Assignment No.

- 1

Oppression and Mismanagement

A birds eye view of the present scenario reveals increasing concern about improving the
performance of the Board. This is without a doubt a very imperative issue, but a close analysis of
the ground reality would force one to conclude that the Board is not really central to the
corporate governance malaise in India. The central problem in Indian corporate governance is
not a conflict between management and owners, but a conflict between the dominant
shareholders and the minority shareholders. The Board cannot even in theory resolve this
conflict, as it is composed of those very dominant shareholders upon whom this control needs to
be exercised.

Oppression as per Section 397(1) of Companies Act 1956 has been defined as 'when affairs of
the company are being conducted in a manner prejudicial to public interest or in a manner
oppressive to any member or members'.
In laymans version, Oppression is the exercise of authority or power in a burdensome, cruel, or
unjust manner. It can also be defined as an act or instance of oppressing, the state of being
oppressed, and the feeling of being heavily burdened, mentally or physically, by troubles,
adverse conditions, and anxiety.

The term Mismanagement has been defined under Section 398 (1) as 'conducting the affairs of
the company in a manner prejudicial to public interest or in a manner prejudicial to the interests
of the company or there has been a material change in the management and control of the
company, and by reason of such change it is likely that affairs of the company will be conducted
in a manner prejudicial to public interest or interest of the company.
The primary provision dealing with the Oppression in this act is Sec.397, which was modeled in
the likeliness of Sec. 210 of the English Companies Act 1948. The section prescribes criteria for
maintainability of application for relief in cases of oppression. The impugned act should be
prejudicial to the interest of the company or oppressive upon a member or group of members; or
the act may be prejudicial to general public interest. It is also the burden of the applicant to
satisfy before the Board that winding up the company would unfairly prejudice him or the
class he is representing; but otherwise the facts prima facie would justify that the company be
wound up on just and equitable grounds. The right to apply is given to members as specified in
the definition of minority. Both conditions under this section should subsist in order to entail
relief from the Board. Where there are no allegations to support a winding up, a petition u/s 397
cannot be entertained.

Right to apply to the Company Law Board in case of oppression and/or mismanagement is
provided U/S 399 to the minority shareholders meeting the ten percent shareholding or hundred
members or one-fifth members limit, as the case may be. However, the Central Government is
also provided with the discretionary power to allow any number of shareholders and/or members
to apply for relief under Section 397 and 398 in case the limit provided under Section 399 is not
met.

On the other hand, CA 2013 provides for provisions relating to oppression and mismanagement
under Sections 241-246. Section 241 provides that an application for relief can be made to the
Tribunal in case of oppression and mismanagement. Under CA 2013, the Tribunal may also
waive any or all of the requirements of Section 244(1) and allow any number of shareholders
and/or members to apply for relief. This is a huge departure from the provisions of CA 1956 as
the discretion which was provided to the Central Government to allow any number of
shareholders to be considered as minority is, under the new CA 2013 been given to the Tribunal
and therefore is more likely to be exercised.

Briefly examining a few provisions of Companies Act 1956 vis--vis the provisions of
Companies Act 2013, we get-

1. Provision of Section 397 and 398 of 1956 Act are combined in Section 241 of 2013 Act and
accordingly applications for relief in cases of oppression, mismanagement will have to be
directed to the Tribunal.

2. While the powers of the Tribunal under 1956 Act on application under Section 397 or 398 and
Section 404 were limited, 2013 Act granted additional powers to the Tribunal including to:

(a) restrictions on the transfer or allotment of the shares of the company;

(b) removal of the managing director, manager or any of the directors of the company;
(c) recovery of undue gains made by any managing director, manager or director during the
period of his appointment as such and the manner of utilization of the recovery including transfer
to Investor Education and Protection Fund or repayment to identifiable victims;
(d) the manner in which the managing director or manager of the company may be appointed
subsequent to an order removing the existing managing director or manager of the company;
(e) appointment of such number of persons as directors, who may be required by the Tribunal to
report to the Tribunal on such matters as the Tribunal may direct; and
(f) imposition of costs as may be deemed fit by the Tribunal.

3. The requirement of establishing existence of 'just and equitable' circumstances to waive any
and all requirements of the section pertaining to the meeting the minimum minority limits and
providing 'security' while allowing such an application are excluded from the Companies Act,
2013.

