

9. “Resale price maintenance” includes any agreement to sell goods on condition that the prices
to be charged on resale by the purchaser shall be the prices stipulated by the seller unless it
is clearly stated that prices lower than those prices may be charged.
A stipulation that the cement dealer should not sell below the stipulated price is a ‘resale price
maintenance’ practice and is an anti-competitive practice.

10. Moreover, Section 3 does not restrict the right of any person to restrain any infringement of
or to impose reasonable conditions, as may be necessary for protecting any of his rights which
have been or may be conferred upon him under:
i. the Copyright Act, 1957,
ii. the Patents Act, 1970,
iii. the Geographical Indications of Goods (Registration and Protection) Act, 1999,
iv. the Designs Act, 2000

11. That apart, the Act does not restrict any person’s right to export from India, goods under an
agreement which requires him to exclusively supply, distribute or control goods or provision of
services for fulfilling export contracts. The exclusion of ‘export business’ is in view of ‘effect
theory’, and doctrine of ‘relevant market’.

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What is an Anti-Competitive Agreement?

An anti-competitive agreement is an agreement having appreciable adverse
effect on competition. Anticompetitive agreements include, but are not limited
to:
i. agreement to limit production and/or supply,
ii. agreement to allocate markets,
iii. agreement to fix price,
iv. bid rigging or collusive bidding,
v. conditional purchase/ sale (tie-in arrangement),
vi. exclusive supply / distribution arrangement,
vii. resale price maintenance, and
viii. refusal to deal.

PROHIBITION OF ABUSE OF DOMINANT POSITION (SECTION 4)

1. Section 4 of the Competition Act, 2002 expressly prohibits any enterprise or group from abusing
its dominant position, here, dominant position means a position of strength, enjoyed by an
enterprise or group, in the relevant market, in India, which enables it to:
i. operate independently of competitive forces prevailing in the relevant market, or
ii. affect its competitors or consumers or the relevant market in its favour.
2. In line with the latest global trend, the dominance shall not be determined with reference to
“assets”, “turnover” or “market share”.
3. It may be noted that:
‘Relevant market’ means the market, which may be determined by the Commission with
reference to ‘relevant product market’ or ‘relevant geographic market’ or with reference to both
the markets.
4. ‘Relevant Geographic Market’ means a market comprising the area in which the conditions of
competition for supply of goods or provision of services or demand of goods or services are
distinctly homogenous and can be distinguished from conditions prevailing in neighbouring
areas.

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5. ‘Relevant Product Market’ means a market comprising of all those products or services which
are regarded as interchangeable or substitutable by the consumer, by reasons of characteristics
of products or services, their prices and intended use.

1. CCI, in case of Greenfield City Projects LLP observed that there were a number of
real estate developers operating in relevant market of provision of services for
development and sale of residential apartments.
2. Accordingly, buyers had various options while buying residential apartments, no prima
facie case of abuse of dominance was made out against green fields LLP and thus,
in absence of dominance, issue of examination of alleged abusive conduct did not
arise.
3. In case of Sun Pharmaceutical Industries Ltd., CCI stated there were several
manufacturers such as Glenmark, Cipla, Lupin, which also manufactured and supplied
substitutes of FluGuard 400 mg, used to treat Covid-19 disease, market for said
medicine was competitive and, therefore, Sun Pharmaceutical Industries Limited did
not hold dominant position in relevant market.
4. CCI in case of Adani Gas Ltd. observed that since Adani, being an only entity
authorized by Government of Haryana to setup and operate CGD network in Faridabad,
was in dominant position in relevant market i.e. market for supply and distribution of
natural gas in Faridabad, clauses in Gas Sales Agreement (GSA) by which ‘Adani’
had no obligation of payment of interest on reimbursable amount while buyer was
liable to pay interest in event of delayed payment, imposed unfair condition on
consumers amounted to contravention.

6. Section 4(2) states that there shall be abuse of dominant position, if an enterprise or group:
i. directly or indirectly imposes unfair or discriminatory condition in purchase or sale of goods
or services, or
ii. price in purchase or sale (including predatory price) of goods or service.

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7. Section 4(2)(b) includes in abuse of dominant position an enterprise or group limiting or

restricting:
i. production of goods or provision of services or market therefore, or
ii. technical or scientific development relating to goods or services to the prejudice of
consumers.
8. Similarly Section 4 (2) three other forms of abuses namely, if any person indulges in practice
or practices resulting in denial of market access in any manner, or makes conclusion of contracts
subject to acceptance by other parties of supplementary obligations which, by their nature or
according to commercial usage, have no connection with the subject of such contracts and
also, if any person uses dominant position in one relevant market to enter into, or protect,
other relevant market.
9. The term “predatory price” has been defined as the sale of goods or provision of services, at
a price which is below the cost, as may be determined by regulations, of production of goods
or provision of services, with a view to reduce competition or eliminate the competitors. Thus,
the two conditions precedent to bring a case with the ambit of predatory pricing are:
i. selling goods or provision of service at a price which is below its cost of production and
ii. that practice is resorted to eliminate the competitors or to reduce competition.
10. The Competition Commission of India has been empowered under Section 19(4) of the Act to
determine whether any enterprise or group enjoys a dominant position or not, in the ‘relevant
market’ and also to decide whether or not there has been an abuse of dominant position. It
may be noted that mere existence of dominance is not to be seen upon unless the dominance
is abused.

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What constitutes abuse of Dominance?

Dominance refers to a position of strength which enables an enterprise to operate
independently of competitive forces or to affect its competitors or consumers or the
market in its favour. Abuse of dominant position impedes fair competition between
firms, exploits consumers and makes it difficult for the other players to compete with
the dominant undertaking on merit. Abuse of dominant position includes:
i. Imposing unfair conditions or price,
ii. Predatory pricing,
iii. Limiting production/market or technical development,
iv. Creating barriers to entry,
v. Applying dissimilar conditions to similar transactions,
vi. Denying market access, and
vii. Using dominant position in one market to gain advantages in another market.

COMBINATIONS (SECTION 5)

What is Combination?
Broadly, combination under the Act means acquisition of control, shares, voting rights
or assets, acquisition of control by a person over an enterprise where such person has
direct or indirect control over another enterprise engaged in competing businesses, and
mergers and amalgamations between or amongst enterprises when the combining
parties exceed the thresholds set in the Act. The thresholds are specified in the Act
in terms of assets or turnover in India and outside India. Entering into a combination
which causes or is likely to cause an appreciable adverse effect on competition within
the relevant market in India is prohibited and such combination shall be void.

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THRESHOLDS FOR COMBINATION

Category Asset Turnover

₹ $ ₹ $
Acquisition In 1000 CR 500 M 3000 CR 1500Mn
where India/Outside
combined India.
value
Group level 4000 CR 2 Bn 12000 CR 6 Bn

Acquisition In 1000 CR 500 M 3000 CR 1500 Mn

where the India/Outside
acquirer also India.
has direct
control in any
Group level 4000 CR 2 Bn 12000 CR 6 Bn
other
enterprise
having similar
business
jointly have
value
Any merger or In 1000 CR 500 Mn 3000 CR 1500 Mn
amalgamation India/Outside
India.

Group level 4000 CR 2 Bn 12000 CR 6 Bn

Value of any transaction – Acquistion of any control/ Voting right/ Merger – Exceeding
2000 cr is combination.
However if the asset size of acquired company is less than 350 cr OR turnover is less
than 1000 cr. It falls under Dr Minimis Exemption.

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De Minimis Exemption/ Target Exemption: The ‘de minimis exemption’ refers to a form of
target exemption under the competition law. The Central Government, in public interest, has
exempted the enterprises being parties to:
i. any acquisition referred to in section 5 of the Competition Act,
ii. acquiring of control by a person over an enterprise when such person has already direct
or indirect control over another enterprise engaged in production, distribution or trading
of a similar or identical or substitutable goods or provision of a similar or identical or
substitutable service, referred in section 5, and
iii. any merger or amalgamation, referred to in section 5, where the value of assets being
acquired, taken control of, merged or amalgamated is not more than rupees three hundred
and fifty (350) crores in India or turnover of not more than rupees one thousand (1000)
crores in India, from the provisions of section 5 of the said Act for a period of five years

THRESHOLDS FOR AVAILING OF DE MINIMISE EXEMPTION FOR ACQUISITIONS,

MERGERS AND AMALGAMATIONS
Assets Turnover
Target Enterprise in India < 350 INR crore OR < 1000 INR crore

REGULATION OF COMBINATIONS
1. Section 6 of the Competition Act prohibits any person or enterprise from entering into a
combination which causes or is likely to cause an appreciable adverse effect on competition
within the relevant market in India and if such a combination is formed, it shall be void.
2. Combinations can be both horizontal and vertical. Horizontal combinations are considered to
have more adverse effect on competition in relevant market due to consolidation.
3. Section 6(2) envisages that any person or enterprise, who or which proposes to enter into any
combination, shall give a notice to the Commission disclosing details of the proposed
combination, in the form, prescribed and submit the form together with the fee prescribed by
regulations.
Such intimation should be submitted within 30 days of:
i. Approval of the proposal relating to merger or amalgamation, by the board of directors of
the enterprise concerned with such merger or amalgamation, as the case may be,

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ii. Execution of any agreement or other document for acquisition of control

Categories of transactions not likely to have appreciable adverse effect on competition &
Notice need not normally be filed:
Certain categories of combinations mentioned in Schedule I to the Combination Regulations
are ordinarily not likely to cause an appreciable adverse effect on competition in India.
Accordingly, notice need not normally be filed. Following are categories of transactions listed
under Schedule I:
1. An acquisition of shares or voting rights, solely as an investment or in the ordinary course of
business in so far as the total shares or voting rights held by the acquirer directly or indirectly,
does not entitle the acquirer to hold twenty five per cent (25%) or more of the total shares
or voting rights of the company.
Further, An acquisition of additional shares or voting rights of an enterprise by the acquirer or
its group, where the acquirer or its group, prior to acquisition, already holds twenty five per
cent (25%) or more shares or voting rights of the enterprise, but does not hold fifty per cent
(50%) or more of the shares or voting rights of the enterprise, either prior to or after such
acquisition. However, for claiming this exemption, it is pertinent to note that such acquisition
does not result in acquisition of sole or joint control of such enterprise by the acquirer or its
group.
2. An acquisition of shares or voting rights, where the acquirer, prior to acquisition, has fifty
percent (50%) or more shares or voting rights in the enterprise whose shares or voting rights
are being acquired, except in the cases where the transaction results in transfer from joint
control to sole control.
3. An acquisition of assets, not directly related to the business activity of the party acquiring the
asset or made solely as an investment or in the ordinary course of business, not leading to
control of the enterprise whose assets are being acquired.
4. An amended or renewed tender offer where a notice to the Commission has been filed by the
party making the offer.
5. An acquisition of stock-in-trade, raw materials, stores and spares, trade receivables and other
similar current assets in the ordinary course of business.

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6. An acquisition of shares or voting rights pursuant to a bonus issue or stock splits or

consolidation of face value of shares or buy back of shares or subscription to rights issue of
shares, not leading to acquisition of control.
7. Any acquisition of shares or voting rights by a person acting as a securities underwriter or a
registered stock broker in the ordinary course of its business.
8. An acquisition of shares or voting rights or assets, by one person or enterprise, of another
person or enterprise within the same group.
9. A merger or amalgamation of two enterprises where one of the enterprises has more than fifty
per cent (50%) shares or voting rights of the other enterprise, and/or merger or amalgamation
of enterprises in which more than fifty per cent (50%) shares or voting rights in each of such
enterprises are held by enterprise(s) within the same group. However, for claiming this
exemption, it is pertinent to note that transaction does not result in transfer from joint control
to sole control.
10. Acquisition of shares, control, voting rights or assets by a purchaser approved by the
Commission.

Form of notice: Regulation 5 of the Combination Regulations relating to form of notice for
the proposed combination provides that the notice shall ordinarily be filed in Form I as specified
in schedule II. Regulation 5 further provides that the parties to the combination may, at their
option, give notice in Form II, preferably in the instances where:
i. The parties to the combination are engaged in production, supply, distribution, storage, sale or
trade of similar or identical or substitutable goods or provision of similar or identical or
substitutable services and the combined market share of the parties to the combination after
such combination is more than fifteen percent (15%) in the relevant market,
ii. The parties to the combination are engaged at different stages or levels of the production
chain in different markets, in respect of production, supply, distribution, storage, sale or trade
in goods or provision of services, and their individual or combined market share is more than
twenty five percent (25%) in the relevant market.

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Obligation to file the notice: Regulation 9 of the Combination Regulations relating to obligation
to file the notice provides that in case of an acquisition or acquiring of control of enterprise(s),
the acquirer shall file the notice in Form I or Form II, as the case may be. Regulation 9 further
provides that in case of a merger or an amalgamation, parties to the combination shall jointly
file the notice in Form I or Form II, as the case may be.

Suspensory regime: No combination shall come into effect until 210 days have passed from
the day of notice or the Commission has passed orders, whichever is earlier. In other words,
there is requirement to receive approval of the Commission prior to closing of the transaction.

Review of combination by Commission: The CCI has been empowered to deal with such notice
and whether the combination has, or is likely to have, an appreciable adverse effect on the
competition. Section 31 provides that the Commission may allow the combination if it will not
have any appreciable adverse effect on competition or pass an adverse order that the
combination shall not take effect, since it has appreciable adverse effect.
Non applicability of section 6: The provisions of Section 6 does not apply to share subscription
or financing facility or any acquisition, by a public financial institution, foreign institutional
investor, bank or venture capital fund, pursuant to any covenant of a loan agreement or
investment agreement. This exemption appears to have been provided in the Act to facilitate
raising of funds by an enterprise in the course of its normal business.
The public financial institution, foreign institutional investor, bank or venture capital fund, are
required to file in prescribed form, details of the control, the circumstances for exercise of such
control and the consequences of default arising out of loan agreement or investment agreement,
within seven days from the date of such acquisition or entering into such agreement, as the
case may be.
It may be noted that under the law, the combinations are only regulated whereas anti-
competitive agreements and abuse of dominance are prohibited.

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COMPETITION COMMISSION OF INDIA

COMPOSITION OF COMMISSION
The composition of the Commission consists of a Chairperson and not less than two and not
more than six other Members. The Chairperson and the Members are to be appointed by the
Central Government. They shall be person of ability, integrity and standing and who has special
knowledge of and such professional experience of not less than fifteen years in international
trade, economics, business, commerce, law, finance, accountancy, management, industry, public
affairs or competition matters including competition law. The Chairperson and other Members
are to be appointed on whole time basis.

APPOINTMENT OF DIRECTOR GENERAL

1. Director General is an important functionary under the Act. He is to assist the Commission in
conducting inquiry into contravention of any of the provisions of the Act.
2. Section 16 (1) empowers the Central Government to appoint a Director General and such
number of additional, joint, deputy or assistant Director Generals or other advisers, consultants
or officers for the purposes of assisting the Commission in conducting inquiry into the
contravention of any provision of the Act.
3. Additional, joint, deputy and assistant Director Generals, other advisors, consultants and officers
shall however, exercise powers and discharge functions subject to the general control, supervision
and directions of the Director General.
4. The salary, allowances and other terms and conditions shall be such as may be prescribed by
the Central Government. The Director General, advisers, consultants and officers assisting him
are to be appointed from amongst the persons of integrity and outstanding ability and who
have experience in investigation, and knowledge of accountancy, management, business, public
administration, international trade, law or economics and such other qualifications as may be
prescribed.

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Hon’ble Supreme Court in CCI v. SAIL observed that the DG appointed under Section
16(1) of the Act is a specialized investigating wing of the Commission. DG, being
appointed by the Central Government to assist the Commission, is one of the wings of
the Commission itself to whom the investigation is directed with dual purpose,
i. To collect material and verify the information, as may be, directed by the
Commission,
ii. To enable the Commission to examine the report upon its submission by the DG
and to pass appropriate orders after hearing the parties concerned.
Hon’ble Supreme Court in SAIL judgment clearly observed that the ‘inquiry’ shall be
deemed to have commenced when direction to the DG is issued to conduct investigation.
In other words, the law shall presume that an ‘inquiry’ is commenced when the
Commission issues a direction to the DG.
As per the scheme of the Competition Act, 2002 the DG is a fact finding body, whose
duty is to collect evidence, analyse such information and present its opinion on the
basis of such evidence to the Commission. However, the conclusion/findings of the DG
are mere recommendatory and are not final.

DUTIES OF COMMISSION
As per Section 18 of the Act, duties of the CCI are:

To eliminate practices having

adverse effect on competition

To promote and sustain

competition

To protect interests of
consumers

To ensure freedom of trade

carried on by other
participants, in markets in
India

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INQUIRY INTO CERTAIN AGREEMENTS AND DOMINANT POSITION OF ENTERPRISE

The Commission may inquire into any alleged contravention of Section 3(1) or 4(1) on its own
motion or on:
i. receipt of any information in such manner and accompanied by such fee, from any person,
consumer or consumer association or trade association, or
ii. a reference made to it by the Central Government or State Government or a statutory authority.
The Director General is not vested with a right to move an application for institution of an
enquiry relating to anti- competitive agreements or abuse of dominance.

Section 19(3) provides that while determining whether an agreement has

appreciable adverse effect on competition, the Commission shall give due regard
to all or any of the following factors, namely:
i. Creation of barriers to new entrants in the market,
ii. Driving existing competitors out of the market,
iii. Foreclosure of competition by hindering entry into the market,
iv. Accrual of benefits to consumers,
v. Improvements in production or distribution of goods or provision of services,
vi. Promotion of technical, scientific and economic development by means of
production or distribution of goods or provision of services.

The first three factors are anti-competitive, while the latter three factors deal with gentle
effects.

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For the purpose of determining whether an enterprise enjoys dominant position

or not under Section 4, the Commission shall have due regard to all or any of the
following factors, namely:
i. market share of the enterprise,
ii. size and resources of the enterprise,
iii. size and importance of the competitors,
iv. economic power of the enterprise including commercial advantages over
competitors,
v. vertical integration of the enterprises or sale or service network of such
enterprises,
vi. dependence of consumers on the enterprise,
vii. monopoly or dominant position,
viii. entry barriers,
ix. market structure and size of market.

The Commission shall have due regard to the, “relevant geographic market” and “relevant
product market” for determining as to what constitutes a “relevant market”.

For determining the “relevant geographic market”, the Commission shall have due regard to
all or any of the following factors, namely:
1. Regulatory trade barriers,
2. Local specification requirements,
3. Adequate distribution facilities,
4. Transport costs,
5. Language,
6. Consumer preferences,
7. Need for secure, regular supplies or rapid after-sales service.

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Similarly, while determining “relevant product market”, the Commission shall have due
regard to all or any of the following factors namely:
1. Physical characteristics or end-use of goods,
2. Price of goods or service,
3. Consumer preferences,
4. Exclusion of in-house production,
5. Existence of specialized producers,
6. Classification of industrial products.
It is quite apparent that any inquiry by the CCI will be a detailed exercise, which will not only
involve gathering of information in regard to technological or marketing factors but also the
government policy which relate to the trade or business in which the enterprise is involved
beside global scenario especially with regard to regulatory trade barriers including import- export
policy, tariff and subsidy issues will also be taken into account by the Commission.

INQUIRY INTO COMBINATION BY COMMISSION

1. The Commission under Section 20 of the Competition Act may inquire into the appreciable
adverse effect caused or likely to be caused on competition in India as a result of combination
either upon its own knowledge or information (Suo motu) or upon receipt of notice under
Section 6(2) relating to acquisition referred to in.
2. It has also been provided that an enquiry shall be initiated by the Commission within one year
from the date on which such combination has taken effect. Thus, the law has provided a time
limit within which Suo moto inquiry into combinations can be initiated.
3. On receipt of the notice under Section 6(2) from the person or an enterprise which proposes
to enter into a combination, it is mandatory for the Commission to inquire whether the
combination referred to in that notice, has caused or is likely to cause an appreciable adverse
effect on competition in India.

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The Commission shall have due regard to all or any of the factors for the purposes
of determining whether the combination would have the effect of or is likely to have
an appreciable adverse effect on competition in the relevant market, namely:
i. actual and potential level of competition through imports in the market,
ii. extent of barriers to entry into the market,
iii. level of combination in the market,
iv. degree of countervailing power in the market,
v. likelihood that the combination would result in the parties to the combination being
able to significantly and sustainably increase prices or profit margins,
vi. extent of effective competition likely to sustain in a market,
vii. extent to which substitutes are available or are likely to be available in the market,
viii. market share, in the relevant market, of the persons or enterprise in a combination,
individually and as a combination,
ix. likelihood that the combination would result in the removal of a vigorous and effective
competitor or competitors in the market,
x. nature and extent of vertical integration in the market,
xi. nature and extent of innovation,
xii. whether the benefits of the combination outweigh the adverse impact of the
combination, if any.

