FINAL EXAMINATION SET - 2

MODEL ANSWERS TERM – JUNE 2025

PAPER – 13 SYLLABUS 2022
CORPORATE AND ECONOMIC LAWS
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1) Choose the correct option: [15x2=30]

XYZ Pvt. Ltd., a private limited company registered under the Companies Act, 2013, currently has five
directors on its board. As per its Articles of Association, the maximum permissible number of directors is
seven. At the forthcoming Annual General Meeting (AGM), two directors—Mr. A and Ms. B—are due to
retire by rotation. The board intends to reappoint Mr. A and induct Ms. C as a new director, despite her not
being a shareholder of the company.
In addition, the board plans to appoint Mr. D as an Additional Director to oversee a specific project, with
the intention of formalizing his appointment at the subsequent AGM. Meanwhile, a group of shareholders
holding 15% of the voting rights has proposed Mr. E's nomination as a director to represent minority
shareholders.
Answer the question from (i) to (iv) based on the above case study.

(i) Under which section of the Companies Act, 2013 does the Board have the authority to appoint an
Additional Director?
a) Section 161.
b) Section 145.
c) Section 182.
d) Section 98.

(ii) Can Ms. C be appointed as a director in XYZ Pvt. Ltd.

a) No, only shareholders can be appointed as directors
b) Yes, if permitted by its Articles
c) Yes, under the provision of Companies Act, 2013
d) Only with approval of ROC

(iii) What is the minimum notice period required for recommending the name of a Mr. E for directorship
under Section 160 of the Companies Act, 2013?
a) 7 days before the AGM
b) 14 days before the AGM
c) 28 days before the AGM
d) 30 days before the AGM

(iv) What is the requirement under the Companies Act, 2013 for a director to be reappointed (like Mr. A)
after retirement by rotation?
a) Special resolution

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CORPORATE AND ECONOMIC LAWS
b) Board resolution only
c) Ordinary resolution at AGM
d) No resolution needed

(v) Shifting of registered office of a company from one state to another requires
a) Alteration of MOA only
b) Alteration of MOA and Central Govt.(CG) approval
c) only CG approval
d) only Board approval

(vi) For Board meeting, quorum as per the Companies Act, 2013 is:
a) Two third of the total no. of directors
b) One third of the total no. of directors
c) Half of the total no. of directors
d) None of the above.

(vii) Insolvency and Bankruptcy code 2016 is not applicable on:

a) Partnership Firms and Individuals
b) Limited Liability Partnership (LLP)
c) Companies Incorporated under Companies Act
d) Financial Service Providers

(viii) Corporate governance is close to:

a) ethical conduct of business
b) managerial conduct of business
c) target oriented business
d) none of the above

(ix) The regulatory authority for the Insolvency and Bankruptcy Code (IBC) in India is
a) Debt Recovery Tribunal (DRT)
b) National Company Law Tribunal (NCLT)
c) Supreme Court of India
d) Insolvency and Bankruptcy Board of India (IBBI)

(x) The cases under PMLA can be tried in:

a) Common courts
b) High courts only
c) Special designated courts
d) none of the above.

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CORPORATE AND ECONOMIC LAWS

(xi) Which of the following is not the objective of Competition Act, 2002?
a) To prevent practices having adverse effect on competition.
b) To prevent competition in market
c) To protect the interest of the consumers
d) To ensure freedom of trade carried on by the other participant in marketing India and for
matter connected there with or incidental thereto.

(xii) The purpose of the SEBI Act is to provide for the establishment of a Board called Securities and
Exchange Board of India (SEBI). The Preamble to the Act provides for the establishment of a
Board to:
a) Protect the interests of investors in securities
b) Promote the development of the securities market
c) To regulate the securities market
d) All of the above

(xiii) Credit facilities in the ordinary course of business is an example of

a) Capital account transaction
b) Current account transaction
c) Either (a) or (b)
d) None of the above

(xiv) Insurance business is regulated by:

a) SEBI
b) RBI
c) MCA
d) none of the above

(xv) Which among the following is a Cybercrime under the IT Act?

a) Tampering with Computer source documents.
b) Hacking with Computer systems, Data alteration.
c) Publishing obscene information.
d) All of the above

Answer:

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv)
a c b c b b d a d c b d b d d

