Economic Laws P 4 Final

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INDEX
Sl.no Chapter Page no
1 FOREIGN EXCHANGE MANAGEMENT ACT, 1999 2
2 FOREIGN CONTRIBUTION REGULATION ACT, 2010 83
SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS
3 108
AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002
4 INSOLVENCY AND BANKRUPTCY CODE, 2016 142
5 PREVENTION OF MONEY LAUNDERING ACT, 2002 231
6 ARBITRATION AND CONCILIATION ACT, 1996 259
7 SECURITIES CONTRACTS REGULATION ACT, 1956 282
SECURITIES AND EXCHANGE BOARD OF INDIA (LISTING
8 OBLIGATIONS AND DISCLOSURES REQUIREMENTS) 308
REGULATIONS, 2015
9 SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 326
THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999
IN THIS CHAPTER WE WILL LEARN THE FOLLOWING
1 INDIA BEFORE FEMA

2 WHY FEMA?
3 DEMARKATION BETWEEN FEMA AND EARLIER FERA
4 DEFINITIONS
5 RESIDENTIAL STATUS AND ITS RELEVANCE WITH FEMA
6 EXPORTS UNDER FEMA
7 REALISATION AND REPATRIATION UNDER FEMA
8 AUTHORISED PERSON
9 CAPITAL ACCOUNT TRANSACTIONS
10 CURRENT ACCOUNT TRANSACTIONS
11 IMMOVABLE PROPERTY TRANSACTIONS UNDER FEMA
12 JUDICIARY UNDER FEMA
INTRODUCTION
1. INDIA BEFORE FEMA [NOT FOR EXAMS]
India had for a long time adverse balance of payment position in international trade. That means,
imports are higher than the exports. Due to this there was a shortage of foreign exchange in India.
a
Foreign exchange regulation act was introduced in 1947. This was later replaced by Foreign
exchange regulation act 1973.
TO REGULATE is to control or restrict by rule. The Foreign Exchange Regulation Act, 1973 (FERA)
is gone with the year 1999. There was a general dislike for it for a variety of reasons. It conferred
b enormous powers on relatively junior officers of the Government. It proved ineffective despite all
the sound and fury that it generated, because it could rarely reach the men behind the scene. It was
mostly the small fry - the stooges - that suffered vicarious punishment.
Government therefore initiated process of liberalization of economy in the year 1991 on the basic
idea given by revolutionary Prime Minister Shri P.V. Narasimha Rao. In this connection, foreign
c
investments in various sectors was permitted. In view of this, FERA has been repealed and FEMA
has been passed.
2. WHY FEMA? [NOT FOR EXAMS]

In June 1991, forex reserves had fallen to only 1.10 billion US $, and it was feared that India might
a default in foreign exchange payments. However, after liberalization, foreign companies are now
welcomed to invest in India.
The Foreign exchange assets with RBI started rising. Foreign exchange reserves were 29.967
b
billion US $ in December 1998, which went up to US $ 38 billion by the end of March 2000.
The foreign exchange reserves [including gold and special drawing rights] were US $ 251.98 billion
on 31/03/2009, US $ 297.30 billion as on 31/12/2010. These were US $ 292.00 billion on
c
31/03/2013, US $ 304.20 billion on 31/03/2014 and US$ 350.38 billion as on 31/12/2015 and
finally it was US $ 414.15 billion as on 26/04/2019 [11.30 AM].
d Only one controlling authority being RBI.
2.1. PREAMBLE OF FEMA
An Act 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.
2.2. SHORT TITLE, EXTENT, APPLICATION AND COMMENCEMENT

1 This Act may be called the Foreign Exchange Management Act, 1999.
2 It extends to the whole of India.
It shall also apply to all branches, offices and agencies outside India owned or controlled by a
3 person resident in India and also to any contravention there under committed outside India by any
person to whom this Act applies.
It shall come into force on such date as the Central Government may, by notification in the Official
4
Gazette, appoint.
2.3. STRUCTURE OF FEMA,1999

Chapter Content
I PRELIMINARY
II REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE
III AUTHORISED PERSON
IV CONTRAVENTION AND PENALTIES
V ADJUDICATION AND APPEALS
VI DIRECTORATE OF ENFORCEMENT
VII MISCELLANEOUS
3. DEMARKATION BETWEEN FERA AND FEMA [NOT FOR EXAMS]

Particulars FERA FEMA
Origin Year 1947 amended in Year 1973 Year 1999
Extra territorial
No Yes
applicability
Facilitate external trade and
Conserve Foreign exchange and
Objective payments and maintenance of
prevent its misuse.
foreign exchange market in India.
Violation Criminal Offence Civil Offence
Compoundable No Yes
Criteria of
Citizenship Residential Status
applicability
Capital and Current account
Types of Transactions NA
transactions
Number of sections 81 49
Emphasis on Prohibitions Disclosures
Nature of All transactions are prohibited unless All transactions are permitted unless
transactions permitted. prohibited.
Approach Rigid Flexible
Internal Judiciary being special
Appeal External Judiciary being High Court director (appeals) or Appellate
tribunal.
Onus of proof On the guilty On the prosecution
4. DEFINITIONS
Sl.no. Term Content
Adjudicating Adjudicating Authority means an officer authorised under sub-section (1)
1
Authority of section 16.
Appellate Tribunal means the Appellate Tribunal referred to in section
2 Appellate tribunal
18.
Authorised person means an authorised dealer, money changer, off-shore
3 Authorized Person banking unit or any other person for the time being authorised under sub-
section (1) of section 10 to deal in foreign exchange or foreign securities.
Authorised Officer" means an officer of the Directorate of Enforcement
4 Authorised officer
authorised by the Central Government under section 37A.
5 Bench Bench means a Bench of the Appellate Tribunal.
Capital Account Transaction means a transaction, which alters the assets
or liabilities, including contingent liabilities, outside India of persons
Capital account
6 resident in India or assets or liability in India of person resident outside
Transaction
India, and includes transactions referred to in sub-section (3) of Section
6.
7 Chairperson Chairperson means the Chairperson of the Appellate Tribunal.
Chartered Chartered Accountant shall have the meaning assigned to it in clause (b)
8
Accountant of sub-section (1) of Section 2 of the Chartered Accountants Act, 1949.
Competent Competent Authority means the Authority appointed by the Central
9
authority Government under sub-section (2) of section 37A.
Currency includes all currency notes, postal notes, postal orders, money
orders, cheques, drafts, travellers cheques, letters of credit, bills of
10 Currency
exchange and promissory notes, credit cards or such other similar
instruments, as may be notified by the Reserve Bank.
Currency Notes means and includes cash in the form of coins and bank
11 Currency notes
notes.
Current Account Transaction means a transaction other than a capital
account transaction and without prejudice to the generality of the
foregoing such transaction includes,
(i) Payments due in connection with foreign trade, other current
business, services, and short-term banking and credit facilities in the
Current account ordinary course of business.
12
transaction (ii) Payments due as interest on loans and as net income from
investments.
(iii) Remittances for living expenses of parents, spouse and children
residing abroad, and
(iv) Expenses in connection with foreign travel, education and medical
care of parents, spouse and children.
Director of Director of Enforcement means the Director of Enforcement appointed

13
enforcement under section 36(1).
Export, with its grammatical variations and cognate expressions means;
14 Export (i) The taking out of India to a place outside India any goods.
(ii) Provision of services from India to any person outside India.
15 Foreign Currency Foreign Currency means any currency other than Indian currency.
Foreign Exchange means foreign currency and includes:
(i) Deposits, credits and balances payable in any foreign currency.
(ii) Drafts, travelers cheques, letters of credit or bills of exchange,
expressed or drawn in Indian currency but payable in any foreign
16 Foreign exchange
currency.
(iii) Drafts, travelers cheques, letters of credit or bills of exchange drawn
by banks, institutions or persons outside India, but payable in Indian
currency.
Foreign Security means any security, in the form of shares, stocks, bonds,
debentures or any other instrument denominated or expressed in foreign
17 Foreign Security currency and includes securities expressed in foreign currency, but
where redemption or any form of return such as interest or dividends is
payable in Indian currency.
Import, with its grammatical variations and cognate expressions, means
18 Import
bringing into India any goods or services.
Indian Currency means currency which is expressed or drawn in Indian
19 Indian currency rupees but does not include special bank notes and special one rupee
notes issued under section 28A of the Reserve Bank of India Act, 1934.
Legal Practitioner shall have the meaning assigned to it in clause (i) of
20 Legal practitioner
sub-section (1) of section 2 of the Advocates Act, 1961.
Member” means a Member of the Appellate Tribunal and includes the
21 Member
Chairperson thereof.
“Person” includes:
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
22 Person
(v) an association of persons or a body of individuals, whether
incorporated or not,
(vi) every artificial juridical person, not falling within any of the preceding
sub-clauses, and;
(vii) any agency, office or branch owned or controlled by such person.
Person resident in India means:
Person resident in
23 (i) a person residing in India for more than 182 days during the course of
India
the preceding financial year but does not include—
(A) a person who has gone out of India or who stays outside India, in
either case—
(a) For or on taking up employment outside India, or
(b) For carrying on outside India a business or vocation outside
India, or
(c) For any other purpose, in such circumstances as would
indicate his intention to stay outside India for an uncertain period.
(B) a person who has come to or stays in India, in either case, otherwise
than:
(a) For or on taking up employment in India, or
(b) For carrying on in India a business or vocation in India, or
(c) For any other purpose, in such circumstances as would
indicate his intention to stay in India for an uncertain period.
(ii) Any person or body corporate registered or incorporated in India.
(iii) An office, branch or agency in India owned or controlled by a person
resident outside India.
(iv) An office, branch or agency outside India owned or controlled by a
person resident in India.
Person resident Person Resident Outside India means a person who is not resident in
24
outside India India.
Repatriate to India means bringing into India the realised foreign
exchange and
(i) the selling of such foreign exchange to an authorised person in India in
exchange for rupees, or
25 Repatriate to India (ii) the holding of realised amount in an account with an authorised
person in India to the extent notified by the Reserve Bank. It includes use
of the realised amount for discharge of a debt or liability denominated in
foreign exchange and the expression “repatriation” shall be construed
accordingly.
Transfer includes sale, purchase, exchange, mortgage, pledge, gift, loan or
26 Transfer
any other form of transfer of right, title, possession or lien.
Service means service of any description which is made available to
potential users and includes the provision of facilities in connection with
banking, financing, insurance, medical assistance, legal assistance, chit
fund, real estate, transport, processing, supply of electrical or other
27 Service
energy, boarding or lodging or both, entertainment, amusement or the
purveying of news or other information, but does not include the
rendering of any service free of charge or under a contract of personal
service.
5. RESIDENTIAL STATUS AND ITS RELEVANCE IN FEMA

Person resident in India means:
(i) a person residing in India for more than 182 days during the course of the
preceding financial year but does not include—
(A) a person who has gone out of India or who stays outside India, in either
case—
(a) For or on taking up employment outside India, or
(b) For carrying on outside India a business or vocation outside India, or
(c) For any other purpose, in such circumstances as would indicate his intention
Person resident in to stay outside India for an uncertain period.
India (B) a person who has come to or stays in India, in either case, otherwise than:
[BARE ACT (a) For or on taking up employment in India, or
CONTENT] (b) For carrying on in India a business or vocation in India, or
(c) For any other purpose, in such circumstances as would indicate his intention
to stay in India for an uncertain period.
(ii) Any person or body corporate registered or incorporated in India.
(iii) An office, branch or agency in India owned or controlled by a person
(iv) An office, branch or agency outside India owned or controlled by a person
resident in India.
For an Individual
Period of stay [PFY] Purpose of Stay/ leave [CFY]
A person who resided in India for Never went abroad in the current
a period of more than 182 days in AND financial year.
the previous financial year.
Has gone out of India not for these
3 purposes---
 Employment.
A person who resided in India for  Business or vocation.
a period of more than 182 days in AND  Any other purpose, in such
Text for easy the previous financial year. circumstances as would
understanding of
indicate his intention to stay
the Bare act
outside India for an uncertain
provision
period.
Has come to stay in India for these
3 purposes----
 Employment.
A person who resided in India for
 Business or vocation.
a period of more than 182 days in AND
 Any other purpose, in such
the previous financial year.
circumstances as would
indicate his intention to stay in
India for an uncertain period.
For Other than Individuals
Any person or Body corporate  Incorporated/Registered in India

Any office, branch or agency in By Person resident outside India.
O/C
India
Any office, branch or agency By Person resident in India.
O/C
outside
APPENDIX – 1 TO RESIDENTIAL STATUS
ILLUSTRATIONS TO UNDERSTAND THE PRACTICAL IMPLICATIONS
Query:
Mr. A had resided in India during the financial year 1999-2000 for less than 183 days.
He had come to India on April 1, 2000 for employment. What would be his residential
status during the financial year 2000-2001?
Solution:
Illustration 1
 Mr. A had come to India for taking up employment. However, during the financial
Year 1999-2000, he was in India for less than 183 days.
 Since he has not fulfilled the condition of staying in India for more than 182 days, he
cannot be considered as person resident in India during the financial year 2000-
2001 notwithstanding the purpose or duration of his stay.
Query:
Mr. X had resided in India during the financial year 1999-2000 for less than 183 days.
He had come to India on April 1, 2000 for business. He intends to leave the business on
April 30, 2001 and leave India on June 30, 2001. What would be his residential status
during the financial year 2000-2001 and during 2001-2002 up to the date of his
departure?
Solution:
 Mr. X cannot be considered ‘person resident in India’ during the financial year 2000-
2001 notwithstanding the purpose or duration of his stay. As regards financial year
Illustration 2 2001-2002, Mr. X would have been in India in the proceeding financial year (2000-
2001) for a period exceeding 182 days.
 Accordingly, he would be ‘resident’ in India during financial year 2001-2002.
However, if he leaves India for the purpose of taking up employment or for
business/vocation outside India, or for any other purpose as would indicate his
intention to stay outside India for an uncertain period, he would cease to be person
resident in India from the date of his departure.
 It may be noted that even if Mr. X is a foreign citizen, if he has not left India for any
these purposes, he would be considered, ‘person resident in India’ during the
financial year 2001-2002.
Query:
Mr. Z had resided in India during the financial year 1999-2000. He left India on 1st
August, 2000 for United States for pursuing higher studies for 3 years. What would be
his residential status during financial year 2000-2001 and during 2001-2002?
Illustration 3 Solution:
 Mr. Z had resided in India during financial year 1999-2000 for more than 182 days.
Further, he has gone to USA for higher studies.
 In other words, he has not gone out of, or stayed outside India for or on taking up
employment, or for carrying a business or any other purpose, in not circumstances
as would indicate his intention to stay outside India for an uncertain period.
Accordingly he would be ‘person resident in India’ during the financial year 2000-
2001.
 For the financial year 2001-2002, he would not have been in India in the preceding
financial year (2000-2001) for period exceeding 182 days. Accordingly, he would
not be ‘person resident in India’ during the financial year 2001-2002.
Query:
Toy is a Japanese company having several business units all over the world. It has a
robotic unit with its head quarter in Mumbai and has a branch in Singapore.
Headquarter at Mumbai controls the branch of robotic unit. What would be the
residential status of robotic unit in Mumbai and that of the Singapore branch?
Solution:
 Toy being a Japanese company would be a person resident outside India. [Section
2(w)]. Section 2(u) defines ‘person’. Under clause (viii) thereof person would
include any agency, office or branch owned or controlled by such ‘person’.
Illustration 4  The term such ‘person’ appears to refer to a person who is included in clauses (i) to
(vi). Accordingly robotic unit in Mumbai, being a branch of a company, would be a
‘person’. Section 2(v) defines ‘person resident in India’. Under clause (iii) thereof
‘person resident in India’ would include an office, branch or agency in India owned
or controlled by a person resident outside India. Robotic unit in Mumbai is owned
or controlled by a person ‘resident outside India’. Hence, it would be ‘person
resident in India’.
 However, robotic unit in Mumbai, though not ‘owned’ controls Singapore branch,
which is a person resident in India. Hence prima facie, it may be possible to hold a
view that the Singapore branch is ‘person resident in India’.
Query:
Miss is an airhostess with the British Airways. She flies for 12 days in a month and
thereafter a break for 18 days. During the break, she is accommodated of ‘base’, which
is normally the city where the airways are headquartered. However, for security
considerations, she was based on Mumbai. During the financial year, she was
accommodated at Mumbai for more than 182 days. What would be her residential
status under FEMA?
Solution:
Illustration 5 Miss stayed in India at Mumbai ‘base’ for more than 182 days in the preceding financial
year. The issue here is whether staying can be considered ‘residing’. FEMA emphasizes
‘residing’. ‘Stay’ is a physical attribute, while ‘residing’ denotes permanency. Thus,
while Miss may have stayed in India for more than 182 days, it is doubtful whether she
can be said to have ‘resided’ in India for more than 182 days.
Further under section 2(v)(a), she would become resident only if she has come to or
stayed in India for employment. It would be doubtful and debatable, whether by staying
at Mumbai base during the break, Miss can be said to have come to stay in India for or
on taking up employment. Hence Miss would continue to be non-resident.
 An individual “A”, who is a national of the United States of America, came to India
during the financial year 2015-16 to attend a family function for a week. “A” had
resided in India for 200 days in the financial year 2014-15 (preceding financial
year). However, since “A” hasn’t come to India for employment / business / other
Illustration 6 purposes with an intention to stay in India for an uncertain period, he will be a
resident outside India during the financial year 2015-16.
 However, if “A” had come to India for employment / business / other purposes with
an intention to stay in India for an uncertain period, he would be a resident in India
for the financial year 2015-16.
 An individual “A” had left India for the first time on June 4, 2015 for taking up an
employment in PQR Inc. in United States of America. He will be a resident in India
until June 4, 2015 for the financial year 2015-16. For the period from June 4, 2015,
Illustration 7 he will be a resident outside India even though he resided in India for more than
182 days in the preceding financial year.
 This is on account of the specific exclusion to persons going abroad for or on taking
up employment.
 An individual “A” left India for the first time on August 12, 2015 for pursuing a post-
graduation course for a period of 4 years.
 In accordance with the definition, “A” will be a resident in India since he resided in
India for more than 182 days during the financial year 2015-16 and has gone abroad
for a certain period.
 However, in the pursuance of the notification issued by the RBI, students going
abroad for education will be residents outside India from the date of departure even
though they might be go for a specified period only.
 In the above case, if “A” had not been a student, the relaxation of the provision
wouldn’t have been available. In that case, “A” will be resident in India.
Illustration 8
* Notification: RBI AP (DIR) Circular No.45 dated December 12, 2003
This notification relaxes the provisions of the Act towards students who go
abroad for education for a certain period. There were representations from
many students that when they leave India for pursuing a specific educational
course, such stay abroad exceeds the period officially intended for various
reasons such as taking up of jobs or scholarships to supplement income to meet
their financial requirements abroad. Further, they argued that they aren’t
dependent for a dominant part of their expenses on remittances from their
households in India. Hence, the RBI, having regard to the above mentioned
circumstances, notified that the students going abroad for education for a
certain period will also be considered as residents outside India only.
APPENDIX – 2 TO RESIDENTIAL STATUS
INTERPRETATIVE MECHANISM AND CASE LAWS ON THE SUBJECT
In the case of “Basant Kumar Sharma v. Government of India (2013) (Del HC)”, a
person had come to India from Saudi Arabia after 6 years. He had given up his
Case law assignments in Saudi Arabia, changed his address to India in the records of the
company in which he was holding shares and explored job opportunities in India. It
was held that he had an intention to stay in India for an uncertain period.
FLOW CHART
Individual
Resided in India for more than 182
days in the preceding financial year?
Resident outside India for

Yes No
the current financial year
Has gone abroad or stays Has not come to India for

abroad for work / business / work / business / other
other purposes with intention purposes with intention to
to stay for uncertain period? stay for uncertain period?
Yes No Yes No
Resident outside Resident

India from date outside India
of departure
Resident in India for

current financial year
Resident in India for the * If student has gone abroad for education,
current financial year then resident outside India even if he / she
has gone for a certain period
 A person resident in India for employment of a specified duration (irrespective of

length thereof) or for a specific job or assignment, the duration of which doesn’t
exceed three years is referred to as a “person who is not permanently resident”
under the explanations to Regulations 4 of the FEM (Transfer or Issue of any
Person not Foreign Security) Regulations, 2000 and FEM (Possession and Retention of
permanently Foreign Currency) Regulations, 2000 and Regulation 5 of the FEM (Remittance of
resident in Assets) Regulations, 2000.
India
 The definition has been given for certain specific regulations issued by the RBI
such as those on purchase and sale of securities in foreign currency.
 Such definition is relevant only to the extent of the specific regulation and does
not apply to other provisions of the law.
Irrelevance of  FEMA is operated on residential status and hence citizenship is no way relevant.
Citizenship Therefore, FEMA is applicable for foreign citizens as well once he/she is person
resident in India.
 It may be noted that when it comes to employment, business or vocation, the

length of the period is not relevant. A resident may go abroad and take up
employment. On the first day itself he becomes a non-resident.
 In case a person comes to India for a purpose other than commercial purpose (like
employment or business), situation is different. For example, a tourist comes to
India. If he comes with a definite plan for returning after two years; then he is not
a resident in India.
 Mr. A comes to India for family marriage etc. Then some other cause prevents him
from returning. Then a third cause causes his continuous stay in India. Like that
he stays here for more than six months. If he has no employment and no business
in India; and he has substantial employment or business abroad plus house / office
Interpretation etc. abroad; he will be able to establish that he is still, a non-resident. It should be
noted that his intention of remaining a non-resident has to be supported by facts.
 The concept of financial year is brought into FEMA for the first time. The term
“Financial Year” has not been defined. Prima facie it should mean the period
commencing from the 1st day of April in a year and ending on the 31st day of
March in the next year.
 As per Section 2(21) of General clauses act, 1897 financial year shall mean the year
commencing on the first day of April.
 The language used in the section makes it clear that it is not necessary that there
should be a continuous period. All different periods during the year have to be
totaled up. Altogether if the stay in India is more than 182 days, the person would
be an Indian resident.
Non –  There is a gap between the definition of “person” under section 2(u) and the
inclusions into definition of a “person resident in India” under section 2(v).
the term  The person is defined to include individual, HUF, firm, association of persons
‘Person’ (AOP) etc. Each of these categories are separate and independent categories.
 While defining a person resident in India no separate definition for HUF, firm, AOP
etc. are given. Clause (ii) defines residential status of a body corporate. If it is
registered or incorporated in India, it is resident in India. However, an HUF and an
AOP are not bodies corporate. They do not require any registration or
incorporation. Their status is still separate from the status of their members.
Legally, an HUF’s status cannot be determined by the status of its Karta or any or
all of its members. There must be a separate criteria for determining the status of
an HUF. Similar is the case for all other unincorporated bodies like AOP, trust etc.
Even a partnership firm may or may not be registered. For all these entities,
“control and management” criteria maybe adopted.
 Furthermore, Section 2(v) (i) of FEMA stills defines … “a person residing in India
…” Here also the definition makes provisions for physical stay, taking up
employment etc. All these provisions can be applied only to an individual. Hence
the definition clause should have been - “an individual residing in India …” When
a “person” is defined to include non-individuals, it is incorrect to make a definition
pertaining to individuals and using the term “person”.
6. BASICS OF FEMA – TRANSACTIONS AND REGULATION WISE [SECTION 3 AND 4]

6.1. DEALING IN FOREIGN EXCHANGE ETC [SECTION 3]
Particulars No person shall….. Comments
Any foreign exchange or foreign security to any person not
Transaction 1 Deal or Transfer
being an authorised person.
Any payment to or for the credit of any person resident outside
Transaction 2 Make
India.
Otherwise through an authorised person, any payment by
Transaction 3 Receive
order or on behalf of any person resident outside India.
Any financial transaction in India as consideration for or in
Transaction 4 Enter into association with acquisition or creation or transfer of a right to
acquire, any asset outside India by any person.
No person shall enter into above said transactions, subjected to
Nature of transactions
the provisions contained in this act, rules, regulations etc.
6.2. HOLDING OF FOREIGN EXCHANGE [SECTION 4]

Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own,
possess or transfer any foreign exchange, foreign security or any immovable property
situated outside India.
7. EXPORTS UNDER FEMA [SECTION 7(3)(a) READ WITH FOREIGN EXCHANGE

MANAGEMENT (EXPORT OF GOODS & SERVICES) REGULATIONS, 2015]
This regulation is read in 4 Parts as follows:
Part 1: Connected Definitions
Part 2: Section 7 Bare act
Part 3: Export regulations
Part 4: Appendix
PART 1: CONNECTED DEFINTIONS [SELECTED]
General Export, with its grammatical variations and cognate expressions,
definition as means—
per Section (i) The taking out of India to a place outside India any goods,
2(l) of FEMA (ii) Provision of services from India to any person outside India
Export
Specific Export includes the taking or sending out of goods by land, sea or
definition as air, on consignment or by way of sale, lease, hire-purchase, or under
per any other arrangement by whatever name called, and in the case of
Regulations software, also includes transmission through any electronic media.
Export value Export value in relation to export by way of lease or hire-purchase or under any other
[As per similar arrangement, includes the charges, by whatever name called, payable in
regulation] respect of such lease or hire-purchase or any other similar arrangement.
EXIM Bank
[As per EXIM Bank means the Export-Import Bank of India established under the Export-
regulation] Import Bank of India Act, 1981.
Software Software means any computer programme, database, drawing, design, audio/video
[As per signals, any information by whatever name called in or on any medium other than in
regulation] or on any physical medium.
Goods
[Not defined] Goods means goods as defined under the Sale of goods act.
Service means service of any description which is made available to potential users
and includes the provision of facilities in connection with banking, financing,
Service insurance, medical assistance, legal assistance, chit fund, real estate, transport,
[Section 2(zb)] processing, supply of electrical or other energy, boarding or lodging or both,
entertainment, amusement or the purveying of news or other information, but does
not include the rendering of any service free of charge or under a contract of personal
service.
PART 2: SECTION 7
(1) Every exporter of goods shall—

