Unit 1

Major Provisions of IDRA and its relevance in todays context:

Major Provisions:

The Act has 31 sections. All of them can be classified into three broad categories
depending upon the purposes they seek to serve:

A. Preventive Provisions:
Preventive provision provide for:

(i) Registration and Licensing;

(ii) Investigation; and

(iii) Revocation of Licence.

(i) Registration of an existing undertaking:

Sec. 10 provides that the owner of every industrial undertaking other than the
Central Government shall get his undertaking registered within a specified period.
The industrial undertaking of which the Central Government is the owner. On
registration, the owner shall be issued a certificate of registration containing the
production capacity of the industrial undertaking and other particulars.

In specifying the production capacity in the certificate of registration the Central

Government takes into consideration the following factors:

(i) The productive or installed capacity as specified in the application.

(ii) The level of production immediately before the date on which the application
for registration was made;

(iii) The level of the biggest annual production during the three years immediately
preceding the introduction of an Amendment Bill to this Act in 1973;

(iv) The extent to which production during the said period was used for export;
and

(v) Such other factors as may be considered relevant, including the extent of
underutilisation of capacity, if any.

Registration Abolished:
As a consequence to the new industrial policy, existing schemes of registration
have been abolished.

Licensing of Undertakings:
Licence is required for establishing a new undertaking, for manufacturing a new
article by an existing undertaking, for effecting substantial expansion by an
existing unit, for changing location of an existing undertaking and for carrying on
issues by an existing undertaking.

(a) Licensing of New Undertaking:

Sec. 11 of the Act provides that no person or authority, other than the Central
Government, shall establish, after the commencement of this Act, a new
undertaking without a licence issued by Central government. A State Government
also needs a license to set-up a new unit.
(b) Production of New Article:
See. 11A provides that no owner of an industrial undertaking other than the
Central Government, which is registered under sec. 10 of this Act or licensed or
permitted under Sec. 11. of the Act, shall produce or manufacture a new article
without obtaining a licence to do so.

(c) Licence of effecting Substantial Expansion:

Sec. 13 lays down that no owner of an industrial undertaking other than Central
Government, shall effect a substantial expansion of an undertaking which has
been registered or licensed, without a licence issued to that effect by the Central
Government. What is substantial expansion in not made clear in this Act.

However from the various notifications issued by the Central Government from
time to time, it has been made clear the expansion up to percent will be
regularised. In other words, expansion upto 25 per cent will not be considered as
substantial.

(d) Licence for Shifting Location:

Sec. 13 lays down that without obtaining licence to the effect, no owner can
change the location of the whole or any part of industrial undertaking which has
been registered.

() Licence to carry on Business:

Licence is also necessary to carryon business (COB) by an existing undertaking to
which licensing provision of the Act did not originally apply on account of
exemption order issued by the government and subsequently became applicable
as a result of cancellation of the exemption order under certain other
circumstance as provided in the Act.
Licensing Abolished:
As per Government Notification No. 477(E), dated July .5, 1991, Sec. 1, 11A and 13
have been made in operative.

(ii) Investigation:
Sec. 15 empowers the Central Government to cause an investigation into an
industrial undertaking on the happening of:

(a) A substantial fall or likely fall, in the volume of production in respect of any
article or class of articles relating to particular undertaking or an industry; or

(b) A deterioration or likely deterioration in the quality of the product which could
have been or can be avoided; or

(c) A rise or likely rise (unjustifiable) in price of any article or class of articles; or

(d) When it becomes necessary to take action of the conservation of any

resources of national importance which are utilised by any undertakings or

(e) Where any industrial undertaking, scheduled or otherwise, is being managed

in a manner highly deter-mental to the scheduled industry concerned or to public
interest.

The purpose of investigation proves that action is desirable; the Central

Government will take necessary action under Sec. 16 of the Act. Sec. 16 of the Act
provides that the Central Government may issue such directions to the industrial
undertaking concerned as may be appropriate in the circumstances for all or any
of the following purposes:
(a) Regulating the production of any article or class of articles by the industrial
undertaking and fixing the standard of production.

(b) Controlling the price or regulating the distribution of any article of class of
articles being the subject matter of investigation.

(iii) Revocation of Registration of Licence:

Sec. 10A of the Act empowers the Central Government to revoke the registration
when:

(a) Registration was obtained by misrepresentation of an essential fact; or

(b) Undertaking has ceased to be registrable by reason of any exemption granted

under the Act, or

(c) Registration has become useless or ineffective.