4. Further, by way of Section 245, 2013 Act has introduced the concept of class action which was
non-existent in the previous version of the Act.

Upon careful examination of the provisions of the new Act it can be ascertained that legislative
intent in this Act is to safeguard the minority interest in a more comprehensive manner; though
these sections of 2013 Act is yet to be notified. Thus, we have to be content with the provisions
of the old Act particularly in handling the Oppression and Mismanagement issue.

However, despite the powerful weapon handed over to the shareholders by the Companies Act,
in reality, the shareholders have not been able to use them and most of the provisions remain
dead provisions and have not been used as potential weapons to correct any wrongful act on the
part of the directors or to give them any directions. Consequently, the Board of directors of a
large number of companies is elected only by a few shareholders who attend the Annual General
Meetings and those who can muster sufficient number of proxies and can demonstrate their
voting power. Government Companies is an exception.

In Government Companies all the directors are appointed on the advice of the Government by
the President of India or the Governor of a State. Hence, theoretically it can perhaps be said that
the shareholders democracy is absolute in such companies.
In other companies however, the shareholders democracy is dependent upon the voting strength
of shareholders and also to a great extent on the availability of members attending their General
Meetings either by themselves or through their proxy. This again depends on the proximity of
Registered Office of the company to the place of residence of the shareholders. Apart from this
most of the shareholders do not have enough time to spare from their busy schedules to concern
themselves with the affairs of the company in which they have invested. Besides, they are not
always educated enough and experienced enough to be conversant with the working of the joint
stock companies.

For achieving the shareholders democracy, the shareholders have to unite and organize
themselves on national, state and district levels and get their associations registered under the
Societies Registration Act or any other applicable statute so that their voice is heard and they can
assert themselves and safeguard the interests of their members. Constitution of such associations
should be suitably amended so as to insist upon all the non-Government companies to allot a
minimum number of shares to such associations of shareholders so that these associations can
attend the Annual General Meetings of all the companies and make sure that the directors elected
to company Boards reflect a fair representation.

Assignment No.- 2

Introduction
The Liquidation or winding up a company is a process through which life of company and its all
affairs are wound up and its property administered for benefits of its creditors and members. An
administrator, who is called liquidator, is appoint to take control of company, collect its assents,
pay its debts and finally if any surplus assents are left, they are divided among the members of
the company in proportion to their rights under the articles. This being done the company is
dissolved on compliance within the requisite formalities prescribed by the companies ordinance.

Different modes of winding up a Company

According to Section 297 of ordinance these are the following modes of winding up a company.
1. Winding up by the Court

A company formed and registered under the ordinance, may be wound up by the court. This kind
of winding up is also called compulsory winding up.

Explanation of winding up a company by Court

Following points are important to explanation

i. Special Resolution

As far as winding up of company by court is concerned, company can wound up only when
company has passed special resolution for its winding up and court orders for its winding up on
basis of some specific grounds.

ii. Oppression

If it is conducting its business in a manner oppressive to any member or person concerned with
the formation or minority share-holders.

iii. Inability to pay debts

When is its proved that public company is unable to pay its debts, court can order for its
winding up.

iv. Unauthorized business

If it is carrying on business not authorized by the memorandum.

v. Non-maintenances of accounts

If company fails to maintain its accounts, court can order for its winding up.

vi. Non-holding of Statutory Meeting

When statutory meeting is not held within prescribed period, court can order for winding up of
company.

vii. Non-submission of Statutory Report

When statutory report is not submitted to registrar, court can order for winding up of company.

viii. Failure to commence or suspend business

If the company does not commence its business within a year from its incorporation or suspends
the business for a whole years.

ix. Reduction of members

If the number of member is reduced in the case of a public company, below seven and in the case
of a private company, below two.

x. Failure to carryout directions

If it is managed by person who fail to carry out the directions of the court or Registrar or
commission.

2. Voluntary winding up a Company

The object of a voluntary winding is that the company and its creditors shall be left to settle their
affairs without going to Court, but they may apply to the court for any directions and order if and
when necessary.