(a) Furnish to the Reserve Bank or to such other authority a declaration in such form and in such
manner as may be specified, containing true and correct material particulars, including the
amount representing the full export value or, if the full export value of the goods is not
ascertainable at the time of export, the value which the exporter, having regard to the prevailing
market conditions, expects to receive on the sale of the goods in a market outside India;
(b) Furnish to the Reserve Bank such other information as may be required by the Reserve Bank
for the purpose of ensuring the realisation of the export proceeds by such exporter.
(2) The Reserve Bank may, for the purpose of ensuring that the full export value of the goods or such
reduced value of the goods as the Reserve Bank determines, having regard to the prevailing market
conditions, is received without any delay, direct any exporter to comply with such requirements as it
deems fit.
(3) Every exporter of services shall furnish to the Reserve Bank or to such other authorities a declaration
in such form and in such manner as may be specified, containing the true and correct material particulars
in relation to payment for such services.
Furnish to the RBI, a declaration in such form and in such manner

as may be specified, containing true and correct material
particulars, including the amount representing the full export
In respect of
value or, if the full export value of the goods is not ascertainable at
goods
the time of export, the value which the exporter, having regard to
Obligation of the prevailing market conditions, expects to receive on the sale of
exporter the goods in a market outside India.
Every exporter of services shall furnish to the RBI a declaration in
In respect of such form and in such manner as may be specified, containing the
Services true and correct material particulars in relation to payment for
such services.
PART 3: EXPORT REGULATIONS [SIMPLIFIED] This part is sub-divided into 13 parts as

follows:
PART 3A: DECLARATION OF EXPORTS
In case of exports taking place through Customs manual ports, every exporter of goods or software
in physical form or through any other form, either directly or indirectly, to any place outside India,
other than Nepal and Bhutan, shall furnish to the specified authority, a declaration in one of the
1 forms set out in the Schedule and supported by such evidence as may be specified, containing true
and correct material particulars including the amount representing ------
The full export value of the goods or software.
If the full export value is not ascertainable at the time of export, the value which the exporter,
having regard to the prevailing market conditions expects to receive on the sale of the goods or
the software in overseas market.
2 Declarations shall be executed in sets of such number as specified.
For the removal of doubt, it is clarified that, in respect of export of services to which none of the
Forms specified in these Regulations apply, the exporter may export such services without
furnishing any declaration, but shall be liable to realise the amount of foreign exchange which
3
becomes due or accrues on account of such export, and to repatriate the same to India in
accordance with the provisions of the Act, and these Regulations, as also other rules and regulations
made under the Act.
PART 3B: AUTHORITY TO WHOM DECLARATION IS TO BE FURNISHED AND THE

MANNER OF DEALING WITH THE DECLARATION.
 The declaration in form EDF shall be submitted in duplicate to the Commissioner of

Customs.
FORM EDF  After duly verifying and authenticating the declaration form, the Commissioner of
Customs shall forward the original declaration form/data to the nearest office of
the Reserve Bank and hand over the duplicate form to the exporter for being
submitted to the authorised dealer.
 The declaration in Form SOFTEX in respect of export of computer software and

audio/video/ television software shall be submitted in triplicate to the designated
official of Ministry of Information Technology, Government of India at the Software
Technology Parks of India (STPIs) or at the Free Trade Zones (FTZs) or Special
FORM
Economic Zones (SEZs) in India.
SOFTEX
 After certifying all three copies of the SOFTEX form, the said designated official shall
forward the original directly to the nearest office of the Reserve Bank and return
the duplicate to the exporter. The triplicate shall be retained by the designated
official for record.
On the realisation of the export proceeds, the duplicate copies of export declaration
Miscellaneous
forms viz. EDF and SOFTEX 1shall be retained by the Authorised Dealers.
PART 3C: EVIDENCE IN SUPPORT OF DECLARATION
The Commissioner of Customs or the postal authority or the official of Department of Electronics,
1
to whom the declaration form is submitted, may, in order to satisfy themselves of due compliance
1
Form EDF: To be completed in duplicate for export from non EDI ports.
Form SOFTEX: To be completed in triplicate for declaration of export of software otherwise than in
physical form, i.e. magnetic tapes/discs, and paper media.
with Section 7 of the Act and these regulations, require such evidence in support of the declaration
as may establish that -----
The exporter is a person resident in India and has a place of business in India
The destination stated on the declaration is the final place of the destination of the goods
exported
The value stated in the declaration represents---
1) The full export value of the goods or software; or
2) Where the full export value of the goods or software is not ascertainable at the time of export,
the value which the exporter, having regard to the prevailing market conditions expects to
receive on the sale of the goods in the overseas market.
PART 3D: INDICATION OF IMPORTER-EXPORTER CODE NUMBER

The importer-exporter code number allotted by the Director General of Foreign Trade under Section 7
of the Foreign Trade (Development & Regulation) Act, 1992 shall be indicated on all copies of the
declaration forms submitted by the exporter to the specified authority and in all correspondence of the
exporter with the authorised dealer or the Reserve Bank, as the case may be.
PART 3E: MANNER OF PAYMENT OF EXPORT VALUE OF GOODS
 Unless otherwise authorised by the Reserve Bank, the amount representing the full export value of
the goods exported shall be paid through an authorised dealer.
 For the purpose of this regulation, re-import into India, within the period specified for realisation of
the export value, of the exported goods in respect of which a declaration was made under Regulation
3, shall be deemed to be realisation of full export value of such goods.
PART 3F: SUBMISSION OF EXPORT DOCUMENTS
 The documents pertaining to export shall be submitted to the authorised dealer mentioned in the
relevant export declaration form, within 21 days from the date of export, or from the date of
certification of the SOFTEX form.
 Provided that, subject to the directions issued by the Reserve Bank from time to time, the authorized
dealer may accept the documents pertaining to export submitted after the expiry of the specified
period of 21 days, for reasons beyond the control of the exporter.
PART 3G: PAYMENT FOR EXPORT
 In respect of export of any goods or software for which a declaration is required to be furnished under
Regulation 3, no person shall except with the permission of the Reserve Bank or, subject to the
directions of the Reserve Bank, permission of an authorised dealer, do or refrain from doing anything
or take or refrain from taking any action which has the effect of securing-----
(i) That the payment for the goods or software is made otherwise than in the specified manner [REFER
PART 3E] ; or
(ii) That the payment is delayed beyond the period specified under these Regulations [REFER 3H]; or
(iii) That the proceeds of sale of the goods or software exported do not represent the full export value
of the goods or software subject to such deductions, if any;
Provided that no proceedings in respect of contravention of these provisions shall be instituted unless
the specified period has expired and payment for the goods or software representing the full export
value, or the value after deductions allowed under clause (iii), has not been made in the specified
manner within the specified period.
PART 3H: PERIOD WITHIN WHICH EXPORT VALUE OF GOODS/SOFTWARE/ SERVICES

TO BE REALIZED.
The amount representing the full export value of goods / software/ services exported shall be
realised and repatriated to India within 9 months from the date of export, provided that----
Where the goods are exported to a warehouse established outside India with the permission
of the Reserve Bank, the amount representing the full export value of goods exported shall be
1 paid to the authorised dealer as soon as it is realised and in any case within 15 months from the
date of shipment of goods
The Reserve Bank, or subject to the directions issued by that Bank in this behalf, the authorised
dealer may, for a sufficient and reasonable cause shown, extend the period of nine months or
fifteen months, as the case may be.
Where the export of goods / software / services has been made by Units in Special Economic Zones
(SEZ) / Status Holder exporter / Export Oriented Units (EOUs) and units in Electronics Hardware
Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs)
as defined in the Foreign Trade Policy in force, then notwithstanding anything contained in sub-
2 regulation (1), the amount representing the full export value of goods or software shall be realised
and repatriated to India within 9 months from the date of export.
Provided further that the Reserve Bank, or subject to the directions issued by the Bank in this
behalf, the authorised dealer may, for a sufficient and reasonable cause shown, extend the period
of nine months.
PART 3I: CERTAIN EXPORTS REQUIRING PRIOR APPROVAL

Export of goods under special arrangement between the Central Government and Government
1
of a foreign state.
Export of goods under rupee credits extended by the Central Government to Government of a
2
foreign state.
PART 3J: DELAY IN RECEIPT OF PAYMENT
Where in relation to goods or software export, the specified period has expired and the payment
1
therefor has not been made as aforesaid, the Reserve Bank may give to any person who has sold
the goods or software or who is entitled to sell the goods or software or procure the sale thereof,
such directions as appear to it to be expedient, for the purpose of securing,
The payment therefor if the goods or software has been sold
The sale of goods and payment thereof, if goods or software has not been sold or reimport
thereof into India as the circumstances permit, within such period as the Reserve Bank may
specify in this behalf.
Provided that omission of the Reserve Bank to give directions shall not have the effect of
2
absolving the person committing the contravention from the consequences thereof.
PART 3K: ADVANCE PAYMENT AGAINST EXPORTS

Where an exporter receives advance payment (with or without interest), from a buyer / third
party named in the export declaration made by the exporter, outside India, the exporter shall be
under an obligation to ensure that -----
The shipment of goods is made within one year from the date of receipt of advance payment.
1
The rate of interest, if any, payable on the advance payment does not exceed the rate of interest
London Inter-Bank Offered Rate (LIBOR) + 100 basis points.
The documents covering the shipment are routed through the authorized dealer through
whom the advance payment is received.
Provided that in the event of the exporter's inability to make the shipment, partly or fully, within
one year from the date of receipt of advance payment, no remittance towards refund of
2
unutilized portion of advance payment or towards payment of interest, shall be made after the
expiry of the period of one year, without the prior approval of the Reserve Bank.
An exporter may receive advance payment where the export agreement itself duly provides for
3 shipment of goods extending beyond the period of one year from the date of receipt of advance
payment.
PART 3L: PROJECT EXPORTS

Where an export of goods or services is proposed to be made on deferred payment terms or in
execution of a turnkey project or a civil construction contract, the exporter shall, before entering
1 into any such export arrangement, submit the proposal for prior approval of the approving
authority, which shall consider the proposal in accordance with the guidelines issued by the
Reserve Bank of India from time to time.
In case a guarantee is required to be given prior to post award approval, the same may be issued
by an authorized dealer bank/ a person resident in India being an exporting company, for
performance of a project outside India, or for availing of credit facilities, whether fund-based or
2
non-fund based, from a bank or a financial institution outside India in connection with the
execution of such project, provided that the contract / Letter of Award stipulates such
requirements.
For the purpose of this Regulation, 'approving authority' means the EXIM Bank of India or the
3
authorised dealer.
PART 3M: EXEMPTIONS

Export of goods / software may be made without furnishing the declaration in the following
cases, namely -----
a) Trade samples of goods and publicity material supplied free of payment;
b) Personal effects of travellers, whether accompanied or unaccompanied;
c) Ship's stores, trans-shipment cargo and goods supplied under the orders of Central
Government or of such officers as may be appointed by the Central Government in this behalf or
of the military, naval or air force authorities in India for military, naval or air force requirements;
d) By way of gift of goods accompanied by a declaration by the exporter that they are not more
than five lakh rupees in value
e) Aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subject to
their reimport into India after overhauling /repairs, within a period of six months from the date
of their export;
f) Goods imported free of cost on re-export basis;
g) The following goods which are permitted by the Development Commissioner of the Special
1 Economic Zones, Electronic Hardware Technology Parks, Software Technology Parks or Free
Trade Zones to be re-exported, namely -----
Imported goods found defective, for the purpose of their replacement by the foreign
suppliers/collaborators.
Goods imported from foreign suppliers/collaborators on loan basis
Goods imported from foreign suppliers/collaborators free of cost, found surplus after
production operations.
(h) Replacement goods exported free of charge in accordance with the provisions of Foreign
Trade Policy in force, for the time being.
(i) goods sent outside India for testing subject to re-import into India;
(j) Defective goods sent outside India for repair and re-import provided the goods are
accompanied by a certificate from an authorised dealer in India that the export is for repair and
re-import and that the export does not involve any transaction in foreign exchange.
(k) Exports permitted by the Reserve Bank, on application made to it, subject to the terms and
conditions, if any, as stipulated in the permission.
PART 4: APPENDIX – FORM EDF AND SOFTEX
1. General Information:
Customs Security No.: Form No:
Nature of Cargo: Shipping Bill No. & Date: Mode of Transport: [ ] Air [ ] Land
[ ] Government [ ] [ ] Sea [ ] Post/Couriers [ ] others
Non-Government
Category of Exporter: [ ] Custom (DTA units) [ ] RBI approval no. & date, if any:
SEZ [ ] Status holder exporters [ ] 100% EOU [ ]
Warehouse export [ ] others (Specify).......
IE Code: AD code:
Exporters Name & Address: AD Name & Address:
Consignee’s Name & Address: Mode of Realisation : [ ] L/C [ ] BG [ ]

Others (advance payment, etc. including
transfer/remittance to bank account maintained overseas )
Port of Loading / Source Port in case of SEZ :
Third Party name & Address ( In case of third Party

Payments for Exports)
Country of Destination: Port of Discharge:
Name of the Indian bank and AD code, in case of LC/BG

Whether payment to be Let Export order (LEO) Date:
Received through
General Commodity Description: ACU? [ ] Yes
[ ] No
State of Origin of Goods:
Total FOB value in words (INR): Custom Assessable value (INR)*:
2. Invoice –Wise details of Export Value

( If more than one invoice for a particular shipping bill , the block 2 will repeat as many times of invoices)
Invoice No. Invoice Currency: Nature of Contract:
Invoice Amount: [ ] FOB [ ] CIF [ ] C&F
Invoice date. [ ] CI [ ] Others
Particulars Currency Amount in FC Exchange Amount (INR)
Rate
FOB Value
Freight
Insurance
Commission
Discount
Other Deduction
Packing Charges
Net Realisable
value
3. Applicable for Export under FPO/Couriers
Name of the post Office:
Number & date of Parcel receipts : Stamp & Signature of Authorised Dealer
4. Declaration by the Exporters (All types of exports)
I /We hereby declare that I/we @am/are the seller/consignor of the goods in respect of which this declaration is made and
that the particulars given above are true and that the value to be received from the buyer/third party represents the export
value contracted and declared above. I/We undertake that I/we will deliver to the authorised dealer bank named above the
foreign exchange representing the full value of the goods exported as above on or before (i.e. within the period of
realisation stipulated
by RBI from time to time ) in the manner specified in the Regulations made under the Foreign Exchange Management
Act, 1999. I/We @ am/are not in the Caution List of the Reserve Bank of India.
Date: (Signature of Exporter)

5. Space for use of the competent authority (i.e. Custom/SEZ) on behalf of Ministry concerned:
Certified, on the basis of above declaration by the Custom/SEZ unit, that the Goods described above and the export value
declared by the exporter in this form is as per the corresponding invoice/gist of invoices submitted and declared by the
Unit.
Date:
(Signature of Designated/Authorised officials of Custom /SEZ )
@ Strike out whichever is not applicable.
* Unit declared Value in case of exports affected from SEZs
FOREIGN EXCHANGE MANAGEMENT ACT, 1999
FORMAT OF SOFTEX FORMS
Summ
ary
Sheet
Section
-A
Name and address of IEC Code.
Exporter
Letter of Permission (LOP) Date of
No.(STP/EHTP/SEZ/EPZ/100% LOP
EOU/DTA Unit) issued
Name of Authorised Datacom STPI/SEZ
Service Provider Centre
Name and address of Authorised Authorized
Dealer/Bank Dealer
Code
Section - B
List of Invoices for offshore export value through datacom link
Period of Invoices raised from to
Sr. Softex Name of Address of Count Internal Type of Mode Invoic Invoice Curre Analysi of Export Value
No No. the the ry project S/W of e Date ncy Value of Transmis Commiss Deduct Net
. Client Client code/Cont Export realisati Numb (DD/MM software sion ion ion Realis
ract ed on er /YY) Export (A) Charge ( C) (D) able
/ ( value
Agreeme B) [
nt No & (A+B
date )-
(C+D
)]
SECTION - C
DECLARATION BY EXPORTER
I /We@ hereby declare that I/we@ am/are@ the seller of the software in respect of which this declaration is made and that the particulars given above are true and
that the value to be received from the buyer represents the export value
contracted and declared above. I/We@ also declare that the software has been developed and exported by using Authorised and legitimate datacom link and
certified that the software described above was actually transmitted. I/We @ undertake that I/we@ will deliver to the authorised dealer bank named above the
foreign exchange representing the full value of the software exported as above on or before. .............................................................(i.e. within the period of
realisation stipulated by RBI
from time to time ) in the manner specified in the Regulations made under the Foreign Exchange Management Act, 1999.
I/We @ am/are not in the Caution List of the Reserve Bank of India.
Place:
Date:
Name :
Designation:
Stamp (Signature of the Exporter)
Space for use of the competent authority in STPI/EPZ/SEZ
Certified, on the basis of above declaration by the SEZ/STPI unit, that the software described above and the export value declared by the exporter inthis
form is as per the corresponding invoice/gist of invoices submitted and declared by the Unit.
Place:
Date:
Name :
Designation: Stamp ( Signature of the Designated/Authorised Official of
STPI/EPZ/SEZ)
EXPORT – FLOW CHART

(a) The specified forms for declaration are as under:
Exports made through

non-EDI ports
Goods Software Services
Software Software
exported in exported in
physical form any other form
Declaration shall be Declaration shall

furnished in Form EDF be furnished in
Form SOFTEX
Export of service Export of

bundled with export services alone
of goods or software
No
Declaration shall be declaration
furnished in Form EDF/ necessary
SOFTEX as applicable to the
goods / software exported
EXPORTS MADE THROUGH NON-EDI PORTS – PROCEDURE FOR FURNISHING

Declaration DECLARATION
shall be
furnished in
Form EDF in
Shall process
duplicate Commissioner Nearest
and forward
of Customs RBI
original to
office
Goods /
Software in After processing,
physical shall return the
form duplicate to exporter
Exporter shall submit the

Authorized Dealer, who shall
duplicate copy and relevant
retain the form after
export documents within 21
realization of export proceeds
days* from the date of export to
Declaration shall be
furnished in Form Ministry
SOFTEX in triplicate of IT / Shall
Export of process & Nearest
STPI /
FTZ / SEZ forward RBI
original office
retain the
triplicate
for record
Software After processing, and
in any
certification, shall
other return the duplicate
form to exporter
* For reasons beyond the

control of the exporter After processing
the authorized dealer may Authorized Dealer, who shall
and certification,
extend the time limit of retain the form after
shall return the
21 days realization of export proceeds
duplicate to
exporter
8. REALISATION AND REPATRIATION OF FOREIGN EXCHANGE AND EXEMPTION

FROM REALISATION AND REPATRIATION IN CERTAIN CASES [SECTION 8 AND
SECTION 9 READ WITH FOREIGN EXCHANGE MANAGEMENT (REALISATION,
REPATRIATION AND SURRENDER OF FOREIGN EXCHANGE) REGULATIONS, 2015
AND FOREIGN EXCHANGE MANAGEMENT (POSSESSION AND RETENTION OF
FOREIGN CURRENCY) REGULATIONS, 2015]
SECTION 8
Save as otherwise provided in this Act, where any amount of foreign exchange is due or has accrued to
any person resident in India, such person shall take all reasonable steps to realise and repatriate to India
such foreign exchange within such period and in such manner as may be specified by the Reserve Bank.
SECTION 9
The provisions of sections 4 and 8 shall not apply to the following, namely:—
(a) Possession of foreign currency or foreign coins by any person up to such limit as the Reserve
Bank may specify; [Read with Regulation 3 of FEM(Possession and retention of foreign currency)
regulations, 2015]
(b) Foreign currency account held or operated by such person or class of persons and the limit up
to which the Reserve Bank may specify;
(c) Foreign exchange acquired or received before the 8th day of July, 1947 or any income arising or
accruing thereon which is held outside India by any person in pursuance of a general or special
permission granted by the Reserve Bank;
(d) Foreign exchange held by a person resident in India up to such limit as the Reserve Bank may
specify, if such foreign exchange was acquired by way of gift or inheritance from a person
referred to in clause (c), including any income arising therefrom;
(e) Foreign exchange acquired from employment, business, trade, vocation, services, honorarium,
gifts, inheritance or any other legitimate means up to such limit as the Reserve Bank may specify;
and [Read with Regulation 3 of FEM(Possession and retention of foreign currency) regulations,
2015]
(f) Such other receipts in foreign exchange as the Reserve Bank may specify.
ANALYSIS ON THE SECTION AND CORRESPONDING REGULATIONS

Repatriate to India means bringing into India the realised foreign exchange
and—
(i) The selling of such foreign exchange to an authorised person in India in
Definition of exchange for rupees, or
Repatriate to India (ii) The holding of realised amount in an account with an authorised person
[Section 2(y)] in India to the extent notified by the Reserve Bank,
and includes use of the realised amount for discharge of a debt or liability
denominated in foreign exchange and the expression "repatriation" shall be
construed accordingly.
Definition of the
Term ‘Surrender’ Surrender means the selling of foreign exchange to an authorised person in
[As per Regulation India in exchange of rupees.
2]
A person resident in India to whom any amount of foreign exchange is due or
has accrued shall, save as otherwise provided under the provisions of the Act,
Duty of persons to take all reasonable steps to realise and repatriate to India such foreign
realise foreign exchange, and shall in no case do or refrain from doing anything, or take or
exchange due refrain from taking any action, which has the effect of securing -----
[Section 8 read with That the receipt by him of the whole or part of that foreign exchange is
regulation 3] delayed.
That the foreign exchange ceases in whole or in part to be receivable by him.
(1) On realisation of foreign exchange due, a person shall repatriate the same to
India, namely bring into, or receive in, India and –----
Sell it to an authorised person in India in exchange for rupees or
Retain or hold it in account with an authorised dealer in India to the extent
specified by the Reserve Bank or
Manner of Use it for discharge of a debt or liability denominated in foreign exchange to
repatriation the extent and in the manner specified by the Reserve Bank.
[Regulation 4] (2) A person shall be deemed to have repatriated the realised foreign exchange
to India when he receives in India payment in rupees from the account of a
bank or an exchange house situated in any country outside India,
maintained with an authorised dealer.
Note: Thus, he can collect the amount in his bank account abroad and
remit the same to India.
A person not being an individual resident in India shall sell the realised foreign
exchange to an authorised person under clause (a) of sub-regulation (1) of
Period of surrender regulation 4, within the period specified below------
of realized foreign Foreign exchange due or accrued as remuneration for services rendered,
exchange whether in or outside India, or in settlement of any lawful obligation, or an
[Regulation 5] income on assets held outside India, or as inheritance, settlement or gift,
within seven days from the date of its receipt.
In all other cases within a period of ninety days from the date of its receipt.
(1) Any person not being an individual resident in India who has acquired or
Period for surrender purchased foreign exchange for any purpose mentioned in the declaration made
in certain cases by him to an authorised person, does not use it for such purpose or for any other
purpose for which purchase or acquisition of foreign exchange is permissible
[Regulation 6] under the provisions of the Act or the rules or regulations or direction or order
made thereunder, shall surrender such foreign exchange or the unused portion
thereof to an authorised person within a period of 60 days from the date of its
acquisition or purchase by him.
(2) Notwithstanding anything contained in sub-regulation (1), where the
foreign exchange acquired or purchased by any person not being an individual
resident in India from an authorised person is for the purpose of foreign travel,
then, the unspent balance of such foreign exchange shall, save as otherwise
provided in the regulations made under the Act, be surrendered to an
authorised person ------
Within 90 days from the date of return of the traveler to India, when the
unspent foreign exchange is in the form of currency notes and coins.
Within 180 days from the date of return of the traveler to India, when the
unspent foreign exchange is in the form of travelers cheques.
Period for surrender
of received/ A person being an individual resident in India shall surrender the
realised/ unspent/ received/realised/unspent/unused foreign exchange whether in the form of
currency notes, coins and travellers cheques, etc. to an authorised person within
unused foreign
exchange by a period of 180 days from the date of such
Resident individuals receipt/realisation/purchase/acquisition or date of his return to India, as the
case may be.
[Regulation 7]
Exemption Nothing in these regulations shall apply to foreign exchange in the form of
[Regulation 8] currency of Nepal or Bhutan.
Possession of foreign currency or foreign coins by any person up to such
a
limit as the Reserve Bank may specify.
Foreign currency account held or operated by such person or class of
b
persons and the limit up to which the Reserve Bank may specify.
Exemption under Foreign exchange acquired or received before the 8th day of July, 1947 or
Section 9 read with any income arising or accruing thereon which is held outside India by any
c
Regulation 3 of FEM person in pursuance of a general or special permission granted by the
(Possession and Reserve Bank.
retention of foreign Foreign exchange held by a person resident in India up to such limit as the
currency) Reserve Bank may specify, if such foreign exchange was acquired by way
regulations 2015 d
of gift or inheritance from a person referred to in clause (c), including any
income arising therefrom.
Foreign exchan ge acquired from employment, business, trade, vocation,
e services, honorarium, gifts, inheritance or any other legitimate means up
to such limit as the Reserve Bank may specify.
For the purposes of clause (a) and clause (e) of Section 9 of the Act, the Reserve
Regulation 3 Bank specifies the following limits for possession or retention of foreign
currency or foreign coins, namely -----
Possession without limit of foreign currency and coins by an authorised

person within the scope of his authority.
Possession without limit of foreign coins by any person.
Retention by a person resident in India of foreign currency notes, bank notes
and foreign currency travelers’ cheques not exceeding US$ 2000 or its
equivalent in aggregate, provided that such foreign exchange in the form of
currency notes, bank notes and travelers cheques-----
Was acquired by him while on a visit to any place outside India by way
of payment for services not arising from any business in or anything
done in India.
Was acquired by him, from any person not resident in India and who
is on a visit to India, as honorarium or gift or for services rendered or
in settlement of any lawful obligation.
Was acquired by him by way of honorarium or gift while on a visit to
any place outside India.
Represents unspent amount of foreign exchange acquired by him
from an authorised person for travel abroad.
APPENDIX TO SECTION 7 AND 8