B. Curative Provisions:
Curative provision includes the following:

(i) Taking over management or control; and

(ii) Control of supply, price and distribution of certain commodities.

Power to take over management or control:

Sec. 18A of the Act provides that the Central Government may by a notified order
authorise any person or body a persons to take over the management or to
exercise control over a specified industrial undertaking if the Central
Governmental is of the opinion that:
(i) The concerned industrial undertaking has failed to comply with directions
issued under Sec. 16 of the Act,

(ii) The affairs of an undertaking in respect of which an investigating has been

ordered under sec. 15 of the Act, are being managed in a manner highly deter-
mental to the scheduled industry concerned or public interest.

The period of takeover was five years, to be extended further for a period of two
years subject to a maximum of twelve years.

Power of Take over without investigation:

Sec. 18A provides for the takeover after investigation. The Act, under Sec,. 18AA,
also provides for the takeover without investigation, provided that the Central
Government, is satisfied, on the basis of any documentary or other evidence in its
possession, that in relation to an industrial undertaking the person in-charge of
such industrial undertaking have, by reek-less investment or creation of
encumbrances on the assets of the industrial undertaking or by diversion of funds,
brought about a situation which is likely to affect the production of articles
manufactured or produced in the industrial undertaking and that immediate
action is necessary to prevent such situation, or industrial undertaking has been
closed for a period of not less than three months and such closure is prejudicial to
the concerned scheduled industry, and that the financial condition of the
company owning the industrial undertaking and the condition of its plant and
machinery makes it possible to restart the undertaking in the interest of the
general public. The period to takeover is to be five years, to be extended by a
further period of two years, subject to the maximum of 12 years.
Takeover of management or control of industrial undertaking owned by
companies in liquidation:
Sec. 18FA empowers the Central Government to authorise any person or body of
person with permission of the High Court concerned to take over the
management or control of industrial undertakings owned by the companies in
liquidation provided that the Central Government is of opinion that there are
possibilities of running or restarting such undertakings for maintaining or
increasing the production, supply or distribution of articles or class of articles in
the public interest. The period of such takeover is to be 5 years, to be extended 6
times of two years each.

No state government or local authority can take over the management or control
of a scheduled undertaking.

Power of Control supply and price of certain articles:

In order to secure equitable distribution and availability at fair price of any article
or class of articles relating to any scheduled industry, the Central Government
may, so by a notified order. The notified order may provide for:

(a) Controlling by prices at which any such article or class thereof may be bought
or sold.

(b) Regulating by licence, permits, or otherwise the distribution, transport,

disposal, acquisition, use or consumption of any such article or class;

(c) Prohibiting the withholding from sale of any such article or class thereof,
ordinarily kept for sale;
(d) Requiring any person manufacturing, producing or holding any stock in such
article 01 class thereof to sell the whole or part, of the articles so manufactured
or produced during a specified period or to sell the whole or a part of the articles
so held in stock, to such pet son or class of person as may be specified in the
order.

(e) Regulating persons engaged in the distribution and trade and commerce in any
such article or class thereof to mark the article expose are detrimental to the
public interest.

(f) Regulating or prohibiting any class of commercial or financial transaction

relating to such article or class thereof, which in the opinion of the authority
making order, are detrimental to the public interest.

(g) Collecting any information or statistics with a view to regulating or prohibiting

any of the a pre-said matters; and

(h) Any incidental or supplementary matter including the grant of issue of

licences, permits for their document and the charging fees thereof.

C. Creative Provisions:
The Creative provisions are positive in nature and involve co-operation between
the Central Government, industry, workers and consumers of goods produced by
scheduled industries. Following are the specific creative measures:

Constituting Development Councils:

Central Government may by a notified order establish in respect of any scheduled
industry or group of scheduled industries, a Development Council which shall
consist of members who in the opinion of the Central Government are;
(a) Person capable of representing the interest of the owners of industrial
undertaking in the scheduled industry or group of scheduled industries;

(b) Person capable of representing the interest of persons employed in the

industrial undertaking in the scheduled industry and group of scheduled
industries;

(c) Person having special knowledge of matters relating to the technical or other
aspects of the scheduled industry or group of scheduled industries;

(d) Persons not belonging to any of the aforesaid categories who are capable of
representing the interest of consumers of good manufactured or produced by the
scheduled industry of group of scheduled industries

Relevance in Todays context:

This Act applies to the whole of India including the State of Jammu & Kashmir,
The provision of the Act apply to industrial undertaking, manufacturing any of the
articles mentioned in the first schedule. An industrial undertaking (also called a
factory) for the purpose of the Act is the one where manufacturing process is
being carried on:

(a) With the aid of power provided that fifty or more workers are working or were
working on any day of the preceding twelve months; or

(b) Without the aid of power provided that one hundred or more workers are
working or were working on any day of the preceding twelve months.
(c) The Act applies only on industrial undertakings. Trading houses and financial
institutions are outside the purview of the Act.