Explanation voluntary winding up a company

Following are the points are important to explanation
i. Expiry of period
When the period if any fixed for the duration of the company expires.
ii. Occurrence of events
When the event occurs, on the occurrence of which the articles provide that the company is to be
dissolved and the company has passed a resolution to winding up.
iii. Special Resolution
If the company by a special resolution resolves that the company be wound up voluntarily for
any reason whatsoever.
iv. Extraordinary Resolution
When the company has passed an extra-ordinary resolution that it cannot by reason of its
liabilities carry on its business, and that it is expedient that the company be wound up.
3. Winding up a company under supervision of court
When company has passed special or extra-ordinary resolution for its liquidation or winding up,
court can pass an order on application of creditors, contributors or other persons for conducting
of liquidation or winding up of company under supervision of court.
Conclusion
I say include that bankruptcy of company is not the same thing as winding up a company. There
is difference between bankruptcy of company and winding up of company in bankruptcy of
company, court appoints a trustee to sell property to pay the debts of the bankrupt party. Contrary
to this, liquidator fulfills prescribed procedure for winding up of company.

Assignment-3

Companies incorporated outside India.

In General, a foreign company is a company which is incorporated outside India but having its
place of business in India.

To understand more about Foreign Company, lets discuss some important definitions:

Definition of Body Corporate under Companies Act, 2013

Section 2(11): Body Corporate or Corporation includes a Company incorporated outside

India, but does not include-

i. A co-operative society registered under any law relating to co-operative societies; and

ii. Any other body corporate (not being a company defined in this act), which the Central
Government may by notification specify in this behalf.

Definition of Foreign Company under Companies Act, 2013 vs. Companies Act, 1956:

Foreign Company under Foreign Company as per Companies Act, 2013

Companies Act 1956 Section 591 Section 2(42)

Company incorporated outside India Company or Body Corporate

and having a place of business in incorporated outside India having a place of
India business in India whether by itself or through an
agent, physically or through electronic mode and
conducts any business activity in India in any other
manner.
The Companies Act, 2013 has the potential to impact a large number of Foreign Companies that
may be doing business in India through electronic mode. The registration requirement of
companies doing business in India through electronic mode has been the subject matter of
discussions and debates. Rule 2 (c) of the Companies (Registration of Foreign Companies)
Rules, 2014 defines electronic mode as carrying out electronically based, whether main server
is installed in India or not, including but not limited to-

1. Business to business and business to consumer transactions, data interchange and other
digital supply transactions;
 2. offering to accept deposits or inviting deposits or accepting deposits or subscriptions in
securities in India or from citizens of India;

3. financial settlements, web based marketing, advisory and transactional services, database
services and products, supply chain management;

4. online services such as telemarketing, telecommuting, telemedicine, education and

information research; and

5. all related data communication services.

These transactions may be conducted by e-mail, mobile devices, social media, cloud computing,
document management, voice or data transmission or otherwise.

Impact of change in definition of Foreign Companies

The New Act has drastically expanded the definition of Foreign Companies to include those
foreign companies as well that are doing business in India through electronic mode. As discussed
earlier, Rule 2 (c) defines electronic mode, which definition is wide enough to cover virtually
every transaction carried through electronic mode including through e-mail, mobile devices,
social media, cloud computing, document management, voice or data transmission or otherwise.
Such a wide coverage on transactions done through electronic modes is, therefore, likely to have
a great impact on various foreign companies involved in transactions such as consultancy
services, financial services, e-commerce etc. with their customers in India that would be required
to establish a permanent place of work in India through registration, in order to continue to
operate in the country.

Currently, there are a number of foreign based websites that operate directly or indirectly in India
and may be said to have a place of business in India through electronic mode such as
Amazon.com, Rakuten.com etc., where customers located in India can purchase products and get
the shipment in India. Moreover, eBooks, software, or subscription to e-magazines, dailies or
subscription of other members only websites could be purchased online at many websites that
need no physical shipment to India. The New Act specifically provides that in order to ascertain
 the place of business in India through electronic mode, the main server is not required to be
installed in India.

The bare perusal of the provisions of the New Act (esp. section 380 and section 2 (42) along with
prescribed Rules) suggests that even a single transaction conducted in India by a foreign
company would be sufficient to infer that such foreign company has established a place of
business in India. Such an interpretation would lead to undesirable consequences as any foreign
company e.g. a consultancy company based outside India would require registration in India
even if it undertakes only one single transaction in a whole year. Imagine a situation where a
customer in India buys an application or software worth $1 on a foreign based marketplace
websites like googleplaystore that may not be registered in India. The marketplace websites
could have sellers that are also not registered in India as per the requirement of section 380. In
such a case, it would be absurd to expect that for the sale of a $1 product/service both the seller
company as well as the marketplace owner company be required to get registered under the New
Act. However, as absurd as it may appear, the bare interpretation of the New Act leads to this
conclusion

So from above, it is clear that foreign companies must comply with the provisions of the
Companies Act, 2013 in respect to the business as if it were a company incorporated in India.