[EXPORTS READ WITH REALISATION AND REPATRIATION]
HOW TO INTERPRET THE TERM ‘TAKE REASONABLE STEPS TO RECOVER’
In this connection there are certain remarkable cases as follows
Ashok Parashramka v/s Union of India
Bombay textiles v/s Union of India
Overseas Textiles Corporation v/s Special director, ED
 Every exporter is expected to take reasonable steps to recover and realise

the proceeds of the exports.
 If adequate steps are taken and it becomes difficult or impossible to
recover export proceeds, the Reserve Bank may permit write off and close
the case.
 In the said case, the High court could not provide relief to the appellant
since appellant was not able to show any concrete steps that the exporter
company has taken to recover the dues from the overseas party.
Ashok Parashramka  It is important to note that getting penalized for not being able to realise
v/s export proceeds might involve double jeopardy because the proceeds
Union of India would not have been realized and penalty would have been paid.
 High Court provided an illustrative list of steps to recover ------
Advance to some extent from the overseas party which will help in not losing
the entire exports in case of default from the buyer and moreover that will
reduce the cost of working capital funds for the exporter.
Insurance coverage.
Cost indemnity clauses.
Transaction backed up by LOC of a Bank of repute.
Arbitration clauses
Above all, tangible measures to recover the dues.
In the given case, the appellant firm had exported garments and could not
Bombay textiles v/s realise the export proceeds. The appellate tribunal held that onus is on the
Union of India exporter to show that it has taken all reasonable steps to receive and recover
payment for goods exported.
 In the given case, the exporter is involved in export of garments by a firm,

the trader had applied to the Reserve bank seeking permission for writing
Overseas Textiles off the dues from an exporter.
Corporation  In the meanwhile, the adjudicating authority rendered a finding that as the
v/s exporter did not produce any document, there is a case for presuming that
Special director, ED the exporter has not taken reasonable steps to recover the value of exports
and imposed a penalty.
 Exporter appealed to High court.
 High court has finalized the judgement with the following conclusions -----
As the firm has applied to the Reserve bank for write off and part of dues
have been realized (65%), it is fit to reduce the penalty to 35% of the penalty
imposed by the adjudicating authority.
In the absence of any negligence on the part of partners of the firm, levy of
penalty is un justifiable.
9. AUTHORISED PERSON [SECTION 10 – SECTION 12]

Section 10 – Authorised person
Application by whom? Application by any person.
Authorise as an -----
 Authorised dealer or
Purpose of application? [Section 10(1)]
 Money Changer or
 Off – shore banking unit.
Power to authorise with whom? Power vests with Reserve Bank.
Mode of authorisation Authorisation shall be in writing. [Section 10(2)]
 Required in Public interest.
 Failed to comply with the condition
Conditions for revocation of subject to which the authorisation was
[Section 10(3)]
authorisation by Reserve Bank granted.
 Contravened any of the provisions of
the Act
An authorised person shall, in all his
dealings in foreign exchange or foreign
Duty of authorised person security, comply with such general or [Section 10(4)]
special directions or orders as the Reserve
Bank
Reserve Bank powers to issue directions to authorised person [Section 11]
Power with whom? Power vests with Reserve Bank.
What power it exercises? Power of issuing directions.
[Section 11(1)]
For the purpose of securing compliance and
with the provisions of this Act and of any [Section 11(2)]
Purpose of directions?
rules, regulations, notifications or
directions made.
General Fine – Maximum ₹ 10000.
Consequence of contravening the
Continuing offence – Additional penalty of [Section 11(3)]
directions of RBI
maximum ₹ 2000 for every day of default.
Power of Reserve Bank to inspect authorised person [Section 12]
Who has power to order
Reserve Bank has such power.
inspection?
(a) Verifying the correctness of any statement,
information or particulars furnished to the Reserve [Section
What is the purpose of Bank. 12(1)]
inspection? (b) Obtaining any information or particulars which
such authorised person has failed to furnish on being
called upon to do so;
(c) Securing compliance with the provisions of this

Act or of any rules, regulations, directions or orders
made thereunder.
It shall be the duty of every authorised person, and
where such person is a company or a firm, every
director, partner or other officer of such company or
firm, as the case may be, to produce to any officer
making an inspection under sub-section (1), such
What is the duty of authorised [Section
books, accounts and other documents in his custody
person? 12(2)]
or power and to furnish any statement or
information relating to the affairs of such person,
company or firm as the said officer may require
within such time and in such manner as the said
officer may direct.
10. CAPITAL ACCOUNT TRANSACTIONS [SECTION 6 READ WITH FOREIGN EXCHANGE

MANAGEMENT (PERMISSIBLE CAPITAL ACCOUNT TRANSACTIONS) (SECOND AND
THIRD AMENDMENT) REGULATIONS, 2015]
This Section is read in 4 Parts as follows:
Part 1: Section 6 Bare act
Part 2: Connected Definitions
Part 3: FEMA CAT Regulations
Part 4: Appendix
PART 1: BARE ACT PROVISION
SECTION 6 – PRIOR AMENDMENT
(1) Subject to the provisions of sub-section (2), any person may sell or draw foreign exchange to or from
an authorised person for a capital account transaction.
(2) The Reserve Bank may, in consultation with the Central Government, specify—
(a) Any class or classes of capital account transactions which are permissible;
(b) The limit up to which foreign exchange shall be admissible for such transactions.
Provided that the Reserve Bank shall not impose any restriction on the drawal of foreign exchange for
payments due on account of amortization of loans or for depreciation of direct investments in the
ordinary course of business.
(3) Without prejudice to the generality of the provisions of sub-section (2), the Reserve Bank may, by
regulations, prohibit, restrict or regulate the following—
(a) transfer or issue of any foreign security by a person resident in India;
(b) transfer or issue of any security by a person resident outside India;
(c) transfer or issue of any security or foreign security by any branch, office or agency in India of a
person resident outside India;
(d) any borrowing or lending in foreign exchange in whatever form or by whatever name called;
(e) any borrowing or lending in rupees in whatever form or by whatever name called between a
person resident in India and a person resident outside India;
(f) deposits between persons resident in India and persons resident outside India;
(g) export, import or holding of currency or currency notes;
(h) transfer of immovable property outside India, other than a lease not exceeding five years, by a
person resident in India;
(i) acquisition or transfer of immovable property in India, other than a lease not exceeding five
years, by a person resident outside India;
(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred—
(i) by a person resident in India and owed to a person resident outside India; or
(ii) by a person resident outside India.
(4) A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or
any immovable property situated outside India if such currency, security or property was acquired, held
or owned by such person when he was resident outside India or inherited from a person who was
(5) A person resident outside India may hold, own, transfer or invest in Indian currency, security or any
immovable property situated in India if such currency, security or property was acquired, held or owned
by such person when he was resident in India or inherited from a person who was resident in India.
(6) Without prejudice to the provisions of this section, the Reserve Bank may, by regulation, prohibit,
restrict, or regulate establishment in India of a branch, office or other place of business by a person
resident outside India, for carrying on any activity relating to such branch, office or other place of
business.
SECTION 6 – AMENDED
(1) Subject to the provisions of sub-section (2), any person may sell or draw foreign exchange to or from
an authorised person for a capital account transaction.
(2) The Reserve Bank may, in consultation with the Central Government, specify—
(a) Any class or classes of capital account transactions, involving debt instruments, which are
permissible;
(b) The limit up to which foreign exchange shall be admissible for such transactions;
(c) Any conditions which may be placed on such transactions:
Provided that the Reserve Bank or the Central Government shall not impose any restrictions on the
drawal of foreign exchange for payment due on account of amortisation of loans or for depreciation of
direct investments in the ordinary course of business.
(2A) The Central Government may, in consultation with the Reserve Bank, prescribe—
(a) any class or classes of capital account transactions, not involving debt instruments, which are
permissible;
(b) the limit up to which foreign exchange shall be admissible for such transactions; and
(c) any conditions which may be placed on such transactions.
(3) [***]
(4) A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or
any immovable property situated outside India if such currency, security or property was acquired, held
or owned by such person when he was resident outside India or inherited from a person who was
(5) A person resident outside India may hold, own, transfer or invest in Indian currency, security or any
immovable property situated in India if such currency, security or property was acquired, held or owned
by such person when he was resident in India or inherited from a person who was resident in India.
(6) Without prejudice to the provisions of this section, the Reserve Bank may, by regulation, prohibit,
restrict, or regulate establishment in India of a branch, office or other place of business by a person
resident outside India, for carrying on any activity relating to such branch, office or other place of
business.
(7) For the purposes of this section, the term "debt instruments" shall mean, such instruments as may be
determined by the Central Government in consultation with the Reserve Bank.
PART 2: CONNECTED DEFINITION

Capital account transaction means a transaction which alters the assets or
Definition of Capital
liabilities, including contingent liabilities, outside India of persons resident
account transactions
in India or assets or liabilities in India of persons resident outside India, and
[Section 2(e)]
includes transactions referred to in sub-section (3) of section 6.
Drawal means drawal of foreign exchange from an authorised person and
Drawal includes opening of Letter of Credit or use of International Credit Card or
[Regulation 2(b)] International Debit Card or ATM card or any other thing by whatever name
called which has the effect of creating foreign exchange liability.
Transferable Development Rights means certificates issued in respect of
Transferable
category of land acquired for public purpose either by Central or State
development rights
Government in consideration of surrender of land by the owner without
[Regulation 2(d)]
monetary compensation, which are transferable in part or whole.
PART 3: ANALYSIS ON CAPITAL ACCOUNT TRANSACTIONS

Capital account transaction means a transaction which alters the assets or
Definition of Capital
liabilities, including contingent liabilities, outside India of persons resident
account transactions
in India or assets or liabilities in India of persons resident outside India, and
[Section 2(e)]
includes transactions referred to in sub-section (3) of section 6.
 Capital account transactions prohibited.

Categories of Capital
account transactions  Capital account transactions permissible with limitations.
 Capital account transactions on which no restrictions are imposed.
Save as otherwise provided in the Act, rules or regulations made
Capital account
thereunder,
transactions prohibited
(a) No person shall undertake or sell or draw foreign exchange to or from
[Regulation 4]
an authorised person for any capital account transaction.
PROVIDED that –
 Subject to the provisions of the Act or the rules or regulations or
directions or orders made or issued thereunder, A RESIDENT
INDIVIDUAL may, draw from an authorized person foreign exchange
not exceeding USD 250,000 per financial year or such amount as decided
by Reserve Bank from time to time for a capital account transaction
specified in Schedule I.
 Where the drawal of foreign exchange by A RESIDENT INDIVIDUAL for
any capital account transaction specified in Schedule I exceeds USD
250,000 per financial year, or as decided by Reserve Bank from time to
time as the case may be, the limit specified in the regulations relevant to
the transaction shall apply with respect to such drawal.
(b) No person resident outside India shall make investment in India , in any
form, in any company or partnership firm or proprietary concern or any
entity, whether incorporated or not, which is engaged or proposes to
engage -----
In the business of Chit fund.
As Nidhi Company.
In agriculture or plantation activity.
In real estate business or construction of farm houses.
In trading in Transferable development rights.
Explanation 1: For the purpose of this regulation, 'real estate business'
shall not include development of townships, construction of
residential/commercial premises, roads or bridges.
Explanation 2: The Registrar of Chits or an officer authorised by the state
government in this behalf, may, in consultation with the State Government
concerned, permit any chit fund to accept subscription from Non-resident
Indians. Non- resident Indians shall be eligible to subscribe, through
banking channel and on non- repatriation basis, to such chit funds , without
limit subject to the conditions stipulated by the Reserve Bank of India from
time to time.
(1) Capital account transactions of a person may be classified under the
following heads, namely ------
Transactions, specified in Schedule I, of a person resident In India.
Capital account Transactions, specified in Schedule II, of a person resident outside India.
transactions permissible Subject to the provisions of the Act or the rules or regulations or direction
with limitations or orders made or issued thereunder, any person may sell or draw foreign
[Section 6(2) and 6(3) exchange to or from an authorised person for a capital account transaction
read with Regulation 3 of specified in the Schedules.
FEM (CAT) regulations SCHEDULE I – CLASSES OF CAPITAL ACCOUNT TRANSACTIONS OF
2000] PERSONS RESIDENT IN INDIA
Investment by a person resident in India in foreign securities.
Foreign currency loans raised in India and abroad by a person resident in
India.
Transfer of immovable property outside India by a person resident in

India.
Guarantees issued by a person resident in India in favour of a person
Export, import and holding of currency/currency notes.
Loans and overdrafts (borrowings) by a person resident in India from a
person resident outside India.
Maintenance of foreign currency accounts in India and outside India by a
person resident in India.
Taking out of insurance policy by a person resident in India from an
insurance company outside India.
Loans and overdrafts by a person resident in India to a person resident
outside India.
Remittance outside India of capital assets of a person resident in India.
Sale and purchase of foreign exchange derivatives in India and abroad
and commodity derivatives abroad by a person resident in India.
SCHEDULE II – CLASSES OF CAPITAL ACCOUNT TRANSACTIONS OF
PERSONS RESIDENT OUTSIDE INDIA
Investment in India by a person resident outside India, that is to say,
 Issue of security by a body corporate or an entity in India and
investment therein by a person resident outside India; and
 Investment by way of contribution by a person resident outside India
to the capital of a firm or a proprietorship concern or an association
of persons in India.
Acquisition and transfer of immovable property in India by a person
Guarantee by a person resident outside India in favour of, or on behalf of,
a person resident in India.
Import and export of currency/currency notes into/from India by a
person resident outside India.
Deposits between a person resident in India and a person resident
outside India.
Foreign currency accounts in India of a person resident outside India.
Remittance outside India of capital assets in India of a person resident
outside India.
Transactions on which Reserve Bank shall not impose any restriction on the drawal of foreign
RBI can’t impose any exchange for-----
restrictions Payments due on account of amortization of loans
[Proviso to Section 6(2)] Depreciation of direct investments in the ordinary course of business.
Transformation of A person resident in India may hold, own, transfer or invest in foreign
residential status and currency, foreign security or any immovable property situated outside India
position of investments if such currency, security or property was acquired, held or owned by such
[Section 6(4) and 6(5)] person when he was resident outside India or inherited from a person who
was resident outside India.
A person resident outside India may hold, own, transfer or invest in Indian
currency, security or any immovable property situated in India if such
currency, security or property was acquired, held or owned by such person
when he was resident in India or inherited from a person who was resident
in India.
The Reserve Bank may, by regulation, prohibit, restrict, or regulate
establishment in India of a branch, office or other place of business by a
Regulation on BO/LO
person resident outside India, for carrying on any activity relating to such
branch, office or other place of business.
PART 4 – APPENDIX ON THE CAPITAL ACCOUNT TRANSACTIONS

1. SCOPE OF SECTION 6 AND CONNECTED REGULATION
 Capital account transactions are not permitted in FEMA, Rules, or Regulations. In
other words, all Capital account transactions are prohibited unless specifically
permitted.
2. WHAT IS THE PURPOSE OF SECTION 6(3)?
 Section 6(3) contains a list of some of the most common capital account transactions.
 Section 6(3) is subjected to the provisions of section 6(2).
3. SCOPE OF RBI W.R.T. CAPITAL ACCOUNT TRANSACTION
 The Act has empowered the Reserve Bank of India (RBI) to specify, in consultation
with the Central Government, the permissible capital account transactions and the
limits up to which foreign exchange may be drawn for these such transactions. But it
shall not impose any restriction on the drawal of foreign exchange for payments due
on account of amortization of loans or for depreciation of direct investments in the
ordinary course of business.
 Accordingly, the RBI has issued notifications governing capital account transaction.
The FEMA Notification No. 1/2000 dated 3-5-2000 contains the list of permissible
capital account transactions as well as list of prohibited capital account transactions.
4. HOW TO UNDERSTAND AND INTERPRET THE PERMISSIBLE CAPITAL ACCOUNT
TRANSACTIONS?
 Capital account transactions which are permitted are divided for both Resident
Individuals and others. [Others includes Person resident outside India whether
individual or not and other persons not being individuals whether resident or not]
 For Individual resident, no RBI permit required till US $ 2,50,000 per financial year
under LRS scheme. Beyond the limit, respective limits are applicable [Refer query 5
for details] for which RBI permit is very much required. In all other cases, irrespective
of amount involved RBI permit is required subjected to the limits specified. [Refer
query 5 for details].
11. CURRENT ACCOUNT TRANSACTIONS [SECTION 5 READ WITH FEM (CURRENT

ACCOUNT TRANSACTIONS) RULES, 2000]
This concept is divided into 4 Parts as follows
Part 1: Definitions
Part 2: Bare act of Section 5
Part 3: Categories of Current account transactions
Part 3A: Current account transactions prohibited
Part 3B: Current account transactions requiring Central govt. approval
Part 3C: Current account transactions requiring RBI approval
Part 4: Appendix
PART 1: DEFINITIONS
Current account transaction means a transaction other than a capital account
transaction and without prejudice to the generality of the foregoing such
transaction includes,—
(i) Payments due in connection with foreign trade, other current business,
Current account services, and short-term banking and credit facilities in the ordinary
transaction course of business,
[Section 2(j)] (ii) Payments due as interest on loans and as net income from investments,
(iii) Remittances for living expenses of parents, spouse and children residing
abroad, and
(iv) Expenses in connection with foreign travel, education and medical care of
parents, spouse and children
Drawal means drawal of foreign exchange from an authorised person and includes
Drawal opening of Letter of Credit or use of International Credit Card or International Debit
[Regulation 2(b)] Card or ATM Card or any other thing by whatever name called which has the effect
of creating foreign exchange liability.
PART 2: BARE ACT OF SECTION 5

Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is
a current account transaction:
Provided 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.
ANALYSIS ON SECTION 5
Applicability Section applies to any person whether resident or otherwise.
General free If the transaction proposed is a current account transaction through an authorised
permit person it is permitted.
 Central Government may, in public interest and in consultation with the

Power of CG to Reserve Bank, impose such reasonable restrictions for current account
impose transactions.
restrictions  Those restrictions are specified in The Foreign Exchange Management (Current
account transactions) Rules, 2000.
PART 3: CATEGORIES OF CURRENT ACCOUNT TRANSACTIONS

PART 3A: CURRENT ACCOUNT TRANSACTIONS ON WHICH DRAWAL OF FOREIGN
EXCHANGE IS PROHIBITED
Drawal of foreign exchange by any person for the following purpose is prohibited,
namely -----
Basic Rule
a transaction specified in the Schedule I; or
[Rule 3]
a travel to Nepal and / or Bhutan; or
a transaction with a person resident in Nepal or Bhutan
1. Remittance out of lottery winnings,
2. Remittance of income from racing / riding etc. or any other hobby,
3. Remittance for purchase of lottery tickets, banned / proscribed magazines,
football pools, sweepstakes etc.,
4. Payment of commission on exports made towards equity investment in Joint
Ventures / Wholly Owned Subsidiaries abroad of Indian companies,
Contents of
5. Remittance of dividend by any company to which the requirement of dividend
Schedule I
balancing is applicable,
6. Payment of commission on exports under Rupee State Credit Route, except
commission up to 10% of invoice value of exports of tea and tobacco.
7. Payment related to "Call Back Services" of telephones,
8. Remittance of interest income on funds held in Non-Resident Special Rupee
Account Scheme.
PART 3B: CURRENT ACCOUNT TRANSACTIONS ON WHICH DRAWAL OF FOREIGN

EXCHANGE REQUIRES PRIOR APPROVAL OF CENTRAL GOVERNMENT
No person shall draw foreign exchange for a transaction included in the Schedule
Basic Rule II without prior approval of the Government of India.
[Rule 4] Provided that this Rule shall not apply where the payment is made out of funds
held in Resident Foreign Currency (RFC) Account of the remitter.
Ministry / Department of
Govt. of India
Sl.no. Purpose of remittance
Contents of whose approval is
Schedule II required
Ministry of Human
1 Cultural Tours
Resources Development,
(Department of Education
and Culture)
Advertisement in foreign print media for the Ministry of Finance,
purposes other than promotion of tourism, Department of Economic
foreign investments and international Affairs.
2
bidding (exceeding US$ 10,000) by a State
Government and its Public Sector
Undertakings.
Ministry of Surface
Remittance of freight of vessel chartered by
3 Transport, (Chartering
a PSU.
Wing).
Payment of import through ocean transport Ministry of surface
4 by a Govt. Department or a PSU on c.i.f. basis Transport, (Chartering
(i.e. other than F.O.B. and F.A.S. basis). Wing).
Registration Certificate
Multi-modal transport Operators making
5 from the Director General of
remittance to their agents abroad.
Shipping.
Ministry of Information and
Remittance of hiring charges of
Broadcasting or Ministry of
transponders by
6 Communication and
TV Channels
Information Technology as
Internet Service Providers
the case may be.
Remittance of container detention charges Ministry of Surface
7 exceeding the rate prescribed by Director transport (Director General
General of Shipping. of Shipping).
Remittance of prize money / sponsorship of Ministry of Human
sports activity abroad by a person other resources Development
8 than International / National / State Level (Department of Youth
sports bodies, if the amount involved Affairs and Sports).
exceeds US$ 100,000.
Ministry of Finance
9 Remittance for membership of P & I Club.
(Insurance Division)
NOTE
THIS RULE SHALL NOT APPLY WHERE THE PAYMENT IS MADE OUT OF FUNDS
[PROVISO TO
HELD IN RESIDENT FOREIGN CURRENCY (RFC) ACCOUNT OF THE REMITTER.
RULE 4]
PART 3C: CURRENT ACCOUNT TRANSACTIONS ON WHICH DRAWAL OF FOREIGN

EXCHANGE REQUIRES PRIOR APPROVAL OF RESERVE BANK OF INDIA.
Every drawal of foreign exchange for transactions included in Schedule III shall be
Basic Rule governed as provided therein.
[Rule 5] Provided that this rule shall not apply where the payment is made out of funds held
in Resident Foreign Currency (RFC) Account of the remitter.
Schedule IIIA – Facilities for Individuals
Individuals can avail of foreign exchange facility for the following purposes within
the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit
for the following purposes shall require prior approval of the Reserve Bank of
India.
(i) Private visits to any country (except Nepal and Bhutan).
(ii) Gift or donation.
(iii) Going abroad for employment.
(iv) Emigration.
(v) Maintenance of close relatives abroad.
(vi) Travel for business, or attending a conference or specialised training or
for meeting expenses for meeting medical expenses, or check-up abroad,
or for accompanying as attendant to a patient going abroad for medical
treatment/ check-up.
(vii) Expenses in connection with medical treatment abroad.
(viii) Studies abroad.
(ix) Any other current account transaction.
Provided that for the purposes mentioned at item numbers (iv), (vii) and (viii), the
Contents of individual may avail of exchange facility for an amount in excess of the limit
Schedule IIIA prescribed under the Liberalised Remittance Scheme if it is so required by a
country of emigration, medical institute offering treatment or the university,
respectively:
Provided further that if an individual remits any amount under the said Liberalised
Remittance Scheme in a financial year, then the applicable limit for such individual
would be reduced from USD 250,000 (US Dollars Two Hundred and Fifty Thousand
Only) by the amount so remitted.
Provided also that for a person who is resident but not permanently resident in
India and
(a) is a citizen of a foreign State other than Pakistan; or
(b) is a citizen of India, who is on deputation to the office or branch of a foreign
company or subsidiary or joint venture in India of such foreign company, may make
remittance up to his net salary (after deduction of taxes, contribution to provident
fund and other deductions).
Explanation: For the purpose of this item, a person resident in India on account of
his employment or deputation of a specified duration (irrespective of length
thereof) or for a specific job or assignments, the duration of which does not exceed
three years, is a resident but not permanently resident : provided also that a person
other than an individual may also avail of foreign exchange facility, mutatis
mutandis, within the limit prescribed under the said Liberalised Remittance
Scheme for the purposes mentioned herein above.
Schedule IIIB – Facilities for persons other than individuals
The following remittances by persons other than individuals shall require prior
approval of the Reserve Bank of India ----
Donations exceeding one per cent. of their foreign exchange earnings during the
previous three financial years or USD 5,000,000, whichever is less, for ---
a) Creation of Chairs in reputed educational institutes,
b) Contribution to funds (not being an investment fund) promoted by
educational institutes; and
c) Contribution to a technical institution or body or association in the field of
activity of the donor Company.
Contents of Commission, per transaction, to agents abroad for sale of residential flats or
Schedule IIIB commercial plots in India exceeding USD 25,000 or five percent of the inward
remittance whichever is more.
Remittances exceeding USD 10,000,000 per project for any consultancy services
in respect of infrastructure projects and USD 1,000,000 per project, for other
consultancy services procured from outside India.
Explanation: For the purposes of this sub-paragraph, the expression
"infrastructure' shall mean as defined in explanation to para 1(iv)(A)(a) of
Schedule I of FEMA Notification 3/2000-RB, dated the May 3, 2000.
Remittances exceeding five per cent of investment brought into India or USD
100,000 whichever is higher, by an entity in India by way of reimbursement of
pre-incorporation expenses.
NOTE
THIS RULE SHALL NOT APPLY WHERE THE PAYMENT IS MADE OUT OF FUNDS
[PROVISO TO
HELD IN RESIDENT FOREIGN CURRENCY (RFC) ACCOUNT OF THE REMITTER.
RULE 5]
12. JUDICIARY UNDER FEMA