REFERENCE BY STATUTORY AUTHORITY

If in the course of a proceeding before any statutory authority, an issue is raised by any party
that any decision which such authority has taken or proposes to take, is or would be, contrary
to the provisions of the Competition Act 2002, it may make a reference in respect of such
issue to the Commission and seek its opinion. The Commission shall, on receipt of the reference,
after hearing the parties to the proceedings, give its opinion within 60 days of receipt of such
reference to such authority on the issues referred to it.

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PROCEDURE FOR INQUIRY ON COMPLAINTS UNDER SECTION 19

1. If the Commission is of the opinion that there exists a prima facie case, on receipt of an
information from any person, consumer, their association or trade association or on a reference
from Central Government or State Government, it shall direct the Director General to cause an
investigation to be made into the matter.
2. The Director General shall investigate into the matter and submit a report of its findings within
the period as may be specified by the Commission. It is, however, not binding on the
Commission to accept the report of the Director General.
3. Where upon receipt of a reference or information, the Commission is of the opinion that there
is no prima-facie case, it shall pass an order dismissing the reference/information.
4. Upon receipt of a report from the DG, the Commission shall forward a copy thereof to:
i. The parties concerned or
ii. Central Government or
iii. State Government or
iv. Statutory authority as the case may be.
5. If the Director General, in relation to a matter referred to it, recommends that there is no
contravention of any of the provisions of the Act, the Commission shall give an opportunity of
hearing to the informant and after hearing, if the Commission agrees with the recommendation
of the Director General, it shall dismiss the information.
6. If, after hearing information provider, the Commission is of the opinion that further inquiry is
called for, it shall direct the enquiry to proceed further.
7. The Commission on receipt of recommendation of Director General that there is contravention
and a further inquiry is called for, shall inquire into such contravention in accordance with the
provisions of the Act.
8. The provisions of the Section indicate that it is mandatory that information or reference
received or a matter which comes to the knowledge of the Commission regarding alleged
violation of the provisions of the Act, must be referred to the Director General for an
investigation in the matter.

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1. In Competition Commission of India v. Steel Authority of India Supreme Court of India

held that neither any statutory duty is cast on the Commission to issue notice or grant
hearing, nor any party can claim, as a matter of right, notice and/ or hearing at the stage of
formation of opinion by the Commission, in terms of Section 26(1) of the Act that a prima
facie case exists for issuance of a direction to the Director General to cause an investigation
to be made into the matter.
2. However, the Commission, being a statutory body exercising, inter alia, regulatory jurisdiction,
even at that stage, in its discretion and in appropriate cases may call upon the concerned
party(s) to render required assistance or produce requisite information, as per its directive.
Supreme Court also observed that the Commission is expected to form such prima facie view
without entering upon any adjudicatory or determinative process.
3. The Commission is entitled to form its opinion without any assistance from any quarter or
even with assistance of experts or others. The Commission has the power in terms of
Regulation 17 (2) of the Regulations to invite not only the information provider but even
‘such other person’ which would include all persons, even the affected parties.
4. The Commission is not expected to give notice to the parties, i.e. the informant or the affected
parties and hear them at length, before forming its opinion.
5. The function is of a very preliminary nature and in fact, in common parlance, it is a
departmental function. At that stage, it does not condemn any person and therefore,
application of audi alteram partem is not called for.
6. Formation of a prima facie opinion departmentally does not amount to an adjudicatory function
but is merely of administrative nature. At best, it can direct the investigation to be conducted
and report to be submitted to the Commission itself or close the case. Which order itself is
appealable before the Tribunal and only after this stage, there is a specific right of notice
and hearing available to the aggrieved/affected party. Accordingly, keeping in mind the nature
of the functions required to be performed by the Commission in terms of Section 26(1),
Supreme Court observed that the right of notice of hearing is not contemplated under the
provisions of Section 26(1) of the Act.

The Supreme Court in the case of Competition Commission of India v. Steel Authority of India,
also looked into the issue whether it is obligatory for the Commission to record reasons for
formation of a prima facie opinion in terms of Section 26(1) of the Act. Supreme Court held
that in consonance with the settled principles of administrative jurisprudence, the Commission
is expected to record at least some reason even while forming a prima facie view.

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ORDERS BY COMMISSION AFTER INQUIRY INTO AGREEMENTS OR ABUSE OF DOMINANT

POSITION
Section 27 envisages that the Commission after any inquiry into agreement entered into by
any enterprise or association of enterprises or person or association of persons, or an inquiry
into abuse of dominant position may pass all or any of the following orders, namely:
i. Direct that such agreement, or abuse of dominant position shall be discontinued and such
agreement, which is in contravention of Section 3 shall not be re-entered or the abuse
of dominant position in contravention of Section 4 shall be discontinued. The direction
to discontinue and not to recur is commonly known as “Cease & desist” order.
ii. The Commission may impose penalty not exceeding ten percent of the average turnover
of last three preceding financial years, upon each of person or enterprises which are
parties to such agreement in contravention of Section 3 or are abusing dominant position
within meaning of Section 4.
In case any agreement which is prohibited by Section 3 has been entered into by any
cartel, the Commission may impose upon each producer, seller, distributor, trader or service
provider participating in that cartel, a penalty up to three times of its profits for each
year of the continuance of such agreement whichever is higher.
iii. The Commission may direct that the agreements shall stand modified to the extent and
in the manner as specified in the order.
iv. The Commission may direct the enterprises concerned to comply with such other orders
and directions, including payment of cost, if any, as it deems fit.
v. to pass such order or issue such directions as it may deem fit.

DIVISION OF ENTERPRISE ENJOYING DOMINANT POSITION

The Commission may, notwithstanding anything contained in any other law for the time being
in force, by order in writing, direct division of an enterprise enjoying dominant position to
ensure that such enterprise or group does not abuse its dominant position.
The order of the Commission referred to above may provide for all or any of the following
matters, namely:
1. The transfer or vesting of property, rights, liabilities or obligations,

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2. The adjustment of contracts either by discharge or reduction of any liability or obligation or

otherwise,
3. The creation, allotment, surrender or cancellation of any shares, stocks or securities,
4. The formation or winding up of an enterprise or the amendment of the memorandum of
association or articles of association or any other instruments regulating the business of any
enterprise,
5. The extent to which, and the circumstances in which, provisions of the order affecting an
enterprise may be altered by the enterprise and the registration thereof,
6. Any other matter.

ORDERS OF COMMISSION ON CERTAIN COMBINATIONS

The Commission, after consideration of the relevant facts and circumstances of the case under
investigation, and assessing the effect of any combination on the relevant market in India,
may pass any of the written orders indicated herein below. Where the Commission comes to a
conclusion that any combination does not, or is not likely to, have an appreciable adverse effect
on the Competition in relevant market in India, it may, approve that Combination.
1. In the case where the Commission is of the opinion that the combination has, or is likely to
have an adverse effect on competition, it shall direct that the combination shall not take
effect.
2. Where the Commission is of the opinion that adverse effect which has been caused or is likely
to be caused on competition can be eliminated by modifying such Combination then it shall
direct the parties to such combination to carry out necessary modifications to the Combination.
3. The parties accepting the proposed modification shall carry out such modification within the
period specified by the Commission.
4. Where the parties who have accepted the modification, fail to carry out such modification
within the period specified by the Commission, such combination shall be deemed to have an
appreciable adverse effect on competition and shall be dealt with by the Commission.
5. If the parties to the Combination do not accept the proposed modification such parties may
within thirty days of modification proposed by the Commission, submit amendment to the
modification proposed by the Commission.

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6. If the Commission agrees with the agreement submitted by the parties it shall, by an order
approve the combination.
7. If the Commission does not accept the amendment then, parties shall be allowed a further
period of thirty days for accepting the amendment proposed by the Commission.
8. Where the parties to the combination fail to accept the modification within thirty days, then
it shall be deemed that the combination has an appreciable adverse effect on Competition and
will be dealt with in accordance with the provisions of the Act.
9. It provides that, if the Commission does not, on expiry of a period of two hundred ten days
from the date of filing of notice under Section 6(2) pass an order or issue any direction in
accordance with the provisions of Section 29(1) or Section 29(2) or Section 29(7), the
combination shall be deemed to have been approved by the Commission. In reckoning the
period of two hundred ten days, the period of thirty days and further period of thirty working
days granted by Commission shall be excluded.
10. Furthermore where extension of time is granted on the request of parties the period of two
hundred ten days shall be reckoned after deducting extended time granted at the request of
the parties.

ACTS TAKING PLACE OUTSIDE INDIA BUT HAVING AN EFFECT ON COMPETITION IN INDIA
Section 32 extends the jurisdiction of Competition Commission of India to inquire and pass
orders in accordance with the provisions of the Act into an agreement or dominant position or
combination, which is likely to have, an appreciable adverse effect on competition in relevant
market in India, notwithstanding that:
1. An agreement has been entered into outside India, or
2. Any party to such agreement is outside India, or
3. Any enterprise abusing the dominant position is outside India, or
4. A combination has taken place outside India, or
5. Any party to combination is outside India.
The above clearly demonstrates that acts taking place outside India but having an effect on
competition in India will be subject to the jurisdiction of Commission.

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POWER TO ISSUE INTERIM ORDERS BY THE COMMISSION

Section 33 of the Act states that where during an inquiry, the Commission is satisfied that
an act in contravention of section 3(1) or section 4(1) or section 6 has been committed and
continues to be committed or that such act is about to be committed, the Commission may,
by order, temporarily restrain any party from carrying on such act until the conclusion of such
inquiry or until further orders, without giving notice to such party, where it deems it necessary.

APPEARANCE BEFORE COMMISSION

As per Section 35 of the Act, following persons are entitled to appear before the Commission:
1. A complainant, or
2. A defendant, or
3. The Director General

They may either appear in person or authorise any of the following:

1. A chartered accountant,
2. A company secretary,
3. A Cost accountant,
4. A legal practitioner that is an advocate.

The above provisions unambiguously state that a ‘Company Secretary in Practice’

is entitled to represent an informant or a defendant or Director General. A Company
Secretary in Practice can also get himself empanelled with the Director General to
prosecute his cases before the Commission.

DUTIES OF DIRECTOR GENERAL

The Director General, in order to effectively discharge his functions, has been given the same
powers as are conferred upon the Commission, the Commission is having same powers as are
vested in Civil Court , while trying a suit, in respect of the following matters, namely:
1. Summoning and enforcing the attendance of any person and examining him on oath,
2. Requiring the discovery and production of documents,

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3. Receiving evidence on affidavits,

4. Issuing commissions for the examination of witnesses or documents.

PENALTIES
1. The Competition Act prescribes penalties for contravention of orders of the Commission.
2. Section 42(2) provides that if any person, without reasonable clause, fails to comply with the
orders or directions of the Commission issued, he shall be punishable with fine which may
extend to rupees one lakh for each day during which such non-compliance occurs, subject to a
maximum of rupees ten crore, as the Commission may determine.
3. If any person does not comply with the orders or directions issued, or fails to pay the fine
imposed, he shall, without prejudice to any proceeding under section 39, be punishable with
imprisonment for a term which may extend to three years, or with fine which may extend to
rupees twenty-five crore, or with both

POWER TO IMPOSE PENALTY FOR NON-FURNISHING OF INFORMATION ON COMBINATION

The Commission shall impose on such person or enterprise a penalty which may extend to one
per cent of the total turnover or the assets, whichever is higher, of such a combination.
Thus, failure to file notice of combination falling under Section 5 attract deterrent penalty.

PENALTY FOR MAKING FALSE STATEMENT

If any person, being a party to a combination, makes a statement which is false in any material
particular, such person shall be liable to a penalty which shall not be less than rupees fifty
lakhs but which may extend to rupees one crore, as may be determined by the Commission.

POWER TO IMPOSE LESSER PENALTY

If any producer, seller, distributor, trader or service provider included in any cartel, which is
alleged to have violated Section 3, has made a full and true disclosure in respect of alleged
violations and such a disclosure is vital, the Commission may impose upon him a lesser penalty
than as prescribed under the Act or rules or regulations.
However, the lesser penalty shall not be imposed where before making such disclosure, the
report of Director General under Section 26 has been received in the Commission.

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CONTRAVENTION BY COMPANIES
Where a contravention of any of the provisions of this Act or any rule, regulation, order made
or direction issued thereunder has been committed by a company and it is proved that
contravention has taken place with the consent or connivance of, or it is attributable to any
neglect on the part of, any director, manager, secretary or other officer of the company, such
director, manager, secretary or other officer shall also be deemed to be guilty of the
contravention and shall be liable to be proceeded against and punished accordingly.

COMPETITION ADVOCACY
1. Under Section 49 the Central Government/State Government may seek the opinion of the CCI
on the possible effects of the policy on competition or any other matter.
2. In this context, Section 49 envisages that while formulating a policy on the competition, the
Government may make a reference to the Commission for its opinion on possible effect of such
a policy on the competition, or any other matter.
3. On receipt of such a reference, the Commission shall, give its opinion on it to the Central
Government/State Government, within sixty days of making such a reference and the latter
may formulate the policy as it deems fit.
4. The role of the Commission is advisory and the opinion given by the Commission shall not be
binding upon the Central Government/State Government in formulating such a policy. The
Commission is also empowered to take suitable measures for the:
i. Promotion of competition advocacy,
ii. Creating awareness about the competition, and
iii. Imparting training about competition issues.
5. The creating awareness about benefits of competition and imparting training in competition
issues is expected to generate conducive environment to promote and foster competition, which
is essential (sine-qua non) for accelerating economic growth.

APPELLATE TRIBUNAL
The National Company Law Appellate Tribunal constituted under section 410 of the Companies
Act, 2013 shall, on and from the commencement of the Finance Act, 2017, be the Appellate
Tribunal for the purposes of this Act and the said Appellate Tribunal shall:

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1. Hear and dispose of appeals against any direction issued or decision made or order passed by
the Commission,
2. Adjudicate on claim for compensation that may arise from the findings of the Commission or
the orders of the Appellate Tribunal in an appeal against any finding of the Commission.

APPEAL TO APPELLATE TRIBUNAL

1. The Central Government or the State Government or a local authority or enterprise or any
person, aggrieved by any direction, decision or order may prefer an appeal to the Appellate
Tribunal.
2. Every appeal shall be filed within a period of sixty days from the date on which a copy of the
direction or decision or order made by the Commission is received by the Central Government
or the State Government or a local authority or enterprise or any person.
3. Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period
of sixty days if it is satisfied that there was sufficient cause for not filing it within that
period.
4. On receipt of an appeal, the Appellate Tribunal may, after giving the parties to the appeal, an
opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or
setting aside the direction, decision or order appealed against.
5. The Appellate Tribunal shall send a copy of every order made by it to the Commission and the
parties to the appeal.
6. The appeal filed before the Appellate Tribunal shall be dealt with by it as expeditiously as
possible and endeavour shall be made by it to dispose of the appeal within six months from
the date of receipt of the appeal.

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1. In Samir Agrawal vs. Competition Commission of India- Supreme Court held that a
reading of the provisions of the Act and the 2009 Regulations would show that “any
person” may provide information to the CCI, which may then act upon it in accordance with
the provisions of the Act. In this regard, the definition of “person” in section 2(l) of the
Act, set out hereinabove, is an inclusive one and is extremely wide, including individuals of
all kinds and every artificial juridical person.
2. This may be contrasted with the definition of “consumer” in section 2(f) of the Act, which
makes it clear that only persons who buy goods for consideration, or hire or avail of services
for a consideration, are recognised as consumers.
3. “any person”, thereby signifying that all persons who bring to the CCI information of
practices that are contrary to the provisions of the Act, could be said to be aggrieved by an
adverse order of the CCI in case it refuses to act upon the information supplied.
4. By way of contrast, section 53N(3) speaks of making payment to an applicant as
compensation for the loss or damage caused to the applicant as a result of any
contravention of the provisions of Chapter II of the Act, having been committed by an
enterprise.
5. By this sub-section, clearly, “any person” who makes an application for compensation, under
sub-section (1) of section 53N of the Act, would refer only to persons who have suffered
loss or damage, thereby, qualifying the expression “any person” as being a person who has
suffered loss or damage.
6. Thus, the preliminary objections against the Informant/ Appellant filing Information before
the CCI and filing an appeal before the NCLAT are rejected.
7. When the CCI performs inquisitorial, as opposed to adjudicatory functions, the doors of
approaching the CCI and the appellate authority, i.e., the NCLAT, must be kept wide open in
public interest, so as to subserve the high public purpose of the Act.

APPEAL TO SUPREME COURT

The Central Government or any State Government or the Commission or any statutory authority
or any local authority or any enterprise or any person aggrieved by any decision or order of the
Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date
of communication of the decision or order of the Appellate Tribunal to them. The Supreme
Court may, if it is satisfied that the applicant was prevented by sufficient cause from filing
the appeal within the said period, allow it to be filed after the expiry of the said period of
sixty days.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 12 - LAW RELATING TO CONSUMER PROTECTION

INTRODUCTION
The Consumer Protection Act, 2019 received the assent of the President on the 9th August,
2019. The Consumer Protection Act, 2019 replaced the more than three decades old Consumer
Protection Act, 1986.

Preamble of the Consumer Protection Act, 2019 provides for protection of

the interests of consumers and for the said purpose, to establish authorities
for timely and effective administration and settlement of consumers’ disputes
and for matters connected therewith or incidental thereto.
Consumer Protection Act, 2019, certainly create a consumer-friendly
ecosystem in the country and strengthen the consumer rights with timely
and effective administration of consumer disputes.

IMPORTANT DEFINITION

COMPLAINANT
Complainant means:
1. A consumer, or
2. Any voluntary consumer association registered under any law, or
3. The Central Government or any State Government, or
4. The Central Authority, or
5. One or more consumers, where there are numerous consumers. or
6. In case of death of a consumer, his legal heir or legal representative,
7. In case of a consumer being a minor, his parent or legal guardian.

COMPLAINT
Complaint means any allegation in writing, made by a complainant for obtaining any relief
provided by or under this Act, that:
1. An unfair contract or unfair trade practice or a restrictive trade practice has been adopted by
any trader or service provider,
2. The goods bought by him suffer from one or more defects,

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3. The services hired or availed of by him suffer from any deficiency,

4. A trader or a service provider, has charged a price in excess of the price:
i. Fixed under any law for the time being in force, or
ii. Displayed on the goods or any package containing such goods, or
iii. Displayed on the price list exhibited by him by or under any law.
5. The goods or services, which are hazardous to life, are being offered for sale to the public.
6. A claim for product liability action.

How to Make the Complaint?

i. Every complaint to be filed before District Commission/ State Commission/
National Commission.
ii. Accompanied by a fee as specified, in the form of crossed Demand Draft.
iii. Name, description and address of the complainant.
iv. Name, description and address of the opposite party or parties.
v. Facts relating the complaint and when and where it arose.
vi. Documents, if any in support of allegations.

CONSUMER
Consumer means any person who:
1. Buys any goods for a consideration which has been paid or promised or partly paid and partly
promised, or under any system of deferred payment and includes any user of such goods other
than the person who buys such goods for consideration paid or promised or partly paid or partly
promised, or under any system of deferred payment, when such use is made with the approval
of such person, but does not include a person who obtains such goods for resale or for any
commercial purpose, or
2. Hires or avails of any service for a consideration which has been paid or promised or partly
paid and partly promised, or under any system of deferred payment and includes any beneficiary
of such service other than the person who hires or avails of the services for consideration paid
or promised, or partly paid and partly promised, or under any system of deferred payment,
when such services are availed of with the approval of the first mentioned person, but does
not include a person who avails of such service for any commercial purpose.