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CORPORATE AND ECONOMIC LAWS

SECTION – B
Answer any 5 questions out of 7 questions given. Each question carries 14 marks. [5 x 14 = 70]

2) (a) Discuss the legal provisions related to the prohibition on acceptance of deposits from the public by
companies under section 73 of the Indian Companies Act, 2013. [7]
(b) Describe how a managing director, whole time director or manager is appointed by a company. [7]

Answer:

(a) Prohibition on acceptance of deposits from the public by companies under section 73 of the Indian
Companies Act, 2013 are:
 No company can invite, accept or renew deposits under this Act from the public except in a manner
provided under this Chapter.
Provided that nothing in this Sub-Section shall apply to a banking company and non-banking financial
company and to such other company as the Central Government may, after consultation with the
Reserve Bank of India, specify in this behalf.
 A company may, with the mandate of a resolution in general meeting and subject to such rules as
may be prescribed accept deposits from its members on such terms and conditions, including the
provision of security, if any, or for the repayment of such deposits with interest, as may be agreed
upon between the company and its members, subject to the fulfilment of the following conditions,
namely:
(1) issuance of a circular to its members including therein a statement showing the financial
position of the company, the credit rating obtained, the total number of depositors and the
amount due towards deposits in respect of any previous deposits accepted by the company and
such other particulars in such form and in such manner as may be prescribed.
(2) filing a copy of the circular along with such statement with the Registrar within thirty days
before the date of issue of the circular.
(3) depositing on or before 30th April each year such sum which shall not be less than twenty per
cent of the amount of its deposits maturing during a financial year, and kept in a scheduled
bank in a separate bank account to be called as deposit repayment reserve account.
(4) certifying that the company has not committed any default in the repayment of deposits
accepted either before or after the commencement of this Act or payment of interest on such
deposits, and where the default has occured, the company made good the default and five years
have elapsed since then.
(5) providing security, if any for the due repayment of the amount of deposit or the interest thereon
including the creation of such charge on the property or assets of the company.
Provided that in case where a company does not secure the deposits or secures such deposits partially,
then, the deposits shall be termed as ‘unsecured deposits’ and shall be so quoted in every circular,
form, advertisement or in any document related to invitation or acceptance of deposits.

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CORPORATE AND ECONOMIC LAWS
 Every deposit accepted by a company shall be repaid with interest in accordance with the terms and
conditions.

 Where a company fails to repay the deposit or part thereof or any interest thereon under Sub-Section
(3) the depositor concerned may apply to the Tribunal for an order directing the company to pay the
sum due or for any loss or damage incurred by him as a result of such non-payment and for such
other orders as the Tribunal may deem fit.

 The deposit repayment reserve account referred to in clause (c) of Sub-Section (2) shall not be used
by the company for any purpose other than repayment of deposits. The detailed procedure is
mentioned under Companies (Acceptance of Deposits) Rules, 2014. Some of the Rules are
summarised and placed below for understanding.

(b) Section 196 of the Companies Act,2013 contain the provisions for appointment of Managing Director,
Whole Time Director or Manager. According to this section:
(1) No company shall appoint or employ a managing director and a manager at the same time.
(2) No company shall appoint or re-appoint any person as its managing director, whole time director or
manager for a term exceeding five years at a time, provided that no re-appointment shall be made
earlier than one year before the expiry of his term.
(3) No company shall appoint or continue the employment of any person as managing director, whole-
time director or manager who:
 is below the age of 21 years or has attained the age of 70 years. Person who has attained the
age of seventy years may be appointed by the passing of a special resolution.
 is an undischarged insolvent or has at any time been adjudged as an insolvent, or
 has at any time suspended payment to his creditors or makes, or has at any time made, a
composition with them, or
 has at any time been convicted by a court of an offence and sentenced for a period of more
than six months.
(4) Schedule V to the Companies Act, 2013, prescribes additional conditions for managing or whole-
time director or a manager to be eligible for appointment. The schedule stipulates that:
 he had not been sentenced to imprisonment for any period, or to a fine exceeding one thousand
rupees, for the conviction of an offence under 16 Acts as specified under Schedule V.
 he had not been detained for any period under the Conservation of Foreign Exchange and
Prevention of Smuggling Activities Act, 1974:
 where he is a managerial person in more than one company, he draws remuneration from one
or more companies subject to the ceiling provided in section V of Part II.
 he is resident of India.
In this context, ‘resident in India’ includes a person who has been staying in India for a continuous period
of not less than twelve months immediately preceding the date of his appointment as a managerial person
and who has come to stay in India,
a. for taking up employment in India; or

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CORPORATE AND ECONOMIC LAWS
b. for carrying on a business or vacation in India.
 Where an appointment not approved by AGM, any Act done by him deemed to be invalid.