The Companies Act, 2013 aims to:

revise and modify the Companies Act, 1956 in consonance with the changes in the
national and international economy;
bring about compactness by deleting the provisions that had become redundant over time
and by regrouping the scattered provisions relating to specific subjects;
re-write various provisions of the Companies Act,1956 to enable easy interpretation;
delink the procedural aspects from the substantive law and provide greater flexibility in
rule making to enable adaptation to the changing economic and technical environment; and,
inculcate the culture of corporate governance in the Indian corporate world.
Compliances for Foreign Companies under Companies Act, 2013 and rules made
thereunder:
 1. Chapter XXII

2. Companies(Registration of Foreign Companies) Rules, 2014

Section 380: Documents etc., to be delivered to Registrar by Foreign Companies:

Every Foreign company is required to submit these documents to the Registrar for registration,
within 30 days of the establishment of its place of business in India:

1. Certified copy of the charter, statutes or memorandum and articles, of the company or
other instrument constituting or defining the constitution of the company and, if the
instrument is not in the English language, a certified translation thereof in the English
language;

2. Full address of the registered or principal office of the company

3. List of the directors and secretary of the company containing such particulars as
prescribed under Rule 3.

4. Name and address or the names and addresses of one or more persons resident in India
authorised to accept on behalf of the company service of process and any notices or other
documents required to be served on the company

5. Full address of the office of the company in India which is deemed to be its principal
place of business in India

6. Particulars of opening and closing of a place of business in India on earlier occasion or

occasions

7. Declaration that none of the directors of the company or the authorized representative in
India has ever been convicted or debarred from formation of companies and management
in India or abroad.

8. Other Documents as may be prescribed.

Rule 3(3) of the Companies (Registration of Foreign Companies) Rules, 2014 requires
application in Form FC-1 to be supported with an attested copy of approval from the Reserve
Bank of India under Foreign Exchange Management Act and the rules and regulations thereunder
or a declaration from the authorised representative of such Foreign Company that no such
approval is required.

And Rule 3(4) provides that in case of any alteration in the aforesaid documents the Foreign
Company is require to submit a return in Form FC-2 containing the particulars of alteration as
per the prescribed format with the Registrar of Companies, within 30 days of any such alteration.

Section 381: Accounts of Foreign Companies:

The Foreign Companies in each calendar year are required to prepare a balance sheet and profit
& loss account in such form, containing such particulars and shall also annex the documents as
prescribed under Rule 4 along with the balance sheet and profit & loss account. All these
documents shall be filed with Registrar of Companies along with a copy of list of all the places
where business has been established in India as on the date of the balance Sheet in Form FC-3.

If any of such documents is not in English Language, a certified translation of these documents
in English Language shall be attached.
 Assignment No. 4

Brief on National Company Law Tribunal (NCLT) & Appellate Tribunal

(NCLAT).

Meaning of NCLT & NCLAT

The NCLT or Tribunal is a quasi-judicial authority created under the Companies Act, 2013 to
handle corporate civil disputes arising under the Act. It is an entity that has powers and
procedures like those vested in a court of law or judge. NCLT is obliged to objectively determine
facts, decide cases in accordance with the principles of natural justice and draw conclusions from
them in the form of orders. Such orders can remedy a situation, correct a wrong or impose legal
penalties/costs and may affect the legal rights, duties or privileges of the specific parties. The
Tribunal is not bound by the strict judicial rules of evidence and procedure. It can decide cases
by following the principles of natural justice.

NCLAT or Appellate Tribunal is an authority provided for dealing with appeals arising out of
the decisions of the Tribunal. It is formed for correcting the errors made by the Tribunal. It is an
intermediate appellate forum where the appeals lie after order of the Tribunal. The decisions of
Appellate Tribunal can further be challenged in the Supreme Court. Any party dissatisfied by any
order of the Tribunal may bring an appeal to contest that decision. The Appellate Tribunal
reviews the decisions of the Tribunal and has power to set aside, modify or confirm it.