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For the purposes of this clause:

i. The expression “commercial purpose” does not include use by a person of goods bought
and used by him exclusively for the purpose of earning his livelihood, by means of self-
employment,
ii. The expressions “buys any goods” and “hires or avails any services” includes offline or
online transactions.
3. A purchase of goods can be said to be for a ‘commercial purpose only if the goods have been
purchased for being used in some profit making activity on a large-scale, and there is close
and direct nexus between the purchase of goods and the profit-making activity.
4. In Laxmi Engineering Works vs. P.S.G. Industrial Institute, Supreme Court held that whether
the purpose for which a person has bought goods is a ‘commercial purpose’ is always a question
of facts and to be decided in the facts and circumstances of each case.
5. If the commercial use is by the purchaser himself for the purpose of earning his livelihood by
means of self-employment such purchaser of goods would yet be a consumer. The Supreme
Court further observed that if a person purchased a machine to operate it himself for earning
his livelihood, he would be a consumer.
6. If such person took the assistance of one or two persons to assist him in operating the
machine, he would still be a consumer. But if a person purchases a machine and appoint or
engage another person exclusively to operate the machine, then such person would not be a
consumer.
7. In Bhupendra Jang Bahadur Guna vs. Regional Manager and Others the National Commission
held that a tractor purchased primarily to till the land of the purchaser and let out on hire
during the idle time to till the lands of others would not amount to commercial use.
8. In Laxmiben Laxmichand Shah v. Sakerben Kanji Chandan and others, the Supreme Court held
that the tenant entering into lease agreement with the landlord cannot be considered as
consumer under the Act. Where there was no provision in the lease agreement in respect of
cleaning, repairing and maintaining the building, the rent paid by tenant is not the consideration
for availing these services and therefore, no question of deficiency in service.

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Supreme Court in Northern Western Railway and Another vs. Sanjay Shukla
judgement held that railways are liable to pay compensation for late arrival of
trains if delay is not explained or justifiable.
The railways were required to lead the evidence and explain the late arrival of
train to establish and prove that delay occurred because of the reasons beyond
their control. At least the railways were required to explain the delay which the
railways failed. It cannot be disputed that every passenger’s time is precious
and they might have booked the tickets for further journey, like in the present
case from Jammu to Srinagar and thereafter further journey. Therefore, unless
and until the evidence is laid explaining the delay and it is established and
proved that delay occurred which was beyond their control and/or even there
was some justification for delay, the railway is liable to pay the compensation
for delay and late arrival of trains.

Who is a not a Consumer?

A person who:
i. obtains goods free of charge.
ii. obtains avails services free of charge.
iii. obtains goods for resale or for any commercial purposes.
iv. who avails services for any commercial purposes.
v. who avails services under contract of service.

What are the Consumer Rights?

Consumer Rights include:
i. The right to be protected against the marketing of goods, products or
services which are hazardous to life and property,
ii. The right to be informed about the quality, quantity, potency, purity,
standard and price of goods, so as to protect the consumer against unfair
trade practices,
iii. The right to be assured, wherever possible, access to a variety of goods,
products or services at competitive prices,
iv. The right to be heard,
v. The right to seek redressal against unfair trade, and
vi. The right to consumer awareness.

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DEFECT
Defect means any fault, imperfection or shortcoming in the quality, quantity, potency, purity
or standard which required to be maintained by or under any law for the time being in force
or under any contract, express or implied.

DEFICIENCY
Deficiency means any fault, imperfection, shortcoming or inadequacy in the quality, nature and
manner of performance which is required to be maintained by or under any law for the time
being in force or has been undertaken to be performed by a person in pursuance of a contract
or otherwise in relation to any service and includes:
1. Any act of negligence or omission or commission by such person which causes loss or injury to
the consumer, and
2. Deliberate withholding of relevant information by such person to the consumer

In SGS India vs. Dolphin International Ltd. Hon’ble Supreme Court of India inter
alia observed that the onus of proof that there was deficiency in service is on
the complainant. If the complainant is able to discharge its initial onus, the
burden would then shift to the respondent in the complaint. Therefore, the initial
burden of proof of deficiency in service was on the complainant.

The Hon’ble Supreme Court. Dr. Harish Kumar Khurana vs. Joginder Singh held
that medical professionals cannot be held negligent merely because the treatment
is not successful or patient dies during surgery. Every death of a patient cannot
on the face of it be considered as death due to medical negligence unless there
is material on record to suggest to that effect. It is necessary that the hospital
and the doctors are required to exercise sufficient care in treating the patient in
all circumstance. However, in unfortunate cases though death may occur and if
it is alleged to be due to medical negligence and a claim in that regard is made,
it is necessary that sufficient material or medical evidence should be available
before the adjudicating authority to arrive at a conclusion. The accident during
the course of medical or surgical treatment has a wider meaning. Ordinarily an
accident means an unintended and unforeseen injurious occurrence, something
that does not occur in the usual course of events or that could not be reasonably
anticipated.

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RESTRICTIVE TRADE PRACTICE

Restrictive trade practice means a trade practice which tends to bring about manipulation of
price or its conditions of delivery or to affect flow of supplies in the market relating to goods
or services in such a manner as to impose on the consumers unjustified costs or restrictions
and shall include:
1. Delay beyond the period agreed to by a trader in supply of such goods or in providing the
services which has led or is likely to lead to rise in the price,
2. Any trade practice which requires a consumer to buy, hire or avail of any goods or, as the case
may be, services as condition precedent for buying, hiring or availing of other goods or services.

SERVICE
Service means service of any description which is made available to potential users but does
not include the rendering of any service free of charge or under contract of personal service.

The Supreme Court in the case of Indian Merchants Association vs. V P Shantha, observed
that a contract for service implies a contract whereby one party undertakes to render
services e.g. professional or technical services to or for another in the performance of which
he is not subject to detailed direction and control but exercises professional or technical
skill and uses his own knowledge and discretion. A contract of service on the other hand
implies relationship of master and servant and involves an obligation to obey orders in the
work to be performed and as to its mode and manner of performance. The Parliamentary
draftsman was well aware of this well-accepted distinction between ‘contract of service’
and ‘contract for services’ and had deliberately chosen the expression ‘contract of service’
instead of the expression ‘contract for service’ in the exclusionary part of the definition of
‘service’, this being the reason being that an employer could not be regarded as a consumer
in respect of the services rendered by his employee in pursuance of contract of employment.
By affixing the adjective ‘personal’ to the word ‘service’ the nature of the contracts which
were excluded were not altered. The adjective only emphasised that what was sought to be
excluded was personal service only. The expression contract of personal service must,
therefore, be construed as excluding the services rendered by an employee to his employer
under the contract of personal service free from the ambit of the expression service.

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UNFAIR TRADE PRACTICE

Unfair Trade Practice means a trade practice which, for the purpose of promoting the sale, use
or supply of any goods or for the provision of any service, adopts any unfair method or unfair
or deceptive practice including any of the following practices, namely:
1. Making any statement, whether orally or in writing or by visible representation including by
means of electronic record, which:
i. Falsely represents that the goods are of a particular standard, quality, quantity,
ii. Falsely represents that the services are of a particular standard, quality or grade,
iii. Falsely represents any re-built, second-hand, renovated, reconditioned or old goods as new
goods,
iv. Represents that the goods or services have sponsorship, approval, performance,
characteristics, accessories, uses or benefits which such goods or services do not have,
v. Represents that the seller or the supplier has a sponsorship or approval or affiliation which
such seller or supplier does not have,
vi. Makes a false or misleading representation concerning the need for, or the usefulness of,
any goods or services,
vii. Gives to the public any warranty or guarantee of the performance, efficacy or length of
life of a product or of any goods that is not based on an adequate or proper test,
viii. Makes to the public a representation in a form that purports to be:
a) A warranty or guarantee of a product or of any goods or services, or
b) A promise to replace, maintain or repair an article or any part thereof or to repeat or
continue a service until it has achieved a specified result, if such purported warranty
or guarantee or promise is materially misleading or if there is no reasonable prospect
that such warranty, guarantee or promise will be carried out.
ix. Materially misleads the public concerning the price at which a product or like products or
goods or services, have been or are, ordinarily sold.
x. Gives false or misleading facts disparaging the goods, services or trade of another person.

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2. Permitting the publication of any advertisement, whether in any newspaper or otherwise,

including by way of electronic record, for the sale or supply at a bargain price of goods or
services that are not intended to be offered for sale or supply at the bargain price, or for a
period that is, and in quantities that are, reasonable, having regard to the nature of the market
in which the business is carried on, the nature and size of business, and the nature of the
advertisement.

3. Permitting:
i. The offering of gifts, prizes or other items with the intention of not providing them as
offered or creating impression that something is being given or offered free of charge when
it is fully or partly covered by the amount charged, in the transaction as a whole,
ii. The conduct of any contest, lottery, game of chance or skill, for the purpose of promoting,
directly or indirectly, the sale, use or supply of any product or any business interest, except
such contest, lottery, game of chance or skill as may be prescribed,
iii. Withholding from the participants of any scheme offering gifts, prizes or other items free
of charge on its closure, the information about final results of the scheme.

4. Permitting the sale or supply of goods intended to be used, or are of a kind likely to be used
by consumers, knowing or having reason to believe that the goods do not comply with the
standards prescribed by the competent authority relating to performance, composition, contents,
design, constructions, finishing or packaging as are necessary to prevent or reduce the risk of
injury to the person using the goods,

5. Permitting the hoarding or destruction of goods, or refusal to sell the goods or to make them
available for sale or to provide any service, if such hoarding or destruction or refusal raises or
tends to raise or is intended to raise, the cost of those or other similar goods or services,

6. Manufacturing of spurious goods or offering such goods for sale or adopting deceptive practices
in the provision of services,

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7. Not issuing bill or cash memo or receipt for the goods sold or services rendered in such manner
as may be prescribed,

8. Refusing, after selling goods or rendering services, to take back or withdraw defective goods or
to withdraw or discontinue deficient services and to refund the consideration thereof, if paid,
within the period stipulated in the bill or cash memo or receipt or in the absence of such
stipulation, within a period of thirty days.

COUNCILS AND DISPUTE REDRESSAL COMMISSION

CONSUMER PROTECTION COUNCIL COMMISSIONS DISPUTE REDRESSAL

COMMISSION
District Consumer Protection Council District Consumer Dispute Redressal Commission
State Consumer Protection Council State Consumer Dispute Redressal Commission
Central Consumer Protection Council National Consumer Dispute Redressal Commission

CONSUMER PROTECTION COUNCIL

Central Consumer Protection Council
The Central Government is empowered to establish the Central Consumer Protection Council
to be known as the Central Council. The Central Council shall be an advisory council and
consist of the Minister-in-charge of the Department of Consumer Affairs in the Central
Government, who shall be the Chairperson, and such number of other official or non-official
members representing such interests as may be prescribed, at least one meeting of the Council
shall be held every year.

STATE CONSUMER PROTECTION COUNCILS

Every State Government is empowered to establish a State Consumer Protection Council for
such State to be known as the State Council. The State Council shall be an advisory council
and consist of the Minister-in-charge of Consumer Affairs in the State Government who shall
be the Chairperson, such number of other official or non- official members representing such
interests as may be prescribed and such number of other official or non- official members, not

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exceeding ten, as may be nominated by the Central Government. The State Council shall meet
as and when necessary but not less than two meetings shall be held every year.

DISTRICT CONSUMER PROTECTION COUNCIL

The State Government is empowered to establish for every District with effect from such date
as it may specify in such notification, a District Consumer Protection Council to be known as
the District Council. The District Council shall be an advisory council and consist the Collector
of the district (by whatever name called), who shall be the Chairperson; and such number of
other official and non-official members representing such interests as may be prescribed. The
District Council shall meet as and when necessary but not less than two meetings shall be
held every year.

ESTABLISHMENT OF CENTRAL CONSUMER PROTECTION AUTHORITY

Section 10 empowers the Central Government to establish a Central Consumer Protection
Authority to be known as the Central Authority to regulate matters relating to violation of
rights of consumers, unfair trade practices and false or misleading advertisements which are
prejudicial to the interests of public and consumers and to promote, protect and enforce the
rights of consumers as a class. The Central Authority shall consist of a Chief Commissioner
and such number of other Commissioners as may be prescribed, to be appointed by the Central
Government. The headquarters of the Central Authority shall be at such place in the National
Capital Region of Delhi.

VACANCY, ETC., NOT TO INVALIDATE PROCEEDINGS OF CENTRAL AUTHORITY

No act or proceeding of the Central Authority shall be invalid merely by reason of:
1. Any vacancy in, or any defect in the constitution of, the Central Authority, or
2. Any defect in the appointment of a person acting as the Chief Commissioner or as a
Commissioner, or
3. Any irregularity in the procedure of the Central Authority not affecting the merits of the case.

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INVESTIGATION WING OF CENTRAL AUTHORITY

1. The Central Authority shall have an Investigation Wing headed by a Director General for the
purpose of conducting inquiry or investigation under this Act.
2. The Central Government may appoint a Director General and such number of Additional Director
General, Director, Joint Director, Deputy Director and Assistant Director, from amongst persons
who have experience in investigation.
3. Every Additional Director General, Director, Joint Director, Deputy Director and Assistant
Director shall exercise his powers, and discharge his functions, subject to the general control,
supervision and direction of the Director-General.
4. The Director General may delegate all or any of his powers to the Additional Director General
or Director, Joint Director or Deputy Director while conducting inquiries or investigations under
this Act.
5. The inquiries or the investigations made by the Director General shall be submitted to the
Central Authority.

POWER OF DISTRICT COLLECTOR

The District Collector may, on a complaint or on a reference made to him by the Central
Authority or the Commissioner of a regional office, inquire into or investigate complaints
regarding violation of rights of consumers as a class, on matters relating to violations of
consumer rights, unfair trade practices and false or misleading advertisements.

COMPLAINTS TO AUTHORITIES
A complaint relating to violation of consumer rights or unfair trade practices or false or
misleading advertisements which are prejudicial to the interests of consumers as a class, may
be forwarded either in writing or in electronic mode, to any one of the authorities, namely, the
District Collector or the Commissioner of regional office or the Central Authority.

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POWERS AND FUNCTIONS OF CENTRAL AUTHORITY

The Central Authority empowers to:
1. Protect, promote and enforce the rights of consumers as a class, and prevent violation of
consumers rights under this Act,
2. Prevent unfair trade practices and ensure that no person engages himself in unfair trade
practices,
3. Ensure that no false or misleading advertisement is made of any goods or services,
4. Ensure that no person takes part in the publication of any advertisement which is false or
misleading.
The Central Authority may, for any of the purposes aforesaid:
1. Inquire or cause an inquiry or investigation to be made into violations of consumer rights or
unfair trade practices, either Suo motu or on a complaint received or on the directions from
the Central Government,
2. File complaints before the District Commission, the State Commission or the National
Commission, as the case may be, under this Act,
3. Intervene in any proceedings before the District Commission or State Commission or National
Commission, as the case may be, in respect of any allegation of violation of consumer rights
or unfair trade practices,
4. Recommend adoption of international covenants and best international practices on consumer
rights to ensure effective enforcement of consumer rights,
5. Undertake and promote research in the field of consumer rights,
6. Spread and promote awareness on consumer rights,
7. Mandate the use of unique and universal goods identifiers in such goods, as may be necessary,
to prevent unfair trade practices and to protect consumers’ interest,
8. Issue safety notices to alert consumers against dangerous or hazardous or unsafe goods or
services,
9. Advise the Ministries and Departments of the Central and State Governments on consumer
welfare measures,
10. Issue necessary guidelines to prevent unfair trade practices and protect consumers’ interest.

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POWER OF CENTRAL AUTHORITY TO RECALL GOODS

Where the Central Authority is satisfied on the basis of investigation that there is sufficient
evidence to show violation of consumer rights or unfair trade practice by a person, it may pass
such order as may be necessary, including:
1. Recalling of goods or withdrawal of services which are dangerous, hazardous or unsafe,
2. Reimbursement of the prices of goods or services so recalled to purchasers of such goods or
services, and
3. Discontinuation of practices which are unfair and prejudicial to consumers’ interest: Provided
that the Central Authority shall give the person an opportunity of being heard before passing
an order under this section.

POWER OF CENTRAL AUTHORITY TO ISSUE DIRECTIONS AND PENALTIES AGAINST FALSE

OR MISLEADING ADVERTISEMENTS
1. Section 21 provides that where the Central Authority is satisfied after investigation that any
advertisement is false or misleading it may, by order, issue directions to the concerned trader
or manufacturer or endorser or advertiser or publisher, as the case may be, to discontinue such
advertisement or to modify the same.
2. If the Central Authority is of the opinion that it is necessary to impose a penalty in respect
of such false or misleading advertisement, by a manufacturer or an endorser, it may, by order,
impose on manufacturer or endorser a penalty which may extend to ten lakh rupees. The
Central Authority may, for every subsequent contravention by a manufacturer or endorser,
impose a penalty, which may extend to fifty lakh rupees.
3. Where the Central Authority deems it necessary, it may, by order, prohibit the endorser of a
false or misleading advertisement from making endorsement of any product or service for a
period which may extend to one year. Central Authority may, for every subsequent
contravention, prohibit such endorser from making endorsement in respect of any product or
service for a period which may extend to three years.
4. Where the Central Authority is satisfied after investigation that any person is found to publish,
or is a party to the publication of, a misleading advertisement, it may impose on such person
a penalty which may extend to ten lakh rupees.

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5. No endorser shall be liable to a penalty, if he has exercised due diligence to verify the veracity
of the claims made in the advertisement regarding the product being endorsed by him.
6. No person shall be liable to such penalty if he proves that he had published or arranged for
the publication of such advertisement in the ordinary course of his business: Provided that no
such defence shall be available to such person if he had previous knowledge of the order passed
by the Central Authority for withdrawal or modification of such advertisement.

While determining the penalty, regard shall be had to the following, namely:
1. The population and the area impacted or affected by such offence,
2. The frequency and duration of such offence,
3. The vulnerability of the class of persons likely to be adversely affected by such
offence, and
4. The gross revenue from the sales effected by virtue of such offence.

The Central Authority shall give the person an opportunity of being heard before an order under
this section is passed.

SEARCH AND SEIZURE

1. According to section 22 of the Act, for the purpose of conducting an investigation, after
preliminary inquiry the Director General or the District Collector, as the case may be, may, if
he has any reason to believe that any person has violated any consumer rights or committed
unfair trade practice or causes any false or misleading advertisement to be made, shall:
i. Enter at any reasonable time into any such premises and search for any document or
record or article or any other form of evidence and seize such document, record or article,
ii. Make a note or an inventory of such record or article, or
iii. Require any person to produce any record, register or other document or article.
2. The provisions of the Code of Criminal Procedure, 1973, relating to search and seizure shall
apply, for search and seizure under this Act.
3. Where any article seized are subject to speedy or natural decay, the Director General or such
other officer may dispose of the article in such manner as may be prescribed.

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4. If the complaint alleges a defect in the goods which cannot be determined without proper
analysis or test of the goods, obtain a sample of the goods from the complainant, seal it and
authenticate it and refer the sample so sealed to the appropriate laboratory along with a
direction that such laboratory to make an analysis or test, with a view to finding out whether
such goods suffer from any defect alleged in the complaint or from any other defect and to
report its findings thereon to the District Commission within a period of forty-five days of the
receipt of the reference or within such extended period as may be granted by it.

Vexatious Search
The Director General or any other officer, exercising powers under section 22,
who knows that there are no reasonable grounds for so doing, and yet
1. Searches, or causes to be searched any premises, or
2. Seizes any record, register or other document or article, shall, for every
such offence, be punished with imprisonment for a term which may extend
to one year, or with fine which may extend to ten thousand rupees or
with both.

APPEAL
Section 24 provides that a person aggrieved by any order passed by the Central Authority may
file an appeal to the National Commission within a period of thirty days from the date of
receipt of such order.

DISTRICT CONSUMER DISPUTES REDRESSAL COMMISSION

Section 28 of the Act, empowers the State Government to establish a District Consumer
Disputes Redressal Commission, to be known as the District Commission, in each district of
the State. State Government may also, if it deems fit, establish more than one District
Commission in a district.
Each District Commission shall consist of:
1. A President, and
2. Not less than two and not more than such number of members as may be prescribed, in
consultation with the Central Government.

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JURISDICTION OF DISTRICT COMMISSION

The District Commission shall have jurisdiction to entertain complaints where the value of the
goods or services paid as consideration does not exceed one crore rupees.
A complaint shall be instituted in a District Commission within the local limits of whose
jurisdiction:
1. The opposite party or each of the opposite parties, where there are more than one, at the time
of the institution of the complaint, ordinarily resides or carries on business or,
2. Any of the opposite parties, where there are more than one, at the time of the institution of
the complaint, actually and voluntarily resides, or carries on business or has a branch office, or
personally works for gain, provided that in such case the permission of the District Commission
is given,
3. The cause of action, wholly or in part, arises,
4. The complainant resides or personally works for gain.

MANNER IN WHICH COMPLAINT SHALL BE MADE

A complaint, in relation to any goods sold or delivered or agreed to be sold or delivered or any
service provided or agreed to be provided, may be filed with a District Commission by:
1. The consumer:
i. To whom such goods are sold or delivered or,
ii. Who alleges unfair trade practice in respect of such goods or service.
2. Any recognised consumer association,
3. One or more consumers, where there are numerous consumers having the same interest,
4. The Central Government, the Central Authority or the State Government, as the case may be.