3) (a) Discuss the duties and liabilities of directors under the provisions of the Companies Act, 2013. [7]
(b) Discuss the provisions related to investigation by Serious Fraud Investigation Office (SFIO). [7]
Answer:
(a) Duties of Directors
Duties of directors has been defined in the company Law under section 166 of the Companies Act, 2013.
The following duties have been prescribed for a director under the said section:
 He shall act in accordance with the articles of the company, subject to the provisions of this Act.
 He shall act in good faith in order to promote the objects of the company and in the best interests of
the company, its employees, the shareholders, the community and for the protection of environment.
 He shall exercise his duties with due and reasonable care, skill and diligence and shall exercise
independent judgment.
 He shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or,
with the interest of the company.
 He shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his
relatives, partners, or associates.
 He shall not assign his office.
The duties of directors are also mentioned in other provisions of the Act rules. The code of conduct which is
now introduced also specifies few duties.

Liabilities of Directors
The liabilities of the directors may be grouped under certain heads for convenience of consideration and
discussion. They are:

 Liability to outsiders
Directors of a company may personally become liable to outside parties in the following cases:
(a) When they enter into contracts on behalf of the company:
(1) if the contracts are ultra vires the company;
(2) if they act outside the scope of their own authority;
(3) if they act in their own name and not for and on behalf of the company;
(b) When they issue a prospectus; in violation of the provisions of the Companies Act, 2013 and the
SEBI (ICDR) Regulations which contains mis-statements(s).
(c) When they are found guilty of fraud.
(d) When they allot shares in an irregular manner.
(e) When the Court orders that the directors are personally liable for all or any of the debts or
liabilities of the company for fraudulent trading on the part of the company.

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CORPORATE AND ECONOMIC LAWS
 Liability to the Company
The directors are liable to the company in the following cases:
(a) When they are negligent in the performance of their duty as directors and the company suffers
loss, etc.
(b) When they commit an act which is ultra vires their powers or ultra vires the company.
(c) When any illegal act or breach of trust is committed by them.

 Liability to the shareholders

The position of the directors in respect of the company’s properties and the rights conferred upon
them to be exercised as directors is that of a trustee. If they commit any breach of trust or indulge in
wrongful uses of their rights and the company suffers loss, they have to make good the loss.
Similarly, if shareholders suffer loss due to the negligence of the directors they are personally liable
for the loss.

 Liability for statutory defaults and violations.

Under the Companies Act, 2013 the directors are required to ensure compliance with the several
provisions of the Act and penalties have been prescribed for defaults and/or non-compliance. The
directors are liable for consequences.

(b) The Central Government have established an office called the Serious Fraud Investigation Office (SFIO) to
investigate frauds relating to a company.
Section 212 of the Act provides for Investigation into affairs of Company by the Serious Fraud Investigation
Office (SFIO). According to this section:
 where the Central Government:
(1) on receipt of a report of the Registrar or Inspector under section 208;
(2) on intimation of a special resolution passed by a company that its affairs are required to be
investigated.
(3) in the public interest, or
(4) on request from any Department of the Central Government or a State Government, is of the
opinion that it is necessary to investigate into the affairs of a company by the Serious Fraud
Investigation Office (SFIO), the Central Government may, by order, assign the investigation into
the affairs of the said company to the SFIO.
 No other investigating agency of Central Government or any State Government shall proceed
with investigation in such case in respect of any offence under this Act. In case any such
investigation has already been initiated, the concerned agency shall transfer the relevant
documents and records in respect of such offences under this Act to facilitate SFIO to investigate.
 The Director, Serious Fraud Investigation Office shall cause the affairs of the company to be
investigated by an Investigating Officer who shall have the power of the inspector under section
217.
 The company and its officers and employees, who are or have been in employment of the
company shall be responsible to provide all information, explanation, documents and assistance

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CORPORATE AND ECONOMIC LAWS
to the Investigating Officer as he may require for conduct of the investigation.
 The SFIO shall submit an interim report and on completion, final report to the Central
Government.
 Any person concerned by making an application in this regard to the court may get a copy of the
report.
 The Central Government may, after examination of the report, direct the SFIO to initiate
prosecution against the company and its officers or employees, who are or have been in
employment of the company or any other person directly or indirectly connected with the affairs
of the company.