Provisions of FEMA 1999 and Concept of Capital & Current account

transactions

Provisions of Foreign Exchange Management Act (FEMA) provides free

transaction on current account subject to the guidelines by the RBI. Enforcement
of Foreign Exchange Management Act (FEMA) is entrusted to a separate
directorate, which undertakes investigations on contraventions of the Act.

Provisions of FEMA are grouped under four heads. Important provisions under
each of the four heads, having a bearing on promoting economic development
through foreign investment with enabling provisions to ensure the curtailing of
inflationary trends from such transactions, are outlined below.

Regulation for Current Account Transaction:

Any person can sell or draw foreign exchange to or from an authorised dealer (if
such sale or withdrawal is a current account transaction) except for certain
prohibited transactions like remittance of lottery winnings, remittance of interest
income on funds held in Non-Resident Special Rupee (NRSR) account scheme, etc.

Besides these cases, there are certain other transactions, for which specific RBI
approval will be required. For instance, Reserve Bank approval is required for
importers availing of Suppliers Credit beyond 180 days and Buyers Credit
irrespective of the period of credit.
Authorised dealers are permitted remittance of surplus freight/passage
collections by shipping/airline companies or their agents, multimodal transport
operators, etc. after verification of documentary evidence in support of the
remittance.

Regulations Relating to Capital Account Transactions:

i. Foreign nationals are not allowed to invest in any company or partnership firm
or proprietary concern, which is engaged in the business of Chit Fund or in
Agricultural or Plantation activates or in Real Estate business (other than
development of township, construction of residential/commercial premises, roads
or bridges) or construction of farm houses or trading in Transferable Development
Rights (TDRs). Listing of permissible classes of Capital account transaction for a
person resident in India and also by a person resident outside India has been
provided in the regulations.

ii. Detailed rules and regulations are provided on borrowing and lending in
Foreign Currency as well as India Rupee by a person resident in India form/to a
person resident outside India either on non-repatriation or repatriation basis.

iii. Authorised dealers are now permitted to grant rupee loans to NRIs against
security of shares or immovable property in India, subject to certain terms and
conditions. Authorised dealers or housing finance institutions approved by
National Housing Bank can also grant rupee loans to NRIs for acquisition of
residential accommodations subject to certain terms and conditions.
iv. General permission has been granted to Indian company (including Non-
Banking Finance Company) registered with Reserve Bank to accept deposits from
NRIs on repatriation basis subject to the terms and conditions specified in the
schedule.

Indian proprietorship concern/firm or a company (including Non-Banking Finance

Company) registered with Reserve Bank can also accept deposits from NRIs on
non-repatriation basis subject to the terms and conditions specified in the
schedule.

Purchase of immovable property outside India

This is a Capital Account transaction and although there is a general prohibition,
relaxation has been made from time to time.
A company incorporated in India having overseas office, may acquire immovable
property outside India for its business and for residential purposes of its staff, in
accordance with the direction issued by RBI from time to time.
RBI has permitted remittance by a company incorporated in India to acquire
immovable property outside India for its business and for residential purpose of
its staff within the limits for initial expenses of 15% of the average annual
sales/income or turnover during the last two financial years or 25% of its net
worth, whichever is higher and recurring expenses of 10% of the average annual
sales/income or turnover during the last two financial years

Regulations relating to export of goods and services:

Export proceeds are required to be realised within a period of 6 months from the
date of shipment. In the case of exports to a warehouse established abroad with
the approval of Reserve Bank, the proceeds have to be realised within 15 months
from the date of shipment.
An enabling provision has been made in this regulation to delegate powers to
authorised dealers to allow extension of time. Export of goods on elongated
credit terms beyond six months requires prior approval of Reserve Bank.