Judiciary under FEMA has spread across different chapters which are detailed below
Chapter Content /Sections Remarks
CONTRAVENTION AND PENALTIES
Section 13 Penalties All the 4 sections
IV Section 14 Enforcement of the orders of Adjudicating Authority. are applied by ICAI
Section 14A Power to recover arrears of penalty for examinations
Section 15 Power to compound contravention
ADJUDICATION AND APPEAL
Section 16 Appointment of adjudicating authority
Section 17 Appeal to Special director (Appeals)
Section 18 Appellate Tribunal
Section 19 Appeal to Appellate Tribunal
Section 20 ***Deleted***
Section 21 Qualifications and appointment of special director
(Appeals)
Section 23 Terms and conditions of service of Special director
(Appeals)
In this Chapter only
sections 16 – 19 and
V section 35 are
applied by ICAI for
Section 27 Staff of Special Director (Appeals)
examinations2
Section 28 Procedure and Powers of Appellate Tribunal and
Special director (Appeals)
Section 32 Right of appellant to take assistance of legal
practitioner or chartered accountant and
Government, to appoint presenting officers.
Section 33 Officers and employees etc to be public servants.
Section 34 Civil court not to have jurisdiction
Section 35 Appeal to high court
DIRECTORATE OF ENFORCEMENT
All the 3 sections
Section 36 Directorate of enforcement
VI are applied by ICAI
Section 37 Power of Search and Seizure, etc.
for examinations
Section 38 Empowering other officers
MISCELLANEOUS Except section 45 –
VII
Section 39 Presumption as to documents in certain cases 48, remaining
2
Refer institute study material for cross verification
Section 40 Suspension of operation of act sections are applied

Section 41 Power of Central government to give directions by ICAI for
Section 42 Contravention by companies examinations3
Section 43 Death or insolvency in certain cases
Section 44 Bar on legal proceedings
Section 45 Removal of difficulties
Section 46 Power to make rules
Section 47 Power to make regulations
Section 48 Rules and regulations to be laid before parliament
CHAPTER IV – CONTRAVENTION AND PENALTIES

12.1. SECTION 13: PENALTIES
Contravention by
Any Person
whom?
 Act
 Rules
What is contravened?  Regulations
 Notifications
Consequences of  Directions or orders.
contravention
[Section 13(1)] If amount is If amount is not
quantifiable quantifiable
Up to 3 times the sum
Up to ₹ 2,00,000.
Quantum of Penalty involved
Further penalty which
In case of continuing
may extend to ₹ 5,000
default
for every day.
 AA if he thinks fit, in addition to the penalty, direct that any currency, security
or any other money or property in respect of which the contravention has
taken place shall be confiscated to the Central Government and
 Further direct that the foreign exchange holdings, if any of the person
Additional powers
committing the contraventions or any part thereof, shall be brought back
of adjudicating
into India or shall be retained outside India.
authority
The term property shall include -----
[Section 13(2)]
(a) Deposits in a bank, where the said property is converted into such deposits;
(b) Indian currency, where the said property is converted into that currency; and
(c) Any other property, which has resulted out of the conversion of that property.
[Explanation to Section 13(2)]
Acquisition of Section If any person is found to have acquired any foreign exchange, foreign
foreign exchange, 13(1A) security or immovable property, situated outside India, of the
3
Refer institute study material for cross verification
foreign security and aggregate value exceeding the threshold prescribed under the proviso
foreign property to sub-section (1) of section 37A, he shall be liable to a penalty up to
[Section 13(1A), three times the sum involved in such contravention and confiscation
13(1B), 13(1C), of the value equivalent, situated in India, the Foreign exchange,
13(1D)] foreign security or immovable property.
Note: Threshold specified in Section 37A is ₹ 1 Crore.
If the Adjudicating Authority, in a proceeding under sub-section (1A)
deems fits, he may, after recording the reasons in writing, recommend
Section for the initiation of prosecution and if the Director of Enforcement is
13(1B) satisfied, he may, after recording the reasons in writing, may direct
prosecution by filing a Criminal Complaint against the guilty person
by an officer not below the rank of Assistant Director.
If any person is found to have acquired any foreign exchange, foreign
security or immovable property, situated outside India, of the
Section aggregate value exceeding the threshold prescribed under the proviso
13(1C) to sub-section (1) of section 37A, he shall be, in addition to the penalty
imposed under sub-section (1A), punishable with imprisonment for a
term which may extend to five years AND with fine.
No court shall take cognizance of an offence under sub-section (1C) of
Section
section 13 except as on complaint in writing by an officer not below
13(1D)
the rank of Assistant Director referred to in sub-section (1B).
12.2. ENFORCEMENT OF THE ORDERS OF ADJUDICATING AUTHORITY [SECTION 14]

If any person fails to make full payment of the penalty imposed on him under
section 13 within a period of 90 days from the date on which the notice for
payment of such penalty is served on him, he shall be liable to civil imprisonment
Civil imprisonment under this section.
in certain cases
CIVIL IMPRISONMENT SHALL BE AS FOLLOWS:
[Section 14(1)]
Failure to pay penalty Term of civil imprisonment
Exceeding ₹ 1crore Up to 3 years
Other cases Up to 6months
Conditions for Arrest
 AA has issued a notice calling the defaulter to appear before him and issue a
SCN as to why he is should not be arrested.
 AA should be satisfied that -------
Provisions for The defaulter, with the object or effect of obstructing the recovery of penalty,
arrest has after the issue of notice by the Adjudicating Authority, dishonestly
[Section 14(2)] transferred, concealed, or removed any part of his property.
The defaulter has, or has had since the issuing of notice by the Adjudicating
Authority, the means to pay the arrears or some substantial part thereof and
refuses or neglects or has refused or neglected to pay the same.
Notwithstanding anything contained in sub-section (1), a warrant for the arrest

Option to issue
of the defaulter may be issued by the Adjudicating Authority if the Adjudicating
arrest warrant in
Authority is satisfied that with the object or effect of delaying the execution of the
certain cases
certificate the defaulter is likely to abscond or leave the local limits of the
[Section 14(3)]
jurisdiction of the Adjudicating Authority.
Issue of arrest
Where appearance is not made pursuant to a notice issued and served under sub-
warrant for
section (1), the Adjudicating Authority may issue a warrant for the arrest of the
negligence
defaulter.
[Section 14(4)]
Power of other AA
A warrant of arrest issued by the Adjudicating Authority under sub-section (3) or
to issue arrest
sub-section (4) may also be executed by any other Adjudicating Authority within
warrant
whose jurisdiction the defaulter may for the time being be found.
[Section 14(5)]
Every person arrested in pursuance of a warrant of arrest under this section shall
be brought before the Adjudicating Authority issuing the warrant as soon as
practicable and in any event within twenty-four hours of his arrest (exclusive of
Presence of person the time required for the journey).
arrested Provided that, if the defaulter pays the amount entered in the warrant of arrest
[Section 14(6)] as due and the costs of the arrest to the officer arresting him, such officer shall at
once release him.
Explanation.—For the purposes of this sub-section, where the defaulter is a Hindu
undivided family, the karta thereof shall be deemed to be the defaulter.
Principles of When a defaulter appears before the Adjudicating Authority pursuant to a notice
Natural justice to be to show cause or is brought before the Adjudicating Authority under this section,
followed the Adjudicating Authority shall give the defaulter an opportunity showing cause
[Section 14(7)] why he should not be committed to the civil prison.
APPENDIX TO SECTION 13 AND SECTION 14 – INTERLINKAGE WITH SECTION 4 AND

SECTION 37A
BROAD ANALYSIS OF SECTION 13
 Section 13 of FEMA creates the provision and mechanism for adjudication of

penalties as the method of dealing with contraventions under FEMA and its rules,
regulation, orders, directions, circulars etc.
 The scope of section 13 has been enlarged by the amendment to FINANCE ACT, 2015
which has a corresponding effect of amending section 13 by bringing sub-sections
Basic 1A, 1B, 1C and 1D to section 13(1).
Analysis  This amendment has created provisions for dealing with persons acquiring foreign
exchange, foreign securities and foreign immovable property in contravention and
to further add provisions for prosecution against such persons and punishment
thereof.
 The provisions for section 13(1A) to section 13(1D) and section 13(2) shall be read
along with section 37A.
 A close perusal of the penal clause contained in section 13(1) would show that it
covers contravention of any provision of FEMA, and its rules, regulation, orders,
directions, circulars etc.
 It would however, not cover offences for which separate penalty has been provided
Section 13(1) elsewhere in the Act or regulations etc.
– Wide in its Example:
sweep!!! For Instance, under section 14 itself, there is a provision for committing to civil
prison a person who is in default in payment of penalty as adjudicated by
adjudicating authority. Though contravention of an order of adjudicating
authority will apparently look to attract section 13(1), in the view of specific
manner in which such a default must be dealt with as prescribed under section
14, the penal clause in section 13(1) shall not apply.
 Section 13(1A) of FEMA deals with a subject that is entirely different to the one dealt
by section 13(1).
 Section 13(1A) of FEMA states that, If any person is found to have acquired any
foreign exchange, foreign security or immovable property, situated outside India, of
the aggregate value exceeding the threshold prescribed under the proviso to sub-
Analysis on section (1) of section 37A, he shall be liable to
Section A penalty up to three times the sum involved in such contravention AND
13(1A) Confiscation of the value equivalent, situated in India, the Foreign exchange, foreign
security or immovable property.
 Section 37A states that the assets of such a person in India may be confiscated.
Assets confiscated under section 37A can be of value equivalent to the value of
foreign exchange or foreign securities or immovable property acquired by that
person.
 It must be noted that section 13(1A) is confined to contravention of provisions of

FEMA arising from acquisition of foreign exchange or foreign securities or
immovable property outside India.
 Thus, this is a special provision and would come into play only if following 2
conditions are satisfied -----
Acquisition of any of 3 properties in contravention AND
Value shall not be less than ₹ 1 crore.
 Section 37A(1) says that if any foreign exchange or foreign securities or immovable
property situated outside India, is suspected to have been held in contravention of
section 4, he may after recording the reasons in writing, by an order, seize value
equivalent, situated within India, of such foreign exchange, foreign security or
immovable property.
 Section 4 of FEMA states that ‘Save as otherwise provided in this Act, no person
resident in India shall acquire, hold, own, possess or transfer any foreign exchange,
foreign security or any immovable property situated outside India.’
 In order to attract section 13(1A), first of all, provisions of section 37A(1) and its
proviso shall get attracted. In case section 13(1A) applies, the person connected is
not only liable to a penalty upto 3 times the sum involved in such contravention and
confiscation of value equivalent, situated in India, the foreign exchange or foreign
securities or immovable property but also he is liable to be prosecuted for the
offence as per section 13(1B) of FEMA.
 The conclusion therefore is, Section 13(1A) is meant to be read in conjunction with
section 37A (1) and both provisions have to work together.
 Section 13(1C) of FEMA states that if a person is prosecuted under section 13(1B),
and found guilty of the offence he is, in addition to the penalty imposed under section
13(1A), punishable with imprisonment for a term which may extend to 5 years and
Analysis on with fine.
Section  The words “in addition to the penalty imposed” appearing in section 13(1B)
13(1C) makes it clear that the punishment by way of imprisonment and fine under section
13(1C) are in addition to the penalty imposed by the adjudicating authority under
section 13(1A). In other words, imposing penalty by the AA is not going to bar the
prosecution for the offence.
12.3. POWER TO RECOVER ARREARS OF PENALTY [SECTION 14A]
 The Adjudicating Authority may, by order in writing, authorise an officer of Enforcement not below
the rank of Assistant Director to recover any arrears of penalty from any person who fails to make
full payment of penalty imposed on him under section 13 within the period of 90 days from the date
on which the notice for payment of such penalty is served on him.
 The officer referred to in sub-section (1) shall exercise all the like powers which are conferred on the
income-tax authority in relation to recovery of tax under the Income-tax Act, 1961.
12.4. POWER TO COMPOUND CONTRAVENTION [SECTION 15]

Any contravention under section 13 may, on an application made by the person
Power and time committing such contravention, be compounded within 180 days from the date
limit for of receipt of application by the Director of Enforcement or such other officers of
compounding the Directorate of Enforcement and Officers of the Reserve Bank as may be
authorised in this behalf by the Central Government.
Bar on legal Where a contravention has been compounded under sub-section (1), no
proceedings if proceeding or further proceeding, as the case may be, shall be initiated or
compounding is continued, as the case may be, against the person committing such contravention
granted under that section, in respect of the contravention so compounded.
12.5. CHAPTER – V: ADJUDICATION AND APPEAL [SECTION 16 – 19]
Particulars Content Details
The Central Government may, by an order published in the Official Gazette, appoint as
Power with whom? many officers of the Central Government as it may think fit, as the Adjudicating
Authorities
What is the purpose of For the purpose of adjudication under section 13 by -----
Appointment of establishing adjudicating  Holding an inquiry and
Adjudicating authority?  Impose a penalty.
Authority
[Section 16] Power of AA to order for Where the Adjudicating Authority is of opinion that the said person is likely to abscond
furnishing a bond or or is likely to evade in any manner, the payment of penalty, if levied, it may direct the
guarantee. said person to furnish a bond or guarantee for such amount.
Hold an inquiry on whose Adjudicating Authority shall hold an inquiry only upon a complaint in writing made by
complaint? any officer authorized by a general or special order by the Central Government.
The Central Government shall, by notification, appoint one or more Special Directors
Power with whom?
(Appeals).
What is the purpose of
establishing adjudicating To hear appeals against the orders of the Adjudicating Authorities under this section.
Appeal to Special authority?
Director (Appeals) Any person aggrieved by an order made by the Adjudicating Authority, being an
[Section 17] When appeal is
Assistant Director of Enforcement or a Deputy Director of Enforcement, may prefer an
preferred?
appeal of the Special Director (Appeals).
Every appeal under sub-section (1) shall be filed within 45 days from the date on which
Time limit for filing an
the copy of the order made by the Adjudicating Authority is received by the aggrieved
appeal.
person.
Appellate Tribunal The Appellate Tribunal constituted under sub-section (1) of section 12 of the Smugglers and Foreign Exchange
[Section 18] Manipulators (Forfeiture of Property) Act, 1976, be the Appellate Tribunal for the purposes of this Act.
Appeal to Appellate Who can prefer an
The Central Government or any person aggrieved.
Tribunal appeal?
[Section 19] Aggrieved by whose Aggrieved by an order made by an Adjudicating Authority, or the Special Director
orders? (Appeals), may prefer an appeal to the Appellate Tribunal.
Any person appealing against the order of the Adjudicating Authority or the Special
Deposit of security
Director (Appeals) levying any penalty, shall while filing the appeal, deposit the
amount
amount of such penalty with such authority.
Every appeal shall be filed within a period of 45 days from the date on which a copy of
Time limit for filing an
the order made by the Adjudicating Authority or the Special Director (Appeals) is
appeal
received by the aggrieved person or by the Central Government.
The appeal filed before the Appellate Tribunal under sub-section (1) shall be dealt with
by it as expeditiously as possible and endeavour shall be made by it to dispose of the
Disposal of appeal
appeal finally within one hundred and eighty days from the date of receipt of the
appeal.
Appeal to High Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court within
Court sixty days from the date of communication of the decision or order of the Appellate Tribunal on any question of law
[Section 35] arising out of such order.
12.6. CHAPTER VI: DIRECTORATE OF ENFORCEMENT [SECTION 36 – SECTION 38]
Particulars Content Details
The Central Government shall establish a Directorate of Enforcement and Officers of
Power with whom?
enforcement.
What is the purpose of
An officer of Enforcement may exercise the powers and discharge the duties conferred or
Directorate of establishing adjudicating
imposed on him under this Act.
enforcement authority?
[Section 36]  Director.
 Additional Director.
Categories of Officers
 Special Director.
 Deputy Director.
The Director of Enforcement and other officers of Enforcement, not below the rank of an
Power of Assistant Director, shall take up for investigation the contravention referred to in section
Power with whom?
Search and 1
Seizure 3.
[Section 37] The officers referred to in sub-section (1) shall exercise the like powers which are
Powers given
conferred on income-tax authorities under the Income-tax Act, 1961.
Power with whom? The Central Government has power to empower other officers.
Empowering  Officer of customs or

other officers  Any central excise officer or
[Section 38] Who may be authorised?  Any police officer or
 Any other officer of the central government or
 Any other officer of the State Government.
12.7. MISCELLANEOUS
PRESENTATION AS TO DOCUMENTS IN CERTAIN CASES [SECTION 39]
Where any document -----
Is produced by any person or
Is furnished by any person or
When section gets Has been seized from the custody or control of any person or
attracted? Has been received from any place outside India in the course of
investigation of any contravention under this act.
AND
Such document is produced in any proceeding.
The Adjudicating authority or the Court shall -----
Presume, unless the contrary is proved, that the signature and every
other part of such document which purports to be in the handwriting of any
particular person or which the court may reasonably assume to have been
What shall be the signed by, or to be in the handwriting of any particular person, is in that
presumption of the person’s handwriting and in the case of a document executed or attested,
Judiciary? that it was executed or attested by the person by whom it purports to have
been so executed or attested.
Admit the document in evidence notwithstanding that it is not duly
stamped, if such document is otherwise admissible in evidence
Presume the contents to be true.
SUSPENSION OF OPERATION OF THIS ACT [SECTION 40]

Central Government is satisfied that
Circumstances have arisen rendering it necessary that any permission
Basic power of granted should cease to be granted or
Central Restriction imposed should cease to be imposed or
Government In Public interest
[Section 40(1)] It may by notification, suspend or relax to such extent either indefinitely or
for such period as may be notified, the operation of all or any of the provisions
of this Act.
Power of Central
Where the operation of any provision of this Act has under sub-section (1)
Government to
been SUSPENDED OR RELAXED INDEFINITELY, such suspension or
revoke the
relaxation may, at any time while this Act remains in force, be removed by the
notification
Central Government by notification.
[Section 40(2)]
Parliament
Every notification issued under this section shall be laid, as soon as may be
approval
after it issued, before each House of Parliament.
[Section 40(3)]
POWER OF CENTRAL GOVERNMENT TO GIVE DIRECTIONS [SECTION 41]

Who gives
Central government.
instructions?
Instructions to
Reserve Bank of India.
whom?
Duty of Reserve Reserve bank shall, in the discharge of its functions under this Act, comply
Bank with any such directions.
CONTRAVENTION BY COMPANIES [SECTION 42]

Contravention by
whom? Contravention committed by Company.
[Section 42(1)]
What is
contravened? Provisions of this Act or of any rule, direction or order.
[Section 42(1)]
Every person who, at the time the contravention was committed, was in
Who is Liable?
charge of, and was responsible to, the company for the conduct of the
[Section 42(1)]
business of the company as well as the company
What is the
He shall be deemed to be guilty of the contravention and shall be liable to be
Liability?
proceeded against and punished accordingly.
[Section 42(1)]
Immune subject to
Nothing contained in this sub-section shall render any such person liable to
condition
punishment if he proves that the contravention took place without his
[Proviso to Section
knowledge or that he exercised due diligence to prevent such contravention.
42(1)]
Notwithstanding anything contained in sub-section (1), where
contravention of any of the provisions of this Act or of any rule, direction or
If contravener is order made thereunder has been committed by a company and it is proved
identified – that the contravention has taken place with the consent or connivance of, or
consequences is attributable to any neglect on the part of, any director, manager, secretary
[Section 42(2)] or other officer of the company, such director, manager, secretary or other
officer of the company shall also be deemed to be guilty of the contravention
and shall be liable to be proceed against and punished accordingly.
Explanation to
(a) Company means any body corporate and includes a firm or other
certain terms
association of individuals; and
[Explanation to
(ii) Director in relation to a firm, means a partner in the firm.
Section 42]
DEATH OR INSOLVENCY IN CERTAIN CASES [SECTION 43]

Rights, obligations or liability Any right, obligation, liability, proceedings or appeal arising in
not to abate in certain cases relation to the provision of section 13 shall not abate by reason
[Section 43(1)] of death or insolvency of the person liable under that section.
Consequence of death or Upon such death or insolvency such rights and obligations shall
insolvency devolve on the legal representative of such person or the
[Section 43(1)] official receiver or the official assignee, as the case may be.
Extent of Legal representative’s

Legal representative of the deceased shall be liable only to the
Liability
extent of the inheritance or estate of the deceased.
[Proviso to Section 43(1)]
BAR ON LEGAL PROCEEDINGS [SECTION 44]

 Suits
 Prosecution or
Bar on what?  Legal proceedings
brought against the Central Government or the Reserve Bank or any officer
thereof.
When Bar shall
For their acts done in good faith.
operate?
REPEAL AND SAVING [SECTION 49]

Dissolution of The Foreign Exchange Regulation Act, 1973 is hereby repealed and the
Appellate Board Appellate Board constituted under section 52(1) of the said Act
[Section 49(1)] (hereinafter referred to as the repealed Act) shall stand dissolved.
Position of Chairman
 Vacate the offices with immediate effect
and Members of
 They shall not be entitled to any compensation for premature
Appellate Board
termination of office.
[Section 49(2)]
No court shall -----
Offences under FERA –
Take cognizance of an offence under the repealed Act.
Can court take
Take notice of any contravention under section 51 of the repealed Act.
cognizance?
after the expiry of a period of two years from the date of the
[Section 49(3)]
commencement of this Act.
How offences are dealt Subject to the provisions of sub-section (3) all offences committed under
during 2 years the repealed Act shall continue to be governed by the provisions of the
[Section 49(4)] repealed Act as if that Act had not been repealed.
 Any appeal preferred to the Appellate Board under section 52(2) of
the repealed Act but not disposed of before the commencement of this
Act shall stand transferred to and shall be disposed of by the
Position of appeals Appellate Tribunal constituted under this Act.
[Section 49(5)]  Every appeal from any decision or order of the Appellate Board under
sub-section (3) or sub-section (4) of section 52 of the repealed Act
shall, if not filed before the commencement of this Act, be filed before
the High Court within a period of sixty days of such commencement.
SPECIAL ASPECTS IN FEMA, 1999

SPECIAL ASPECTS OF FEMA
This document makes a holistic coverage of External commercial borrowings in FAQ
format for good understanding.
FREQUENTLY ASKED QUESTIONS ON EXTERNAL COMMERCIAL BORROWINGS
PART A – TECHNICAL ASPECTS OF ECB MASTER DIRECTION
1. WHY EXTERNAL COMMERCIAL BORROWINGS?

To understand on why there exists a concept of ECB, first we need to understand the
present scenario of domestic commercial/ business loan rates offered by various banks
in India (Updated till June 2020)
Name of the Bank Interest rate spread Processing fee
SBI 11.20% - 16.30% 2% to 3%
HDFC 15.50% - 18.30% 0.99% onwards Max 2.50%
ICICI 12.90% - 16.65% 0.99% onwards. Up to 2%
AXIS 15.50% to 24% Up to 2%
RBL 20.00% - onwards 3%
KOTAK 16.00% - 19.99% Up to 2%
CAPITAL FLOAT 18.00% – onwards Up to 2%
LENDINGKART 18.00% – onwards 2%
BAJAJFINSERV 18.00% – onwards Up to 2%
STANDARD
13.50% - 20.00% 2%
CHARTERED
DEUTSCHE BANK 24.00% Up to 3%
EDELWEISS 18.25% onwards 2% onwards
TATA CAPITAL 18.00% onwards 1.50% to 2.50%
WHEREAS, the ECB Benchmark rate are LIBOR and all – in – cost ceiling is p.a is
Benchmark rate + 450 bps in case of FC denominated ECB and in case of Rupee
denominated ECB will be prevailing yield of the Government of India securities of
corresponding maturity.
Thus, ECB is a mechanism used in India to assist Corporates in accessing cheaper foreign
funds by Indian corporates.
2. DIFFERENCE BETWEEN EXTERNAL COMMERCIAL BORROWING AND FOREIGN
DIRECT INVESTMENT
 ECB means any kind of funding other than Equity whereas, if the foreign money is
used to finance the Equity Capital, it would be termed as Foreign direct investment.
 The ECB should satisfy the ECB regulations stipulated by the Government or its
agencies such as RBI. The Bonds, Credit notes, Asset Backed Securities, Mortgage
Backed Securities or anything of that nature are included in ECB.
Following are not included in the ECBs:
 Any investment made towards core capital of an organization such as equity
shares, convertible preference shares or convertible debentures. All convertible
into equity are covered by FDI policy.
 Any other direct capital is not allowed in ECB.
3. OBJECTIVE OF ECB
 Government permits the ECBs as an additional source of financing for expanding the
existing capacity as well as for fresh investments.
 The ECB Policy of the government seeks to emphasize the priority of investing in the
infrastructure and core sectors such as power, telecom, Railways etc.
4. FORMS OF ECB
There are totally 7 forms of ECB which are as follows:
 Buyers Credit
 Suppliers Credit
 Financial Lease
 FCCB
 FCEB (Only through approval route)
 Loans
 Securitized instruments (Floating rate notes, Fixed rate bonds, non-convertible or
optionally convertible or partially convertible preference shares or debentures.
5. FRAMEWORK OF AMENDED ECB
 There are various methods through which Indian Companies may raise funds from
abroad, out of which one method is by issuing ECB.
 There are 2 tracks in the ECB namely:
 Foreign currency denominated ECB
 INR denominated ECB.
 The ECB framework enables permitted resident entities to borrow from recognised
non-resident entities.
 To improve ease of doing business in India, the RBI on 16th January 2019 notified
new ECB framework.
 The new ECB framework rationalizes the existing ECB framework by merging the
existing Track I (medium term foreign currency denominated ECB) and Track II (Long
term foreign currency denominated ECB) into one track as ‘Foreign currency
denominated ECB’.
 Existing Track III (INR denominated ECB) and INR denominated Bonds (Masala
Bonds) route has been merged as ‘Rupee denominated ECB’.
6. AVAILABLE ROUTES FOR RAISING ECB
 There are 2 types of routes for raising ECB namely:
 Automatic route
 Approval route
 While the regulatory provisions are mostly similar there are some differences in the
form of amount of borrowings, eligibility of borrowers, permissible end uses, etc.
under 2 routes.
 Issuance of FCEBs can be done only through approval route. (all remaining can be
done through both routes)
7. WHAT ARE AUTOMATIC AND APPROVAL ROUTES?
Automatic route:
For the automatic route, the cases are examined by the Authorized Dealer Category-I (AD
Category-I) banks.
Approval route:
Under the approval route, the prospective borrowers are required to send their requests
to the Reserve Bank through their AD Banks for examination.
In a lucid way one can understand automatic and approval routes can be
understood as under:
Automatic route doesn’t involve more authorities especially it doesn’t involve RBI
whereas in approval route it involves central government.
8. WHO ARE ELIGIBLE BORROWERS UNDER ECB?