4) (a) RR Ltd. is a public limited company, having its registered office in Bengaluru, and has been in existence
since March, 2010. The following is the summarised position of its financial results for the past four
years (in crores)

Particulars 2019-20 2020-21 2021-22 2022-23

Net worth 303 319 368 503
Turnover 500 490 680 890
Net profit 6.1 6.9 7.9 8.9

In the light of above facts, examine the following issues:

(i) Does the company come within the purview of CSR Regulations?
(ii) Is CSR Committee required to be formed?
(iii) What will be the minimum budget for CSR compliance, for the year 2023-24
(iv) What are the other CSR obligations under the provisions of the Companies Act, 2013 [7]

(b) Gautam of Uttar Pradesh incorporated a One Person Company (OPC). In compliance to law, he
appointed his brother Rohit as nominee. Both are resident Indian citizens. On 12/02/2024, Rohit left
India permanently to settle in Dubai and he has withdrawn his nomination. You are required to examine
the following issues in the light of the provisions of the Companies Act, 2013:
(i) What action shall be taken by Gautam when he gets notice of withdrawal of nomination and within
what time limit?
(ii) Gautam wants to appoint his minor son (Abhijit). Can Gautam appoint his minor son (Abhijit) as
nominee in OPC? Examine, with relevance, the correctness of the same. [7]
Answer:
(a) Whether RR Ltd comes within the purview of CSR Regulations
(i) As per section 135(1) of the Companies Act, 2013, the CSR regulations will apply where any of the
following conditions are fulfilled:
• Net worth of ₹500 crores or more, or
• Turnover of ₹1000 or more, or
• Net profit of ₹5 crores
Since RR Ltd. fulfils the net profit criteria, CSR Regulations will apply.

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CORPORATE AND ECONOMIC LAWS
(ii) Formation of CSR Committee Yes, where a company comes under the purview of section 135 of the
Act, CSR Committee is required to be formed.
(iii) Minimum budget for CSR for 2023-24 Average profits for the last 3 years = 6.9+7.9+8.9=23.7/3 =
7.9 crores Minimum budget for CSR for 2023-24= 2% of 7.9 = ₹15.8 lakhs
(iv) Other CSR obligations
• The amount has to be spent before the end of the financial year.
• The details of the CSR spending have to be furnished in the Report of the Board of Directors.
• Form CSR 1 has to be filed.

(b) Action to be taken by Gautam when he gets notice of withdrawal of nomination

(i) In case of OPC, the Shareholder shall nominate another person who shall become the shareholders in
case of death/incapacity of the original shareholder. Such nominee shall give his/her consent and such
consent for being appointed as the Nominee for the sole Shareholder. The company shall within thirty
days of receipt of the notice of withdrawal of consent, file with the Registrar,
 notice of such withdrawal of consent,
 the intimation of the name of another person nominated by him in Form No INC.4, and
 the written consent of such another person so nominated in Form No.INC.3.
along with fee as provided in the Companies (Registration offices and fees) Rules, 2014

(ii) Correctness of nomination of minor son in the OPC

As per the Companies (Incorporation) Rules, 2014, a minor cannot become member or nominee of the
OPC nor can hold share with beneficial interest.
In view of this, Gautam‘s minor son Abhijit Cannot be appointed as nominee.