What is the Procedure for Filing the Complaint before Consumer Commission?
A complaint:
i. Should be in writing
ii. Can be filed in a regular way (offline)
iii. Can be filed online
A complaint can be presented by the complainant in person or by his agent.
Normally three copies of the complaint are required to be submitted out of which one retained for
the official purpose, one is forwarded to the opposite party and one is the for the complainant.

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PROCEEDINGS BEFORE DISTRICT COMMISSION

1. According to Section 36, every proceeding before the District Commission shall be conducted
by the President of that Commission and at least one member thereof, sitting together.
2. It may be noted that where a member, for any reason, is unable to conduct a proceeding till
it is completed, the President and the other member shall continue the proceeding from the
stage at which it was last heard by the previous member.
3. On receipt of a complaint made under section 35, the District Commission may, by order,
admit the complaint for being proceeded with or reject the same.

A complaint shall not be rejected unless an opportunity of being heard has been given to
the complainant. The admissibility of the complaint shall ordinarily be decided within
twenty-one days from the date on which the complaint was filed.

4. Where the District Commission does not decide the issue of admissibility of the complaint
within the period so specified, it shall be deemed to have been admitted.

REFERENCE TO MEDIATION
At the first hearing of the complaint after its admission, or at any later stage, if it appears
to the District Commission that there exists elements of a settlement which may be acceptable
to the parties, it may direct the parties to give in writing, within five days, consent to have
their dispute settled by mediation.

Procedure on admission of complaint

Section 38 deals with procedure on admission of complaint by the District Commission. Section
38 provides that:
1. The District Commission shall, on admission of a complaint, or in respect of cases referred for
mediation on failure of settlement by mediation, proceed with such complaint.
2. Where the complaint relates to any goods, the District Commission shall:
i. Refer a copy of the admitted complaint, within twenty-one days from the date of its
admission to the opposite party directing him to give his version of the case within a
period of thirty days or such extended period not exceeding fifteen days,

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ii. If the opposite party on receipt of a complaint denies or disputes the allegations contained
in the complaint, or omits or fails to take any action to represent his case within the time
given by the District Commission, proceed to settle the consumer dispute in the manner
specified in clauses (iii) to (vii),
iii. If the complaint alleges a defect in the goods which cannot be determined without proper
analysis or test of the goods, obtain a sample of the goods from the complainant, seal it
and authenticate it and refer the sample so sealed to the appropriate laboratory with a
view to finding out whether such goods suffer from any defect alleged in the complaint or
from any other defect and to report its findings thereon to the District Commission within
a period of forty-five days of the receipt of the reference,
iv. Before any sample of the goods is referred to any appropriate laboratory require the
complainant to deposit to the credit of the Commission such fees as may be specified, for
payment to the appropriate laboratory,
v. Remit the amount deposited to its credit under clause (d) to the appropriate laboratory to
enable it to carry out the analysis,
vi. If any of the parties disputes the correctness of the findings of the appropriate laboratory,
or disputes the correctness of the methods of analysis or test adopted by the appropriate
laboratory, require the opposite party or the complainant to submit in writing his objections
with regard to the report made by the appropriate laboratory,
vii. Give a reasonable opportunity to the complainant as well as the opposite party of being
heard as to the correctness or otherwise of the report and issue an appropriate order
under section 39.
3. The District Commission shall, if the complaint admitted by it under section 36 relates to
goods in respect of which the procedure specified in sub-section (2) cannot be followed, or if
the complaint relates to any services:
i. Refer a copy of such complaint to the opposite party directing him to give his version of
the case within a period of thirty days or such extended period not exceeding fifteen days,
ii. If the opposite party, on receipt of a copy of the complaint, referred to him under clause
(i) denies or disputes the allegations contained in the complaint, or omits or fails to take
any action to represent his case within the time given by the District Commission, it shall
proceed to settle the consumer dispute:

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a) on the basis of evidence brought to its notice by the complainant and the opposite
party, or
b) ex parte on the basis of evidence brought to its notice by the complainant, where the
opposite party omits or fails to take any action to represent his case within the time
given by the Commission.
iii. decide the complaint on merits if the complainant fails to appear on the date of hearing.
4. No proceedings complying with the procedure laid down in sub-sections (1) and (2) shall be
called in question in any court on the ground that the principles of natural justice have not
been complied with.
5. Every complaint shall be heard by the District Commission on the basis of affidavit and
documentary evidence placed on record, Provided that where an application is made for hearing
or for examination of parties in person or through video conferencing, the District Commission
may, on sufficient cause being shown, and after recording its reasons in writing, allow the
same.
6. Every complaint shall be disposed of as expeditiously as possible and endeavour shall be made
to decide the complaint within a period of three months from the date of receipt of notice by
opposite party where the complaint does not require analysis or testing of commodities and
within five months if it requires analysis or testing of commodities.
Provided also that in the event of a complaint being disposed of after the period so specified,
the District Commission shall record in writing, the reasons for the same at the time of
disposing of the said complaint.
7. For the purposes of this section, the District Commission shall have the same powers as are
vested in a civil court namely:
i. The summoning and enforcing the attendance of any defendant or witness and examining
the witness on oath,
ii. Requiring the discovery and production of any document or other material object as
evidence,
iii. Receiving of evidence on affidavits,
iv. The requisitioning of the report of the concerned analysis or test from the appropriate
laboratory or from any other relevant source,
v. Issuing of commissions for the examination of any witness, or document.

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FINDINGS OF DISTRICT COMMISSION

Where the District Commission is satisfied that the goods complained against suffer from any
of the defects specified in the complaint or that any of the allegations contained in the
complaint about the services or any unfair trade practices, or claims for compensation under
product liability are proved, it shall issue an order to the opposite party directing him to do
one or more of the following, namely:
1. To remove the defect pointed out by the appropriate laboratory from the goods in question,
2. To replace the goods with new goods,
3. To return to the complainant the price, the charges paid by the complainant along with such
interest on such price or charges as may be decided,
4. To pay such amount as may be awarded by it as compensation to the consumer for any loss,
5. To remove the defects in goods or deficiencies in the services in question,
6. To discontinue the unfair trade practice or restrictive trade practice and not to repeat them,
7. Not to offer the hazardous or unsafe goods for sale,
8. To withdraw the hazardous goods from being offered for sale,
9. To issue corrective advertisement to neutralise the effect of misleading advertisement at the
cost of the opposite party,
10. To cease and desist from issuing any misleading advertisement.
Any proceeding conducted by the President and a member and if they differ on any point or
points, they shall state the point or points on which they differ and refer the same to another
member for hearing on such point or points and the opinion of the majority shall be the order
of the District Commission. However, the other member shall give his opinion on such point or
points referred to him within a period of one month from the date of such reference.

REVIEW BY DISTRICT COMMISSION IN CERTAIN CASE

The District Commission to review any of the order passed by it if there is an error apparent
on the face of the record, either of its own motion or on an application made by any of the
parties within thirty days of such order.

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APPEAL AGAINST ORDER OF DISTRICT COMMISSION

Any person aggrieved by an order made by the District Commission may prefer an appeal
against such order to the State Commission on the grounds of facts or law within a period of
forty-five days from the date of the order. The State Commission may entertain an appeal
after the expiry of forty-five days, if it is satisfied that there was sufficient cause.

There are certain restriction on appeal, unless the person fulfil the
following conditions namely
1. No appeal by a person, who is required to pay any amount in terms of an
order of the District Commission, shall be entertained by the State
Commission unless the appellant has deposited fifty per cent. of that
amount in the manner as may be prescribed.
2. No appeal shall lie from any order passed pursuant to a settlement by
mediation.

STATE CONSUMER DISPUTES REDRESSAL COMMISSION

Section 42 empowers the State Government to establish a State Consumer Disputes Redressal
Commission, to be known as the State Commission, in the State.

Each State Commission shall consist of–

1. A President, and
2. Not less than four or not more than such number of members as may be
prescribed in consultation with the Central Government.

JURISDICTION OF STATE COMMISSION

State Commission shall have jurisdiction:
1. To entertain:
i. Complaints where the value of the goods or services paid as consideration, exceeds rupees
one crore, but does not exceed rupees ten crore,
ii. Complaints against unfair contracts, where the value of goods or services paid as
consideration does not exceed ten crore rupees,
iii. Appeals against the orders of any District Commission within the State, and

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2. To call for the records and pass appropriate orders in any consumer dispute which is pending
before or has been decided by any District Commission within the State, where it appears to
the State Commission that such District Commission has exercised a jurisdiction not vested in
it by law, or has failed to exercise a jurisdiction so vested or has acted in exercise of its
jurisdiction illegally or with material irregularity.

Unfair contract means a contract between a manufacturer or trader or service provider on one
hand, and a consumer on the other, having such terms which cause significant change in the
rights of such consumer, including the following, namely:
i. Requiring manifestly excessive security deposits to be given by a consumer for the
performance of contractual obligations, or
ii. Imposing any penalty on the consumer, for the breach of contract thereof which is wholly
disproportionate to the loss occurred,
iii. Refusing to accept early repayment of debts on payment of applicable penalty, or
iv. Entitling a party to the contract to terminate such contract unilaterally, without reasonable
cause, or
v. Permitting or has the effect of permitting one party to assign the contract to the detriment
of the other party who is a consumer, without his consent, or
vi. Imposing on the consumer any unreasonable charge, obligation or condition which puts
such consumer to disadvantage.

REVIEW BY STATE COMMISSION IN CERTAIN CASE

The State Commission to review any of the order passed by it if there is an error apparent on
the face of the record, either of its own motion or on an application made by any of the
parties within thirty days of such order.

APPEAL TO NATIONAL COMMISSION

1. Any person aggrieved by an order made by the State Commission in exercise of its powers may
prefer an appeal against such order to the National Commission within a period of thirty days
from the date of the order.

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2. National Commission shall not entertain the appeal after the expiry of the said period of thirty
days unless it is satisfied that there was sufficient cause for not filing it within that period.
3. Provided further that no appeal by a person, who is required to pay any amount in terms of
an order of the State Commission, shall be entertained by the National Commission unless the
appellant has deposited fifty per cent. of that amount in the manner as may be prescribed.
4. An appeal shall lie to the National Commission from any order passed in appeal by any State
Commission, if the National Commission is satisfied that the case involves a substantial
question of law.
5. In an appeal involving a question of law, the memorandum of appeal shall precisely state the
substantial question of law involved in the appeal.
6. where the National Commission is satisfied that a substantial question of law is involved in
any case, it shall formulate that question and hear the appeal on that question.

The Hon’ble Supreme Court in the case of Manohar Infrastructure and Constructions Private
Limited vs. Sanjeev Kumar Sharma & Ors. held that the condition of pre-deposit for entertaining
appeal under Section 51 of the Consumer Protection Act, 2019 is mandatory. Section 51 of the
Consumer Protection Act, 2019 provides that no appeal by a person, who is required to pay any
amount in terms of order of the State Commission shall be entertained by the NCDRC unless the
appellant has deposited 50 percent of that amount.
The Court in answering the question laid down the following:
1. Pre-deposit of 50 per cent of amount as ordered by the State Commission under second proviso
to Section 51 of the Consumer Protection Act, 2019 is mandatory for entertainment of an appeal
by the National Commission,
2. The object of the said pre-deposit condition is to avoid frivolous appeals,
3. The said pre-deposit condition has no nexus with the grant of stay by the NCDRC.
It then held that the NCDRC can grant a conditional stay directing the appellant to deposit the
entire amount and/or any amount higher than 50 per cent of the amount determined by the State
Commission.
However, while doing so, the NCDRC has to assign some reasons and pass a speaking order either
as an ex parte order or after hearing both sides and considering the facts and circumstances of the
case.
“It must reflect an application of mind by the National Commission why the order passed by the
State Commission is to be stayed on condition of deposit of the entire amount and/or any amount
higher than 50 per cent of the amount awarded by the State Commission,” the Court ruled.

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HEARING OF APPEAL BY STATE COMMISSION OR NATIONAL COMMISSION

1. According to Section 52 of the Act, an appeal filed before the State Commission or the
National Commission, as the case may be, shall be heard as expeditiously as possible and every
endeavour shall be made to dispose of the appeal within a period of ninety days from the
date of its admission.
2. Adjournment shall not ordinarily be granted by the State Commission or the National
Commission, as the case may be, unless sufficient cause is shown.
3. In the event of an appeal being disposed of after the period so specified, the State Commission
or the National Commission, as the case may be, shall record in writing the reasons for the
same at the time of disposing of the said appeal.

NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION

Section 53 empowers the Central Government to establish a National Consumer Disputes
Redressal Commission, to be known as the National Commission. The National Commission
shall ordinarily function at the National Capital and perform its functions at such other places
as the Central Government may in consultation with the National Commission notify in the
Official Gazette.

Composition of National Commission

National Commission shall consist of:
1. A President, and
2. Not less than four and not more than such number of members as may be
prescribed.

JURISDICTION OF NATIONAL COMMISSION

The National Commission shall have jurisdiction:
1. To entertain:
i. Complaints where the value of the goods or services paid as consideration exceeds rupees
ten crore.
ii. Complaints against unfair contracts, where the value of goods or services paid as
consideration exceeds ten crore rupees,
iii. Appeals against the orders of any State Commission,

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iv. Appeals against the orders of the Central Authority and

2. To call for the records and pass appropriate orders in any consumer dispute which is pending
before or has been decided by any State Commission where it appears to the National
Commission that such State Commission has exercised a jurisdiction not vested in it by law,
or has acted in the exercise of its jurisdiction illegally or with material irregularity.
3. The jurisdiction, powers and authority of the National Commission may be exercised by Benches
thereof and a Bench may be constituted by the President with one or more members as he
may deem fit. The senior-most member of the Bench shall preside over the Bench.
4. Where the members of a Bench differ in opinion on any point, the points shall be decided
according to the opinion of the majority, if there is a majority, but if the members are equally
divided, they shall state the point or points on which they differ, and make a reference to the
President who shall either hear the point or points himself or refer the case for hearing on
such point or points by one or more of the other members and such point or points shall be
decided according to the opinion of the majority of the members.
5. The President or the other member, as the case may be, shall give opinion on the point or
points so referred within a period of two months from the date of such reference.

REVIEW BY NATIONAL COMMISSION IN CERTAIN CASES

The National Commission to review any of the order passed by it if there is an error apparent
on the face of the record, either of its own motion or on an application made by any of the
parties within thirty days of such order.

POWER TO SET ASIDE EX PARTE ORDERS

Where an order is passed by the National Commission ex parte, the aggrieved party may make
an application to the Commission for setting aside such order.

PROCEDURES FOR SERVICE OF NOTICE

1. All notices, shall be served by delivering or transmitting a copy thereof by registered post
acknowledgment due addressed to opposite party against whom complaint is made or to the
complainant by speed post or by such courier service, approved by the District Commission,
the State Commission or the National Commission, as the case may be,

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2. The notice required by this Act may be served on an electronic service provider at the address
provided by it on the electronic platform from where it provides its services as such and for
this purpose, the electronic service provider shall designate a nodal officer to accept and process
such notices.
3. When an acknowledgment or any other receipt purporting to be signed by the opposite party
is received back by such District Commission, State Commission or the National Commission,
with an endorsement purporting to have been made by a postal employee or by any person
authorised by the courier service to the effect that the opposite party or his agent or
complainant had refused to take delivery of the postal article containing the notice or had
refused to accept the notice, the Commission shall declare that the notice has been duly served
on the opposite party.
4. All notices required to be served on an opposite party or to complainant, as the case may be,
shall be deemed to be sufficiently served, if addressed in the case of the opposite party, to
the place where business or profession is carried on, and in case of the complainant, the place
where such person actually and voluntarily resides.

APPEAL AGAINST ORDER OF NATIONAL COMMISSION

1. Any person, aggrieved by an order made by the National Commission may prefer an appeal
against such order to the Supreme Court within a period of thirty days from the date of the
order.
2. Provided that the Supreme Court may entertain an appeal after the expiry of the said period
of thirty days if it is satisfied that there was sufficient cause for not filing it within that
period.
3. Provided further that no appeal by a person who is required to pay any amount in terms of an
order of the National Commission shall be entertained by the Supreme Court unless that person
has deposited fifty per cent. of that amount in the manner as may be prescribed.

What if the Consumer is Not Satisfied with the Order of the Consumer
Commission?
Any consumer who is aggrieved by the order of a commission can prefer an appeal in
the higher commission within a period of thirty days from the date of the order. The
appeal can be preferred

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LIMITATION PERIOD
Section 69 provides that the District Commission, the State Commission or the National
Commission shall not admit a complaint unless it is filed within two years from the date on
which the cause of action has arisen.
A complaint may be entertained after the period specified above, if the complainant satisfies
the District Commission, the State Commission or the National Commission, as the case may
be, that he had sufficient cause for not filing the complaint within such period.
Pecuniary jurisdiction of Commissions
Commissions Pecuniary jurisdiction
District Commission Up to 1 crore
State Commission 1 – 10 crores
National Commission Above 10 crores

Penalty for Noncompliance of ORDER

Whoever fails to comply with any order made by the Commission shall be punishable with
imprisonment for a term which shall not be less than one month, but which may extend to
three years, or with fine, which shall not be less than twenty-five thousand rupees, but which
may extend to one lakh rupees, or with both.

MEDIATION

ESTABLISHMENT OF CONSUMER MEDIATION CELL

Section 74 empowers the State Government to establish a consumer mediation cell to be
attached to each of the District Commissions and the State Commissions of that State.
Further the Central Government is empowered to establish a consumer mediation cell to be
attached to the National Commission and each of the regional Benches.

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A consumer mediation cell shall consist of such persons as may be prescribed.

Every consumer mediation cell shall maintain:
i. a list of empanelled mediators,
ii. a list of cases handled by the cell,
iii. record of proceeding, and
iv. any other information as may be specified by regulations.
Every consumer mediation cell shall submit a quarterly report to the District
Commission, State Commission or the National Commission to which it is
attached, in the manner specified by regulations.

PROCEDURE FOR MEDIATION

The mediation shall be held in the consumer mediation cell attached to the District Commission,
the State Commission or the National Commission, as the case may be.
Where a consumer dispute is referred for mediation by the Commission, the mediator nominated
by such Commission shall have regard to the rights and obligations of the parties, the usages
of trade, if any, the circumstances giving rise to the consumer dispute and such other relevant
factors, as he may deem necessary and shall be guided by the principles of natural justice
while carrying out mediation.

SETTLEMENT THROUGH MEDIATION

1. Section 80(1) provides that pursuant to mediation, if an agreement is reached between the
parties with respect to all of the issues involved in the consumer dispute or with respect to
only some of the issues, the terms of such agreement shall be reduced to writing accordingly,
and signed by the parties to such dispute.
2. The mediator shall prepare a settlement report of the settlement and forward the signed
agreement along with such report to the concerned Commission.
3. Where no agreement is reached between the parties or the mediator is of the opinion that
settlement is not possible, he shall prepare his report accordingly and submit the same to the
concerned Commission.

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RECORDING SETTLEMENT AND PASSING OF ORDER

1. The District Commission or the State Commission or the National Commission, as the case
may be, shall, within seven days of the receipt of the settlement report, pass suitable order
recording such settlement of consumer dispute and dispose of the matter accordingly.
2. Where the consumer dispute is settled only in part, the District Commission or the State
Commission or the National Commission, as the case may be, shall record settlement of the
issues which have been so settled and continue to hear other issues involved in such consumer
dispute.
3. Where the consumer dispute could not be settled by mediation, the Commission, shall continue
to hear all the issues involved in such consumer dispute.

PRODUCT LIABILITY
According to section 82 Chapter VI shall apply to every claim for compensation under a product
liability action by a complainant for any harm caused by a defective product manufactured by
a product manufacturer or serviced by a product service provider or sold by a product seller.
Harm in relation to a product liability, includes:
1. Damage to any property, other than the product itself,
2. Personal injury, illness or death,
3. Mental agony or illness or damage to property, or
4. Any loss of consortium or services or other loss resulting from a harm.
but shall not include any harm caused to a product itself or any damage to the property on
account of breach of warranty conditions or any commercial or economic loss, including any
direct, incidental or consequential loss relating thereto.

PRODUCT LIABILITY ACTION

A product liability action may be brought by a complainant against a product manufacturer
or a product service provider or a product seller, as the case may be, for any harm caused
to him on account of a defective product.