In new ECB framework, all entities eligible to receive FDI can borrow under new ECB
framework irrespective of type of ECB.
FCY denominated ECB INR denominated ECB
 All entities eligible to receive FDI can  All entities eligible to raise FCY ECB
make FCY ECB. can make INR ECB.
 Further, the following entities are also  Registered entities engaged in micro-
eligible to raise ECB. finance activities like -----
 Port Trusts;  Registered Not for Profit
 Units in SEZ; companies.
 SIDBI; and  Registered societies.
 EXIM Bank of India.  Registered trusts.
 Registered cooperatives and
 Non-Government Organizations.
Author note:
This is a key step in liberalization as previously there was a narrow list of eligible
borrowers. This change is expected to open ECB avenues for a range of new borrowing
entities, such as companies in a service sector.
9. WHO ARE RECOGNISED LENDERS UNDER ECB?
 Lenders who are resident of FATF or IOSCO compliant country.
 Multilateral and Regional Financial Institutions where India is a member country.
Like, International monetary fund or World Bank or
Asian development bank or European development bank.
 Individuals as lenders can only be permitted if they are foreign equity holders or for
subscription to bonds/debentures listed abroad.
 Foreign branches / subsidiaries of Indian banks are permitted as recognised lenders
only for FCY ECB (except FCCBs and FCEBs).
10. WHAT DO YOU MEAN BY FOREIGN EQUITY HOLDER?
Foreign equity holder means
(a) Direct foreign equity holder with minimum 25% direct equity holding in the
borrowing entity,
(b) Indirect equity holder with minimum indirect equity holding of 51%, or
(c) Group company with common overseas parent.
11. WHAT IS AN IOSCO COMPLIANT COUNTRY?
A country whose securities market regulator is a signatory to the International
Organisation of Securities Commission's (IOSCO’s) Multilateral Memorandum of
Understanding or a signatory to bilateral Memorandum of Understanding with the SEBI
for information sharing arrangements.
12. WHAT IS FATF COMPLIANT COUNTRY?
A country that is a member of the Financial Action Task Force (FATF) or a member of a
FATF-Style Regional Body; and should not be a country identified in the public statement
of the FATF as
(i) A jurisdiction having a strategic Anti-Money Laundering or Combating the

Financing of Terrorism deficiencies to which counter measures apply; or
(ii) A jurisdiction that has not made sufficient progress in addressing the deficiencies
or has not committed to an action plan developed with the Financial Action Task
Force to address the deficiencies.
13. WHAT IS FCCB AND ITS RELATION WITH ECB? [NOT FOR EXAMS]
13.1Meaning
Foreign currency convertible bond is a special type of bond issued in the currency other
than the home currency. In other words, companies issue foreign currency convertible
bonds to raise money in foreign currency.
13.2Features of FCCBs
a. Like any other type of bond, an FCCB makes regular coupon and principal payments
till a certain date, after which it can be converted into equity.
b. FCCBs retain all the features of a convertible bond and hence remain attractive to both
issuers and investors.
c. Another attractive feature of FCCBs is that these are equity-linked debt securities
which give the holder the right to convert the bond into equity or a depository receipt
(DR) after a certain period of time.
d. FCCBs are tradable on the stock exchange.
13.3Advantages of FCCBs
a. FCCBs issuance allows companies to raise money outside the home country there by
enabling tapping new markets for investment options.
b. FCCBs are generally issued by companies in the currency of those countries where
interest rates are usually lower than the home country or the foreign country
economy is more stable than the home country economy.
c. FCCB holders may choose to convert the bonds into equity to benefit out of the equity
price appreciation that may have taken place.
d. FCCB holders enjoy the safety of guaranteed payments on the bond and may opt to
continue with the bond if equity or depository receipt if conversion isn’t more
beneficial.
e. Since these bonds come with an advantage to the bond holder, the coupon payments
on these bonds are usually lower than a straight coupon bearing plain vanilla bond.
This helps the issuer to reduce the cost of borrowing.
13.4 Dis-advantages of FCCBs
a. Companies that borrow funds via FCCB in foreign currency shall have to make the
repayment in foreign currency on the maturity of the bond. The exchange rate
prevailing on the day of maturity, if has moved considerably as compared to the rate
prevailing on the day of the borrowing, may result in losses for the company. The
exchange rate in a volatile scenario may cause cash outflows on repayment to be much
higher than the saving in the interest rate. Thus, a cost-saving motive may be totally
taken off if home currency depreciates beyond the interest rate saving.
b. If the stock prices do not appreciate and instead depreciate, the bond holders might
refrain from converting bonds to equity and the money might have to be repaid by the
issuer on bond maturity. Hence, if the company is going through a bad phase, the
stocks may not do well and therefore, may not be converted to equity by FCCB holders.
In such a scenario, the already troubled company may face an additional burden of
interest and principal repayment to be made to the bondholders. Hence, an FCCB may
be suitable in a bull market scenario and may be affected by bear market phases.
c. Issuing bonds in foreign currency in a foreign market may always be exposed to a

legal, political and economic risk of that foreign country. One may have much better
idea about the macro-economic conditions of the home country compared to those in
a foreign country.
d. FCCBs continue to remain on the books of accounts as a debt until the time it is
converted and continues to hamper the debt to equity ratio and other debt and
interest service coverage ratios.
14. WHAT IS FCEB AND ITS RELATION WITH ECB?
Every thing is same as FCCB except for the case where the FCEB converts into shares of
another company rather than the company issuing the bond.
15. WHAT IS MINIMUM AVERAGE MATURITY PERIOD GENERALLY?
MAMP for ECB will be 3 years.
16. WHAT IS MINIMUM AVERAGE MATURITY PERIOD IN SPECIFIC CASES?
Sl.no Category MAMP

ECB raised by manufacturing companies up to USD 50 million or its equivalent per
a 1 year
financial year.
ECB raised from foreign equity holder for working capital purposes, general
b 5 years
corporate purposes or for repayment of Rupee loans
ECB raised for
(i) Working capital purposes or general corporate purposes.
c 10 years
(ii) On-lending by NBFCS for working capital purposes or general corporate
purposes.
ECB raised for
d (i) Repayment of Rupee loans availed domestically for capital expenditure 7 years
(ii) On-lending by NBFCs for the same purpose
ECB raised for
(i) Repayment of Rupee loans availed domestically for purposes other than
e 10 years
capital expenditure.
(ii) On-lending by NBFCs for the same purpose
For the categories mentioned at (b) to (e) –
(i) ECB cannot be raised from foreign branches / subsidiaries of Indian banks.
(ii) The prescribed MAMP will have to be strictly complied with under all circumstances.
ANALYSIS ON MAMP
a) Simplified view point:
Raised by Raised from Raised up to/for
MAMP
(Borrower) (Lender) (Time/Purpose)
Manufacturing
Eligible Lender Up to 50 million or its equivalent per FY 1 Year
Companies
Eligible Foreign equity a) General corporate purposes
5 Years
borrower holder b) Repayment of rupee loans
Eligible Lender Working capital purposes or General corporate 10
except foreign purposes. Years
Eligible branches/ Repayment of Rupee loans availed domestically for
7 Years
borrower overseas capital expenditure.
subsidiaries of Repayment of Rupee loans availed domestically for 10
Indian banks purposes other than capital expenditure. Years
Eligible Lender Working capital purposes or General corporate 10

except foreign purposes. Years
branches/ Repayment of Rupee loans availed domestically for
NBFC 7 Years
overseas capital expenditure.
subsidiaries of Repayment of Rupee loans availed domestically for 10
Indian banks purposes other than capital expenditure. Years
b) ILLUSTRATION ON MAMP:
Name of Company: KPL LTD Loan Amount: $ 2 million
No. of
Date of drawal/ Days** Product= (Col.4 *
repayment Drawal Repayment Balance balance Col. 5)/ (Loan
(MM/DD/YYYY) with the amount * 360)
borrower
05/11/2015 0.75 0.75 24 0.0250
06/05/2015 0.50 1.25 85 0.1476
08/31/2015 0.75 2.00 477 1.3250
12/27/2016 0.20 1.80 180 0.4500
06/27/2017 0.25 1.55 180 0.3875
12/27/2017 0.25 1.30 180 0.3250
06/27/2018 0.30 1.00 180 0.2500
12/27/2018 0.25 0.75 180 0.1875
06/27/2019 0.25 0.50 180 0.1250
12/27/2019 0.25 0.25 180 0.0625
06/27/2020 0.25 0.00 0.00
Average maturity 3.2851 years
c) YET ANOTHER ILLUSTRATION ON MAMP

Name of Company: KPL LTD Loan Amount: $ 2 million
No. of
Date of drawal/ Days** Product= (Col.4 *
repayment Drawal Repayment Balance balance Col. 5)/ (Loan
(MM/DD/YYYY) with the amount * 360)
borrower
11-05-2015 0.75 0.75 24 0.0250
05-06-2015 0.50 1.25 85 0.1476
30-08-2015 0.50 1.75 120 0.2917
31-12-2015 0.25 2.00 177 0.4917
27-06-2016 0.25 1.75 180 0.4375
27-12-2016 0.25 1.50 180 0.3750
27-06-2017 0.20 1.30 180 0.3250
27-12-2017 0.20 1.10 180 0.2750
27-06-2018 0.20 0.90 180 0.2250
27-12-2018 0.20 0.70 180 0.1750
27-06-2019 0.20 0.50 180 0.1250
27-12-2020 0.25 0.25 180 0.0625
27-06-2021 0.25 0.00
Average maturity 2.956 years
17. WHAT IS THE ALL-IN-COST OF ECB?

The All-in-cost ceiling per annum – Benchmark rate plus 450 bps spread.
All – in – cost includes -----
a. Interest cost
b. Fees
c. Expenses
d. Charges
e. Guarantee fees
f. ECA Charges [ECA = Export Credit Agency]
Notes:
 AIC doesn’t include Commitment fees and Withholding tax payable
in INR.
 In the case of fixed rate loans, the swap cost plus spread should not
be more than the floating rate plus the applicable spread.
 For FCCBs, the issue related expenses should not exceed 4 per cent
of the issue size and in case of private placement, these expenses
should not exceed 2 per cent of the issue size, etc.
18. WHAT ARE THE END-USE PRESCRIPTIONS UNDER ECB?

The negative list, for which the ECB proceeds cannot be utilized, would include the
following:
 Real estate activities.
 Investment in capital market.
 Equity investment.
 Working capital purposes, except in case of ECB mentioned at (b) and (c) above.
 General corporate purposes, except in case of ECB mentioned at (b) and (c) above.
 Repayment of Rupee loans, except in case of ECB mentioned at (d) and (e) above.
 On-lending to entities for the above activities, except in case of ECB raised by NBFCs
as given at (c), (d) and (e) above.
Illustrations:
Can ECB be availed of for making equity No. Equity investment either directly or
1 investment domestically or buying indirectly (through purchase of
goodwill? goodwill) is not permitted.
Can ECB be availed of for making No, it is not permitted.
2
contribution in an LLP?
Can an eligible borrower raise fresh Refinancing of Rupee denominated ECB
foreign currency ECB for repayment of with Foreign Currency denominated
existing Rupee denominated ECB? ECB is not permitted.
3 Note: Refinancing is the replacement
of an existing debt obligation with
another debt obligation under
different terms.
Can ECB proceeds be used by eligible Yes. ECB proceeds can be utilized for
resident borrowers for investment in overseas investment as permitted under
4
their overseas JV/WOS as per the extant the overseas investment guidelines.
overseas investment guidelines?
Is on-lending treated as working capital For the purpose of ECB, on-lending by

for borrowers who are engaged in the borrowers who are engaged in the
business of on-lending? business of on-lending is not treated as
Note: On-lending means lending the working capital. Additionally, the
5
borrowed money to a third party. borrowers shall need to adhere to the
guidelines issued by the concerned
sectoral or prudential regulator in this
regard.
19. WHAT ARE THE LIMITS ON BORROWING?

 Under the aforesaid framework, all eligible borrowers can raise ECB up to USD 750
million or equivalent per financial year under the automatic route.
 Further, in case of FCY denominated ECB raised from direct foreign equity holder,
ECB liability-equity ratio for ECB raised under the automatic route cannot exceed 7:1.
Exception:
This ratio will not be applicable if the outstanding amount of all ECB, including the
proposed one, is up to USD 5 million or its equivalent.
Note:
ECB liability-Equity ratio: For the purpose of ECB liability-equity ratio, ECB amount will
include all outstanding amount of all ECB (other than INR denominated) and the
proposed one while equity will include the paid-up capital and free reserves (including
the share premium received in foreign currency) as per the latest audited balance sheet.
Both ECB and equity amounts will be calculated with respect to the foreign equity holder.
Where there is more than one foreign equity holder in the borrowing company, the
portion of the share premium in foreign currency brought in by the lender(s) concerned
shall only be considered for calculating the ratio. The ratio will be calculated as per latest
audited balance sheet.
20. FORMS OF ECB

Forms of ECB are different for both FCY denominated and INR denominated ECB and they
are as follows:
In case of FCY denominated ECB In case of INR denominated ECB
Loans (Banks or otherwise) Loans (Banks or otherwise)
Floating rate bonds Floating rate bonds
Fixed rate bonds Fixed rate bonds
Trade Credits Preference shares
FCCB Trade Credits > 3 years
FCEB FCCB
Finance lease FCEB
Finance lease
Note: Plain vanilla Rupee denominated
bonds issued overseas.
21. DEALING WITH EXCHANGE RATES

a. In case of FCY denominated ECB:
Conversion shall be made at the exchange rate prevailing on the date of the agreement
(May agree at a lower rate, if mutually consented)
b. In case of FCY denominated ECB:
The exchange rate shall be the rate prevailing on the date of settlement.
22. HEDGING PROVISION

a. In case of INR denominated ECB:
Overseas investors are eligible to hedge their exposure in Rupee through permitted
derivative products with AD Category I banks in India. The investors can also access the
domestic market through branches / subsidiaries of Indian banks abroad or branches of
foreign banks with Indian presence on a back to back basis.
b. In case of FCY denominated ECB:
The following aspects shall be considered:
Particulars Details
Coverage ❶ The ECB borrower will be required to cover the principal as well
as the coupon through financial hedges.
❷ The financial hedge for all exposures on account of ECB should
start from the time of each such exposure (i.e. the day the liability
is created in the books of the borrower).
Tenor and A minimum tenor of one year for the financial hedge would be
roll-over required with periodic rollover, duly ensuring that the exposure on
account of ECB is not unhedged at any point during the currency of
the ECB.
Natural hedge ❶ Natural hedge, in lieu of financial hedge, will be considered only
to the extent of offsetting projected cash flows / revenues in
matching currency, net of all other projected outflows.
❷ For this purpose, an ECB may be considered naturally hedged if
the offsetting exposure has the maturity/cash flow within the
same accounting year.
Note:
Any other arrangements/ structures, where revenues are indexed to
foreign currency will not be considered as a natural hedge.
Special ❶ Infrastructure space companies shall have a Board approved risk
provisions for management policy.
infrastructure ❷ Further, such companies are required to mandatorily hedge 70
space per cent of their ECB exposure in case the average maturity of the
companies ECB is less than 5 years.
❸ The designated AD Category-I bank shall verify that 70 per cent
hedging requirement is complied with during the currency of the
ECB and report the position to RBI through Form ECB 2.
Infrastructure space company means -----
Companies in the infrastructure sector, Non-Banking Finance
Companies undertaking infrastructure financing, Holding
Companies/ Core Investment Companies undertaking
infrastructure financing, Housing Finance Companies regulated by
National Housing Bank and Port Trusts.
23. CHANGE IN CURRENCY OF BORROWING

a. In case of FCY denominated ECB
Change of currency of ECB from one freely convertible foreign currency to any other
freely convertible foreign currency as well as to INR is freely permitted.
b. In case of INR denominated ECB

Change of currency from INR to any freely convertible foreign currency is not permitted.
24. SPECIAL DISPENSATIONS UNDER ECB FRAME WORK
PART A: IN CASE OF OIL MARKETING COMPANIES
a. Applicable to whom: Public Sector Oil Marketing Companies.
 Indian Oil Corporation Ltd (IOCL),
 Hindustan Petroleum Corporation Ltd (HPCL),
 Bharat Petroleum Corporation Ltd (BPCL),
 Numaligarh Refinery Ltd (NRL),
 Mangalore Refinery & Petrochemicals Ltd (MRPL),
 Bharat Oman Refineries Ltd (BORL) and
Note: Reliance petroleum ltd, Essar, Shell are private oil
marketing companies and thus are not governed by this
dispensation.
b. Purpose: For Working capital purposes
c. MAMP: 3 years
d. ECB from whom?: All recognised lenders
e. Which route?: Automatic route
f. Overall ceiling: $ 10 billion
g. Overriding effect: This dispensation shall apply notwithstanding the end-use
restrictions, Hedging requirements and Limits and leverage.
PART B: ECB FOR STARTUPS

a. Eligibility: An entity recognised as a Start up by the Central Government as on
date of raising ECB.
b. MAMP: Minimum average maturity period will be 3 years.
c. Recognised lender: Lender / investor shall be a resident of a FATF compliant
country. However, foreign branches/subsidiaries of Indian banks and overseas entity
in which Indian entity has made overseas direct investment as per the extant
Overseas Direct Investment Policy will not be considered as recognised lenders under
this framework.
d. Forms: The borrowing can be in form of loans or non-convertible, optionally
convertible or partially convertible preference shares.
e. Currency: The borrowing should be denominated in any freely convertible currency
or in Indian Rupees (INR) or a combination thereof. In case of borrowing in INR, the
non-resident lender, should mobilise INR through swaps/outright sale undertaken
through an AD Category-I bank in India.
f. Amount: The borrowing per Start-up will be limited to USD 3 million or equivalent
per financial year either in INR or any convertible foreign currency or a combination
of both.
g. All-in-cost: Shall be mutually agreed between the borrower and the lender.
h. End uses: For any expenditure in connection with the business of the borrower.
i. Conversion into equity: Conversion into equity is freely permitted subject to
Regulations applicable for foreign investment in Start-ups.
j. Security: The choice of security to be provided to the lender is left to the borrowing
entity. Security can be in the nature of movable, immovable, intangible assets
(including patents, intellectual property rights), financial securities, etc. and shall
comply with foreign direct investment / foreign portfolio investment / or any other
norms applicable for foreign lenders / entities holding such securities. Further,
issuance of corporate or personal guarantee is allowed. Guarantee issued by a non-
resident(s) is allowed only if such parties qualify as lender under ECB for Startups.
However, issuance of guarantee, standby letter of credit, letter of undertaking or letter
of comfort by Indian banks, all India Financial Institutions and NBFCs is not permitted.
k. Hedging: The overseas lender, in case of INR denominated ECB, will be eligible to
hedge its INR exposure through permitted derivative products with AD Category – I
banks in India. The lender can also access the domestic market through branches/
subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence
on a back to back basis.
Note: Startups raising ECB in foreign currency, whether having natural hedge or not,
are exposed to currency risk due to exchange rate movements and hence are advised
to ensure that they have an appropriate risk management policy to manage potential
risk arising out of ECB.
l. Conversion rate: In case of borrowing in INR, the foreign currency - INR conversion
will be at the market rate as on the date of agreement.
m. Other Provisions: Other provisions like parking of ECB proceeds, reporting
arrangements, powers delegated to AD banks, borrowing by entities under
investigation, conversion of ECB into equity will be as included in the ECB framework.
However, provisions on leverage ratio and ECB liability: Equity ratio will not be
applicable. Further, the Start-ups as defined above [8.2. (i)] as well as other start-ups
which do not comply with the aforesaid definition but are eligible to receive FDI, can
also raise ECB under the general ECB route/framework.
25. PARKING OF ECB PROCEEDS
ECB proceeds are permitted to be parked abroad as well as domestically in the manner
given below:
A. Parking of ECB proceeds abroad: ECB proceeds meant only for foreign currency
expenditure can be parked abroad pending utilisation. Till utilisation, these funds can
be invested in the following liquid assets
(a) Deposits or Certificate of Deposit or other products offered by banks rated not less
than AA (-) by Standard and Poor/Fitch IBCA or Aa3 by Moody’s;
(b) Treasury bills and other monetary instruments of one-year maturity having
minimum rating as indicated above and
(c) Deposits with foreign branches/subsidiaries of Indian banks abroad.
B. Parking of ECB proceeds domestically: ECB proceeds meant for Rupee expenditure
should be repatriated immediately for credit to their Rupee accounts with AD
Category I banks in India. ECB borrowers are also allowed to park ECB proceeds in
term deposits with AD Category I banks in India for a maximum period of 12 months
cumulatively. These term deposits should be kept in unencumbered position.
PART B – PROCEDURAL ASPECTS OF ECB MASTER DIRECTION

26. PROCEDURE FOR RAISING ECB
Procedure for raising ECB is as under -----
Automatic Route Approval Route
Make an application to Step – 1 Approach RBI with an application in FORM ECB.
AD Category – 1 Banks RBI sends the application filed to the AD Category 1 bank for
Step – 2
and comply with examination.
parameters specified in Considerations made when application is made to RBI for
the direction w.r.t. approval -----
automatic route through  Macro-economic factors
FORM ECB.  Overall guidelines
Step – 3
 Merits of the case.
 If ECB proposals received by Reserve Bank are above
certain threshold limit – Then, it would be placed before
the Empowered Committee set up by the Reserve Bank.
Step – 4 Grant of approval.
27. REPORTING REQUIREMENTS

A. Loan Registration Number (LRN): Any draw-down in respect of an ECB should
happen only after obtaining the LRN from the Reserve Bank. To obtain the LRN,
borrowers are required to submit duly certified Form ECB, which also contains terms
and conditions of the ECB, in duplicate to the designated AD Category I bank. In turn,
the AD Category I bank will forward one copy to the Director, Reserve Bank of India,
Department of Statistics and Information Management, External Commercial
Borrowings Division, Bandra-Kurla Complex, Mumbai – 400 051 (Contact numbers
022-26572513 and 022-26573612). Copies of loan agreement for raising ECB are not
required to be submitted to the Reserve Bank.
B. Changes in terms and conditions of ECB: Changes in ECB parameters in consonance
with the ECB norms, including reduced repayment by mutual agreement between the
lender and borrower, should be reported to the DSIM through revised Form ECB at
the earliest, in any case not later than 7 days from the changes effected. While
submitting revised Form ECB the changes should be specifically mentioned in the
communication.
C. Monthly Reporting of actual transactions: The borrowers are required to report
actual ECB transactions through Form ECB 2 Return through the AD Category I bank
on monthly basis so as to reach DSIM within seven working days from the close of
month to which it relates. Changes, if any, in ECB parameters should also be
incorporated in Form ECB 2 Return.
28. LATE SUBMISSION FEE FOR DELAY IN REPORTING
Any borrower, who is otherwise in compliance of ECB guidelines, can regularise the delay
in reporting of drawdown of ECB proceeds before obtaining LRN or delay in submission
of Form ECB 2 returns, by payment of late submission fees as detailed in the following
matrix:
Applicable
Sr. No. Type of Return/Form Period of delay
LSF
Up to 30 calendar days from due
1 Form ECB 2 INR 5,000
date of submission
Up to three years from due date of INR 50,000 per

2 Form ECB 2/Form ECB
submission/date of drawdown year
Beyond three years from due date INR 100,000
3 Form ECB 2/Form ECB
of submission/date of drawdown per year
29. BORROWINGS BY ENTITIES UNDER INVESTIGATION
Particulars Details
Which entities All entities against which investigation / adjudication / appeal by the law
are covered? enforcing agencies for violation of any of the provisions of the Regulations under
FEMA are pending.
Raising ECB by They may raise ECB as per the applicable norms, if they are otherwise eligible,
specified entities notwithstanding the pending investigations / adjudications / appeals, without
prejudice to the outcome of such investigations / adjudications / appeals.
Reporting The borrowing entity shall inform about pendency of such investigation /
adjudication / appeal to the AD Category-I bank / RBI as the case may be.
Accordingly, in case of all applications where the borrowing entity has indicated
about the pending investigations / adjudications / appeals, the AD Category I
Banks / Reserve Bank while approving the proposal shall intimate the agencies
concerned by endorsing a copy of the approval letter.
30. ECB BY ENTITIES UNDER RESTRUCTURING/ ECB FACILITY FOR REFINANCING