5. (a) Analyse the provisions related to internal audit under section 138 of the Companies Act,2013. [7]
(b) A Ltd. intends to initiate voluntary liquidation proceedings. In this regard, a declaration by way of
affidavit has been submitted by some of the directors of the company, stating that a full inquiry into the
affairs of the company has been conducted and that the company will be able to repay its debts in full
from the proceeds of asset sales during the liquidation process.
Based on this scenario, analyze whether A Ltd. is in compliance with the conditions for initiating
voluntary liquidation under the provisions of the Insolvency and Bankruptcy Code, 2016.
Also, specify the documents that must accompany such a declaration. [7]
Answer:

(a) Section 138 of the Companies Act, 2013 came into force from 1st April, 2014 which provides first time new
provision for internal audit. According to Section 138 of the Companies Act, 2013 and the Companies
(Accounts) Rules, 2014:
 Companies required to appoint Internal Auditor
(1) The following class of companies shall be required to appoint an internal auditor which may be either
an individual or a partnership firm or a body corporate , namely:
a. every listed company
b. every unlisted public company having:

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CORPORATE AND ECONOMIC LAWS
i) paid up share capital of ₹50 crores or more during the preceding financial year, or
ii) turnover of ₹200 crores or more during the preceding financial year, or
iii) outstanding loans or borrowings from banks or public financial institutions exceeding ₹100
crores or more at any point of time during the preceding financial year, or
iv) outstanding deposits of ₹25 crores or more at any point of time during the preceding financial
year, and
c. every private company having:
i) turnover of ₹200 crores or more during the preceding financial year, or
ii) outstanding loans or borrowings from banks or public financial institutions exceeding ₹100
crores or more at any point of time during the preceding financial year.
(2) The Audit Committee of the company or the Board shall, in consultation with the Internal Auditor,
formulate the scope, functioning, periodicity and methodology for conducting the internal audit.
 Transitional period
An existing company covered under any of the above criteria shall comply with the requirements of
Section 138 and this rule within 6 months of commencement of such Section.
 Who is Internal Auditor
(a) Internal Auditor shall either be a chartered accountant or a cost accountant, or such other professional
as may be decided by the Board to conduct internal audit of the functions and activities of the
company. Here, the term “Chartered Accountant” or “Cost Accountant” shall mean a “Chartered
Accountant” or a “Cost Accountant”, as the case may be, whether engaged in practice or not.
(b) The internal auditor may or may not be an employee of the company.

(b) Legal Provisions under Section 59 – Voluntary Liquidation

Voluntary liquidation proceedings of a corporate person registered as a company shall meet the following
conditions, namely: -
(a) a declaration from majority of the directors of the company verified by an affidavit stating that -
(i) they have made a full inquiry into the affairs of the company and they have formed an opinion that
either the company has no debt or that it will be able to pay its debts in full from the proceeds of assets
to be sold in the voluntary liquidation; and
(ii) the company is not being liquidated to defraud any person;
(b) the declaration under sub-clause (a) shall be accompanied with the following documents, namely: -
(i) audited financial statements and record of business operations of the company for the previous two
years or for the period since its incorporation, whichever is later;
(ii) a report of the valuation of the assets of the company, if any prepared by a registered valuer;

Analysis of the Given Situation

In the present case:
 X Ltd. intends to initiate voluntary liquidation.
 A declaration by affidavit has been made by some of the directors of the company.
 The declaration includes a statement that a full inquiry has been conducted and that the company will
be able to pay its debts in full from the proceeds of asset sales.

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However, as per Section 59(3)(a) of the Code, the declaration must be made by the majority of the directors
of the company. Since only some of the directors have provided the affidavit, the requirement is not satisfied.
Furthermore, another mandatory element of the declaration that the company is not being liquidated to
defraud any person is not mentioned in the given scenario. This omission makes the declaration non-
compliant with the IBC.
Therefore, based on the analysis, X Ltd. cannot initiate voluntary liquidation in its current state of compliance.

6. (a) Discuss the objectives and benefits of corporate governance. [7]

(b) Analyse the data protection law in India. [7]

Answer :
(a) Following can be taken as objectives of corporate governance.
1. Company to justifiably satisfy the stakeholders by balancing conflict of interest amongst the
stakeholders;
2. Company adopts transparent, logical and justifiable polices effecting the stakeholders in all areas of
management;
3. Ideal composition of the board of directors: to justify independence if decision making; this is now
regulated under LODR.
4. Optimum use of resources of the company the resources belong to shareholders and thereafter the
employees, Customers, financiers are also effected if the resources available is not properly used.
5. To reduce risks by following risk management through due diligence process.
6. Establishing strong relationship of trust between the company and the stakeholders which enhances the
value of the company.
Benefits of Corporate Governance
1. Better governed company is essential for growth and stabilization
2. Reputation of the company will enhance one people know that you are a honest or good governed
company.
3. Better use of funds of the company, which may be fines collected from public of the company by the
managers.
4. Better management of resources which are available to the company.
5. Better governed ensures long term and steady growth.
6. Establishing stakeholders’ confidence
7. Leverage of competitive advantages
8. Alliances with other companies are easy as others are interested to be associated with your company.