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LIABILITY OF PRODUCT MANUFACTURER

Product manufacturer shall be liable in a product liability action, if:
1. The product contains a manufacturing defect, or
2. The product is defective in design, or
3. There is a deviation from manufacturing specifications, or
4. The product does not conform to the express warranty, or
5. The product fails to contain adequate instructions of correct usage to prevent any harm or any
warning regarding improper or incorrect usage.
A product manufacturer shall be liable in a product liability action even if he proves that he
was not negligent or fraudulent in making the express warranty of a product.

LIABILITY OF PRODUCT SERVICE PROVIDER

Section 85 provides that a product service provider shall be liable in a product liability action,
if
1. The service provided by him was faulty or imperfect or deficient or inadequate in quality, nature
or manner of performance which is required to be provided by or under any law for the time
being in force,
2. There was an act of omission or commission or negligence or conscious withholding any
information which caused harm; or
3. The service provider did not issue adequate instructions or warnings to prevent any harm; or
4. The service did not conform to express warranty or the terms and conditions of the contract.

LIABILITY OF PRODUCT SELLERS

A product seller who is not a product manufacturer shall be liable in a product liability action,
if:
1. He has exercised substantial control over the designing, testing, manufacturing, packaging or
labelling of a product that caused harm, or
2. He has altered or modified the product and such alteration or modification was the substantial
factor in causing the harm, or
3. He has made an express warranty of a product independent of any express warranty made by
a manufacturer and such product failed to conform to the express warranty, or

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4. The product has been sold by him and the identity of product manufacturer of such product
is not known, or if known, the service of notice or process or warrant cannot be effected on
him or he is not subject to the law which is in force in India or the order, if any, passed or
to be passed cannot be enforced against him, or
5. He failed to exercise reasonable care in assembling, inspecting or maintaining such product or
he did not pass on the warnings or instructions of the product manufacturer regarding the
dangers involved or proper usage of the product while selling such product and such failure was
the proximate cause of the harm.

EXCEPTIONS TO PRODUCT LIABILITY ACTION

A product liability action cannot be brought against the product seller if, at the time of harm,
the product was misused, altered, or modified.
In any product liability action based on the failure to provide adequate warnings or instructions,
the product manufacturer shall not be liable, if:
1. The product was purchased by an employer for use at the workplace and the product
manufacturer had provided warnings or instructions to such employer,
2. The product was sold as a component or material to be used in another product and necessary
warnings or instructions were given by the product manufacturer to the purchaser of such
component or material, but the harm was caused to the complainant by use of the end product
in which such component or material was used,
3. The product was one which was legally meant to be used or dispensed only by or under the
supervision of an expert or a class of experts and the product manufacturer had employed
reasonable means to give the warnings or instructions for usage of such product to such expert
or class of experts, or
4. The complainant, while using such product, was under the influence of alcohol or any
prescription drug which had not been prescribed by a medical practitioner.
A product manufacturer shall not be liable for failure to instruct or warn about a danger which
is obvious or commonly known to the user or consumer of such product or which, such user or
consumer, ought to have known, taking into account the characteristics of such product.

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OFFENCES AND PENALTIES

PENALTY FOR NON-COMPLIANCE OF DIRECTION OF CENTRAL AUTHORITY

Whoever, fails to comply with any direction of the Central Authority, shall be punished with
imprisonment for a term which may extend to six months or with fine which may extend to
twenty lakh rupees, or with both.

PUNISHMENT FOR FALSE OR MISLEADING ADVERTISEMENT

Any manufacturer or service provider who causes a false or misleading advertisement shall be
punished with imprisonment for a term which may extend to two years and with fine which
may extend to ten lakh rupees; and for every subsequent offence, be punished with
imprisonment for a term which may extend to five years and with fine which may extend to
fifty lakh rupees.

COMPOUNDING OF OFFENCES
1. Any offence punishable under sections 88 and 89, may, either before or after the institution
of the prosecution, be compounded, on payment of such amount as may be prescribed.
2. It may be noted that no compounding of such offence shall be made without the leave of the
court before which a complaint has been filed.
3. Further, such sum shall not, in any case, exceed the maximum amount of the fine, which may
be imposed under this Act for the offence so compounded.
4. The Central Authority may compound offences.
5. Nothing shall apply to person who commits the same or similar offence, within a period of
three years from the date on which the first offence, committed by him, was compounded.
6. Any second or subsequent offence committed after the expiry of a period of three years from
the date on which the offence was previously compounded, shall be deemed to be a first
offence.
7. Section 96(4) provides that where an offence has been compounded under sub-section (1), no
proceeding or further proceeding, as the case may be, shall be taken against the offender in
respect of the offence so compounded.

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PUNISHMENT FOR MANUFACTURING FOR SALE OR STORING, SELLING OR DISTRIBUTING

OR IMPORTING PRODUCTS CONTAINING ADULTERANT
Whoever, by himself or by any other person on his behalf, manufactures for sale or stores or
sells or distributes or imports any product containing an adulterant shall be punished, if such
act:
1. Does not result in any injury to the consumer, with imprisonment for a term which may extend
to six months and with fine which may extend to one lakh rupees,
2. Causing injury not amounting to grievous hurt to the consumer, with imprisonment for a term
which may extend to one year and with fine which may extend to three lakh rupees,
3. Causing injury resulting in grievous hurt to the consumer, with imprisonment for a term which
may extend to seven years and with fine which may extend to five lakh rupees, and
4. Results in the death of a consumer, with imprisonment for a term which shall not be less
than seven years, but which may extend to imprisonment for life and with fine which shall
not be less than ten lakh rupees.
The court may, in case of first conviction, suspend any licence issued to the person referred to
in that sub-section, under any law for the time being in force, for a period up to two years,
and in case of second or subsequent conviction, cancel the licence.

PUNISHMENT FOR MANUFACTURING FOR SALE OR FOR STORING OR SELLING OR

DISTRIBUTING OR IMPORTING SPURIOUS GOODS
Whoever, by himself or by any other person on his behalf, manufactures for sale or stores or
sells or distributes or imports any spurious goods shall be punished, if such act:
1. Causing injury not amounting to grievous hurt to the consumer, with imprisonment for a term
which may extend to one year and with fine which may extend to three lakh rupees;
2. Causing injury resulting in grievous hurt to the consumer, with imprisonment for a term which
may extend to seven years and with fine which may extend to five lakh rupees;
3. Results in the death of a consumer, with imprisonment for a term which shall not be less
than seven years, but may extend to imprisonment for life and with fine which shall not be
less than ten lakh rupees.

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E-COMMERCE

DUTIES OF E-COMMERCE ENTITIES

E-Commerce Entity” means any person who owns, operates or manages digital or
electronic facility or platform for electronic commerce, but does not include a seller
offering his goods or services for sale on a marketplace e-commerce entity.

1. Every e-commerce entity shall provide the following information in a clear and accessible
manner on its platform, displayed prominently to its users, namely:
i. Legal name of the e-commerce entity,
ii. Principal geographic address of its headquarters and all branches,
iii. Name and details of its website, and
iv. Contact details like e-mail address, fax, landline and mobile numbers of customer care as
well as of grievance officer.
2. No e-commerce entity shall adopt any unfair trade practice, whether in the course of business
on its platform.
3. Every e-commerce entity shall establish an adequate grievance redressal and shall appoint a
grievance officer for consumer grievance redressal, and shall display the name, contact details,
and designation of such officer on its platform.
4. Every e-commerce entity shall ensure that the grievance officer acknowledges the receipt of
any consumer complaint within forty-eight hours and redresses the complaint within one month
from the date of receipt of the complaint.
5. Where an e-commerce entity offers imported goods or services for sale, it shall mention the
name and details of any importer from whom it has purchased such goods or services, or who
may be a seller on its platform.
6. No e-commerce entity shall impose cancellation charges on consumers cancelling after
confirming purchase unless similar charges are also borne by the e- commerce entity, if they
cancel the purchase order unilaterally for any reason.
7. Every e-commerce entity shall effect all payments towards accepted refund requests of the
consumers as prescribed by the Reserve Bank of India within a reasonable period of time.

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LIABILITIES OF MARKETPLACE E-COMMERCE ENTITIES

Marketplace E-Commerce Entity means an e-commerce entity which provides an

information technology platform on a digital or electronic network to facilitate
transactions between buyers and sellers.

1. Every marketplace e-commerce entity shall require sellers through an undertaking to ensure
that descriptions, images, and other content pertaining to goods or services on their platform
is accurate and corresponds directly with the appearance, nature, quality, purpose and other
general features of such good or service.
2. Every marketplace e-commerce entity shall provide the following information in a clear and
accessible manner, displayed prominently to its users at the appropriate place on its platform:
i. details about the sellers offering goods and services, including the name of their business,
their geographic address, customer care number, any rating or other aggregated feedback
about such seller, and any other information necessary for enabling consumers to make
informed decisions at the pre-purchase stage.
ii. A ticket number for each complaint lodged through which the consumer can track the
status of the complaint,
iii. Information relating to return, refund, exchange, warranty and guarantee, delivery and
shipment, modes of payment, and grievance redressal mechanism, and any other similar
information which may be required by consumers to make informed decisions,
iv. Information on available payment methods, the security of those payment methods, any
fees or charges payable by users.
3. Every marketplace e-commerce entity shall include in its terms and conditions generally
governing its relationship with sellers on its platform, a description of any differentiated
treatment which it gives or might give between goods or services or sellers of the same
category.
4. Every marketplace e-commerce entity shall take reasonable efforts to maintain a record of
relevant information allowing for the identification of all sellers who have repeatedly offered
goods or services that have previously been removed or access to which has previously been
disabled.

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DUTIES AND LIABILITIES OF INVENTORY E-COMMERCE ENTITIES

Inventory E-Commerce Entity means an e-commerce entity which owns the inventory of
goods or services and sells such goods or services directly to the consumers

1. Every inventory e-commerce entity shall provide the following information in a clear and
accessible manner, displayed prominently to its users:
i. accurate information related to return, refund, exchange, warranty and guarantee, delivery
and shipment, cost of return shipping, mode of payments, grievance redressal mechanism,
ii. information on available payment methods, the security of those payment methods,
iii. all contractual information required to be disclosed by law,
iv. total price in single figure of any good or service along with the breakup price for the good
or service, showing all the compulsory and voluntary charges,
v. a ticket number for each complaint lodged, through which the consumer can track the
status of their complaint.
2. No inventory e-commerce entity shall falsely represent itself as a consumer and post reviews
about goods and services or misrepresent the quality or the features of any goods or services.
3. Every inventory e-commerce entity shall ensure that the advertisements for marketing of goods
or services are consistent with the actual characteristics, access and usage conditions of such
goods or services.
4. No inventory e-commerce entity shall refuse to take back goods, or withdraw or discontinue
services purchased or agreed to be purchased, or refuse to refund consideration, if paid, if such
goods or services are defective, deficient spurious, or if the goods or services are not of the
characteristics or features as advertised or as agreed to, or if such goods or services are delivered
late from the stated delivery schedule.
Provided that in the case of late delivery, this sub rule shall not apply if such late delivery was
due to force majeure.
5. Any inventory e-commerce entity which explicitly or implicitly vouches for the authenticity of
the goods or services sold by it, or guarantees that such goods or services are authentic, shall
bear appropriate liability in any action related to the authenticity of such good or service.

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DIRECT SELLING

Direct Selling means marketing, distribution and sale of goods or provision of services
through a network of sellers, other than through a permanent retail location

APPLICABILITY
1. All goods and services bought or sold through direct selling,
2. All models of direct selling,
3. All direct selling entities offering goods and services to consumers in India,
4. All forms of unfair trade practices across all models of direct selling.

MANDATORY MAINTENANCE OF RECORDS

Every direct selling entity shall maintain at its registered office, the following documents or
records, as may be applicable, namely:
1. Certificate of Incorporation,
2. Memorandum of Association and Articles of Association,
3. Permanent Account Number and Tax Deduction and Collection Account Number,
4. Goods and Services Tax registration,
5. Income Tax Returns,
6. Balance Sheet, Audit Report and such other relevant reports,
7. Register of direct sellers,
8. Certificate of Importer-Exporter code,
9. License issued under the Food Safety and Standards Authority of India for the purposes of
manufacture or sale of food items,
10. Certificate of Registration of Trademark.

OBLIGATIONS OF DIRECT SELLING ENTITY

Direct Selling Entity means the principal entity which sells or offers to sell goods or
services through direct sellers, but does not include an entity which is engaged in a
Pyramid Scheme or money circulation scheme.

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1. Every direct selling entity shall:

i. Have a minimum of one physical location as its registered office within India,
ii. Make self-declaration to the effect that it has complied with the provisions of these rules
and is not involved in any Pyramid Scheme or money circulation scheme,
iii. Maintain proper and updated website with all relevant details of that entity,
iv. own, hold or be the licensee of a trademark, service mark or any other identification mark
which identifies that entity with the goods or services to be sold or supplied, but shall not
give commissions, bonus or incentives on sale of goods or services of which it is not the
owner, holder or licensee of trademark, service mark or other identification marks,
v. obtain all applicable trade registrations and licenses,
vi. get all information provided by it on its website duly certified by a Company Secretary,
vii. have a prior written contract with its direct sellers in order to authorize them to sell or
offer to sell its goods or services, and the terms of such agreement shall be just, fair and
equitable,
viii. ensure that all its direct sellers have verified identities and physical addresses and issue
identity cards and documents only to such direct sellers,
ix. create adequate safeguards to ensure that goods and services offered by its direct sellers
conform to applicable laws,
x. be liable for the grievances arising out of the sale of goods or services by its direct sellers.
2. Every direct selling entity shall provide the following information on its website in a clear and
accessible manner, which shall be displayed prominently to its users, namely:
i. registered name of the direct selling entity,
ii. registered address of the direct selling entity and of its branches,
iii. contact details, including e-mail address, fax, land line and mobile numbers of its customer
care and grievance redressal officers,
iv. a ticket number for each complaint lodged through which the complainant can track the
status of the complaint,
v. information relating to return, refund, exchange, warranty and guarantee, delivery and
shipment, modes of payment, grievance redressal mechanism,
vi. information on available payment methods, the security of those payment methods, the
fees or charges payable by users,

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vii. total price of any goods or service in single figure, along with its break-up price showing
all compulsory and voluntary charges.
3. No direct selling entity shall adopt any unfair trade practice in the course of its business.
4. Every direct selling entity shall store sensitive personal data within the jurisdiction of India, in
accordance with the applicable law for the time being in force and shall take appropriate steps
to ensure protection of such data provided by a consumer and also ensure adequate safeguards
to prevent access or misuse of such data by any unauthorized person.
5. Every direct selling entity shall, having regard to the number of grievances ordinarily received
by such entity from persons in India, establish an adequate grievance redressal mechanism and
appoint one or more grievance redressal officers for redressal of consumers’ grievances and
display the current and updated name, contact details including telephone number, email
address and designation of such officer on its website, and the details of its website shall also
be prominently printed on the product information sheet or pamphlet.
6. Every direct selling entity shall ensure that the grievance redressal officer acknowledges the
receipt of any consumer complaint within forty-eight working hours of receipt of such complaint
and redresses the complaint normally within a period of one month.
7. Every direct selling entity shall establish a mechanism for filing of complaints by consumers
through its offices or branches or direct sellers, either in person or through post, telephone, e-
mail or website.
8. Every direct selling entity shall maintain a record of all its direct sellers, including their identity
proof, address proof, e-mail and such other contact information.
9. Every direct selling entity shall ensure that the advertisements for marketing of goods or
services are consistent with the actual characteristics, access and usage conditions of such
goods or services.
10. No direct selling entity shall, directly or indirectly, falsely represent itself as a consumer and
post reviews about its goods or services or misrepresent the quality or features of any of its
goods or services.
11. A direct selling entity which explicitly or implicitly vouches for the authenticity of the goods
or services sold, or guarantees that such goods or services are authentic, shall bear the liability
in any action related to the authenticity of such goods or services.

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12. Every direct selling entity shall maintain a record of relevant information allowing for the
identification of all direct sellers who have been delisted by the direct selling entity and such
list shall be publicly shared on its website.

OBLIGATIONS OF DIRECT SELLER

1. Every direct seller shall:
i. have a prior written contract with the direct selling entity for undertaking sale of, or offer
to sell, any goods or services of such entity,
ii. at the initiation of any sale representation, truthfully and clearly identify himself, disclose
the identity of the direct selling entity, the address of place of business, the nature of
goods or services sold and the purpose of such solicitation to the prospect,
iii. obtain goods and service tax registration, Permanent Account Number registration, all
applicable trade registrations and licenses and comply with the requirements of applicable
laws, rules and regulations for sale of a product,
iv. ensure that actual product delivered to the buyer matches with the description of the
product given,
v. take appropriate steps to ensure the protection of all sensitive personal information provided
by the consumer.

2. A direct seller shall not:

i. visit a consumer’s premises without identity card and prior appointment or approval,
ii. provide any literature to a prospect, which has not been approved by the direct selling
entity,
iii. require a prospect to purchase any literature or sales demonstration equipment,
iv. in pursuance of a sale, make any claim that is not consistent with claims authorized by
the direct selling entity.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 13 – LEGAL METROLOGY

INTRODUCTION
Legal metrology is the application of legal requirements to measurements and measuring
instruments. Very often, small errors in either direction average out over a large number of
measurements. But biased errors can create considerable financial prejudice and can have
serious economic consequences for the end consumer.
Legal Metrology is the name by which the law relating to weights and measures is known in
international parlance.

Legal metrology can be defined as that part of metrology which deals

with units of measurement, methods of measurement and measuring
instruments in so far as they concern statutory, technical and legal
requirements which have the ultimate object of assuring public guarantee
from the point of view of security and of appropriate accuracy of
measurements.

INTERNATIONAL ORGANIZATION OF LEGAL METROLOGY (OIML)

1. The International Organization of Legal Metrology (OIML) is an intergovernmental treaty
organization whose membership includes Member States, countries which participate actively
in technical activities, and Corresponding Members, countries which join the OIML as observers.
2. It was established in 1955 in order to promote the global harmonization of legal metrology
procedures.
3. Since that time, the OIML has developed a worldwide technical structure that provides its
Members with metrological guidelines for the elaboration of national and regional requirements
concerning the manufacture and use of measuring instruments for legal metrology applications.
4. The OIML develops model regulations, International Recommendations, which provide Members
with an internationally agreed-upon basis for the establishment of national legislation on
various categories of measuring instruments.
5. Given the increasing national implementation of OIML guidelines, more and more manufacturers
are referring to OIML International Recommendations to ensure that their products meet
international specifications for metrological performance and testing.

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The International Organization of Legal Metrology is an intergovernmental treaty

organization which:
1. Develops model regulations, standards and related documents for use by legal metrology
authorities and industry,
2. Provides mutual recognition systems which reduce trade barriers and costs in a global market,
3. Represents the interests of the legal metrology community within international organizations
and forums,
4. Promotes and facilitates the exchange of knowledge and competencies within the legal
metrology community worldwide,
5. Cooperates with other metrology bodies to raise awareness of the contribution that a sound
legal metrology infrastructure can make to a modern economy.

OIML CERTIFICATE SYSTEM FOR MEASURING INSTRUMENTS

1. The OIML Certificate System for Measuring Instruments was introduced in 1991 to facilitate
administrative procedures and lower the costs associated with the international trade of
measuring instruments subject to legal requirements.
2. The System provides the possibility for a manufacturer to obtain an OIML Certificate and a
Test Report indicating that a given instrument type (pattern) complies with the requirements
of the relevant OIML International Recommendations.
3. Certificates are delivered by OIML Member States that have established one or several Issuing
Authorities responsible for processing applications by manufacturers wishing to have their
instrument types (patterns) certified.
4. Certificates issued by OIML are accepted by national metrology services on a voluntary basis,
and as the climate for mutual confidence and recognition of test results develops between
OIML Members, the System serves to simplify the type (pattern) approval process for
manufacturers and metrology authorities by eliminating costly duplication of application and
test procedures.

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The objectives of the OIML Certification System are:

i. To promote the global harmonization, uniform interpretation and
implementation of legal metrological requirements for measuring
instruments,
ii. To avoid unnecessary re-testing when obtaining national type evaluations
and approvals, and to support the recognition of measuring instruments
under legal metrological control, while achieving and maintaining confidence
in the results in support of facilitating the global trade of individual
instruments, and
iii. To establish rules and procedures for fostering mutual confidence among
participating OIML Member States.

DEFINITIONS

DEALER
Dealer in relation to any weight or measure, means a person who, carries on, directly or
otherwise, the business of buying, selling, supplying or distributing any such weight or measure,
whether for cash or for deferred payment or for commission and includes a commission agent,
an importer, a manufacturer, who sells, supplies, distributes or otherwise delivers any weight or
measure manufactured by him to any person other than a dealer.