Difference between NCLT and NCLAT

The NCLT has primary jurisdiction whereas NCLAT has appellate jurisdiction. NCLAT is a
higher forum than NCLT. Evidence and witnesses are generally presented before NCLT for
taking the decisions and NCLAT generally reviews decisions of NCLT and checks it on a point
of law or fact. Fact finding and evidence collection is primarily a task of Tribunal whereas the
Appellate Tribunal decide cases based on already collected evidences and witnesses.

Background of NCLT

NCLT was conceptualized by Eradi Committee. It was initially introduced in Companies Act,
1956 in 2002 but the provisions of Companies (Second Amendment) Act, 2002 were never
notified as they got mired in litigation surrounding constitutionality of NCLT. 2013 Act was
enacted and the concept of NCLT was retained. However, the powers and functions of NCLT
under 1956 Act and 2013 Act are different. The constitutionality of NCLT related provisions
were again challenged and this case was finally decided in May 2015. The Apex Court upheld
the constitutionality of the concept of NCLT but some of the provisions on constitution and
selection process were found defective and unconstitutional.

Notification of NCLT:

Provisions for constitution of NCLT and NCLAT were notified on 1 st June 2016. In the first
phase powers of CLB are transferred to NCLT. In the next stage the government will move for
second set of notifications by which powers of High Courts and BIFR will also be vested with
NCLT. Along with transfer of powers to NCLT, new powers and functions are also vested in
NCLT.

Transition from CLB to NCLT

The Act has set out in detail the procedure to deal with cases which are pending in various
forums in Section 434. The Government has notified 1 st June 2016 for transfer of matters from
CLB to NCLT. On that date, all the pending proceedings before CLB will be transferred to NCLT
and Tribunal will dispose of such matters in accordance with the provisions of law. Tribunal has
discretion to take up the pending CLB proceeding from any stage. At its discretion, it can take up
the matter at stage where it was left by CLB or start the proceedings afresh or from any stage it
deems fit.

Powers vested in NCLT

Some of the important powers that are presently vested with NCLT are as follows:

1. Class Action:

Protection of the interest of various stakeholders, especially non-promoter shareholders and

depositors, has always been the concern of company law. There were several frauds and
improprieties that were noticed where the key losers were the shareholders and depositors. The
shareholders who invested in listed companies saw their investments and savings drying up when
the companies that they invested in cheated the investors.

The Companies Act, 2013 has provided a very good combination of remedies where the offender
will be punished and the people who are involved (whether it is the company or directors or
auditor or experts or consultants) will be liable even for a civil action (namely class action),
wherein they have to compensate the shareholders and depositors for the losses caused to them
on account of the fraudulent practices or improprieties.

A class action is a procedural device that permits one or more plaintiffs to file and prosecute a
lawsuit on behalf of a larger group, or class. It is in the nature of a representative suit where the
interest of a class is represented by a few of them. A huge number of geographically dispersed
shareholders/depositors are affected by the wrongdoings. It is a useful tool where a few may sue
for the benefit of the whole or where the parties form a part of a voluntary association for public
or private purposes, and may be fairly supposed to represent the rights and interests of the whole.

Section 245 has been introduced in the new company law to provide relief to the investors
against a large set of wrongful actions committed by the company management or other
consultants and advisors who are associated with the company.

Class action can be filed against any type of companies, whether in the public sector or in the
private. It can be filed against any company which is incorporated under the Companies Act,
2013 or any previous Companies Act. The Act provides only one exemption i.e. banking
companies.

2. Deregistration of Companies:
The procedural errors at the time of registration can now be questioned at any time. The Tribunal
is empowered to take several steps, including cancellation of registration and dissolving the
company. The Tribunal can even declare the liability of members unlimited. Sec 7(7) provides
this new way for de- registration of companies in certain circumstances when there is registration
of companies is obtained in an illegal or wrongful manner. Deregistration is a remedy that is
distinct from winding up and striking off.

3. Oppression and Mismanagement:

The remedy of oppression and mismanagement is retained in 2013 Act. The nature of this
remedy has however changed to certain extent and it needs to be seen in light of the changes
made to the Companies Act, 2013. The 2013 Act has reset the bar for oppression to a little lower
level but has set the bar of mismanagement a little higher by applying the test winding up on
just and equitable grounds even to mismanagement matters. The Act permits dilution of the
eligibility criteria with the permission of Tribunal, where a member below the eligibility criteria
can apply in deserving cases.