(b) India currently is not having a separate data protection law and when the Information Technology Act, 2000
(hereinafter referred to as the “IT Act”) first came into force on October 17, 2000 it lacked provisions for
protection and the procedure to be followed to ensure the safety and security of sensitive personal
information of an individual. This was taken care of in Information Technology (Amendment) Act, 2008
whose provisions came into force on October 27, 2009. Section 43A was inserted in the IT Act and the
Central Government, notified the Information Technology (Reasonable security practices and procedures

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and sensitive personal data or information) Rules, 2011. The right to privacy in India was declared a
fundamental right by the Hon’ble Supreme Court of India on August 24, 2017,
Important Provisions of IT Act related to Data Protection
 Section 43A of the IT Act explicitly provides that whenever a corporate body possesses or deals with
any sensitive personal data or information, and is negligent in maintaining a reasonable security to
protect such data or information, which thereby causes wrongful loss or wrongful gain to any person,
then such body corporate shall be liable to pay damages to the person(s) so affected.
 Further, Section 72A provides for the punishment for disclosure of information in breach of lawful
contract and any person may be punished with imprisonment for a term not exceeding three years, or
with a fine not exceeding up to five lakh rupees, or with both in case disclosure of information is made
in breach of lawful contract.

7. (a) Discuss the obligations of the acquirer and the target company under takeover Regulations. [7]
(b) Analyse the powers of the Competition Commission of India to pass orders after finding contravention
of Section 3 of the Competition Act, 2002 or abuse of dominant position by an enterprise. [7]
Answers:

(a) Obligations of the acquirer

(a) To ensure that firm financial arrangements have been made for fulfilling the payment obligations under
the open offer.
(b) to ensure able to implement the open offer, subject to any statutory approvals for the open offer that may
be necessary.
(c) acquirer shall not alienate any material assets of the target company or of any of its subsidiaries, whether
by way of sale, lease, encumbrance or otherwise outside the ordinary course of business, unless the
acquirer the acquirer has not declared an intention in the detailed public statement and the letter of offer.
If such intention wasn’t declared, then for alienation - special resolution via postal ballot is required and
notice must mention the reasons for such alienation.
(d) the acquirer and persons acting in concert with him shall not sell shares of the target company held by
them, during the offer period.
(e) the acquirer and persons acting in concert with him shall be jointly and severally responsible for
fulfillment of applicable obligations under takeover code.
Obligations of the target company
(i) the board of directors of such target company shall ensure that during the offer period, the business of
the target company is conducted in the ordinary course consistent with past practice.
(ii) the target company shall be prohibited from fixing any record date for a corporate action on or after the
third working day prior to the commencement of the tendering period and until the expiry of the
tendering period.
(iii) furnish to the acquirer within two working days from the identified date, a list of shareholders as per the
register of members of the target company containing names, addresses, shareholding and folio number,
in electronic form, wherever available, and a list of persons whose applications, if any for registration
of transfer of shares are pending with the target company

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(iv) during the offer period:
(a) unless the approval of shareholders of the target company by way of a special resolution by postal
ballot is obtained, the board of directors of either the target company or any of its subsidiaries shall
not —
(b) alienate any material assets whether by way of sale, lease, encumbrance or otherwise or enter into
any agreement therefor outside the ordinary course of business.