Other Regulations:
i. A person resident in India to whom any foreign exchange is due or has accrued
is obligated to take reasonable steps to realise and repatriate to India such
foreign exchange unless an exemption has been provided in the Act or regulations
made under the general or special permission of Reserve Bank.

ii. Any foreign exchange due or accrued as remuneration for services rendered or
in settlement of any lawful obligation or an income on assets held outside India or
as inheritance, settlement or gift to a person resident in India should be sold to an
authorised person within a period of seven days of its receipt and in all other
cases within 90 days of its receipt.

iii. Any person who has drawn exchange for any purpose but has not utilised it for
the same or any other purpose permissible under the provisions of the Act should
surrender such foreign exchange or un-utilised foreign exchange to an authorised
person within a period of 60 days from the date of acquisition.

iv. The Reserve Bank has specified the limit for possession and retention of
foreign currency by a person resident in India. There is no restriction on
possession of foreign coins by any person. Any person resident in India is
permitted to retain in aggregate foreign currency not exceeding US$ 2000 or its
equivalent in the form of currency notes/bank notes or travellers cheques
acquired by him from approved sources.
 Provisions of Competition Act:

Competition Act 2002 states that Indian traders must not do any activity for
promoting monopoly. If they will do any activity in the form of production,
distribution, price fixation for increasing monopoly and this will be against
this act and will be void. This act is very helpful for increasing good
competition in Indian economy. Under this act following are restricted
practice and these practices are stopped by this act.

1. Price fixing:-If two or more supplier fixes the same price for supply the goods
then it will be restricted practice.

2. Bid ragging:- If two or more supplier exchange sensitive information of bid,

then it will also be restricted practice and against competition.

3. Re-sale price fixation:-If a producer sells the goods to the distributors on the
condition that he will not sell any other price which is not fixed by producer.

4. Exclusive dealing:-This is also restricted practice. If a distributor purchases the

goods on the condition that supplier will not supply the goods any other
distributor.

Above all activities promote monopoly so under competition act these are void
and action of competition commission will not entertain by civil court.

Establishment of Competition Commission Under this law

Govt. of India appoints the chairman and other member of competition

commission. Competition act 2002 gives the rules and regulation regarding
establishment and functions of this commission.
Qualification of chairperson of Competition commission:-

He or she should be Judge of high court + 15 years or more experience in the field
of international trade , commerce , economics , law , finance , business and
industry .

Function of Competition commission:-

1. To stop activity and practice which are promoting monopoly.

2. To promote the competition.

3. To protect the interest of consumers.

UOM QUESTIONS OF UNIT 1

June- July 2012

1.Explain the difference between Capital account and Current account

transactions under FEMA.

2.Explain the main provisions of IDRA.How much of it os relevant in todays

context.

July 2013

1.When can the central Government investigate into the affairs of the
company? (Second part answered in next unit)
 June- July 2014

1.When can the central Government cause investigation into the scheduled
industries under the IDRA act? (Second part answered in next unit)

2.Give a brief account of cartelization case of cement companies in India dealt

with by competition commission.

A cartel is a group of formally independent producers whose goal is to increase

their collective profits by means of price fixing, limiting supply, or other restrictive
practices. Cartels typically control selling prices, but some are organized to control
the prices of purchased inputs.

The Competition Commission of India asked 11 cement companies and their lobby
group Cement Manufacturers Association (CMA) to pay a fine of Rs 6,714 crore
(see graphic) for alleged cartelisation, standing by its previous orders that the
antitrust watchdog was asked to reconsider. It also held the lobby group of these
manufacturers guilty of facilitating price collusion

The CCI reconsidered the matter after the Competition Appellate Tribunal last
December set aside its orders and asked the watchdog to take up the case afresh.

The CCI noted that the cement companies used the CMA platform and shared
details relating to prices, capacity utilisation, production and dispatch, which
allowed them to restrict supplies in the market, the government said in a
statement on the commission's order.
The CCI directed the association to disengage and disassociate itself from
collecting wholesale and retail prices through member cement companies or
otherwise.

June-2015

1.Under what Circumstances the Central Government can take over Industrial
undertaking without investigation?
2.Can a person resident in India,buy any property situated outside India?
Discuss referring to the provisions of FEMA.

May- June 2016

1.Outline the provisions of FEMA for the realization and repatriation of Foreign
Exchange.
2.How is monopoly power defined under Competition Act?
3.Explain takeover of management and ownership of companies under the IDRA
act.