STRESSED ASSETS
Entity Type Details

An entity which is under a Can raise ECB only if specifically permitted under the resolution
restructuring scheme/ corporate plan.
insolvency resolution process
Eligible corporate borrowers who Can avail ECB for repayment of these loans under any one-time
have availed Rupee loans settlement with lenders. Lender banks are also permitted to sell,
domestically for capital through assignment, such loans to eligible ECB lenders, provided,
expenditure in manufacturing and the resultant external commercial borrowing complies with all-
infrastructure sector and which in-cost, minimum average maturity period and other relevant
have been classified as SMA-2 or norms of the ECB framework.
NPA. Note: Foreign branches/ overseas subsidiaries of Indian banks
Note: SMA – 2 (Special Mention are not eligible to lend for the above purposes.
Account) Principal or interest
payment overdue between 61-90
day
31. STANDARD OPERATING PROCEDURE (SOP) FOR UNTRACEABLE ENTITIES

The following SOP has to be followed by designated AD Category-I banks in case of
untraceable entities who are found to be in contravention of reporting provisions for ECB
by failing to submit prescribed return(s) under the ECB framework, either physically or
electronically, for past eight quarters or more.
i. Definition: Any borrower who has raised ECB will be treated as ‘untraceable entity’, if
entity/auditor(s)/director(s)/ promoter(s) of entity are not reachable/responsive/reply
in negative over email/letters/phone for a period of not less than two quarters with
documented communication/ reminders numbering 6 or more and it fulfils both of the

following conditions:
a. Entity not found to be operative at the registered office address as per records
available with the AD Bank or not found to be operative during the visit by the
officials of the AD Bank or any other agencies authorised by the AD bank for the
purpose;
b. Entities have not submitted Statutory Auditor’s Certificate for last two years or
more;
ii. Action: The followings actions are to be undertaken in respect of ‘untraceable entities’:
a. File Revised Form ECB, if required, and last Form ECB 2 Return without
certification from company with ‘UNTRACEABLE ENTITY’ written in bold on top.
The outstanding amount will be treated as written-off from external debt liability
of the country but may be retained by the lender in its books for recovery through
judicial/ non-judicial means;
b. No fresh ECB application by the entity should be examined/processed by the AD
bank;
c. Directorate of Enforcement should be informed whenever any entity is designated
‘UNTRACEABLE ENTITY’; and
d. No inward remittance or debt servicing will be permitted under auto route.
32. CHANGE IN AD CATEGORY I BANK
AD Category I bank can be changed subject to obtaining no objection certificate from the
existing AD Category I bank.
33. CANCELLATION OF LRN
The designated AD Category I banks may directly approach DSIM for cancellation of LRN
for ECB contracted, subject to ensuring that no draw down against the said LRN has taken
place and the monthly ECB-2 returns till date in respect of the allotted LRN have been
submitted to DSIM.
34. CONVERSION OF ECB INTO EQUITY
Particulars Details
The activity of the borrowing company is covered under the automatic route for FDI
Condition – 1 or Government approval is received, wherever applicable, for foreign equity
participation as per extant FDI policy.
The conversion, which should be with the lender’s consent and without any
Condition – 2 additional cost, should not result in contravention of eligibility and breach of
applicable sector cap on the foreign equity holding under FDI policy.
Condition – 3 Applicable pricing guidelines for shares are complied with.
a. For partial conversion, the converted portion is to be reported in Form FC-GPR
prescribed for reporting of FDI flows, while monthly reporting to DSIM in Form
ECB 2 Return will be with suitable remarks, viz., "ECB partially converted to
equity".
Condition – 4 b. For full conversion, the entire portion is to be reported in Form FC-GPR, while
reporting to DSIM in Form ECB 2 Return should be done with remarks “ECB fully
converted to equity”. Subsequent filing of Form ECB 2 Return is not required.
c. For conversion of ECB into equity in phases, reporting through Form FC-GPR and
Form ECB 2 Return will also be in phases.
FEMA
IMPORTS
MASTER
DIRECTION
LEARNING OBJECTIVES
❶ BASIC INTRODUCTION
❷ GENERAL GUIDELINES FOR IMPORTS
❸ TIMELIMIT FOR SETTLEMENT OF IMPORTS
❹ EXTENSION OF TIME
❺ IMPORT OF FOREIGN EXCHANGE/INDIAN RUPEES
❻ IMPORT OF FOREIGN EXCHANGE INTO INDIA
❼ IMPORT OF INDIAN CURRENCY AND CURRENCY NOTES
❽ ISSUE OF GUARANTEES BY AUTHORISED DEALER
1. BASIC INTRODUCTION
a. Governance of imports as a law
 Section 5 of FEMA, 1999
 CRAT Regulations
 Foreign trade policy
b. Governance of imports as an authority
 Import trade is regulated by the Directorate General of Foreign Trade
(DGFT) under the Ministry of Commerce & Industry, Department of
Commerce, Government of India.
c. Governance as a user – end representative
 Authorised Dealer Category – I (AD Category – I) banks should ensure that
the imports into India are in conformity with the -----
 Foreign Trade Policy
 FEMA, 1999
 CRAT Rules
2. GENERAL GUIDELINES FOR IMPORTS
I. General guidelines:
AD Category – I banks shall particularly note to adhere to "Know Your
Customer" (KYC) guidelines issued by Reserve Bank (Department of Banking
Regulation) in all their dealings.
II. Remittances for import payments:
AD Category I Banks may allow remittance for making payments for imports
into India, after ensuring that all the requisite details are made available by
the importer and the remittance is for bona fide trade transactions as per
applicable laws in force.
III. Import Licenses [Not for exams]
 In case of goods imported are in negative list
 License shall be issued under FTP in force.
 In all other cases
 AD Category I Banks may freely open letters of credit and allow
remittances for import.
 After effecting remittances under the licence, AD Category - I banks may
preserve the copies of utilised licence /s till they are verified by the
internal auditors or inspectors.
IV. Obligation of Purchaser of Foreign Exchange
 Obligation – 1: Utilisation of acquired foreign exchange
 In terms of Section 10(6) of the Foreign Exchange Management Act,
1999 (FEMA), any person acquiring foreign exchange is permitted to
use it either for the purpose mentioned in the declaration made by him
to an Authorised Dealer Category – I bank under Section 10(5) of the

Act or for any other purpose for which acquisition of foreign exchange
is permissible under the said Act or Rules or Regulations framed there
under.
Section 10(5):
An authorised person shall, before undertaking any transaction in foreign
exchange on behalf of any person, require that person to make such
declaration and to give such information as will reasonably satisfy him that
the transaction will not involve, and is not designed for the purpose of any
contravention or evasion of the provisions of this Act or of any rule,
regulation, notification, direction or order made thereunder, and where the
said person refuses to comply with any such requirement or makes only
unsatisfactory compliance therewith, the authorised person shall refuse in
writing to undertake the transaction and shall, if he has reason to believe
that any such contravention or evasion as aforesaid is contemplated by the
person, report the matter to the Reserve Bank.
Section 10(6):
Any person, other than an authorised person, who has acquired or
purchased foreign exchange for any purpose mentioned in the declaration
made by him to authorised person under sub-section (5) does not use it for
such purpose or does not surrender it to authorised person within the
specified period or uses the foreign exchange so acquired or purchased for
any other purpose for which purchase or acquisition of foreign exchange is
not permissible under the provisions of the Act or the rules or regulations
or direction or order made thereunder shall be deemed to have committed
contravention of the provisions of the Act for the purpose of this section.
 Obligation – 2: Evidence of import
 Where foreign exchange acquired has been utilised for import of goods
into India, the AD Category – I bank should ensure that the importer
furnishes evidence of import viz., as in IDPMS, Postal Appraisal Form
or Customs Assessment Certificate, etc., and satisfy himself that goods
equivalent to the value of remittance have been imported. AD bank
should ensure that all import remittances outstanding on the notified
date of IDPMS are uploaded in IDPMS.
 Obligation – 3: Mode of payment
 A person resident in India may make payment for import of goods in
foreign exchange through ------
 An international card held by him/in rupees from international
credit card/ debit card through the credit/debit card servicing bank
in India against the charge slip signed by the importer.
Note: Provided that the transaction is in conformity with the extant
provisions and the import is in conformity with the Foreign Trade
Policy in force.
 Obligation – 4: Other modes of payments that are allowed – Any person
resident in India may also make payment as under:
 In rupees towards meeting the expenses on account of
 Boarding
 Lodging
 Services related thereto

 Travel (To or From or within India)
of a person resident outside India who is on a visit to India.
 By means of a crossed cheque or a draft as consideration for purchase
of gold or silver in any form imported by such person in accordance
with the terms and conditions imposed under any order issued by the
Central Government under the Foreign Trade (Development and
Regulations) Act, 1992 or under any other law, rules or regulations for
the time being in force.
 A company or resident in India may make payment in rupees if the
following conditions are satisfied -----
 Condition – 1: Payment made to non-wholetime director who is
 Condition – 2: Such person s on a visit to India for the company’s
work.
 Condition – 3: He is entitled to payment of sitting fees or
commission or remuneration, and travel expenses to and from and
within India, in accordance with the provisions contained in the
company’s Memorandum of Association or Articles of Association or
in any agreement entered into it or in any resolution passed by the
company in general meeting or by its Board of Directors.
Note: Provided the requirement of any law, rules, regulations,
directions applicable for making such payments are duly complied
with.
3. TIME LIMIT FOR SETTLEMENT OF IMPORTS

I. Time limit for normal imports:
 In terms of the extant regulations, remittances against imports should be
completed not later than 6 months from the date of shipment, except in
cases where amounts are withheld towards guarantee of performance, etc.
 AD Category – I banks may permit settlement of import dues delayed due
to disputes, financial difficulties, etc. However, interest if any, on such
delayed payments, usance bills or overdue interest is payable only for a
period of up to 3 years from the date of shipment.
II. Time Limit for Deferred Payment Arrangements:
Deferred payment arrangements (including suppliers’ and buyers’ credit) up
to 5 years, are treated as trade credits for which the procedural guidelines as
laid down in the Master Circular for External Commercial Borrowings and
Trade Credits may be followed.
III. Extension of time limits:
 AD Category – I banks can consider granting extension of time for
settlement of import dues up to a period of six months at a time (maximum
up to the period of three years) irrespective of the invoice value for delays
on account of -----
 Disputes about quantity or quality or
 Non-fulfilment of terms of contract;
 Financial difficulties and
 Cases where importer has filed suit against the seller.
Note:
In cases where sector specific guidelines have been issued by Reserve
Bank of India for extension of time (i.e. rough, cut and polished
diamonds), the same will be applicable.
IV. Duties of AD Category – I Bank while granting extension

 Ensure that the import transactions covered by the invoices are not under
investigation ------
 ED or
 CBI or
 Any investigating agency
 While considering extension beyond 1 year from the date of remittance, the
total outstanding of the importer does not exceed -----
 $ 10,00,000 (1 million) or
 10% of the average import remittances during the preceding 2 financial
years.
Which ever is lower.
 Where extension of time has been granted by the AD Category – I banks,
the date up to which extension has been granted may be indicated in the
‘Remarks’ column.
 The above shall be reported in IDPMS as per message “Bill of Entry
Extension” and the date up to which extension is granted will be indicated
in “Extension Date” column.
4. IMPORT OF FOREIGN EXCHANGE/ INDIAN CURRENCY

I. Basic regulation:
No person shall, without the general or special permission of the Reserve
Bank, import or bring into India, any foreign currency.
II. Import of foreign exchange into India:
 A person may -----
 Send into India, without limit, foreign exchange in any form other than
currency notes, bank notes and travellers’ cheques.
 Bring into India from any place outside India, without limit, foreign
exchange (other than unissued notes).
Condition (For Bring into India):
Such person makes, on arrival in India, a declaration to the Custom
Authorities at the Airport in the Currency Declaration Form (CDF)
annexed to these Regulations; provided further that it shall not be
necessary to make such declaration where the aggregate value of
the foreign exchange in the form of currency notes, bank notes or
travellers cheques brought in by such person at any one time does
not exceed USD 10,000 (US Dollars ten thousand) or its equivalent
and/or the aggregate value of foreign currency notes (cash portion)
alone brought in by such person at any one time does not exceed
USD 5,000 (US Dollars five thousand) or its equivalent.
III. Import of Indian Currency and Currency Notes:
 Any person resident in India who had gone out of India on a temporary
visit, may bring into India at the time of his return from any place outside
India (other than from Nepal and Bhutan), currency notes of Government
of India and Reserve Bank of India notes up to an amount not exceeding
₹.25,000.
 A person may bring into India from Nepal or Bhutan, currency notes of
Government of India and Reserve Bank of India for any amount in
denominations up to ₹100.
5. ISSUE OF GUARANTEES BY THE AUTHORISED DEALER
 An authorised dealer may give a guarantee in respect of any debt,
obligation or other liability incurred by a person resident in India and
owned to a person resident outside India, as an importer, in respect of
import on deferred payment terms in accordance with the approval by the
Reserve Bank of India for import on such terms.
 An authorised dealer may give guarantee, Letter of Undertaking of Letter
of Comfort in respect of any debt, obligation or other liability incurred by
a person resident in India and owned to a person resident outside India
(being an overseas supplier of goods, bank or a financial institution), for
import of goods, as permitted under the Foreign Trade Policy announced
by Government of India from time to time and subject to such terms and
conditions as may be specified by Reserve Bank of India from time to time.
 An authorised dealer may, in the ordinary course of his business, give a
guarantee in favour of a non-resident service provider, on behalf of a
resident customer who is a service importer, subject to such terms and
conditions as stipulated by Reserve Bank of India from time to time.
Note:
❶ No guarantee for an amount exceeding USD 500,000 or its
equivalent shall be issued on behalf of a service importer other
than a Public Sector Company or a Department / Undertaking of
the Government of India / State Government.
❷ Where the service importer is a Public Sector Company or a
Department / Undertaking of the Government of India / State
Government, no guarantee for an amount exceeding USD 100,000
or its equivalent shall be issued without the prior approval of the
Ministry of Finance, Government of India.
THE FOREIGN CONTRIBUTION REGULATION ACT, 2010
FOREIGN CONTRIBUTION (REGULATION) ACT, 2010
1 Need for FCRA, 2010 [Preamble]

2 Division of Act into chapters
3 Basic definitions
4 Prohibited Persons and related sections
5 Restricted Persons and related sections
6 Concept of Foreign Hospitality and governing rules
7 Registration and Renewal
8 Cancellation and suspension of registration already granted
9 Judiciary under FCRA
1. NEED FOR FCRA [PREAMBLE TO THE ACT READ WITH SHORT TITLE, EXTENT
AND APPLICABILITY – SECTION 1]
An Act to consolidate the law to regulate the acceptance and utilisation of foreign
contribution or foreign hospitality by certain individuals or associations or companies
and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for
any activities detrimental to the national interest and for matters connected therewith or
incidental thereto.
ANALYSIS TO THE PREAMBLE

Acceptance
Regulate AND Foreign Contribution or Foreign Hospitality
Purpose of FCRA, Utilization
2010 Acceptance
Prohibit AND Foreign Contribution or Foreign Hospitality
Utilization
(1) This Act may be called the Foreign Contribution (Regulation) Act, 2010.
Extent and (2) It extends to the whole of India, and it shall also apply to:
applicability a) Citizens of India outside India; and
[Section 1] b) Associate branches or subsidiaries, outside India, of companies or
bodies corporate, registered or incorporated in India.
Primary agenda  Control of any activities detrimental to national interest.
of FCRA, 2010
2. DIVISION OF ACT INTO CHAPTERS

Chapter Content /Sections Remarks
PRELIMINARY
This Chapter is
Section 1 Short title, extent, application and
I fully applicable for
commencement.
exams
Section 2 Definitions
REGULATION OF FOREIGN CONTRIBUTION AND FOREIGN
HOSPITALITY
Section 3 Prohibition to accept foreign contribution.
Section 4 Persons to whom section 3 shall not apply.
All sections except
Procedure to notify an organisation of a political
Section 5 Section 5 are
II nature.
applied for exams
Section 6 Restriction on acceptance of foreign hospitality.
by ICAI
Prohibition to transfer foreign contribution to
Section 7
other person.
Restriction to utilise foreign contribution for
Section 8
administrative purpose.
Power of Central Government to prohibit receipt

Section 9
of foreign contribution, etc., in certain cases.
Power to prohibit payment of currency received
Section 10
in contravention of the Act.
REGISTRATION
Registration of certain persons with Central
Section 11
Government.
Section 12 Grant of certificate of registration. This Chapter is
III Section 13 Suspension of certificate. fully applicable for
Section 14 Cancellation of certificate. exams
Management of foreign contribution of person
Section 15
whose certificate has been cancelled.
Section 16 Renewal of certificate.
ACCOUNTS, INTIMATION, AUDIT AND DISPOSAL OF ASSETS,
ETC.
Section 17 Foreign contribution through scheduled bank. All sections
Section 18 Intimation. except Section
IV Section 19 Maintenance of accounts. 21 are applied
Section 20 Audit of accounts. for exams by
Section 21 Intimation by candidate for election. ICAI
Disposal of assets created out of foreign
Section 22
contribution.
INSPECTION, SEARCH AND SEIZURE
Section 23 Inspection of accounts or records
Section 24 Seizure of accounts or records.
This Chapter is
Section 25 Seizure of article or currency or security received in
V not applicable
contravention of the Act.
for Exams
Section 26 Disposal of seized article or currency or security.
Section 27 Seizure to be made in accordance with Act 2 of
1974.
ADJUDICATION
Section 28 Confiscation of article or currency or security This Chapter is
VI obtained in contravention of the Act. fully applicable
Section 29 Adjudication of confiscation. for exams
Section 30 Procedure for confiscation.
APPEAL AND REVISION This Chapter is

VII Section 31 Appeal. fully applicable
Section 32 Revision of orders by Central Government. for exams
OFFENCES AND PENALTIES

Making of false statement, declaration or delivering This Chapter is
Section 33
VIII false accounts. fully applicable
Penalty for article or currency or security obtained for exams
Section 34
in contravention of section 10.
Punishment for contravention of any provision of

Section 35
the Act.
Power to impose additional fine where article or
Section 36 currency or security is not available for
Confiscation.
Penalty for offences where no separate punishment
Section 37
has been provided.
Section 38 Prohibition of acceptance of foreign contribution.
Section 39 Offences by companies.
Section 40 Bar on prosecution of offences under the Act.
Section 41 Composition of certain offences.
MISCELLANEOUS
Section 42 Power to call for information or document
Section 43 Investigation into cases under the Act
Section 44 Returns by prescribed authority to Central
Government.
Section 45 Protection of action taken in good faith. This Chapter is
Section 46 Power of Central Government to give directions. fully applicable
Section 47 Delegation of powers. for exams
IX
Section 48 Power to make rules. except Sections
Section 49 Orders and rules to be laid before Parliament. 44, 45, 48 49
Section 50 Power to exempt in certain cases. and 54
Section 51 Act not to apply to certain Government
transactions.
Section 52 Application of other laws not barred.
Section 53 Power to remove difficulties.
Section 54 Repeal and saving.
CHAPTER – I
3. BASIC DEFINITIONS [SECTION 2]
Expression Definition
"Foreign company" means any company or association or body of
individuals incorporated outside India and includes
i. A foreign company within the meaning of section 591 (Now
Section 379 of The Companies act 2013) of the Companies Act,
1956;
ii. A company which is a subsidiary of a foreign company;
iii. The registered office or principal place of business of a foreign
company referred to in sub-clause (i) or company referred to in
Foreign Company sub-clause (ii);
[Section 2(1)(g)] iv. A multi-national corporation.
Explanation.
For the purposes of this sub-clause, a corporation incorporated in a
foreign country or territory shall be deemed to be a multi-national
corporation if such corporation,--
a. has a subsidiary or a branch or a place of business in two or more
countries or territories; or
b. carries on business, or otherwise operates, in two or more countries
or territories.
"Foreign contribution" means the donation, delivery or transfer made by
any foreign source----
i. Of any article, not being an article given to a person as a gift for his
personal use, if the market value, in India, of such article, on the
date of such gift, is not more than such sum as may be specified
from time to time, by the Central Government by the rules made
by it in this behalf;
ii. Of any currency, whether Indian or foreign;
iii. Of any security.
Explanation 1 – A donation, delivery or transfer of any article, currency
or foreign security referred to in this clause by any person who has
Foreign
received it from any foreign source, either directly or through one or
contribution
more persons, shall also be deemed to be foreign contribution within the
[Section 2(1)(h)]
meaning of this clause.
Explanation 2 – The interest accrued on the foreign contribution
deposited in any bank referred to in sub-section (1) of section 17 or any
other income derived from the foreign contribution or interest thereon
shall also be deemed to be foreign contribution within the meaning of
this clause.
Explanation 3 – Any amount received, by any person from any foreign
source in India, by way of fee (including fees charged by an educational
institution in India from foreign student) or towards cost in lieu of goods
or services rendered by such person in the ordinary course of his
business, trade or commerce whether within India or outside India or
any contribution received from an agent of a foreign source towards such

fee or cost shall be excluded from the definition of foreign contribution
within the meaning of this clause.
Foreign hospitality means any offer, not being a purely casual one, made
Foreign hospitality in cash or kind by a foreign source for providing a person with the costs
[Section 2(i)] of travel to any foreign country or territory or with free boarding,
lodging, transport or medical treatment.
Foreign Source includes----
i. The Government of any foreign country or territory and any
agency of such Government.
ii. Any international agency, not being the United Nations or any of
its specialised agencies, the World Bank, International Monetary
Fund.
iii. A foreign company.
iv. A corporation, not being a foreign company, incorporated in a
foreign country or territory.
v. A multi-national corporation.
vi. A company within the meaning of the Companies Act, 1956, and
more than one-half of the nominal value of its share capital is held,
either singly or in the aggregate, by one or more of the following,
Foreign Source
namely:-
[Section 2(j)]
A. The Government of a foreign country or territory;
B. The citizens of a foreign country or territory;
C. Corporations incorporated in a foreign country or territory;
D. Trusts, societies or other associations of individuals (whether
incorporated or not), formed or registered in a foreign country or
territory;
E. Foreign company.
vii. A trade union in any foreign country or territory, whether or not
registered in such foreign country or territory.
viii. A foreign trust or a foreign foundation.
ix. A society, club or other association of individuals formed or
registered outside India.
x. A citizen of a foreign country.
"Political party" means—
i. an association or body of individual citizens of India--
A. to be registered with the Election Commission of India as a political
Political party party under section 29A of the Representation of the People Act, 1951;
[Section 2(n)] or
B. which has set up candidates for election to any Legislature, but is not
so registered or deemed to be registered under the Election Symbols
(Reservation and Allotment) Order, 1968.
"Person" includes--
Person
i. An individual;
[Section 2(m)]
ii. A Hindu undivided family;
iii. An association;
iv. A company registered under section 25 (Now Section 8) of the
companies act, 1956.
CHAPTER – II
4. PROHIBITION TO ACCEPT FOREIGN CONTRIBUTION [SECTION 3]
No foreign contribution shall be accepted by any—
Candidate for election.
Correspondent, columnist, cartoonist, editor, owner, printer or
publisher of a registered newspaper.
Judge, Government servant or employee of any corporation or any
Prohibition on other body controlled or owned by the Government.
whom? Member of any Legislature.
[Section 3(1)(a) to Political party or office-bearer thereof.
(h)] Organization of a political nature.
Association or company engaged in the production or broadcast of
audio news or audio-visual news or current affairs programmes
through any electronic mode.
Correspondent or columnist, cartoonist, editor, owner of the
association or company referred above.
No person, resident in India, and no citizen of India resident outside
India, shall -----
Accept any foreign contribution from a foreign source. (or)
Acquire or agree to acquire any currency from a foreign source.
on behalf of any political party, or any person referred to in sub-section
(1), or both.
Prohibition on No person, resident in India, shall -----
Indirect Deliver any currency, whether Indian or foreign, which has been
acceptances and accepted from any foreign source.
deliveries to any person if he knows or has reasonable cause to believe that such
[Section 3(2)(a) to other person intends, or is likely, to deliver such currency to any political
(c)] party or any person referred to in sub-section (1), or both.
No citizen of India resident outside India, shall -----
Deliver any currency, whether Indian or foreign, which has been
accepted from any foreign source.
to any person if he knows or has reasonable cause to believe that such
other person intends, or is likely, to deliver such currency to any political
party or any person referred to in sub-section (1), or both.
5. PERSONS TO WHOM SECTION 3 SHALL NOT APPLY [SECTION 4]

Non – Nothing contained in section 3 shall apply to the acceptance, by any person
applicability specified in that section, of any foreign contribution where such contribution is
of section 3 to accepted by him, subject to the provisions of section 10,—
those persons By way of salary, wages or other remuneration due to him or to any group of
in certain persons working under him, from any foreign source or by way of payment in
cases the ordinary course of business transacted in India by such foreign source; or
[Section 4(a) By way of payment, in the course of international trade or commerce, or in
to 4(g)] the ordinary course of business transacted by him outside India; or
As an agent of a foreign source in relation to any transaction made by such
foreign source with the Central Government or State Government; or
By way of a gift or presentation made to him as a member of any Indian
delegation, provided that such gift or present was accepted in accordance
with the rules made by the Central Government with regard to the acceptance
or retention of such gift or presentation; or
From his relative; or
By way of remittance received, in the ordinary course of business through any
official channel, post office, or any authorised person in foreign exchange
under the Foreign Exchange Management Act, 1999; or
By way of any scholarship, stipend or any payment of like nature
Consequence Provided that in case any foreign contribution received by any person specified
of under section 3, for any of the purposes other than those specified under this
contravention section, such contribution shall be deemed to have been accepted in
[Proviso to contravention of the provisions of section 3.
Section 4]
Any person receiving foreign contribution in excess of ₹ 100000 or its
Rule 6 of FCR equivalent thereto in a financial year from any of his relatives shall inform the
Rules, 2011 Central government by uploading details electronically online in FORM FC – 1
within 30 days from the date of receipt of such contribution.
Any article gifted to a person for his personal use whose market value in India
Rule 6A of FCR
on the date of such gift doesnot exceed ₹ 25000 shall not be treated as a foreign
Rules, 2011
contribution within the meaning of Section 2(1)(h)(i).
6. RESTRICTION ON ACCEPTANCE OF FOREIGN HOSPITALITY [SECTION 6]