(b) Where after inquiry the Commission finds that any agreement referred to in section 3 or action of an enterprise
in a dominant position, it may pass all or any of the following orders, namely:
(a) direct any enterprise or association of enterprises involved in such agreement, or abuse of dominant
position, to discontinue and not to re-enter such agreement or discontinue;
(b) impose such penalty, as it may deem fit: However, in case any agreement referred to in section 3 has
been entered into by a cartel, the Commission may impose upon each producer, seller, distributor, trader
or service provider included in that cartel, a penalty of up to three times of its profit for each year of the
continuance of such agreement or ten percent. of its turnover for each year of the continuance of such
agreement, whichever is higher.
Provided that in case any agreement referred to in section 3 has been entered into by a cartel, the
Commission may impose upon each producer, seller, distributor, trader or service provider included in
that cartel, a penalty of up to three times of its profit for each year of the continuance of such agreement
or ten per cent. of its turnover for each year of the continuance of such agreement, whichever is higher
(c) direct that the agreements shall stand modified to the extent and in the manner as may be specified in
the order by the Commission;
(d) direct the enterprises concerned to abide by such other orders as the Commission may pass and comply
with the directions, including payment of costs, if any;
(e) pass such other order or issue such directions as it may deem fit
While passing orders under this section, if the Commission comes to a finding, that an enterprise in
contravention to section 3 or section 4 of the Act is a member of a group other members of such a group
are also responsible for, or have contributed to, such a contravention, then it may pass orders, under this
section, against such members of the group.

8. (a) Discuss the procedure of investigation under the Prevention of Money Laundering Act,2002. [7]
(b) Analyse the role of the Reserve Bank of India in formulation of monetary, banking and financial policies.
[7]
Answer:
(a) PMLA empowers certain officers of the Directorate of Enforcement to carry out investigations in cases
involving offence of money laundering and also to attach the property involved in money laundering. PMLA
envisages setting up of an Adjudicating Authority to exercise jurisdiction, power and authority conferred by
it essentially to confirm attachment or order confiscation of attached properties. It also envisages setting up
of an Appellate Tribunal to hear appeals against the order of the Adjudicating Authority and the authorities
like Director FIU-IND.
PMLA envisages designation of one or more courts of sessions as Special Court or Special Courts to try the

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offences punishable under PMLA and offences with which the accused may, under the Code of Criminal
Procedure 1973, be charged at the same trial.
The Act provides for reciprocal arrangements for processes/assistance with regard to accused persons. In
order to enlarge the scope of this Act. The Act provides for bilateral agreements between countries to
cooperate with each other and curb the menace of money laundering. These agreements shall be for the
purpose of either enforcing the provisions of this Act or for the exchange of information which shall help in
the prevention in the commission of an offence under this Act or the corresponding laws in that foreign State.
Special Courts have been set-up in a number of States / UTs by the Central Government to conduct the trial
of the offences of money laundering. The authorities under the Act like the Director, Adjudicating Authority
and the Appellate Tribunal have been constituted to carry out the proceedings related to attachment and
confiscation of any property derived from money laundering.
The Government has constituted the Financial Intelligence Unit, India, in November, 2004, headed by
Director in the rank of a Joint Secretary to the Government of India. The organization has become functional
and has started receiving Cash Transaction Reports and Suspicious Transactions Reports from the banking
companies etc. in terms of Section 12 of the PMLA.
Powers of investigation and prosecution for offences under the Act have been conferred on the Director,
Enforcement Directorate.
In addition, the Adjudicating Authority in terms of section 6 of the Act and the Appellate Tribunal under
section 25 of the Act have also been constituted and have become functional.

(b) Since its inception Reserve Bank has been playing key role in the formulation of monetary, banking and
financial policies. To facilitate the transition process and in order to effectively perform its varying roles in
the changing banking scenario, from ‘regulator’ to ‘facilitator’ over the period, Department has undergone
various organizational changes and so also in its activities, approach and functioning.

(i) Inspection of banks

Reserve Bank of India has been empowered under Banking Regulation Act, 1949 to conduct the
inspection of banks and regulate them in the interest of banking system, banking policy and
depositors/public.

(ii) Regulatory role of commercial banks

Department of Banking Operations and Development exercises regulatory powers in respect of
commercial banks and Local Area Banks (LABs). The Department of Banking Operations and
Development is entrusted with the responsibility of regulation of commercial banks and LABs under
the regulatory provisions contained in the Banking Regulation Act, 1949 and the Reserve Bank of India
Act, 1934 and other related statutes besides enunciation of banking polices. It’s functions broadly relate
to prescription of regulations for compliance with various provisions of Banking Regulation Act on
establishment of banks such as licensing and branch expansion, maintenance of statutory liquidity
reserves, management and operations, amalgamation, reconstruction and liquidation of banking
companies.