LABEL
“Label” means any written, marked, stamped, printed or graphic matter affixed to, or appearing
upon any pre-packaged commodity.

MANUFACTURE
“Manufacturer” in relation to any weight or measure, means a person who:
1. Manufactures weight or measure,
2. Manufactures one or more parts, and acquires other parts, of such weight or measure and, after
assembling those parts, claims the end product to be a weight or measure manufactured by
himself,

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3. Does not manufacture any part of such weight or measure but assembles parts thereof
manufactured by others and claims the end product to be a weight or measure manufactured
by himself,
4. Puts, or causes to be put, his own mark on any complete weight or measure made or
manufactured by any other person and claims such product to be a weight or measure made
or manufactured by himself.

PRE-PACKED COMMODITY
“Pre-packaged commodity” as to mean a commodity which without the purchaser being present
is placed in a package of whatever nature, whether sealed or not, so that the product contained
therein has a pre-determined quantity.

REPAIRER
“Repairer” as to mean a person who repairs a weight or measure and includes a person who
adjusts, cleans, lubricates or paints any weight or measure or renders any other service to
such weight or measure to ensure that such weight or measure conforms to the standards
established by or under this Act.

SEAL
“Seal” means a device or process by which a stamp is made, and includes any wire or other
accessory which is used for ensuring the integrity of any stamp.

STAMP
“Stamp” as to mean a mark, made by impressing, casting, engraving, etching, branding,
affixing pre-stressed paper seal or any other process in relation to, any weight or measure with
a view to:
1. Certifying that such weight or measure conforms to the standard specified by or under this
Act, or
2. Indicating that any mark which was previously made thereon certifying that such weight or
measure conforms to the standards specified by or under this Act, has been altered.

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VERIFICATION
“Verification”, in relation to any weight or measure, the process of comparing, checking, testing
or adjusting such weight or measure with a view to ensuring that such weight or measure
conforms to the standards established by or under this Act and also includes re-verification
and calibration.

STANDARD WEIGHTS AND MEASURES

1. Section 4 of the Act provides that every unit of weight or measure shall be in accordance with
the metric system based on the international system of units.
2. Section 5 of the Act provides that the base unit of length shall be the meter, mass shall be
the kilogram, time shall be the second, electric current shall be the ampere, thermodynamic
temperature shall be the Kelvin, luminous intensity shall be the candela, and amount of
substance shall be the mole.
3. As per section 7 of the Act states that the base units of weights and measures specified in
section 5 shall be the standard units of weights and measures.
4. Section 8 provides that any weight or measure which conforms to the standard unit of such
weight or measure and also conforms to such of the provisions of section 7 shall be the
standard weight or measure.
5. No weight, measure, other than the standard weight, measure, shall be used as a standard
weight, measure. No weight or measure, shall be manufactured or imported unless it conforms
to the standards of weight or measure.
6. However, the aforesaid provisions shall not apply for manufacture done exclusively for export or
for the purpose of any scientific investigation or research.
7. Section 12 provides that any custom, usage, practice or method of whatever nature which
permits a person to demand, receive or cause to be demanded or received, any quantity of
article, thing or service in excess of or less than, the quantity specified by weight, measure or
number in the contract or other agreement in relation to the said article, thing or service, shall
be void.

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APPOINTMENT AND POWER OF DIRECTOR, CONTROLLER AND LEGAL METROLOGY

OFFICERS
1. Section 13 of the Act empowers the Central Government to appoint a Director of legal metrology,
Additional Director, Joint Director, Deputy Director, Assistant Director and other employees for
exercising the powers and discharging the duties conferred or imposed on them by or under
this Act.

The Director and every legal metrology officer, appointed, shall exercise such
powers and discharge such functions in respect of such local limits as the
Central Government may, by notification, specify. Every legal metrology
officer shall exercise powers and discharge duties under the general
superintendence, direction and control of the Director.

2. The Director, the Controller and every legal metrology officer shall be deemed to be a public
servant.
3. The Central Government may, with the consent of the State Government, delegate such of the
powers of the Director under this Act as it may think fit to the Controller of legal metrology
in the State, and such Controller may, delegate such of the powers delegated to him to any
legal metrology officer.

Section 14 of the Act, provides that the State Government may, by notification,
appoint a Controller of legal metrology, Additional Controller, Joint Controller,
Deputy Controller, Assistant Controller, Inspector and other employees for the
State for exercising the powers and discharging the duties conferred or imposed
on them by or under this Act in relation to intra State trade and commerce.

POWER OF INSPECTION, SEIZURE

1. The Act confer powers of inspection on the Director, Controller or any legal metrology officer
may, if he has any reason to believe, whether from any information given to him by any person
and taken down in writing or from personal knowledge or otherwise, that any weight or measure
or other goods in relation to which any trade and commerce has taken place or is intended to
take place and in respect of which an offence punishable under this Act appears to have been,

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or is likely to be, committed are either kept or concealed in any premises or are in the course
of transportation.
2. The powers include entry at any reasonable time into any such premises and search for and
inspect any weight, measure or other goods in relation to which trade and commerce has taken
place.
3. The power also include seizure of any weight, measure or other goods and any record, register
or other document or article which he has reason to believe may furnish evidence indicating
that an offence punishable under the Act has been committed.
4. Where any goods seized are subject to speedy or natural decay, the Director, Controller or legal
metrology officer may dispose of such goods.

FORFEITURE
Every non-standard or unverified weight or measure and every package used in the course of,
or in relation to, any trade and commerce and seized, shall be liable to be forfeited, to the
State Government.
However, such unverified weight shall not be forfeited if the person gets the same verified and
stamped within such time as may be prescribed.

Manufacturers, etc., to maintain records and registers

Under the Legal Metrology (Packaged Commodities) Rules, 2011 certain

mandatory declarations are required to be made on all pre-packaged commodities
in the interest of consumers like name and address of the
manufacturer/packer/importer, country of origin, name of the commodity, net
quantity, month and year of manufacturing, retail sale price in the form of
Maximum Retail Price (MRP) Rs. and consumer care details.

What is Pre-Packaged Commodity?

“Pre-packaged commodity” means a commodity which without the purchaser being present is
placed in a package of whatever nature, whether sealed or not, so that the product contained
therein has a predetermined quantity.

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Declarations on Pre-
Packaged Commodities Manner in which Declaration Shall be Made

Section 18 states that no Rule 9 deals with manner in which declaration shall be
person shall manufacture, made. It provides that:
pack, sell, import, distribute, 1. Every declaration which is required to be made on a
deliver, or possess for sale any package under these rules shall be:
prepackaged commodity unless i. legible and prominent,
such package is in such ii. numerals of the retail sale price and net quantity
standard quantities as may be declaration shall be printed,
prescribed. Any advertisement 2. No declaration shall be made so as to require it to be
mentioning the retail sale price read through any liquid commodity contained in the
of a prepackaged commodity package.
shall contain a declaration as 3. Where a package is provided with an outside container or
to the net quantity or number wrapper such container or wrapper shall also contain all
of the commodity contained in the declarations which are required to appear on the
the package in such form and package except where such container or wrapper itself is
manner as may be prescribed. transparent and the declarations on the package itself are
easily readable through such outside wrapper. Provided
that no such declarations on the inner package is required
if the inner package does not contain any declaration on
its outer cover.
4. The particulars of the declarations required to be specified
under this rule on a package shall either be in Hindi or
in English.
It may be noted that nothing contained in this sub-rule shall
prevent the use of any other language in addition to Hindi
or English language.

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What is Principal Display Panel?

In relation to a package means the total surface area of package where the
information required under these rules are to be given in the following manner:
1. All the information could be grouped together and given at one place; or
2. The pre-printed information could be grouped together and given in one place
and on-line information grouped together in other place.
What is the Area prescribed for Principal Display Panel for Declaration?
The area not including the top, bottom, flange at top and bottom of cans, and
shoulders and neck of bottle and jar shall be determined as follows:
1. In the case of a rectangular package, where one entire side can properly be
considered to be the principal display panel side, the product of the height
multiplies by the width of that side.
2. In the case of a cylindrical or nearly cylindrical package, prescribed percent of
the product of the height of the package multiplied by the circumference.
3. In the case of any other shaped package, prescribed percent of the total
surface of the package, or an area considered to be a principle display panel of
the package.

APPROVAL OF MODEL
Every person, before manufacturing or importing any weight or
It may be noted that
measure shall seek the approval of model of such weight or the prescribed authority
measure. may, if he is satisfied
However, such approval of model may not be required in respect that the model of any
weight or measure which
of any iron, brass, bullion, or carat weight or any beam scale,
has been approved in a
length measures (not being measuring tapes) which are ordinarily country outside India
used in retail trade for measuring textiles or timber, capacity conforms to the
measures, not exceeding twenty litre in capacity, which are standards established by
or under this Act,
ordinarily used in retail trade for measuring kerosene, milk or
approve such model
potable liquors. without any test or after
such test as he may
deem fit

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PROHIBITION ON MANUFACTURE, REPAIR OR SALE OF WEIGHT OR MEASURE WITHOUT

LICENCE
1. Section 23 of the Act provides that no person shall manufacture, repair or sell, or offer, expose
or possess for repair or sale, any weight or measure unless he holds a licence issued by the
Controller.
2. However, no licence to repair shall be required by a manufacturer for repair of his own weight
or measure in a State other than the State of manufacture of the same.
3. Every person having any weight or measure in his possession, custody or control in
circumstances indicating that such weight or measure is being, or is intended or is likely to
be, used by him in any transaction or for protection, shall, before putting such weight or
measure into such use, have such weight or measure verified at such place and during such
hours as the Controller may, by general or special order, specify in this behalf.
4. The Central Government may prescribe the kinds of weights and measures for which the
verification is to be done through the Government approved Test Centre.

OFFENCES AND PENALTIES

1. Section 25 of the Act provides for penalty for use of non-standard weight or measure. The
section stipulates that whoever uses or keeps for use any weight or measure or makes use of
any numeration otherwise than in accordance with the standards of weight or measure or the
standard of numeration, as the case may be, shall be punished with fine which may extend to
twenty-five thousand rupees and for the second or subsequent offence, with imprisonment for
a term which may extend to six months and also with fine.
2. Whoever tampers with, or alters in any way, any reference standard, secondary standard
or working standard or increases or decreases or alters any weight or measure with a view to
deceiving any person, except where such alteration is made for the correction of any error, shall
be punished with fine which may extend to fifty thousand rupees and for the second and
subsequent offence with imprisonment for a term which shall not be less than six months but
which may extend to one year or with fine or with both.

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3. That every person who manufactures or causes to be manufactured or sells, any weight or
measure which does not conform to the standards of weight or measure shall be punished with
a fine which may extend to twenty thousand rupees and for the second or subsequent offence
with imprisonment for a term which may extend to three years or with fine or with both.
4. Penalty for transaction in contravention of standard weight, in selling any article or thing by
weight, measure or number, delivers or causes to be delivered to the purchaser any quantity or
number of that article or thing less than the quantity or number contracted for or paid for, or
in rendering any service by weight, measure or number, renders that service less than the
service contracted for or paid for, or in buying any article or thing by weight, measure or
number, fraudulently receives, or causes to be received any quantity or number of that article
or thing in excess of the quantity or number contracted for or paid for, or in obtaining any
service by weight, measure or number, obtains that service in excess of the service contracted
for or paid for, shall be punished with fine which may extend to ten thousand rupees, and; for
the second or subsequent offence, with imprisonment for a term which may extend to one
year, or with fine, or with both.
5. Whoever, being required to submit returns, maintain any record or register, omits or fails without
any reasonable excuse, so to do, shall be punished with fine which may extend to five thousand
rupees and for the second or subsequent offence, with imprisonment for a term which may
extend to one year and also with fine.
6. whoever manufactures, packs, imports, sells, distributes, any pre-packaged commodity which
does not conform to the declarations on the package, shall be punished with fine which may
extend to twenty-five thousand rupees, for the second offence, with fine which may extend to
fifty thousand rupees and for the subsequent offence, with fine which shall not be less than
fifty thousand rupees but which may extend to one lakh rupees or with imprisonment for a
term which may extend to one year or with both.

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PENALTY FOR COUNTERFEITING OR SEAL

Whoever counterfeits any seal, or sells or otherwise disposes of any counterfeit seal or possesses
any counterfeit seal, or tampers with any stamp, or affixes the stamp so removed on, or inserts
the same into, any other weight or measure, shall be punished with imprisonment for a term
which shall not be less than six months but which may extend to one year and for the second
or subsequent offence, with imprisonment for a term which shall not be less than six months
but which may extend to five years.

OFFENCES BY COMPANIES
1. Where an offence under this Act has been committed by a company, the person, if any,
who has been nominated to be in charge of, and responsible to, the company for the conduct
of the business of the company or where no person has been nominated, every person who at
the time the offence was committed was in charge of, and was responsible to, the company
for the conduct of the business of the company; and the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against and punished accordingly.
2. However, such person shall not be liable to any punishment, if he proves that the offence was
committed without his knowledge and that he exercised all due diligence to prevent the
commission of such offence.
3. Where an offence under the Act has been committed by a company and it is proved that the
offence has been committed with the consent or connivance of, or is attributable to the neglect
on the part of, any director, manager, secretary or other officer, such director, manager,
secretary or other officer shall also be deemed to be guilty of that offence and shall be liable
to be proceeded against and punished accordingly.

THE ESSENTIAL COMMODITIES ACT, 1955

1. The Essential Commodities Act, 1955 was enacted to regulate the production, supply and
distribution of, and trade and commerce in, certain commodities which are declared as essential
commodities.
2. Schedule to the Act lists out following commodities:
i. Drugs,
ii. Fertilizer, whether inorganic, organic or mixed,

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iii. Foodstuffs, including edible oilseeds and oils,

iv. Hank yarn made wholly from cotton,
v. Petroleum and petroleum products,
vi. Raw jute and jute textiles,
vii. Seeds:
a. seeds of food-crops and seeds of fruits and vegetables,
b. seeds of cattle fodder, and
c. jute seeds.
3. The Essential Commodities Act, 1955 was enacted to ensure easy availability of essential
commodities to the consumers and to protect them from exploitation by unscrupulous traders.
4. The Act provides for regulation and control of production, distribution and pricing of
commodities, which are declared as essential for maintaining or increasing supplies or for
securing their equitable distribution and availability at fair prices.
5. The Essential Commodities Act, 1955 envisages two independent proceedings against a person
charged with contravention of the provisions of the Act. Under the Act, the Collector can
confiscate the seized commodity.
6. Confiscation of essential commodities is a sharp weapon which the Act has provided to the
Central Government under of the Act. Any person aggrieved by an order of confiscation may
appeal to the State Government.
7. The Act declares that notwithstanding anything contained in the Criminal Procedure Code, 1971,
every offence punishable under the Act shall be cognizable.
8. The Act provides that if the person contravening an order under Section 3 is, a company, every
person who, at the time of the contravention, was in charge of, and was responsible to, the
company for the conduct of the business of the company, shall be deemed to be guilty of the
contravention, and shall be liable to be punished accordingly. In such cases, the company itself
is also liable to be proceeded against.
9. Any such person, can, however, escape liability if he proves that the contravention took place
without his knowledge or that he exercised all due diligence to prevent it. It may be noted
that the term ‘company’ as used above, refers to anybody corporate, and even includes a firm
or other association or individuals. In the case of a firm, the term ‘Director’ would mean a
partner in the firm.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

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CHAPTER 14 - REAL ESTATE REGULATION AND DEVELOPMENT LAW

INTRODUCTION
1. Real estate sector plays a catalytic role in fulfilling the needs and demand for housing and
infrastructure in the country and is an important pillar of the economy.
2. While this sector has grown significantly in recent years, it has been largely unregulated, with
absence of professionalism and standardisation and lack of adequate consumer protection. It
has no sectoral regulator like there are for other specific sectors like insurance, telecom, stock
markets etc.
3. History is witness to the fact that whenever sectoral regulators like SEBI, IRDAI, TRAI etc
have been formed, they have helped in deepening the market and made it more robust.
4. Though the Consumer Protection Act, 1986 is available as a forum to the buyers in the real
estate market, the recourse is only curative and is not adequate to address all the concerns of
buyers and promoters in that sector.
5. In view of the above, Parliament enacted the Real Estate (Regulation and Development) Act,
2016 which aims at protecting the rights and interests of consumers and promotion of
uniformity and standardization of business practices and transactions in the real estate sector.

The objectives of the Act are as under:

OBJECTIVES

To regulate and To protect the

To ensure sale of plot,
promote the real interest of
apartment or building,
estate sector consumers in the
as the case may be, or
sale of real estate real estate sector
project, in an efficient
and transparent manner

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SALIENT FEATURES OF THE ACT

1. Establish the Real Estate Regulatory Authority.
2. Ensure sale of plot, apartment of building, in an efficient and transparent manner.
3. Ensure protection the interest of consumers in the real estate sector.
4. Establish an adjudicating mechanism and also to establish the Appellate Tribunal to hear
appeals from the decisions.
5. Regulates transactions between buyers and promoters of residential real estate projects.
6. Residential real estate projects, with some exceptions, need to be registered with RERAs.
7. These include the site and layout plan, and schedule for completion of the real estate project.
8. Amount collected from buyers for a project must be maintained in a separate bank account
and must only be used for construction of that project.

ADVANTAGES OF RERA

Increased
FDI
Reduction
Customer
in
management
litigation

RERA
Timely
completion
Transparency
of the
project
Project
Planning

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IMPORTANT DEFINITIONS
“Allottee” in relation to a real estate project, means the person to whom a plot, apartment or
building, as the case may be, has been allotted, sold or otherwise transferred by the promoter,
and includes the person who subsequently acquires the said allotment through sale, transfer or
otherwise but does not include a person to whom such plot, apartment or building, as the case
may be, is given on rent.

In Pioneer Urban Land and Infrastructure Limited vs. Union of India, the Supreme Court
upheld the constitutional validity of the Insolvency and Bankruptcy Code Act, 2018,
which included ‘real estate allottees’ within the definition of ‘financial creditors’

“Apartment” whether called block, chamber, dwelling unit, flat, office, showroom, shop,
godown, premises, suit, unit or by any other name, means a separate and self-contained part
of any immovable property, including one or more rooms or enclosed spaces, located on one or
more floors or any part thereof, in a building or on a plot of land, used or intended to be used
for any residential or commercial use such as residence, office, shop, showroom or godown or
for carrying on any business, occupation, profession or trade, or for any other type of use
ancillary to the purpose specified

“Carpet area” means the net usable floor area of an apartment, excluding the area covered
by the external walls, areas under services shafts, exclusive balcony or verandah area and
exclusive open terrace area, but includes the area covered by the internal partition walls of the
apartment.
Explanation.– The expression “exclusive balcony or verandah area” means the area of the
balcony or verandah, as the case may be, which is appurtenant to the net usable floor area of
an apartment, meant for the exclusive use of the allottee.

“Commencement certificate” means the commencement certificate or the building permit

or the construction permit, by whatever name called issued by the competent authority to
allow or permit the promoter to begin development works on an immovable property, as per the
sanctioned plan.

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“Common areas” mean:

1. The entire common land for the real estate project or where the project is developed in phases
and registration under this Act is sought for a phase, the entire land for that phase,
2. The stair cases, lifts, staircase and lift lobbies, fire escapes,
3. The common basements, terraces, parks, play areas,
4. The premises for the lodging of persons employed for the management of the property including
accommodation for watch and ward staffs or for the lodging of community service personnel,
5. The water tanks, sumps, motors, fans, compressors, ducts and all apparatus connected with
installations for common use,
6. All community and commercial facilities as provided in the real estate project.

“Completion certificate” means the completion certificate, issued by the competent authority
certifying that the real estate project has been developed according to the sanctioned plan,
layout plan and specifications.

“Occupancy certificate” means the occupancy certificate, issued by the competent authority
permitting occupation of any building, which has provision for civic infrastructure such as water,
sanitation and electricity.

“Appropriate Government”
For the Union territory without Legislature Central Government
For the Union territory of Puducherry Union Territory Government
For the Union territory of Delhi Central Ministry of Urban Development
For the State State Government

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Responsibilities of the Appropriate Government

1. The appropriate Government is required to notify Rules for the implementation of
the Act.
2. The appropriate Government is required to establish the Regulatory Authority.
3. The appropriate Government is required to establish the Appellate Tribunal.
4. The Chairperson and Members of the Regulatory Authority and the Members of
the Appellate Tribunal are required to be appointed based on recommendations of
a Selection Committee, thus the appropriate Government is required to constitute
the Selection Committee.
5. The appropriate Government is required to constitute a ‘Real Estate Regulatory
Fund’.