4. Refusal to Transfer shares:

The power to hear grievance of refusal of companies to transfer securities and rectification of
register of members under Section 58 and 59 of the new Act were already notified and were
being taken up by CLB. Now. The same are transferred to NCLT. The remedy for refusal to
transfer or transmission were restricted only to shares and debentures under 1956 Act. The
provisions for refusal to transfer and transmit under Companies Act, 2013 Act extends to all
securities. These sections gives express recognition to contracts or arrangements for transfer of
securities entered into between two or more persons with respect to shares of a public company
and thus clears any doubts about the enforceability of these contracts.

5. Deposits:

Chapter V dealing with deposits was notified in phases in 2014 and powers to deal with the cases
under it were assigned in CLB. Now the said powers will be vested in NCLT. The law on
deposits is quite distinct under the Companies Act, 2013 as compared to the Companies Act,
1956. The provision for deposits under 2013 Act were already notified. Aggrieved depositors
also have the remedy of class actions for seeking redressal for the acts/omissions of the company
which hurt their rights as depositors.

6. Reopening of Accounts & Revision of Financial Statements:

Several instances of falsification of books of accounts were noticed under the Companies Act,
1956. To counter this menace, several measures have been provided in the Companies Act, 2013.
One such measure is the insertion of Section 130 and 131 read with sec 447, 448 in the new Act.
Section 130 read with sec 131 are newly inserted provisions that prohibit the company from suo
motu opening its accounts or revising its financial statements. This can be done only in the
manner provided in the Act. Section 130 and 131 provides the instances where financial
statements can be revised/reopened. Section 130 is mandatory, where the Tribunal or Court may
direct the company to reopen its accounts when certain circumstances are shown. Section 131
allows company to revise its financial statement but do not permit reopening of accounts. The
company can itself approach the Tribunal under sec 131, through its director for revision of its
financial statement.

7. Tribunal Ordered Investigations:

Chapter XIV provides several powers to the Tribunal in connection with investigations. The most
important powers that are conferred to the Tribunal are:

a) power to order investigation: Under the Companies Act, 2013, only 100 members (as against
200 members required under the Companies Act, 1956) are required to apply for an investigation
into the affairs of a company. Further, the power to apply for an investigation is given to any
person who is able to convince the Tribunal that circumstances exist for initiating investigation
proceedings. An investigation can be conducted even abroad. Provisions are made to take as well
as provide assistance to investigation agencies and courts of other countries with respect to
investigation proceedings.

b) power to investigate into the ownership of the company

c) power to impose restriction on securities: The restriction earlier could be imposed only on
shares. Now, the Tribunal can impose restrictions on any security of the company.
d) power to freeze assets of the company: The Tribunal is given the power to freeze assets of the
company which can not only be used when the company is under investigation, but can also be
initiated at the insistence of a wide variety of persons in certain situations.

8. Conversion of public company into private company

Sections 13, 14, 15 and 18 of the Companies Act, 2013 read with rules regulate the conversion of
public limited company into private limited company. It requires approval from the NCLT.
Approval of the Tribunal is required for such conversion. The Tribunal may at its discretion
impose certain conditions subject to which approvals may be granted (sec 459).

9. Tribunal Convened AGM:

General meetings are required to assess the opinion of shareholders from time to time. The Act
mandatorily requires one meeting to be called, which is termed as the annual general meeting
or AGM. Any other general meeting is termed as extra ordinary general meeting or EOGM.
If the AGM or EOGM cannot be held, called or convened in the manner provided under the Act
or the Rules by the Board or the Member due to certain extraordinary circumstances, then the
Tribunal is empowered under Section 97 and 98 of 2013 Act to convene general meetings under
the Companies Act, 2013. The provisions for convening an annual general meeting and extra
ordinary general meeting in the Companies Act, 2013 are almost similar to the provision
provided in the Companies Act, 1956. However, the draft rules have inserted an additional
provisions that require intimation of such cases to be given to ROC.

10. Compounding of Offence:

Provisions of compounding under the 2013 Act were notified before the constitution of NCLT
and were assigned to CLB. This power will now be vested with NCLT, and all compounding
matters which are above the prescribed monetary limit will be approved by NCLT.