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(iii) Anti - money laundering under PMLA
RBI has a role in PMLA by creating an anti money laundering Cell (AML Cell) for combating Financing
of Terrorism (CFT) and tracking domestic and global developments in AML and CFT.

(iv) Approval/ monitoring of Board level appointments of commercial banks.

The key activity of the section, appropriately named as Appointments Section, relate
 Approval of proposals from the domestic private sector banks for appointment/ removal of part-
time Chairman/Managing Director/ whole-time Chairman and Chief Executive Officers. Ensuring
compliance with the provisions of the Banking Regulation Act, 1949 with regard to the composition
of the Board of Directors of commercial banks in the private sector.
 Making recommendations to Government regarding appointment of Executive Directors/Chairmen
& Managing Directors of public sector banks, fixation of their salaries, payment of superannuation
benefits and other allied matters.
 Making recommendations to Government regarding appointment of non-official directors, non-
workmen directors and RBI Nominee Directors on the Boards of Nationalised banks.

(v) licensing of branches

(a) issue of authorisations to Indian commercial banks including Local Area Banks for opening of
branches in pursuance to regulatory powers vested with Reserve Bank under the provisions of
Banking Regulation Act, 1949.
(b) To consider representations/complaints from institutions/VIPs and members of public for opening
/shifting/ closure of bank offices.
(c) Review of branch licensing policy periodically
(d) Maintenance and updation of database on opening/substitution/closure/shifting of branches,
Extension Counters, ATMs, etc.
(vi) Banking policy
It undertakes various new policy initiatives and reviews existing guidelines for progressive upgradation
of prudential norms to move towards best practices. The major activities of the Section are as follows:
 Formulation of policy and issue of prudential guidelines pertaining to Capital adequacy; Income
recognition; asset classification and provisioning pertaining to advances portfolio; Classification,
valuation and operation of investment portfolio; and Credit exposure limits
 Formulation of policy and issues regarding capital structure of public sector banks, including
raising of fresh equity, return of capital, recapitalisation.
 Formulation of policy and issuance of regulatory guidelines for implementation of the Basel II
framework.
 Policy guidelines / clarifications on integrated risk management systems including Asset Liability
Management and issue of guidance notes on various aspects.
 Policy issues/ guidelines pertaining to compromise settlement of NPAs of banks.
 Matters regarding Foreign Contributions Regulations Act – donations received by organizations
from abroad.

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(vii) Issue of directives to banks

Various directions are issued by RBI from time to time, on payment of Interest rates on various types of
deposit accounts (including NRI deposit), maintenance of deposit accounts, prohibitions in respect of
S.B. Accounts, matters relating to payment of additional interest and brokerage on deposits, appointment
of agents for soliciting deposits, giving gifts/incentives to depositors/staff members, freezing of
accounts, Resurgent India Bonds, Development Bonds, etc. RBI may also direct Capital Market
Exposure of banks.

(viii) Collection and dissemination of information

Collection and dissemination of information from/to banks and notified All-India financial institutions
(FIs) regarding defaulting borrowers with outstanding aggregating `1 crore and above, which have been
classified by them as ‘doubtful’ or ‘loss’ (non-suit filed accounts) on half-yearly basis viz., as on March
31 and September 30.

(ix) Overseeing/ monitoring Indian banks operations abroad

 Policy formulation and issue of guidelines regarding overseas operations of Indian banks,
examination of proposals and grant of approvals for opening their Joint Ventures / Representative
Offices / branches and review of their overseas operations including closure of branches / joint
ventures / representative offices.
 Approval of Indian banks’ proposals for entering into Management Agreements and
correspondent banking arrangements with foreign entities.
 Preparation of proposals for submission before IDC of GOI regarding opening of branches /
representatives offices of Indian banks abroad.

(x) Authorisation for dealing in precious metals

Policy matters relating to Gold Deposit and Gold Import Schemes and dealing with references received
from banks in this regard, issue and renewal of authorization for banks for import of gold / silver /
platinum and acceptance of gold under Gold Deposit Scheme and collection of data relating to import
of gold and Gold Deposit Scheme and collection of data relating to import of gold and gold deposits by
banks in India.

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Directorate of Studies, The Institute of Cost Accountants of India