REGISTRATION OF REAL ESTATE PROJECT AND REGISTRATION OF REAL ESTATE AGENTS

Many developers across India follow a common practice of pre-launching a project without
securing requisite approvals for the project from the local authorities, which is termed as “soft
launch”, “pre-launch”. Buyers also gets tapped into this opportunity as they get discounted
prices during the pre-launches period. But if it is from a developer who is unscrupulous or a
fly by night operator, then it carries a great risk. Hence, to plug this gap, registration of every
project with the regulatory authority has been made mandatory before it is launched for sale
and for registration, the basic pre-requisite is that the developer must have all the requisite
approvals.

PRIOR REGISTRATION OF REAL ESTATE PROJECT WITH REAL ESTATE REGULATORY

AUTHORITY
A promoter shall not advertise, market, book, sell or offer for sale, or invite persons to purchase
in any manner any plot, apartment or building, as the case may be, in any real estate project
or part of it, in any planning area, without registering the real estate project with the Real
Estate Regulatory Authority.

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It may be noted that:

“Promoter” means:
1. A person who constructs or causes to be constructed an independent building or converts an
existing building or a part thereof into apartments, for the purpose of selling all or some of
the apartments to other persons, or
2. A person who develops land into a project, whether or not the person also constructs structures
on any of the plots, for the purpose of selling to other persons all or some of the plots in the
said project, or
3. Any development authority or any other public body in respect of allottees of:
i. Buildings or apartments, as the case may be, constructed by such authority or body on
lands owned by them or placed at their disposal by the Government, or
ii. Plots owned by such authority or body or placed at their disposal by the Government, for
the purpose of selling all or some of the apartments or plots, or
4. An apex State level co-operative housing finance society and a primary co-operative housing
society which constructs apartments or buildings for its members or in respect of the allottees
of such apartments or buildings, or
5. Any other person who acts himself as a builder, contractor, developer, estate developer or by
any other name, or
6. Such other person who constructs any building or apartment for sale to the general public.

“Real estate project” means the development of a building or a building consisting of

apartments, or converting an existing building or a part thereof into apartments, or the
development of land into plots or apartment, as the case may be, for the purpose of selling all
or some of the said apartments or plots or building, as the case may be, and includes the
common areas, the development works, all improvements and structures thereon, and all
easement, rights and appurtenances belonging thereto.
The projects that are ongoing on the date of commencement of this Act and for which the
completion certificate has not been issued, the promoter shall make an application to the
Authority for registration of the said project within a period of three months from the date of
commencement of this Act.

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Authority in the interest of allottees, for projects which are developed beyond the planning
area but with the requisite permission of the local authority, it may, by order, direct the
promoter of such project to register with the Authority, and the provisions of this Act or the
rules and regulations made there under, shall apply to such projects from that stage of
registration where the real estate project is to be developed in phases, every such phase shall
be considered a standalone real estate project, and the promoter shall obtain registration under
this Act for each phase separately.

PROJECTS EXEMPT FROM THE AMBIT OF THE ACT

The following projects do not require to be registered under the Act:
1. Area of land proposed to be developed does not exceed 500 Sq. Meters or No. of apartments
proposed to be developed does not exceed eight inclusive of all phases. Provided that, if the
appropriate Government considers it necessary, it may, reduce the threshold below five hundred
square meters or eight apartments.
2. Where it received completion certificate for a real estate project prior to commencement of
this Act,
3. For the purpose of renovation or repair which does not involve marketing, advertising, selling or
new allotment of any apartment or plot as the case may be, under the real estate project.

APPLICATION FOR REGISTRATION OF REAL ESTATE PROJECTS

Step 1 - Applicant has to file an application for registration with RERA in prescribed
form along with prescribed fees and documents

Step 2 - Application for registration must be either approved or rejected within a period
of 30 days from the date of application by the RERA

Step 3 - On successful registration, the promoter of the project will be provided with a
registration number, a login id and password for the applicant

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The promoter shall enclose the following documents along with the application, namely:
1. A brief details of his enterprise including its name, registered address, type of enterprise and
the particulars of registration, and the names and photographs of the promoter,
2. A brief detail of the projects launched by him, in the past five years, whether already completed
or being developed, including the current status of the said projects, any delay in its completion
and payments pending,
3. An authenticated copy of the approvals and commencement certificate from the competent
authority obtained in accordance with the laws and where the project is proposed to be
developed in phases, an authenticated copy of the approvals and commencement certificate
from the competent authority for each of such phases,
4. The sanctioned plan, layout plan,
5. The plan of development works to be executed in the proposed project and the proposed facilities
to be provided thereof including firefighting facilities, drinking water facilities, emergency
evacuation services, use of renewable energy,
6. The location details of the project, with clear demarcation of land,
7. Proforma of the allotment letter, agreement for sale, and the conveyance deed proposed to be
signed with the allottees,
8. The number, type and the carpet area of apartments for sale in the project along with the
area of the exclusive balcony or verandah areas and the exclusive open terrace areas apartment
with the apartment, if any,
9. The number and areas of garage for sale in the project,
10. The names and addresses of his real estate agents, if any, for the proposed project,
11. The names and addresses of the contractors, architect, structural engineer, if any and other
persons,
12. A declaration, supported by an affidavit, which shall be signed by the promoter or any person
authorised by the promoter, stating:
i. That he has a legal title to the land on which the development is proposed along with
legally valid documents,
ii. That the land is free from all encumbrances,
iii. The time period within which he undertakes to complete the project or phase thereof, as
the case may be,

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iv. That seventy per-cent of the amounts realised for the real estate project from the allottees,
from time to time, shall be deposited in a separate account to be maintained in a scheduled
bank to cover the cost of construction and the land cost and shall be used only for that
purpose.
The promoter shall withdraw the amounts from the separate account, to cover the cost of the
project, in proportion to the percentage of completion of the project. The amounts from the
separate account shall be withdrawn by the promoter after it is certified by an engineer, an
architect and a chartered accountant in practice that the withdrawal is in proportion to the
percentage of completion of the project. The promoter shall get his accounts audited within six
months after the end of every financial year by a chartered accountant in practice.

GRANTING OF REGISTRATION BY THE AUTHORITY

On receipt of the application, the Authority shall within a period of thirty days:
1. Grant registration subject to the provisions of the Act and the rules and regulations made
thereunder. A registration number, including a Login Id and password to the applicant for
accessing the website of the Authority and to create his web page and to fill therein the
details of the proposed project, or
2. Reject the application for reasons to be recorded in writing. Application shall not be rejected
unless the applicant has been given an opportunity of being heard in the matter.
If the Authority fails to grant the registration or reject the application, as provided above, the
project shall be deemed to have been registered, and the Authority shall within a period of
seven days of the expiry of the said period of thirty days, provide a registration number and a
Login Id and password to the promoter for accessing the website of the Authority and to
create his web page and to fill therein the details of the proposed project.

EXTENSION OF REGISTRATION
1. A developer has to specify a time line during which he will complete and handover the project
to the buyer.
2. The timeline is very important because if he fails to do so within the stated time, then there
are rigorous provisions in the Act, whereby his registration would be revoked and his project
would be usurped by the Regulator.

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3. Though as per section 6, an extension of registration may be granted at the sole discretion of
the Regulator due to Force Majeure conditions or if there are reasonable circumstances which
merit extension.
4. “Force majeure” shall mean a case of war, flood, drought, fire, cyclone, earthquake or any
other calamity caused by nature affecting the regular development of the real estate project.
5. The Authority may in reasonable circumstances, based on the facts of each case, and for
reasons to be recorded in writing, extend the registration granted to a project which shall, in
aggregate, not exceed a period of one year.
6. Application for extension of registration shall not be rejected unless the applicant has been
given an opportunity of being heard in the matter.

REVOCATION OF REGISTRATION
The Authority may, on receipt of a complaint or Suo moto revoke the registration granted,
after being satisfied that:
1. The promoter makes default in doing anything required by or under this Act,
2. The promoter violates any of the terms or conditions of the approval given by the competent
authority,
3. The promoter is involved in any kind of unfair practice or irregularities.
The term “unfair practice means”
i. the practice of making any statement, whether in writing or by visible representation
which:
a. falsely represents that the services are of a particular standard or grade,
b. represents that the promoter has approval or affiliation which such promoter does not
have,
c. makes a false or misleading representation concerning the services.
ii. the promoter permits the publication of any advertisement or prospectus whether in any
newspaper or otherwise of services that are not intended to be offered.
4. The promoter indulges in any fraudulent practices.
The registration granted to the promoter shall not be revoked unless the Authority has given
to the promoter not less than thirty days’ notice, in writing, stating the grounds on which it
is proposed to revoke the registration.

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The Authority may, instead of revoking the registration, permit it to remain in force subject to
such further terms and conditions as it thinks fit.
The Authority, upon the revocation of the registration:
1. Debar the promoter from accessing its website in relation to that project and specify his name
in the list of defaulters and display his photograph on its website,
2. Facilitate the remaining development works to be carried out,
3. Direct the bank holding the project back account to freeze the account, including consequent
de-freezing of the said account, towards facilitating the remaining development works,
4. To protect the interest of allottees or in the public interest, issue such directions as it may
deem necessary.

OBLIGATION OF AUTHORITY CONSEQUENT UPON LAPSE OF OR ON REVOCATION OF

REGISTRATION
1. Upon lapse of the registration or on revocation of the registration under the Act, the authority,
may consult the appropriate Government to take such action as it may deem fit including the
carrying out of the remaining development works by competent authority or by the association
of allottees or in any other manner, as may be determined by the Authority.
2. The direction, decision or order of the Authority shall not take effect until the expiry of the
period of appeal.
3. In case of revocation of registration of a project under the Act, the association of allottees
shall have the first right of refusal for carrying out of the remaining development works.

REGISTRATION OF REAL ESTATE AGENTS

1. “Real estate agent” means any person, who negotiates or acts on behalf of one person in a
transaction of transfer of his plot, apartment or building, in a real estate project, by way of
sale, with another person and receives remuneration or fees.
2. There are thousands of non-professional agents/ brokers in every city operating without any
accountability. Hence, to bring in transparency and accountability, agents have also been
covered under the ambit of RERA and registration requirement has been mandatory for them
as per section 9 of the Act.

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3. Without obtaining registration, real estate agent shall not facilitate the sale or purchase of or
act on behalf of any person to facilitate the sale or purchase of any plot, apartment or building,
as the case may be, in a real estate project or part of it, being the part of the real estate
project registered, being sold by the promoter in any planning area.
4. The Authority shall:
i. Grant a single registration to the real estate agent for the entire State of Union territory,
as the case may be,
ii. Reject the application for reasons to be recorded in writing,
5. Application shall not be rejected unless the applicant has been given an opportunity of being
heard in the matter.
6. If the applicant does not receive any communication about the deficiencies in his application
or the rejection of his application, he shall be deemed to have been registered.
7. Where any real estate agent who has been granted registration under this Act commits breach
of any of the conditions or where the Authority is satisfied that such registration has been
secured by the real estate agent through misrepresentation or fraud, the Authority may, without
prejudice to any other provisions under this Act, revoke the registration or suspend the same
for such period as it thinks fit.

FUNCTIONS OF REAL ESTATE AGENTS

Every real estate agent which is not registered with the Authority shall not facilitate the sale
or purchase of any plot, apartment or building, as the case may be, in a real estate project or
part of it, being sold by the promoter in any planning area. So, firstly they require to register
themselves with the authority under section 9 of the Act.
Every real estate agent not to involve himself in any unfair trade practices, namely:
1. The practice of making any statement, whether orally or in writing or by visible representation
which:
i. Falsely represents that the services are of a particular standard or grade,
ii. Represents that the promoter or himself has approval or affiliation which such promoter
or himself does not have,
iii. Makes a false or misleading representation concerning the services.

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Every real estate agent shall facilitate the possession of all the information and documents,
as the allottee, is entitled to, at the time of booking of any plot, apartment or building.

FUNCTIONS AND DUTIES OF PROMOTER

The promoter shall, upon receiving his Login Id and password, as the case may be, create his
web page on the website of the Authority and enter all details of the proposed project for
public viewing, including:
1. Details of the registration granted by the Authority,
2. Quarterly up-to-date the list of number and types of apartments or plots, as the case may be,
booked,
3. Quarterly up-to-date the list of number of garages booked,
4. Quarterly up-to-date the list of approvals taken and the approvals which are pending,
5. Quarterly up-to-date status of the project, and
The advertisement or prospectus issued or published by the promoter shall mention prominently
the website address of the Authority, wherein all details of the registered project have been
entered.
The promoter at the time of the booking and issue of allotment letter shall be responsible to
make available to the allottee, the following information, namely:
1. Sanctioned plans, layout plans.
2. The stage wise time schedule of completion of the project, including the provisions for civic
infrastructure like water, sanitation and electricity.
The promoter shall:
i. Be responsible for all obligations, responsibilities and functions under the provisions of the
Act till the conveyance of all the apartments, plots or buildings, as the case may be, to
the allottees,
Provided that the responsibility of the promoter, with respect to the structural defect or
any other defect shall continue even after the conveyance deed of all the apartments,
plots or buildings, as the case may be, to the allottees are executed.
ii. Be responsible to obtain the completion or occupancy certificate or both and to make it
available to the allottees.

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iii. Be responsible to obtain the lease certificate, where the real estate project is developed on
a leasehold land,
iv. Be responsible for providing and maintaining the essential services, on reasonable charges,
till the taking over of the maintenance of the project by the association of the allottees,
v. Enable the formation of an association or society of the allotees,
Provided that in the absence of local laws, the association of allottees, shall be formed
within a period of three months of the majority of allottees having booked their plot or
apartment or building, as the case may be, in the project.
vi. Execute a registered conveyance deed of the apartment, plot or building, in favour of the
allottee,
vii. Pay all outgoings until he transfers the physical possession of the real estate project to
the allottee, which he has collected from the allottees, for the payment of outgoings
(including land cost, ground rent, municipal chargers which are related to the project)
viii. After he executes an agreement for sale for any apartment, not to mortgage or create a
charge on such apartment, plot or building, and if any such mortgage or charge is made
or created then it shall not affect the right and interest of the allottee who has taken or
agreed to take such apartment, plot or building, as the case may be.

OBLIGATIONS OF PROMOTER REGARDING VERACITY OF THE ADVERTISEMENT OR

PROSPECTUS
If the person affected by such incorrect, false statement contained in the notice, advertisement
or prospectus, or the model apartment, plot or building, as the case may be, intends to withdraw
from the proposed project, he shall be returned his entire investment along with interest at
such rate as may be prescribed and the compensation in the manner provided under the Act.

NO DEPOSIT OR ADVANCE TO BE TAKEN BY PROMOTER WITHOUT FIRST ENTERING INTO

AGREEMENT FOR SALE
A promoter shall not accept a sum more than ten per cent of the cost of the apartment, as
an advance payment from a person without first entering into a written agreement for sale
and register the said agreement for sale.

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ADHERENCE TO SANCTIONED PLANS AND PROJECT SPECIFICATIONS BY THE PROMOTER

The proposed project shall be developed and completed by the promoter in accordance with the
sanctioned plans, layout plans and specifications as approved by the competent authorities.
The promoter shall not make:
1. Any additions and alterations in the sanctioned plans, layout plans and specifications which
are agreed to be taken, without the previous consent of that person.
The promoter may make such minor additions or alterations as may be required by the allottee,
or such minor changes or alterations as may be necessary due to architectural and structural
reasons duly recommended and verified by an authorised Architect or Engineer.
2. Any other alterations or additions in the sanctioned plans, layout plans and specifications
without the previous written consent of at least two thirds of the allottees, other than the
promoter.
The allottees, irrespective of the number of apartments or plots booked by him or booked in
the name of his family, shall be considered as one allottee only.

STRUCTURAL DEFECT
In case any structural defect is brought to the notice of the promoter within a period of five
years by the allottee from the date of handing over possession, it shall be the duty of the
promoter to rectify such defects without further charge, within thirty days, and in the event
of promoter’s failure to rectify such defects within such time, the aggrieved allottees shall be
entitled to receive appropriate compensation.

OBLIGATIONS OF PROMOTER IN CASE OF TRANSFER OF A REAL ESTATE PROJECT TO A

THIRD PARTY
The promoter shall not transfer or assign his majority rights and liabilities in respect of a real
estate project to a third party without obtaining prior written consent from two-third allottees,
except the promoter, and without the prior written approval of the Authority.
However such transfer or assignment shall not affect the allotment or sale of the apartments,
plots or buildings as the case may be, in the real estate project made by the erstwhile promoter.
On the transfer or assignment being permitted by the allottees and the authority, the intending
promoter shall be required to independently comply with all the pending obligations.

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Any transfer or assignment permitted shall not result in extension of time to the intending
promoter to complete the real estate project and he shall be required to comply with all the
pending obligations of the erstwhile promoter.

OBLIGATIONS OF PROMOTER REGARDING INSURANCE OF REAL ESTATE PROJECT

Section 16 casts an obligation on the promoter to obtain all such insurances including but not
limited to insurance in respect of:
1. Title of the land and building as a part of the real estate project, and
2. Construction of the real estate project.
The promoter shall be liable to pay the premium and charges in respect of the insurance and
shall pay the same before transferring the insurance to the association of the allottees.

TRANSFER OF TITLE
1. The promoter shall execute a registered conveyance deed in favour of the allottee along with
the undivided proportionate title in the common areas to the association of the allottees and
hand over the physical possession of the plot, apartment of building to the allotees in a real
estate project.
2. Provided that, conveyance deed in favour of the allottee under this section shall be carried out
by the promoter within three months from date of issue of occupancy certificate.
3. After obtaining the occupancy certificate and handing over physical possession to the allottees,
it shall be the responsibility of the promoter to handover the necessary documents and plans.
4. The promoter shall handover the necessary documents within thirty days after obtaining the
occupancy certificate.

RETURN OF AMOUNT AND COMPENSATION

1. If the promoter fails to complete or is unable to give possession of an apartment, plot or
building:
i. In accordance with the terms of the agreement for sale,
ii. Due to discontinuance of his business as a developer on account of suspension or revocation
of the registration,

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2. He shall be liable on demand to the allottees, in case the allottee wishes to withdraw from
the project, without prejudice to any other remedy available, to return the amount received by
him in respect of that apartment, plot, building, with interest at such rate as may be prescribed,
3. Where an allottee does not intend to withdraw from the project, he shall be paid, by the
promoter, interest for every month of delay, till the handing over of the possession,
4. The promoter shall compensate the allottees in case of any loss caused to him due to defective
title of the land, on which the project is being developed and the claim for compensation under
this subsection shall not be barred by limitation.

RIGHTS AND DUTIES OF ALLOTTEES

The various rights and duties of the allottees:
1. The allottee shall be entitled to obtain the information relating to sanctioned plans, layout
plans along with the specifications.
2. The allottee shall be entitled to know stage-wise time schedule of completion of the project,
including the provisions for water, sanitation, electricity and other amenities.
3. The allottee shall be entitled to claim the possession of apartment and the association of
allottees shall be entitled to claim the possession of the common areas, as per the declaration
given by the promoter.
4. The allottee shall be entitled to claim the refund of amount paid along with interest at such
rate as may be prescribed and compensation in the manner as provided under the Act, from
the promoter, if the promoter fails to comply or is unable to give possession of the apartment,
plot or building, as the case may be, in accordance with the terms of agreement for sale.
5. The allottee shall be entitled to have the necessary documents and plans.
6. Every allottee, who has entered into an agreement for sale shall be responsible to make
necessary payments and shall pay at the proper time and place, the share of the registration
charges, municipal taxes, water and electricity charges.
7. The allottee shall be liable to pay interest for any delay in payment.
8. The obligations of the allottee and the liability towards interest may be reduced when mutually
agreed.

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THE REAL ESTATE REGULATORY AUTHORITY

This Act mandates that RERA would be established by each of the State and UT for
administering the real estate sector in the respective State/UT. A state can have more than
one RERA or two states can have the same authority.

ESTABLISHMENT AND INCORPORATION OF REAL ESTATE REGULATORY AUTHORITY

The appropriate Government shall establish an Authority to be known as the Real Estate
Regulatory Authority to exercise the powers and to perform the functions assigned to it under
the Act.
Until the establishment of a Regulatory Authority under this section, the appropriate
Government shall, by order, designate any Regulatory Authority or any officer preferably the
Secretary of the department dealing with Housing, as the Regulatory Authority for the purposes
under the Act. After the establishment of the Regulatory Authority, all applications, complaints
or cases pending with the Regulatory Authority designated, shall stand transferred to the
Regulatory Authority. The Authority shall be a body corporate.