11. Change in Financial Year:

Section 2 (41) also has been already notified on 1 April 2014. The Act requires that every
company or body corporate, new or existing, must have a uniform financial year ending on 31
March. It provides an exception where certain companies can apply to the Tribunal to have a
different financial year. A company or a body corporate can make an application to the Tribunal.
As the Tribunal was not notified at the time when this section was notified, the power to alter the
financial year on application was granted to the CLB. The regulation provides the manner for
making the application to CLB. The same has notified on the site of CLB vide order dated 28
January 2015. All the application that are not disposed of at the time when NCLT provisions are
notified, will also be transferred to the Tribunal.
 Assignment No- 5

The Foreign Exchange Regulation Act (FERA) was legislation passed by the Indian
Parliament in 1973 by the government of Indira Gandhi and came into force with effect from
January 1, 1974. FERA imposed stringent regulations on certain kinds of payments, the dealings
in foreign exchange and securities and the transactions which had an indirect impact on the
foreign exchange and the import and export of currency. The bill was formulated with the aim of
regulating payments and foreign exchange.

FERA was repealed in 1998 by the government of Atal Bihari Vajpayee and replaced by
the Foreign Exchange Management Act, which liberalized foreign exchange controls and
restrictions on foreign investment.

To sum up, in FERA "anything and everything" that has to do something with Foreign Exchange
was regulated. The Experts called it a "Draconian Act" which hindered the growth and
modernization of Indian Industries. The Important aspect of FEMA, in contrast with FERA is
that it facilitates Trade, while that of FERA was that it "prevented" misuse. The focus was shifted
from Control to Management.

FERA :

Regulated in India by the Foreign Exchange Regulation Act(FERA),1973.

Consisted of 81 sections.

FERA Emphasized strict exchange control.

Control everything that was specified, relating to foreign exchange.

Law violators were treated as criminal offenders.

 Aimed at minimizing dealings in foreign exchange and foreign securities.

FERA was introduced at a time when foreign exchange (Forex) reserves of the country were low,
Forex being a scarce commodity. FERA therefore proceeded on the presumption that all foreign
exchange earned by Indian residents rightfully belonged to the Government of India and had to
be collected and surrendered to the Reserve bank of India (RBI). FERA primarily prohibited all
transactions, except ones permitted by RBI.

OBJECTIVES :

To regulate certain payments.

To regulate dealings in foreign exchange and securities.

To regulate transactions, indirectly affecting foreign exchange.

To regulate the import and export of currency.

To conserve precious foreign exchange.

The proper utilization of foreign exchange so as to promote the economic development of

the country.
Conditions that lead to change from FERA to FEMA

Foreign Exchange Regulation Act, 1973 (FERA) in its existing form became ineffective,
therefore, increasingly incompatible with the change in economic policy in the early 1990s.
While the need for sustained husbandry of foreign exchange was recognized, there was an outcry
for a less aggressive and mellower enactment, couched in milder language. Thus, the Foreign
Exchange Management Act, 1999 (FEMA) came into being.

The scheme of FERA provided for obtaining Reserve Banks permission either special or
general, in respect of most of the regulations there under. The general permissions have been
granted by Reserve bank under these provisions in respect of various matters by issuing a large
number of notifications from time to time since the Act came into force from 1 st January 1974.
Special permissions were granted upon the applicants submitting prescribed applications for the
purpose. Thus, in order to understand the operative part of the regulations one had to refer to the
Exchange Control Manual as well as the various notifications issued by RBI and the Central
Government.

FEMA has brought about a sea change in this regard and except for section 3, which relates to
dealing in foreign exchange, etc. no other provisions of FEMA stipulate obtaining RBI
permission. It appears that this is a transition from the era of permissions to regulations. The
emphasis of FEMA is on RBI laying down the regulations rather than granting permissions on
case to case basis. This transition has also taken away the concept of exchange control and
brought in the era of exchange management. In view of this change, the title of the legislation
has rightly been changed to FEMA.

The preamble to FEMA lays down that the Act is 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. As far
as facilitating external trade is concerned, section 5 of the Act removes restrictions on drawl of
foreign exchange for the purpose of current account transactions. As external trade i.e. import /
export of goods & services involve transactions on current account, there will be no need for
seeking RBI permissions in connection with remittances involving external trade. The need to
remove restrictions on current account transactions was necessitated as the country had given
notice to the IMF in August, 1994 that it had attained Article VIII status. This notice meant that
no restrictions will be imposed on remittances of foreign exchange on account of current account
transactions.