 Member of Legislature
 Office bearer of a Political Party
Restriction on
 Judge
whom?
 Employee of any corporation or any other body owned or controlled by the
Government
Nature of He shall not accept, except with the prior permission of the Central
restriction Government, any foreign hospitality, while visiting any country or territory
imposed outside India.
When permit
It shall not be necessary to obtain any such permission if following conditions
of CG is not
are satisfied ------
required?
[Proviso] Such hospitality is in the form of emergent medical aid needed on account of
sudden illness contracted during a visit outside India. [Pre – Condition]
Where such foreign hospitality has been received, the person receiving such
hospitality shall give, within 1 month from the date of receipt of such
hospitality an intimation to the Central Government as to the receipt of such
hospitality, and the source from which, and the manner in which, such
hospitality was received by him. [Post – Condition]
 Any person belonging to any of the categories specified in section 6 who
wishes to avail of foreign hospitality shall apply electronically online to the
Central Government in FORM FC-2 for prior permission to accept such
foreign hospitality.
 Every application for acceptance of foreign hospitality shall be accompanied
by an invitation letter from the host or the host country, as the case may
be, and administrative clearance of the Ministry or department
Content concerned in case of visits sponsored by a Ministry or department of the
specified in Government.
Rules  The application for grant of permission to accept foreign hospitality must
[Rule 7 of FCR reach the appropriate authority ordinarily two weeks before the proposed
Rules, 2011] date of onward journey.
 In case of emergent medical aid needed on account of sudden illness during
a visit abroad, the acceptance of foreign hospitality shall be required to be
intimated to the Central Government within 1 month of such receipt giving
full details including the source, approximate value in Indian Rupees, and the
purpose for which and the manner in which it was utilised.
 However, no such intimation is required if the value of such hospitality in
emergent medical aid is upto ₹ 100000 or equivalent thereto.
7. PROHIBITION TO TRANSFER FOREIGN CONTRIBUTION TO OTHER PERSON

[SECTION 7]
No person shall transfer such foreign contribution to any other person unless
Regulation on
Such person transferring the foreign contribution is registered and
transfer in
granted a certificate or has obtained prior permission under this Act
certain cases
and receives any foreign contribution. AND
[Section 7(a)
Such other person is also registered and had been granted the certificate
and 7(b)]
or obtained the prior permission under this Act.
Provided that such person may transfer, with the prior approval of the
Central Government, a part of such foreign contribution to any other person
Restriction on
who has not been granted a certificate or obtained permission under this Act
further transfer
in accordance with the rules made by the Central Government.
[Proviso read
Rules read as under-----
with Rule 24 of
(1) Any person intending to transfer the foreign contribution may make an
FCR Rules,
application to the Central Government in FORM FC-5.
2011]
(2) The Central Government may permit the transfer in respect of a person
who has been granted the certificate of registration or prior permission under
section 11 of the Act, in case the recipient person has not been proceeded
against under any provision of the Act.
(3) Any transfer of foreign contribution shall be reflected in the returns in
FORM FC-4 as well as in FORM FC-10 by the transferor and the recipient.
(4) In case the foreign contribution is proposed to be transferred to a person
who has not been granted a certificate of registration or prior permission by
the Central Government, the person concerned may apply for permission to
the Central Government to transfer a part of the foreign contribution, not
exceeding 10% of the total value of the foreign contribution received.
The application shall be countersigned by the District Magistrate having
jurisdiction in the place where the transferred funds are sought to be utilised.
The District Magistrate concerned shall take an appropriate decision in the
matter within 60 days of the receipt of such request from the person. The
donor shall not transfer any foreign contribution until the Central
Government has approved the transfer.
8. RESTRICTION TO UTILIZE FOREIGN CONTRIBUTION FOR ADMINISTRATIVE

PURPOSE [SECTION 8]
 Every person, who is registered and granted a certificate or given prior
permission under this Act and receives any foreign contribution,—
Restriction on Shall utilise such contribution for the purposes for which the contribution
utilization for has been received.
certain purposes Any foreign contribution or any income arising out of it shall not be used
[Section 8(1) (a) for speculative business.
+ 1st Proviso + The Central Government shall, by rules, specify the activities or business
2nd Proviso and which shall be construed as speculative business for the purpose of this
Section 8(1)(b) section.
and its proviso  Shall not defray as far as possible such sum, not exceeding 50% of such
contribution, received in a financial year, to meet administrative
expenses.
The following activities shall be treated as speculative activities-----
What is a Any activity or investment that was an element of risk of appreciation or
Speculative depreciation of the original investment, linked to market forces, including
Activity? investment in mutual funds or in shares
[Rule 4 of FCR Participation in any scheme that promises high returns like investment in
Rules, 2011] chits or land or similar assets not directly linked to the declared aims and
objectives of the organisation or association.
Note: The term ‘Administrative expenses’ is defined u/r 5 of FCR Rules, 2011.
However, it is not applied for exams by ICAI and hence not formed part of
material.
9. POWER OF CENTRAL GOVERNMENT TO PROHIBIT RECEIPT OF FOREIGN

CONTRIBUTION, ETC., IN CERTAIN CASES [SECTION 9]
The Central Government may—

Prohibit any person or organisation not specified in section 3, from
accepting any foreign contribution.
Require any person or class of persons, not specified in section 6, to obtain
prior permission of the Central Government before accepting any foreign 9
hospitality.
Require any person or class of persons not specified in section 11 -----
Prohibitions To furnish intimation within such time and in such manner as may
in specified be prescribed as to the amount of any foreign contribution received
cases by such person.
[Section 9(a) The source from which and the manner in which such contribution
to 9(e)] was received and the purpose for which and the manner in which
such foreign contribution was utilised.
Require any person to obtain prior permission of the Central Government
before accepting any foreign contribution.
Require any person , not specified in section 6, to furnish intimation, within
such time and in such manner as may be prescribed, as to the receipt of any
foreign hospitality, the source from which and the manner in which such
hospitality was received.
However, no such prohibition or requirement shall be made unless the
Factors under Central Government is satisfied that the acceptance of foreign contribution by
which above such person or class of persons, as the case may be, or the acceptance of foreign
prohibitions hospitality by such person, is likely to affect prejudicially ------
or Sovereignty of India or
requirements Integrity of India or
will be Public interest or
imposed Freedom or fairness of election to any legislature or
[Proviso to Friendly relations with any foreign state or
Section 9] Harmony between religious, racial, social, linguistic or regional groups, castes
or communities.
10.POWER TO PROHIBIT PAYMENT OF CURRENCY RECEIVED IN

CONTRAVENTION OF THE ACT [SECTION 10]
Power with whom? Power vests with Central Government.
What is the power
Central Government may, by an order, prohibit a person from paying,
that is vested to
delivering, transferring or otherwise dealing with, in any manner
Central
whatsoever, an article or currency or security.
Government?
Where the Central Government is satisfied, after making such inquiry
When Central
as it may deem fit, that any person has in his custody or control any -----
Government
Article or
exercises the
Currency or Indian or Foreign
power?
Security
which has been accepted by such person in contravention of any of the

provisions of this Act.
What is the Liability Such person shall be liable under Section 7(2),(3),(4),(5) of Unlawful
on the person? Activities (Prevention) Act, 1967.
CHAPTER – III
11.REGISTRATION OF CERTAIN PERSONS WITH CENTRAL GOVERNMENT
[SECTION 11]
Modes of obtaining
approval under
 Obtaining Certificate of registration.
this act  Obtaining prior permission.
Save as otherwise provided in this Act, no person having
a definite cultural, economic, educational, religious or
Option – 1 social programme shall accept foreign contribution unless
Who can accept such person obtains a certificate of registration from the
Foreign Central Government.
Contribution?
[Section 11(1) and Every person referred to in sub-section (1) may, if it is not
Section 11(2)] registered with the Central Government under that sub-
Option – 2 section, accept any foreign contribution only after
obtaining the prior permission of the Central
Government.
Validity period  Registration shall be valid for 5 years [Rule 10] and
[Rule 10 read with  Prior permission shall be valid for specific purpose for which it is
Section 11(2)] obtained and from a specific source. [Section 11(2)]
Violation of
provisions of this
If the person referred to in sub-sections (1) and (2) has been found guilty
act – Additional
of violation of any of the provisions of this Act or the Foreign Contribution
consequence
(Regulation) Act, 1976, the unutilised or unreceived amount of foreign
beyond
contribution shall not be utilised or received, as the case may be, without
punishment
the prior approval of the Central Government.
[Proviso to Section
11(2)]
The Central Government may, by notification in the Official Gazette,
Specification by specify—
Central The person who shall obtain its prior permission before accepting the
Government foreign contribution.
[Section 11(3)(i) to The area or areas in which the foreign contribution shall be accepted
(iv)] and utilised with the prior permission of the Central Government.
A RESIDUAL The purpose or purposes for which the foreign contribution shall be
POWER utilised with the prior permission of the Central Government.
SUO MOTO POWER The source or sources from which the foreign contribution shall be
accepted with the prior permission of the Central Government.
12.GRANT OF CERTIFICATE OF REGISTRATION [SECTION 12]

 Application by a person referred in section 11.
 For the purpose of grant of certificate or prior permission.
 Application to Central Government – The fee, as applicable, shall be
Manner of making remitted by demand draft or banker's cheque in favour of the
application "Pay and Accounts Officer, Ministry of Home Affairs", payable at
[Section 12 read New Delhi [or through online electronic payment gateway.
with Rule 9(1)(a)  Application shall be made in the following format [Amendment
of FCR, Rules 2011] brought by FCR (Amendment) rules, 2019]
For grant of certificate of registration for 5 years along
FORM 3A
with a fee of ₹ 5,000.
For prior permission for a specific purpose along with a fee
FORM 3B
of ₹ 3,000.
Rejection of
On receipt of an application under sub-section (1), the Central
application by
Government shall, by an order, reject the application if -----
Central
If the application is not in a prescribed form OR
Government
Doesn’t contain prescribed particulars.
[Section 9(2)]
The following shall be the conditions for the purposes of sub-section (3),
namely:
The person making an application for registration or grant of prior
permission under sub-section (1),—
He is not a fictitious or benami.
He has not been prosecuted or convicted for indulging in activities
aimed at conversion through inducement or force, either directly or
indirectly, from one religious faith to another.
He has not been prosecuted or convicted for creating communal
Conditions for
tension or disharmony in any specified district or any other part of
granting
the country.
registration or
He has not been found guilty for diversion or mis-utilisation of its
prior permission
funds.
[Section 9(4)(a) to
He is not engaged or likely to engage in propagation of sedition or
Section 9(4)(g)]
advocate violent methods to achieve its ends.
He is not likely to use the foreign contribution for personal gains
or divert it for undesirable purposes.
He has not contravened any of the provisions of THIS Act.
He has not been prohibited from accepting foreign contribution.
The person making an application for registration under sub-section
(1) has undertaken reasonable activity in its chosen filed for the benefit
of the society for which the foreign contribution is proposed to be
utilised.
The person making an application for giving prior permission under

sub-section (1) has prepared a reasonable project for the benefit of the
society for which the foreign contribution is proposed to be utilised.
In case the person being an individual has-----
Neither been convicted under any law
Nor any prosecution for any offence pending against him.
In case the person being other than an individual, any of its directors
or office bearers has-----
Neither been convicted under any law
Nor any prosecution for any offence pending against him.
The acceptance of foreign contribution by the person referred to in sub-
section (1) is not likely to affect prejudicially—
Sovereignty of India or
Integrity of India or
Public interest or
Freedom or fairness of election to any legislature or
Friendly relations with any foreign state or
Harmony between religious, racial, social, linguistic or regional
groups, castes or communities.
The acceptance of foreign contribution referred to in sub-section (1),—
Shall not lead to incitement of an offence
Shall not endanger the life or physical safety of any person.
Central
Government shall Where the Central Government refuses the grant of certificate or does not
give reasons for give prior permission, it shall record in its order the reasons therefor and
refusal furnish a copy thereof to the applicant.
[Section 9(5)]
Option to CG not to The Central Government may not communicate the reasons for refusal
give reasons in for grant of certificate or for not giving prior permission to the applicant
certain cases under this section in cases where is no obligation to give any
[Proviso to Section information or documents or records or papers under the Right to
9(5)] Informtion Act, 2005.
 Registration shall be valid for 5 years [Section 9(6) read with Rule
10] and
Validity period
[Section 9(6)]  Prior permission shall be valid for specific purpose for which it is
obtained and from a specific source. [Section 9(6) read with Section
11(2)]
Acceptance criteria If on receipt of an application for grant of certificate or giving prior
of CG permission Central Government is of the opinion that the conditions
[Section 9(3) + 1st specified in sub-section (4) are satisfied, it may, ordinarily within 90 days
Proviso to Section from the date of receipt of application under sub-section (1)-----
9(3) + 2nd Proviso Register such person and grant him a certificate or
to Section 9(3)] Give him prior permission.
Provided that in case the Central Government does not grant, within
the said period of 90 days, a certificate or give prior permission, it shall
communicate the reasons therefor to the applicant.
Provided further that a person shall not be eligible for grant of
certificate or giving prior permission, if his certificate has been
suspended and such suspension of certificate continues on the date of
making application.
13.SUSPENSION OF CERTIFICATE AND CANCELLATION OF CERTIFICATE

[SECTION 14 READ WITH SECTION 13]
Power with whom?
[Section 13(1) and Power to suspend and cancel vests with Central Government.
14(1)]
What is the basis of
cancellation? Cancellation shall be made on the basis of inquiry.
[Section 14(1)]
Furnished incorrect or false information in application
Ground – 1
requesting the certificate.
Violation of terms and conditions of certificate or
Grounds for Ground – 2
renewal.
cancellation
Ground – 3 Public interest.
[Section 14(1)(a)
to (e)] Ground – 4 Violation of provisions of this act or rules.
Has not been engaged in any reasonable activity in its
Ground – 5 chosen field for the benefit of the society for two
consecutive years or has become defunct.
What CG do during
the course of
inquiry on
Where the Central Government, is satisfied that pending consideration
existence of
of the question of cancelling the certificate on any of the grounds
grounds for
mentioned in section 14(1), it may, suspend the certificate for such
cancellation but
period not exceeding 180 days.
pending
consideration?
[Section 13(1)]
Every person whose certificate has been suspended shall —
Not receive any foreign contribution during the period of suspension of
Don’ts during
certificate. [However CG, on an application, allow the receipt if it
suspension period
considers appropriate]
[Section 13(2)]
Utilise, in the prescribed manner, the foreign contribution in his
custody with the prior approval of the Central Government.
Extent of amount The unspent amount that can be utilised in case of suspension of a
that can be utilised certificate of registration may be as under ------
in case of Up to 25% of the unutilised amount may be spent, with the prior
suspension of the approval of the Central Government, for the declared aims and objects
certificate of for which the foreign contribution was received.
registration The remaining 75% of the unutilised foreign contribution shall be
[Rule 14 of FCR utilised only after revocation of suspension of the certificate of
Rules, 2011] registration.
Principles of No order of cancellation of certificate under this section shall be made
natural justice unless the person concerned has been given a reasonable opportunity
[Section 14(2)] of being heard.
Post – effects of Any person whose certificate has been cancelled under this section shall
cancellation not be eligible for registration or grant of prior permission for a
[Section 14(3)] period of 3 years from the date of cancellation of such certificate.
14.MANAGEMENT OF FOREIGN CONTRIBUTION OF PERSON WHOSE
CERTIFICATE HAS BEEN CANCELLED [SECTION 15]
Position of foreign The foreign contribution and assets created out of the foreign
contribution upon contribution in the custody of every person whose certificate has been
cancellation cancelled under section 14 shall vest in such authority as may be
[Section 15(1)] prescribed.
The authority referred to in sub-section (1) may, if it considers necessary
Powers of and in public interest -----
authority Manage the activities of such person and
[Section 15(2)] Utilise the foreign contribution or dispose of the assets created out of
it in case adequate funds are not available for running such activity.
Consequence of
The authority shall return the foreign contribution and the assets
subsequent
vested upon it to such person, if such person is subsequently registered
registration
under this Act.
[Section 15(3)]
(1) The amount of foreign contribution lying unutilised in the exclusive
foreign contribution bank account of a person whose certificate of
Content covered by registration has been cancelled SHALL VEST WITH THE BANKING
Rules AUTHORITY CONCERNED till the Central Government issues further
[Rule 15 of FCR directions in the matter.
Rules, 2011] (2) If a person whose certificate of registration has been cancelled
NOT FOR EXAMS transfers/has transferred the foreign contribution to any other person,
the provisions of sub-rule (1) of this rule shall apply to the person to
whom the fund has been transferred.
15.RENEWAL OF CERTIFICATE [SECTION 16]

Compulsory Every person who has been granted a certificate under section 12 shall
renewal have such certificate renewed within six months before the expiry of the
[Section 16(1)] period of the certificate.
The application for renewal of the certificate shall be made to the Central
Government in such form and manner and accompanied by such fee as
may be prescribed.
Central by rules specified as follows ----- [FCR (Amendment)
Rules,2019]
Every certificate of registration issued to a person shall be liable to be
renewed after the expiry of five years from the date of its issue on
proper application.
Every person shall apply to the Central Government electronically
online in FORM FC-3C, six months before the date of expiry of the
certificate of registration, for its renewal.
An application made for renewal of the certificate of registration shall
Mode of be accompanied by fee of ₹1500.
application The fee for renewal of the certificate of registration shall be remitted
[Section 16(2) read by demand draft or banker's cheque in favour of the "Pay and
with Rule 12 of the Accounts Officer, Ministry of Home Affairs", payable at New
FCR Rules, 2011] Delhi or through online electronic payment gateway as specified
by the Central Government.
In case no application for renewal of registration is received or such
application is not accompanied by the requisite fee, the validity of the
certificate of registration of such person shall be deemed to have
ceased from the date of completion of the period of five years from the
date of the grant of registration.
In case a person provides sufficient grounds, in writing, explaining the
reasons for not submitting the certificate of registration for renewal
within the stipulated time, his application may be accepted for
consideration along with the requisite fee and with late fee of ₹5000,
but not later than 1 year after the expiry of the original certificate of
registration.
A certificate of registration granted on the 1 st January, 2012 shall he valid
till the 31st December, 2016. A request for renewal of the registration
certificate shall reach the Central Government, accompanied by the
Illustration for
requisite fee, by the 30th June, 2016. If no application is received or is not
understanding
accompanied by the renewal fee, the validity of the registration certificate
issued on the 1st January 2012 shall be deemed to have lapsed with effect
from the close of the day on 31st December, 2016.
CHAPTER IV
16.FOREIGN CONTRIBUTION THROUGH SCHEDULED BANK [SECTION 17]
Every person who has been granted a certificate or given prior
Only Single account permission shall RECEIVE foreign contribution in a single account
[Section 17(1)] only through such one of the branches of a bank as he may specify in
his application for grant of certificate.
Multiple accounts in Such person may open one or more accounts in one or more banks
certain cases for UTILISING the foreign contribution received by him.
[1st Proviso to section

17(1)]
Dedicated account
No funds other than foreign contribution shall be received or
[2nd Proviso to Section
deposited in such account or accounts.
17(1)]
The bank shall report to the Central Government within 48 hours
Reporting by
any transaction in respect of receipt or utilisation of any foreign
Reporting entities
contribution by any person whether or not such person is registered
[Section 17(2)]
or granted prior permission under the Act.
17.INTIMATION [SECTION 18]

Intimation by whom? Every person who has been granted a certificate or given prior
[Section 18(1)] approval under this Act.
What is the
obligation? Such person shall give an intimation to the Central Government.
[Section 18(1)]
 Amount of each foreign contribution received.
 Source from which such foreign contribution was received.
What is to be  Manner in which such foreign contribution was received.
intimated?
[Section 18(1)]
 The purposes for which such foreign contribution was utilised by
him.
 The manner in which such foreign contribution was utilised by
him.
Every person receiving foreign contribution shall submit a copy of a
Furnishing a
statement indicating therein the particulars of foreign contribution
statement – An
received duly certified by officer of the bank or authorised person in
additional compliance
foreign exchange and furnish the same to the Central Government
[Section 18(2)]
along with the intimation under sub-section (1).
Note: The intimation procedure is specified u/r 17 of FCR Rules, 2011. However,
it is not applied for exams by ICAI and hence not formed part of material.
Interested can refer Appendix to this chapter for the same.
18.MAINTENANCE OF ACCOUNTS [SECTION 19]

Every person who has been granted a certificate or given prior
Obligation to maintain
approval under this Act shall maintain ------
certain records
An account of any foreign contribution received by him; and
[Section 19(a) and
A record as to the manner in which such contribution has been
19(b)]
utilised by him.
Every person who has been granted registration or prior permission
Content specified u/r
under section 12 shall maintain a separate set of accounts and
11 of FCR Rules, 2011
records, exclusively, for the foreign contribution received and utilised.

19. AUDIT OF ACCOUNTS [SECTION 20]

Where any person who has been granted a certificate or given prior
permission -----
Fails to furnish any intimation under this Act within the time
Circumstances of specified or
Audit The intimation so furnished is not in accordance with law or
If, after inspection of such intimation, the Central Government has
any reasonable cause to believe that any provision of this Act has
been, or is being, contravened.
The Central Government may, authorise such gazetted officer, holding
a Group A post under the Central Government or any other officer or
authority or organisation, as it may think fit, to audit any books of
What action will be
account kept or maintained by such person and thereupon every such
taken?
officer shall have the right to enter in or upon any premises at any
reasonable hour, before sunset and after sunrise, for the purpose of
auditing the said books of account
20.DISPOSAL OF ASSETS CREATED OUT OF FOREIGN CONTRIBUTION [SECTION

22]
Any person who was permitted to accept foreign contribution under this Act -
Circumstances
----
of disposal of
Ceases to exist or
assets
Has become defunct
If such person is registered or All the assets of such person shall be disposed
incorporated under any law of in accordance with that law
Consequence
Central Government may specify that all such
If no such exists
assets shall be disposed off by such authority
CHAPTER VI
21.CONFISCATION OF ARTICLE OR CURRENCY OR SECURITY OBTAINED IN
CONTRAVENTION OF THE ACT [SECTION 28]
 Any Article or
What is liable
for  Currency or
confiscation?  Security
Which is seized under section 25
When If such article or currency or security has been adjudged under section 29 to
confiscation? have been received or obtained in contravention of this Act.
22. ADJUDICATION OF CONFISCATION [SECTION 29]

Any confiscation referred to in section 28 may be adjudged ------

Without Limit By the Court of Session
By such officer, not below the rank of an Assistant
Who has to
Sessions Judge.
adjudge the
As per Rule 19 of the FCR Rules, 2011, An officer
confiscation?
referred in clause (b) of sub-section (1) of section 29
[Section 29(1)(a) Subject to Limits
may adjudge confiscation in relation to any article or
and (b)]
currency seized under section 25, if the value of such
article or the amount of such currency seized does
not exceed ₹ 10,00,000.
23. PROCEDURE FOR CONFISCATION [SECTION 30]

No order of adjudication of confiscation shall be made unless a reasonable
opportunity of making a representation against such confiscation has been given to
the person from whom any article or currency or security has been seized.
CHAPTER VII
24.APPEAL [SECTION 31]
This section discusses about 2 types of appeals namely, -----
i. Appeal against the order of confiscation under section 29.
ii. All other appeals.
Who may
prefer an
Any person aggrieved by any order made under section 29.
appeal?
[Section 31(1)]
Appeal to Where the order has been made by the court of
To the High Court
whom? session.
[Section
31(1)(a) and To the Court of Where the order has been made by any officer
31(1)(b)] Session specified under section 29(1)(b).
Time limit
Within 1 month from the date of communication to such person of the order.
[Section 31(1)]
Extension in The appellate court may, if it is satisfied that the appellant was prevented
Time limit by sufficient cause from preferring the appeal within the said period of 1
[Proviso to month, allow such appeal to be preferred within a further period of one
Section 31(1)] month, BUT NOT THEREAFTER.
All other appeals such as -----
Appeal by a political organisation u/s 3(1)(f) or
Any person referred to in Section 6 [Restriction on Foreign hospitality]
All other
Any person referred to in Section 9 [CG prohibiting otherthan section 3
appeals
persons]
[Section 31(2)]
Any person aggrieved by the order of CG refusing to give permission.
Any person aggrieved by an order made u/s 12(2) – [Referring to CG refusal
to grant recognition]

Any person aggrieved by an order made u/s 12(4) – [Referring to CG not

providing reasons for refusal to grant recognition ]
may, within 60 days from the date of such order, prefer an appeal against such
order to the High Court.
If appellant carries on business or High Court within the local limits
personally works for a gain where such business is carried on.
Which High High Court within the local limits
Where appellant is an organisation
court? where principal office of such
or association
[Section 31(2)] organisation or association is located.
High Court within the local limits
In all other cases
where the appellant ordinarily resides.
25. REVISION OF ORDERS OF CENTRAL GOVERNMENT [SECTION 32]