COMPOSITION OF AUTHORITY
The Authority shall consist of a Chairperson and not less than two whole time Members to be
appointed by the appropriate Government.

QUALIFICATIONS OF CHAIRPERSON AND MEMBERS OF AUTHORITY

The Chairperson and other Members of the Authority shall be appointed by the appropriate
Government on the recommendations of a Selection Committee consisting of the Chief Justice
of the High Court or his nominee, the Secretary of the Department dealing with Housing and
the Law Secretary, in such manner as may be prescribed, from amongst persons having adequate
knowledge of and professional experience of at-least twenty years in case of the Chairperson
and fifteen years in the case of the Members in urban development, housing, real estate
development, infrastructure, law, commerce, public affairs or administration.

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TERM OF OFFICE OF CHAIRPERSON AND MEMBERS

1. The Chairperson and Members shall hold office for a term not exceeding five years or until
they attain the age of sixty-five years, whichever is earlier and shall not be eligible for re-
appointment.
2. Before appointing any person as a Chairperson or Member, the appropriate Government shall
satisfy itself that the person does not have any such financial or other interest as is likely to
affect prejudicially his functions as such Member.

FILING OF COMPLAINTS WITH THE AUTHORITY OR THE ADJUDICATING OFFICER

Any aggrieved person may file a complaint with the Authority for any violation or contravention
of the provisions of the Act against any promoter allottee or real estate agent, as the case
may be.

FUNCTIONS OF AUTHORITY FOR PROMOTION OF REAL ESTATE SECTOR

1. Protection of interest of the allottees, promoter and real estate agent,
2. Creation of a single window system for ensuring time bound project approvals and clearances,
3. Creation of a transparent and robust grievance redressal mechanism,
4. Measures to encourage investment in the real estate sector including measures to increase
financial assistance to affordable housing segment,
5. Measures to encourage construction of environmentally sustainable and affordable housing,
6. Measures to encourage grading of projects on various parameters of development including
grading of promoters,
7. Measures to facilitate amicable conciliation of disputes between the promoters and the allottees
through dispute settlement forums,
8. Measures to facilitate digitization of land records and system towards conclusive property titles
with title guarantee,
9. To render advice to the appropriate Government in matters relating to the development of real
estate sector.

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ADVOCACY AND AWARENESS MEASURES

The appropriate Government may, while formulating a policy on real estate sector make a
reference to the Authority for its opinion on possible effect, of such policy or law on real estate
sector and on the receipt of such a reference, the Authority shall within a period of sixty days
of making such reference, give its opinion to the appropriate Government which may thereafter
take further action as it deems fit. The opinion given by the Authority shall not be binding
upon the appropriate Government. The Authority shall take suitable measures for the promotion
of advocacy, creating awareness and imparting training about laws relating to real estate sector
and policies.

FUNCTIONS OF AUTHORITY
The functions of the Authority shall include:
1. To register and regulate real estate projects and real estate agents,
2. To publish and maintain a website of records, for public viewing, of all real estate projects for
which registration has been given,
3. To maintain a database, on its website, for public viewing, and enter the names and photographs
of promoters as defaulters including the project details, registration for which has been revoked,
4. To maintain a database, on its website, for public viewing, and enter the names and photographs
of real estate agents who have applied and registered under this Act,
5. To fix the standard fees to be levied on the allottees or the promoter or the real estate agent,
6. To ensure compliance of the obligations cast upon the promoters, the allottees and the real
estate agents.

POWERS OF AUTHORITY TO CALL FOR INFORMATION, CONDUCT INVESTIGATION

The Authority shall have the same powers as are vested in a civil court namely:
1. The discovery and production of books of account and other documents, at such place and at
such time as may be specified by the Authority,
2. Summoning and enforcing the attendance of persons and examining them on oath,
3. Issuing commissions for the examination of witnesses or documents,
4. Any other matter which may be prescribed.

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RECTIFICATION OF ORDERS
The Authority may, at any time within a period of two years from the date of the order made
under the Act, with a view to rectifying any mistake apparent from the record, amend any
order passed by it, and shall make such amendment, if the mistake is brought to its notice by
the parties. It may be noted that no such amendment shall be made in respect of any order
against which an appeal has been preferred.

CENTRAL ADVISORY COUNCIL

ESTABLISHMENT OF CENTRAL ADVISORY COUNCIL

1. The Central Government may, by notification, establish with effect from such date as it may
specify in such notification, a Council to be known as the Central Advisory Council.
2. The Minister to the Government of India in charge of the Ministry of the Central Government
dealing with Housing shall be the ex officio Chairperson of the Central Advisory Council.
3. The Central Advisory Council shall consist of representatives of the Ministry of Finance, Ministry
of Industry and Commerce, Ministry of Urban Development, Ministry of Consumer Affairs,
Ministry of Corporate Affairs, Ministry of Law and Justice, Niti Aayog, National Housing Bank,
Housing and Urban Development Corporation, five representatives of State Governments to be
selected by rotation, five representatives of the Real Estate Regulatory Authorities to be
selected by rotation, and any other Central Government department as notified.
4. The Central Advisory Council shall also consist of not more than ten members to represent
the interests of real estate industry, consumers, real estate agents, construction labourers, non-
governmental organisations and academic and research bodies in the real estate sector.

THE REAL ESTATE APPELLATE TRIBUNAL

Real Estate Appellate Tribunal (REAT) is to be formed by appropriate government to ensure
faster resolution of disputes. Parties aggrieved by the RERA order can appeal before REAT and
REAT has to adjudicate such cases within 60 days. Civil Courts have been prevented from
exercising jurisdiction on such matters. If any of the parties is not satisfied with the REAT
order, they can file an appeal against the REAT order to the High Court within 60 days.

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ESTABLISHMENT OF REAL ESTATE APPELLATE TRIBUNAL

1. The appropriate Government shall, establish an Appellate Tribunal to be known as the Real
Estate Appellate Tribunal.
2. The appropriate Government may, if it deems necessary, establish one or more benches of the
Appellate Tribunal,
3. Every bench of the Appellate Tribunal shall consist of at least one Judicial Member and one
Administrative or Technical Member.
4. The appropriate Government of two or more States or Union territories may, if it deems fit,
establish one single Appellate Tribunal.
5. Any person aggrieved by any direction or decision or order made by the Authority or by an
adjudicating officer under the Act may prefer an appeal before the Appellate Tribunal having
jurisdiction over the matter.
It may be noted that where a promoter files an appeal with the Appellate Tribunal, it shall
not be entertained, without the promoter first having deposited with the Appellate Tribunal at
least thirty per cent. of the penalty, or such higher percentage as may be determined by the
Appellate Tribunal.

Whether the condition of predeposit under proviso to Section 43(5) of the Act for
entertaining substantive right of appeal is sustainable in law?
“To safeguard the interests of the parties, on being decided by the regulatory
authority/adjudicating officer, it is always subject to appeal before the Tribunal under
Section 43(5) provided condition of predeposit being complied with can be further
challenged in appeal before the High Court under Section 58 of the Act and, thus, the
legislature has put reasonable restriction and safeguards at all stages. In our considered
view, the obligation cast upon the promoter of predeposit under Section 43(5) of the
Act, being a class in itself, and the promoters who are in receipt of money which is
being claimed by the home buyers/allottees for refund and determined in the first place
by the competent authority, if legislature in its wisdom intended to ensure that money
once determined by the authority be saved if appeal is to be preferred at the instance
of the promoter after due compliance of predeposit as envisaged under Section 43(5) of
the Act, in no circumstance can be said to be onerous as prayed for or in violation of
Articles 14 or 19(1)(g) of the Constitution of India.”

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APPLICATION FOR SETTLEMENT OF DISPUTES AND APPEALS TO APPELLATE TRIBUNAL

1. The appropriate Government or the competent authority or any person aggrieved by any direction
or order or decision of the Authority or the adjudicating officer may prefer an appeal to the
Appellate Tribunal.
2. Every appeal made to the Appellate Tribunal shall be preferred within a period of sixty days
from the date on which a copy of the direction is received and accompanied by such fee, as
may be prescribed.
3. The Appellate Tribunal may entertain any appeal after the expiry of sixty days if it is satisfied
that there was sufficient cause for not filling it within that period.
4. On receipt of an appeal, the Appellate Tribunal may after giving the parties an opportunity of
being heard, pass such orders, including interim orders, as it thinks fit.
5. The appeal shall be dealt with by it as expeditiously as possible and endeavour shall be made
by it to dispose of the appeal within a period of sixty days from the date of receipt of appeal.
6. Provided that where any such appeal could not be disposed of within the said period of sixty
days, the Appellate Tribunal shall record its reasons in writing for not disposing of the appeal
within that period.

RESTRICTIONS ON CHAIRPERSON OR JUDICIAL MEMBER OR TECHNICAL OR

ADMINISTRATIVE MEMBER ON EMPLOYMENT AFTER CESSATION OF OFFICE (SECTION 50)
The Chairperson or Judicial Member or Technical or Administrative Member, ceasing to hold
office as such shall not:
1. Accept any employment in, or connected with, the management or administration of, any
person or organisation which has been associated with any work under this Act, from the date
on which he ceases to hold office.
Provided that nothing contained in this clause shall apply to any employment under the
appropriate Government or a local authority or in any statutory authority or any corporation.
2. Act, for or on behalf of any person or organisation in connection with any specific proceeding
or transaction or negotiation or a case to which the Authority is a party and with respect to
which the Chairperson or Judicial Member or Technical or Administrative Member had, before
cessation of office, acted for or provided advice to the Authority,

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3. Give advice to any person using information which was obtained in his capacity as the
Chairperson or Judicial Member or Technical Member.
The Chairperson or Judicial Member or Technical or Administrative Member shall not
communicate or reveal to any person any matter which has been brought under his consideration
or known to him while acting as such.

POWERS OF TRIBUNAL
1. The Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil
Procedure, 1908 but shall be guided by the principles of natural justice.
2. The Appellate Tribunal shall have power to regulate its own procedure.
3. The Appellate Tribunal shall also not be bound by the rules of evidence.
4. The Appellate Tribunal shall have, the same powers as are vested in a civil court, namely:
i. Summoning and enforcing the attendance of any person and examining him on oath,
ii. Requiring the discovery and production of documents,
iii. Receiving evidence on affidavits,
iv. Issuing commissions for the examinations of witnesses or documents,
v. Reviewing its decisions,
vi. Dismissing an application for default or directing it ex parte, and
vii. Any other matter which may be prescribed.

RIGHT TO LEGAL REPRESENTATION

The applicant or appellant may either appear in person or authorise one or more chartered
accountants or company secretaries or cost accountants or legal practitioners or any of its
officers to present his or its case before the Appellate Tribunal or the Regulatory Authority or
the adjudicating officer, as the case may be.

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APPEAL TO HIGH COURT

Any person aggrieved by any decision or order of the Appellate Tribunal may, file an appeal to
the High Court, within a period of sixty days. The High Court may entertain the appeal after
the expiry of the said period of sixty days, if it is satisfied that the appellant was prevented
by sufficient cause from preferring the appeal in time. No appeal shall lie against any decision
or order made by the Appellate Tribunal with the consent of the parties.

REAL ESTATE REGULATORY AUTHORITY AND APPELLATE TRIBUNAL

Real Estate Regulatory Authority regulate transactions related to

both residential and commercial projects.

Appellate Tribunals be required to adjudicate cases in 60 days

Regulatory Authorities has to dispose of complaints in 60 days

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ROLE OF COMPANY SECRETARIES

Advisory Role

Drafting of
Compounding
various
of Offence
Documents

Legal Registration
Representation under RERA

1. A company secretary is one such professional who is responsible for efficient management of
the corporate sector. He ensures compliance of various company legislations and advises
directors on statutory requirements of the company.
2. The Companies Act, 2013 confers a special status to Company Secretary as the key managerial
personnel Every listed company and every other public company having a paid up share capital
of ten crore rupees or more has to appoint a whole time Key Managerial Personnel.
3. Every private company which has a paid up share capital of ten crore rupees or more shall have
a whole -time company secretary.
4. Besides embarking upon traditional areas of practice, Company Secretaries in Practice are
increasingly required to advise and guide on legal aspects of business which intimately concern
areas such as registration under RERA, production, drafting of various documents, sales,
marketing and administration for identifying expansion opportunities, issuing due diligence or
compliance certificate, arranging foreign collaborations, amalgamations, mergers, acquisition.

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COMPANY SECRETARIES – ONE STOP PROFESSIONAL ADVISORY SERVICES FOR REAL

ESTATE PROJECTS
1. Financial Advisory Services,
2. Various applicable provision particular on real estate project,
3. Registration and extension procedure of real estate project with competent authority,
4. Various obligation, functions and duties of promoter in a real estate project,
5. Penal Provisions under the Act,
6. Funding Options for Real Estate Project,
7. Taxation aspects for Real Estate Project,
8. Legal & Regulatory Compliances.

COMPANY SECRETARIES – AS A LEGAL REPRESENTATIVE

A Company Secretary holding certificate of practice can:
1. Represent a person (promoter) before any real estate regulatory authority for registration of
real estate project.
2. Represent a person before real estate appellate tribunal.
3. Represent a person before any other competent authority for any other purpose under Real
Estate (Regulation and Development) Act, 2016.

OFFENCES, PENALTIES AND ADJUDICATION

1. It is obligatory for the promoter to register a project with the Authority, and the promoter fails
to do the same, he shall be liable to a penalty up to ten percent of the estimated cost of the
real estate project.
2. However, in case the promoter consistently defaults, he shall be liable to additional fine of ten
percent of the estimated cost of the real estate project or imprisonment up to 3 years or both.
3. If any promoter provides false information he shall be liable to a penalty, which may extend
up to five per cent of the estimated cost of the real estate project.
4. If any promoter contravenes any other provisions of the Act, he shall be liable to a penalty
which may extend up to five per cent. of the estimated cost of the real estate project as
determined by the Authority.

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5. If any real estate agent fails to comply with or contravenes the provisions, he shall be liable
to a penalty of ten thousand rupees for every day during which such default continues, which
may cumulatively extend up to five per cent of the cost of plot, apartment or buildings, for
which the sale or purchase has been facilitated as determined by the Authority.
6. If any promoter, who fails to comply with, or contravenes any of the orders or directions of
the Authority, he shall be liable to a penalty for every day during which such default continues,
which may cumulatively extend up to five per cent., of the estimated cost of the real estate
project.
7. If any promoter, who fails to comply with, directions of the Appellate Tribunal, he shall be
punishable with imprisonment for a term which may extend up to three years or with fine for
every day during which such default continues, which may cumulatively extend up to ten per
cent. of the estimated cost of the real estate project, or with both.
8. If any real estate agent, who fails to comply with, the orders or directions of the Authority,
he shall be liable to a penalty for every day during which such default continues, which may
cumulatively extend up to five per cent., of the estimated cost of plot, apartment or building,
for which the sale or purchase has been facilitated.
9. If any real estate agent, who fails to comply with, the orders, of the Appellate Tribunal, he
shall be punishable with imprisonment for a term which may extend up to one year or with
fine for every day during which such default continues, which may cumulatively extend up to
ten per cent of the estimated cost of plot, apartment or building, for which the sale or purchase
has been facilitated, or with both.
10. If any allottee, who fails to comply with the orders, decisions of the Authority he shall be
liable to a penalty for the period during which such default continues, which may cumulatively
extend up to five per cent. of the plot, apartment or building cost.
11. If any allottee, who fails to comply with the orders of the Appellate Tribunal, he shall be
punishable with imprisonment for a term which may extend up to one year or with fine for
every day during which such default continues, which may cumulatively extend up to ten per
cent of the plot, apartment or building cost or with both.

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COMPOUNDING OF OFFENCES
If any person is punished with imprisonment under the Act, the punishment may, either before
or after the institution of the prosecution, be compounded by the court.
However the sum prescribed shall not, in any case, exceed the maximum amount of the fine
which may be imposed for the offence so compounded.

POWER TO ADJUDICATE
1. For the purpose of adjudging compensation the Authority shall appoint in consultation with the
appropriate Government one or more judicial officer as deemed necessary, who is or has been
a District Judge to be an adjudicating officer for holding an inquiry.
2. Any person whose complaint is pending before the Consumer Disputes Redressal Forum or the
National Consumer Redressal Commission, on or before the commencement of the Act, he may,
with the permission of such Forum or Commission, as the case may be, withdraw the complaint
pending before it and file an application before the adjudicating officer under this Act.
3. The application for adjudging compensation shall be dealt with by the adjudicating officer as
expeditiously as possible and dispose of the same within a period of sixty days from the date
of receipt of the application.
4. Where any such application could not be disposed of within the said period of sixty days, the
adjudicating officer shall record his reasons in writing for not disposing of the application within
that period.

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Whether the authority has jurisdiction to direct return/refund of the

amount to the allottee under Sections 12, 14, 18 and 19 of the Act or the
jurisdiction exclusively lies with the adjudicating officer under Section 71 of
the Act?
1. “Refund of the amount” and “compensation” are two distinct components
which the allottee or the person aggrieved is entitled to claim if the
promoter has not been able to hand over possession with a nature of enquiry
and mechanism provided under the Act.
2. So far as the claim with respect to refund of amount on demand, it vests
within the jurisdiction of the regulatory authority. Section 71 carves out the
jurisdiction of the adjudicating officer to adjudge compensation.
3. when it comes to refund of the amount, and interest on the refund amount,
or directing payment of interest for delayed delivery of possession, or penalty
and interest thereon, it is the regulatory authority which has the power to
examine and determine the outcome of a complaint.
4. At the same time, when it comes to a question of seeking the relief of
adjudging compensation and interest thereon the adjudicating officer
exclusively has the power to determine, keeping in view the collective reading
of Section 71 read with Section 72 of the Act.
5. If the adjudication under Sections 12, 14, 18 and 19 other than compensation
as envisaged, if extended to the adjudicating officer as prayed that, in our
view, may intend to expand the ambit and scope of the powers and
functions of the adjudicating officer under Section 71 and that would be
against the mandate of the Act 2016.”

FACTORS TO BE TAKEN INTO ACCOUNT BY THE ADJUDICATING OFFICER

While adjudging the quantum of compensation or interest, the adjudicating officer shall have
due regard to the following factors, namely:
1. The amount of disproportionate gain or unfair advantage made as a result of the default,
2. The amount of loss caused as a result of the default,
3. The repetitive nature of the default.

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BAR OF JURISDICTION
No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter
which the Authority or the Adjudicating officer or the Appellate Tribunal is empowered by or
under the Act to determine.

COGNIZANCE OF OFFENCES
No court shall take cognizance of any offence punishable under this Act or the rules or
regulations made thereunder save on a complaint in writing made by the Authority or by any
officer of the Authority duly authorised by it for this purpose.
No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class
shall try any offence punishable under this Act.

DELEGATION
The Authority may, by general or special order in writing, delegate to any member, officer of
the Authority or any other person subject to such conditions, if any, as may be specified in
the order, such of its powers and functions under this Act (except the power to make
regulations under section 85), as it may deem necessary.

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LIFE IS LIKE A MCQ, SOMETIMES IT’S THE CHOICE THAT CONFUSES YOU, NOT THE
QUESTION ITSELF. LET’S CRACK IT!

Important
Points

Adv Chirag Chotrani (B.com, LLB, LLM, Diploma in corporate Law) YES Academy, Pune 8888 235 235 14.32
 Adv. Chirag Chotrani, stands as an esteemed faculty in the
realm of Law. From his days as the distinguished topper of
his batch to his remarkable contributions in nurturing
countless All India Rankers in the field of company
secretaryship, he has consistently showcased his
unrivalled academic prowess.

A commerce graduate, he embarked on a journey of

intellectual growth by completing his LLB from Symbiosis
College in Pune. He further pursued a master's degree in
Corporate Law, displaying an insatiable hunger for
knowledge. However, his quest for expertise did not stop
there. His unyielding passion for learning led him to
specialize in Arbitration Law. He still remains committed to
expanding his intellectual horizons, currently pursuing PhD
in corporate laws.

He is celebrated for his trailblazing initiatives that have

revolutionized the entire CS Fraternity. He fearlessly
launched the first-ever free batch of CSEET. His innovative
methods, such as the introduction of coloured notes,
Analysis sheets, Lori Series, and the
transformative I M Possible revision series, have redefined
the landscape of legal education.
It is no wonder that his students affectionately refer to him
as the "king of law"

Universally respected and admired, he stands as a figure

untouched by negativity, earning the remarkable
Adv. Chirag Chotrani distinction of being the man with no haters. He is
considered a name synonymous with excellence.

Office 30A, 1 Floor, Gate No. 1. Kumar Prestige Point, yesacademy.co.in

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