Section 5, however, contains a proviso that the Central Government may, in public interest and in
consultation with the Reserve Bank, impose such reasonable restrictions for current account
transactions as may be prescribed. It appears that this is an enabling provision for the Central
Government to impose restrictions on current account transactions in case the situation warrants
such restrictions probably due to foreign exchange crisis in future. This proviso seems to have
been added keeping in view the lessons learnt by certain South-East Asian countries during the
1997-98 crisis which required stricter exchange controls till the crisis was over.

Similarly, section 7 retains controls on exporters.

Though the preamble to FEMA talks about promoting the orderly development and maintenance
of foreign exchange market in India, there are no specific provisions in the Act to attain this
objective.

FERA contained 81 sections (some were deleted in the 1993 amendment of the Act) of which 32
sections related to operational part and the rest covered penal provisions, authority and powers of
Enforcement Directorate, etc. FEMA contains 49 sections of which 12 sections cover operational
part and the rest contravention, penalties, adjudication, appeals, enforcement directorate, etc.
What was a full section under FERA seems to have been reduced to a sub-clause under FEMA in
some cases.

For example,

Section 13 of FERA provided for restrictions on import of foreign currency & foreign
securities. Now this restriction is provided through a sub-clause 6(3)(g).

Section 25 of FERA provided for restrictions on Indian residents holding immovable

properties outside India. Now the restriction is under sub-clause 6(4).

Reduction in the number of sections means nothing. Real quality of liberalization will be known
when all notifications & circulars are finalized & published.

Sr.
DIFFERENCES FERA FEMA
No

PROVISIONS FERA consisted of 81 sections, and FEMA is much simple, and

1
was more complex consist of only 49 sections.

2 FEATURES Presumption of negative intention These presumptions

(Mens Rea ) and joining hands in of Mens Rea and abatement
 offence (abatement) existed in have been excluded in FEMA
FERA

NEW TERMS IN Terms like Capital Account Terms like Capital Account
FEMA Transaction, current Account Transaction, current account
Transaction, person, service etc. Transaction person, service etc.,
3
were not defined in FERA. have been defined in detail in
FEMA

DEFINITION OF Definition of "Authorized Person" The definition of Authorized

AUTHORIZED in FERA was a narrow one ( 2(b) person has been widened to
4 PERSON include banks, money changes,
off shore banking Units etc. (2
(c)

5 MEANING OF There was a big difference in the The provision of FEMA, are in
"RESIDENT" AS definition of "Resident", under consistent with income Tax Act,
COMPARED FERA, and Income Tax Act in respect to the definition of
WITH INCOME term" Resident". Now the
TAX ACT. criteria of "In India for 182
days" to make a person resident
has been brought under FEMA.
Therefore a person who qualifies
to be a non-resident under the
income Tax Act, 1961 will also
be considered a non-resident for
the purposes of application of
FEMA, but a person who is
considered to be non-resident
under FEMA may not
necessarily be a non-resident
 under the Income Tax Act, for
instance a business man going
abroad and staying therefore a
period of 182 days or more in a
financial year will become a
non-resident under FEMA.

PUNISHMENT Any offence under FERA, was a Here, the offence is considered
criminal offence , punishable with to be a civil offence only
imprisonment as per code of punishable with some amount of
6 criminal procedure, 1973 money as a penalty.
Imprisonment is prescribed only
when one fails to pay the
penalty.

QUANTUM OF The monetary penalty payable under Under FEMA the quantum of
PENALTY. FERA, was nearly the five times the penalty has been considerably
7
amount involved. decreased to three times the
amount involved.

APPEAL An appeal against the order of The appellate authority under

"Adjudicating office", before " FEMA is the special
Foreign Exchange Regulation Director ( Appeals) Appeal
Appellate Board went before High against the order of Adjudicating
Court Authorities and special Director
8
(appeals) lies before "Appellate
Tribunal for Foreign Exchange."
An appeal from an order of
Appellate Tribunal would lie to
the High Court. (sec 17,18,35)

9 RIGHT OF FERA did not contain any express FEMA expressly recognizes the
ASSISTANCE provision on the right of right of appellant to take
 DURING on implead-person to take legal assistance of legal practitioner or
LEGAL assistance chartered accountant (32)
PROCEEDINGS.

POWER OF FERA conferred wide powers on a The scope and power of search
SEARCH AND police officer not below the rank of and seizure has been curtailed to
10
SEIZE a Deputy Superintendent of Police a great extent
to make a search