Basis of The Central Government may revise, -----
revision Either of its own motion or
[Section 32(1)] On an application for revision by the person registered under this Act.
Exercise done The Central Government shall -----
before revision Call for records
of order Examine the records
[Section 32(1)] Conduct such inquiry
Condition for
CG’s Suo moto The Central Government shall not of its own motion revise any order under
revision this section if the order has been made more than 1 year.
[Section 32(2)]
In the case of an application for revision under this section by the person
Condition for referred to in sub-section (1), the application must be made within 1 year
other person from the date on which the order in question was communicated to him
[Section 32(3)] or the date on which he otherwise came to know of it, whichever is
earlier.
CHAPTER VIII
26. OFFENCES AND PENALTIES
Contravention made:
Any person, subject to this Act, who knowingly, —
Making of false (a) gives false intimation under sub-section (c) of section 9 or section 18;
statement, or
declaration or (b) seeks prior permission or registration by means of fraud, false
delivering false representation or concealment of material fact.
accounts
[Section 33] Consequence for contravention:
Liable to imprisonment for a term which may extend to 6 months or with
fine or with both.
Contravention made:

If any person, on whom any prohibitory order has been served under
section 10, pays, delivers, transfers or otherwise deals with, any article or
currency or security, whether Indian or foreign, in contravention of such
Penalty for prohibitory order.
article or
currency or Consequence for contravention:
security obtained He shall be punished with imprisonment for a term
Consequence –
in contravention which may extend to 3 years, or with fine, or with
1
of section 10 both.
[Section 34] An additional fine equivalent to the market value of
Consequence – the article or the amount of the currency or
2 security in respect of which the prohibitory order
has been contravened by him.
Contravention made:
Punishment for Whoever accepts, or assists any person, political party or organisation in
contravention of accepting, any foreign contribution or any currency or security from a
any provision of foreign source, in contravention of any provision of this Act.
the Act Consequence for contravention:
[Section 35] Shall be punished with imprisonment for a term which may extend to 5
years, or with fine, or with both.
Contravention made:
The court trying a person, who, in relation to any article or currency or
Power to impose security, whether Indian or foreign, does or omits to do any act, which act
additional fine or omission would render such article or currency or security liable to
where article or confiscation under this Act but such article or currency or security is not
currency or available for confiscation.
security is not Consequence for contravention:
available for Consequence 1:
confiscation. Fine ≯5 times the value of the article or currency or security or ₹1,000
[Section 36] whichever is more.
For Consequence 2:
Fine for general contravention [In addition to consequence – 1 fine]
Penalty for
offences where
Contravention made:
no separate
Whoever fails to comply with any provision of this Act for which no
punishment has
separate penalty has been provided in this Act.
been provided
[Section 37]
Consequence for contravention:
Shall be punished with imprisonment for a term which may extend to one
year, or with fine or with both.
Notwithstanding anything contained in this Act, whoever, having been
Prohibition of
convicted of any offence under section 35 or section 37, in so far as such
acceptance of
offence relates to the acceptance or utilisation of foreign contribution, is

foreign again convicted of such offence shall not accept any foreign contribution for
contribution a period of five years from the date of the subsequent conviction.
[Section 38]
27. OFFENCES BY COMPANIES [SECTION 39]

Contravention
by whom? Contravention committed by Company.
[Section 39(1)]
What is
contravened? Provisions of this Act or of any rule, direction or order.
[Section 39(1)]
Every person who, at the time the offence was committed, was in charge of,
Who is Liable?
and was responsible to, the company for the conduct of the business of the
[Section 39(1)]
company as well as the company
What is the
He shall be deemed to be guilty of the offence and shall be liable to be
Liability?
proceeded against and punished accordingly.
[Section 39(1)]
Immune subject
Nothing contained in this sub-section shall render any such person liable to
to condition
punishment if he proves that the offence took place without his knowledge
[Proviso to
or that he exercised due diligence to prevent such contravention.
Section 39(1)]
Notwithstanding anything contained in sub-section (1), where contravention
of any of the provisions of this Act or of any rule, direction or order made
If contravener thereunder has been committed by a company and it is proved that the
is identified – contravention has taken place with the consent or connivance of, or is
consequences attributable to any neglect on the part of, any director, manager, secretary or
[Section 39(2)] other officer of the company, such director, manager, secretary or other
officer of the company shall also be deemed to be guilty of the contravention
and shall be liable to be proceed against and punished accordingly.
Explanation to
i. Company means any body corporate and includes a firm or other
certain terms
[Explanation to
ii. Director in relation to a firm, means a partner in the firm.
Section 39]
28.BAR ON PROSECUTION OF OFFENCES UNDER THE ACT [SECTION 40]
No court shall take cognizance of any offence under this Act, except with the
previous sanction of the Central Government or any officer authorised by that
Government in this behalf.
29.COMPOSITION OF CERTAIN OFFENCES [SECTION 41]
Which offences
Any offence punishable under this Act (whether committed by an individual
are
or association or any officer or employee thereof), not being an offence
compoundable?
punishable with imprisonment only.
[Section 41(1)]

Compounded by such officers or authorities and for such sums as the Central
Government may, by notification in the Official Gazette specify.
Who is the As per Rule 21 of FCR Rules, 2011 ------ [Not for exams]
compounding An application for the compounding of an offence under section 41 may be
authority? made to the Secretary, Ministry of Home Affairs, New Delhi on a plain paper
[Section 41(1)] and shall be accompanied by a fee of ₹ 1000/- (One Thousand only) in the
form of a demand draft or a banker's cheque in favour of the "Pay and
Accounts Officer, Ministry of Home Affairs", payable at New Delhi.
No Nothing in sub-section (1) shall apply to an offence committed by an
compounding in individual or association or its officer or other employee within a period of
certain cases three years from the date on which a similar offence committed by it or him
[Section 41(2)] was compounded under this section.
Compounding
under the Every officer or authority referred to in sub-section (1) shall exercise the
supervision of powers to compound an offence, subject to the direction, control and
CG supervision of the Central Government.
[Section 41(3)]
No prosecution
Where any offence is compounded before the institution of any prosecution,
if offence is
no prosecution shall be instituted in relation to such offence, against the
compounded
offender in relation to whom the offence is so compounded.
[Section 41(5)]
CHAPTER IX
30. POWER TO CALL FOR INFORMATION OR DOCUMENT [SECTION 42]
Any inspecting officer, during the course of any inspection of any account or
Power of record in connection with the contravention of any provision of this Act ----
inspecting Call for information
officer Require for production of any document
Examine the persons connected with the case
31.INVESTIGATION INTO CASES UNDER THE ACT [SECTION 43]
Any offence punishable under this Act may also be investigated into by such authority
as the Central Government may specify in this behalf and the authority so specified
shall have all the powers which an officer-in-charge of a police station has while
making an investigation into a cognizable offence.
32. POWER OF CENTRAL GOVERNMENT TO GIVE DIRECTIONS [SECTION 46]
The Central Government may give such directions as it may deem necessary to any
other authority or any person or class of persons regarding the carrying into
execution of the provisions of this Act.
33. DELEGATION OF POWERS [SECTION 47]
The Central Government may, by notification, direct that any of its powers or
functions under this Act, except power to make rule under section 48, shall be
exercised or discharged also by such authority as may be specified.
34. POWER TO EXEMPT IN CERTAIN CASES [SECTION 50]

If the Central Government is of opinion that it is necessary or expedient in the

interests of the general public so to do, it may, by order and subject to such conditions
as may be specified in the order, exempt any person or association or organisation
(not being a political party), or any individual (not being a candidate for election) from
the operation of all or any of the provisions of this Act and may, as often as may be
necessary, revoke or modify such order.
35. ACT NOT TO APPLY TO CERTAIN GOVERNMENT TRANSACTIONS [SECTION
51]
Nothing contained in this Act shall apply to any transaction between the Government
of India and the Government of any foreign country or territory.
36. APPLICATION OF OTHER LAWS NOT BARRED [SECTION 52]
The provisions of this Act shall be in addition to, and not in derogation of, the
provisions of any other law for the time being in force.
37. POWER TO REMOVE DIFFICULTIES [SECTION 53]
If any difficulty arises in giving effect to the provisions of this Act, the Central
Government may, by order, published in the Official Gazette, make such provisions
not inconsistent with the provisions of this Act as may appear to be necessary for
removing the difficulty:
Provided that no order shall be made under this section after the expiry of two years
from the commencement of this Act.

THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL
ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002
TOPICS AT A GLANCE
Sl.no Contents Page no
Chapter I - Preliminary
Section Content
1
1 Short title, extent and commencement
2 Definitions
Chapter II - Regulation of securitisation and reconstruction of financial
assets of banks and Financial institutions
Section Content
3 Registration of asset reconstruction companies
4 Cancellation of certificate of registration
5 Acquisition of rights or interest in financial assets
Transfer of pending applications to any one of Debts Recovery
5A
Tribunals in certain cases
6 Notice to obligor and discharge of obligation of such obligor
2
Issue of security by raising of receipts or funds by asset
7
reconstruction company
8 Exemption from registration of security receipt
9 Measures for assets reconstruction
10 Other functions of asset reconstruction company
11 Resolution of disputes
12 Power of Reserve Bank to determine policy and issue directions
12A Power of Reserve Bank to call for statements and information
12B Power of Reserve Bank to carry out audit and inspection
Chapter III – Enforcement of Security Interest
Section Content
13 Enforcement of security interest
Chief Metropolitan Magistrate or District Magistrate to assist secured
14
creditor in taking possession of secured asset
15 Manner and effect of takeover of management
16 No compensation to directors for loss of office
3
17 Application against measures to recover secured debts
17A Making of application to Court of District Judge in certain cases
18 Appeal to Appellate Tribunal
18A Validation of fees levied
18B Appeal to High Court in certain cases
18C Right to lodge a caveat
19 Right of borrower to receive compensation and costs in certain cases

PREAMBLE TO THE ACT
An Act to regulate securitisation and reconstruction of financial assets and enforcement of
security interest and to provide for a Central database of security interests created on
property rights, and for matters connected therewith or incidental thereto.
ANALYSIS:
Particulars Details
 Regulate securitization
Regulatory  Regulate reconstruction of financial assets
mechanism  Regulate the enforcement of security interest
 Provide a Central Registry to record all transactions
Act shall also provide for matters connected therewith or incidental
Incidental matters
thereto.
CHAPTER I – PRELIMINARY
Section Content
1 Short title, extent and commencement
2 Definitions
1. SHORT TITLE, EXTENT AND COMMENCEMENT [SECTION 1]

Particulars Details
Name of the Act The Securitisation and Reconstruction of Financial Assets and Enforcement
[Section 1(1)] of Security Interest Act, 2002.
Applicability
It extends to the whole of India.
[Section 1(2)]
Effective date
Act shall be deemed to have come into force on the 21st day of June, 2002.
[Section 1(3)]
2. SELECTED DEFINITIONS [SECTION 2]

Term Definition
Borrower means any person who has been granted financial assistance by
any bank or financial institution or who has given any guarantee or created
any mortgage or pledge as security for the financial assistance granted by
Borrower any bank or financial institution and includes a person who becomes
[Section 2(f)] borrower of a asset reconstruction company consequent upon acquisition
by it of any rights or interest of any bank or financial institution in relation
to such financial assistance or who has raised funds through issue of debt
securities.
Secured creditor means—
Secured Creditor (i) any bank or financial institution or any consortium or group of banks or
[Section 2(zd)] financial institutions holding any right, title or interest upon any tangible
asset or intangible asset as specified in clause (l);

(ii) debenture trustee appointed by any bank or financial institution; or
(iii) an asset reconstruction company whether acting as such or managing
a trust set up by such asset reconstruction company for the securitisation
or reconstruction, as the case may be; or
(iv) debenture trustee registered with the Board appointed by any
company for secured debt securities; or
(v) any other trustee holding securities on behalf of a bank or financial
institution, in whose favour security interest is created by any borrower for
due repayment of any financial assistance.
Asset Reconstruction Asset reconstruction company means a company registered with Reserve
Company Bank under section 3 for the purposes of carrying on the business of asset
[Section 2(ba)] reconstruction or securitisation, or both.
Qualified buyer means a financial institution, insurance company, bank,
state financial corporation, state industrial development corporation,
trustee or asset reconstruction company which has been granted a
certificate of registration under sub-section (4) of section 3 or any asset
Qualified Buyer
management company making investment on behalf of mutual fund or a
[Section 2(u)]
foreign institutional investor registered under the SEBI Act, 1992 or
regulations made thereunder, any category of non-institutional investors as
may be specified by the Reserve Bank under sub-section (1) of section 7 or
any other body corporate as may be specified by the Board.
Securitisation means acquisition of financial assets by any asset
reconstruction company from any originator, whether by raising of funds
Securitisation
by such asset reconstruction company from qualified buyers by issue of
[Section 2(z)]
security receipts representing undivided interest in such financial assets or
otherwise.
Asset reconstruction means acquisition by any asset reconstruction
Asset Reconstruction company of any right or interest of any bank or financial institution in any
[Section 2(b)] financial assistance for the purpose of realisation of such financial
assistance.
Non-performing asset means an asset or account of a borrower, which has
been classified by a bank or financial institution as sub-standard, doubtful
or loss asset, —
(a) In case such bank or financial institution is administered or regulated
Non – performing asset
by any authority or body established, constituted or appointed by any law
[Section 2(o)]
for the time being in force, in accordance with the directions or guidelines
relating to assets classifications issued by such authority or body.
(b) In any other case, in accordance with the directions or guidelines
relating to assets classifications issued by the Reserve Bank.
Default means—
(i) Non-payment of any debt or any other amount payable by the borrower
to any secured creditor consequent upon which the account of such
Default
borrower is classified as non-performing asset in the books of account of
[Section 2(j)]
the secured creditor; or
(ii) Non-payment of any debt or any other amount payable by the borrower
with respect to debt securities after notice of ninety days demanding

payment of dues served upon such borrower by the debenture trustee or
any other authority in whose favour security interest is created for the
benefit of holders of such debt securities.
Financial assistance means any loan or advance granted or any
debentures or bonds subscribed or any guarantees given or letters of credit
established or any other credit facility extended by any bank or financial
Financial assistance
institution including funds provided for the purpose of acquisition of any
[Section 2(k)]
tangible asset on hire or financial lease or conditional sale or under any
other contract or obtaining assignment or licence of any intangible asset or
purchase of debt securities.
Financial asset means debt or receivables and includes—
(i) A claim to any debt or receivables or part thereof, whether secured or
unsecured; or
(ii) Any debt or receivables secured by, mortgage of, or charge on,
immovable property; or
(iii) A mortgage, charge, hypothecation or pledge of movable property; or
(iv) Any right or interest in the security, whether full or part underlying
such debt or receivables; or
(v) Any beneficial interest in property, whether movable or immovable, or
in such debt, receivables, whether such interest is existing, future, accruing,
Financial asset conditional or contingent; or
[Section 2(l)] (va) Any beneficial right, title or interest in any tangible asset given on hire
or financial lease or conditional sale or under any other contract which
secures the obligation to pay any unpaid portion of the purchase price of
such asset or an obligation incurred or credit otherwise provided to enable
the borrower to acquire such tangible asset; or
(vb) Any right, title or interest on any intangible asset or licence or
assignment of such intangible asset, which secures the obligation to pay any
unpaid portion of the purchase price of such intangible asset or an
obligation incurred or credit otherwise extended to enable the borrower to
acquire such intangible asset or obtain licence of the intangible asset; or
(vi) Any financial assistance.
Security interest means right, title or interest of any kind, other than those
specified in section 31, upon property created in favour of any secured
creditor and includes—
(i) Any mortgage, charge, hypothecation, assignment or any right, title or
interest of any kind, on tangible asset, retained by the secured creditor as
an owner of the property, given on hire or financial lease or conditional sale
Security interest or under any other contract which secures the obligation to pay any unpaid
[Section 2(zf)] portion of the purchase price of the asset or an obligation incurred or credit
provided to enable the borrower to acquire the tangible asset; or
(ii) Such right, title or interest in any intangible asset or assignment or
licence of such intangible asset which secures the obligation to pay any
unpaid portion of the purchase price of the intangible asset or the
obligation incurred or any credit provided to enable the borrower to
acquire the intangible asset or licence of intangible asset.

Security receipt means a receipt or other security, issued by a asset
reconstruction company to any qualified buyer pursuant to a scheme,
Security receipt
evidencing the purchase or acquisition by the holder thereof, of an
[Section 2(zg)]
undivided right, title or interest in the financial asset involved in
securitisation.
Sponsor Sponsor means any person holding not less than ten per cent. of the paid-
[Section 2(zh)] up equity capital of a asset reconstruction company.
Originator means the owner of a financial asset which is acquired by a
Originator
asset reconstruction company for the purpose of securitisation or asset
[Section 2(r)]
reconstruction.
Obligor means a person liable to the originator, whether under a contract
Obligor or otherwise, to pay a financial asset or to discharge any obligation in
[Section 2(q)] respect of a financial asset, whether existing, future, conditional or
contingent and includes the borrower.
SPACE FOR NOTES


CHAPTER II - REGULATION OF SECURITISATION AND RECONSTRUCTION OF
FINANCIAL ASSETS OF BANKS AND FINANCIAL INSTITUTIONS
Section Content
3 Registration of asset reconstruction companies
4 Cancellation of certificate of registration
5 Acquisition of rights or interest in financial assets
Transfer of pending applications to any one of Debts Recovery
5A
Tribunals in certain cases
6 Notice to obligor and discharge of obligation of such obligor
Issue of security by raising of receipts or funds by asset
7
reconstruction company
8 Exemption from registration of security receipt
9 Measures for assets reconstruction
10 Other functions of asset reconstruction company
11 Resolution of disputes
12 Power of Reserve Bank to determine policy and issue directions
12A Power of Reserve Bank to call for statements and information
12B Power of Reserve Bank to carry out audit and inspection
3. REGISTRATION OF ASSET RECONSTRUCTION COMPANIES [SECTION 3]

Particulars Details
Applicability
Section is applicable to Asset Reconstruction Companies.
[Section 3(1)]
Section 3 is enacted to define the pre-requisites for registration of ARCs
Objective of the section
to commence its business of asset reconstruction or securitization or both.
Asset reconstruction company shall not commence or carry on the
Pre-requisites to business of securitisation or asset reconstruction without -----
commence specified
Obtaining a certificate of registration granted under this section.
business
Having net owned fund of not less than two crore rupees or such other
[Section 3(1)(a) and
higher amount as the Reserve Bank, may, by notification, specify.
Section 3(1)(b)]
Note: Reserve Bank has notified ₹ 100 crore vide a notification.
Discretionary powers
of RBI Reserve Bank may, by notification, specify different amounts of owned
[Proviso to Section fund for different class or classes of asset reconstruction companies.
3(1)]
Application for grant of Every asset reconstruction company shall make an application for
registration registration to the Reserve Bank in such form and manner as it may specify.
[Section 3(2)] Note: Form is only specified – There is no Form number.
Power with whom? Reserve bank
Conditions to be Nature of power Power to conduct an inspection of records and
fulfilled and other books of applicant ARC to issue a certificate of
relevant matters commencement of business of securitisation or
[Section 3(3)(a) to asset reconstruction or both.
Section 3(3)(g)] Conditions checked  ARC has not incurred losses in any of the
before granting three preceding financial years.

certificate of  ARC has made adequate arrangements for
registration realisation of the financial assets acquired for
the purpose of securitisation or asset
reconstruction and shall be able to pay
periodical returns and redeem on
respective due dates on the investments
made in the company by the qualified buyers
or other persons.
 Directors of asset reconstruction company
have adequate professional experience in
matters related to finance, securitisation and
reconstruction.
 Any of its directors has not been convicted
of any offence involving moral turpitude.
 Sponsor of an asset reconstruction company is
a fit and proper person in accordance with
the criteria as may be specified in the
guidelines issued by the Reserve Bank for such
persons.
 ARC has complied with or is in a position to
comply with prudential norms specified by
the Reserve Bank.
 ARC has complied with one or more
conditions specified in the guidelines issued
by the Reserve Bank for the said purpose.
Power with whom? Reserve bank
Nature of power Power to grant certificate of registration to
Issuance of certificate commence the business of securitization or asset
of registration reconstruction or both.
[Section 3(4)] When Reserve Bank After being satisfied that the conditions specified
grants certificate of in sub-section (3) are fulfilled.
registration?
Power of RBI to reject  The Reserve Bank may reject the application made under sub-section
the application (2) if it is satisfied that the conditions specified in sub-section (3) are
[Section 3(5) and not fulfilled.
Proviso to Section  Before rejecting the application, the applicant shall be given a
3(5)] reasonable opportunity of being heard.
Power with whom? Reserve bank.
Prior approval of RBI is Obligation on Obligation is on ARC.
required in certain whom?
cases Nature of obligation To obtain prior approval of RBI.
[Section 3(6) and Cases requiring RBI  Substantial change in its management.
Proviso to Section approval  Change of location of its registered office.
3(6)]  Change in its name.
Notes

Note – 1: Substantial change in its management
includes ----
 Appointment of any Director.
 Appointment of Managing director.
 Appointment of Chief executive officer
Note – 2: For the purposes of this section, the term
“substantial change in management” means the
change in the management by way of transfer of
shares or change affecting the sponsorship in the
company by way of transfer of shares or
amalgamation or transfer of the business of the
company.
Decisive powers of The decision of the Reserve Bank, whether the
RBI change in management of an asset reconstruction
company is a substantial change in its
management or not, shall be final.
4. CANCELLATION OF CERTIFICATE OF REGISTRATION [SECTION 4]

Particulars Details
Power with whom?
Reserve Bank
[Section 4(1)]
Nature of power Power to cancel a certificate of registration granted to an asset
[Section 4(1)] reconstruction company.
Clause Content
Ceases to carry on the business of securitisation or asset
a
reconstruction.
b Ceases to receive or hold any investment from a qualified buyer.
Failed to comply with any conditions subject to which the
c
certificate of registration has been granted to it.
At any time fails to fulfil any of the conditions referred to in
d
clauses (a) to (g) of sub-section (3) of section 3.
Circumstances for
cancellation Fails to -----
[Section 4(1)(a) to  Comply with any direction issued by the Reserve Bank
Section 4(1)(e)] under the provisions of this Act.
 Maintain accounts in accordance with the requirements of
any law or any direction or order issued by the Reserve Bank
e under the provisions of this Act.
 Submit or offer for inspection its books of account or other
relevant documents when so demanded by the Reserve
Bank.
 Obtain prior approval of the Reserve Bank required under
sub-section (6) of section 3.
Particulars Details
Natural justice
Obligation
principles cast on RBI Reserve Bank
on whom?

in certain cases of What is the Reserve Bank shall give an opportunity to such company
cancellation obligation? to take necessary steps to comply with such provisions or
[Proviso to Section fulfilment of such conditions.
4(1)] Which Failed to comply with any conditions
grounds are S.4(1)(c) subject to which the certificate of
covered? registration has been granted to it.
At any time fails to fulfil any of the
S.4(1)(d) conditions referred to in clauses (a) to (g)
of sub-section (3) of section 3.
Obtain prior approval of the Reserve Bank
S.4(1)(e)(iv) required under sub-section (6) of section
3.
When such If Reserve Bank is of the opinion that the delay in
rectification cancelling the certificate of registration shall be
may not be prejudicial to the public interest or the interests of the
given? investors or the asset reconstruction company.
Particulars Details
Appeal by
Appeal by aggrieved ARC.
whom?
Appeal by ARC Appeal to
Appeal to Central Government [Ministry of Finance]
[Section 4(2) and whom?
Proviso to Section Time limit Within 30 days from the date on which such order of
4(2)] cancellation is communicated to Asset reconstruction
Company.
Note: As per proviso to Section 4(2), before rejecting an appeal such
company shall be given a reasonable opportunity of being heard.
Particulars Details
Obligation on
Asset Reconstruction Company.
whom?
Cancellation – Impact When
If it is holding investments of qualified buyers and whose
on investments held obligation is
certificate of registration has been cancelled.
[Section 4(3)] attached?
Result Notwithstanding such cancellation be deemed to be an
asset reconstruction company until it repays the entire
investments held by it as per directions of Reserve Bank.
5. ACQUISITION OF RIGHTS OR INTEREST IN FINANCIAL ASSETS [SECTION 5]

Particulars Details
Any asset reconstruction company may acquire financial assets of any bank
or financial institution -----
Mode of acquisition of
Mode Details
financial assets
By issuing a debenture or bond or any other security in the
[Section 5(1)(a)]
1 nature of debenture, for consideration agreed upon between
such company and the bank or financial institution.

By entering into an agreement with such bank or financial
institution for the transfer of such financial assets to such
2
company on such terms and conditions as may be agreed upon
between them.
Any document executed by any bank or financial institution under sub-
section (1) in favour of the asset reconstruction company acquiring
Exemption from Stamp financial assets for the purposes of asset reconstruction or securitisation
duty shall be exempted from stamp duty in accordance with the provisions of
[Section 5(1A) and section 8F of the Indian Stamp Act, 1899.
Proviso to Section Note: As per proviso to Section 5(1A), the aforesaid exemption from
5(1A)] payment of stamp duty shall not apply where the acquisition of the
financial assets by the asset reconstruction company is for the
purposes other than asset reconstruction or securitisation.
Particulars Details
Deemed Lender  Bank or Financial institution is a lender in
relation to a financial asset.
 Such financial asset is acquired by an asset
reconstruction company.
 Upon such acquisition, such asset reconstruction
company shall be deemed to be the lender.
 All the rights of such bank or financial institution
shall vest in such company in relation to such
financial assets.
Transfer of  Borrower acquired tangible asset (or)
certain rights assignment or license of intangible asset.
 Such asset is acquired by the borrower by way of
loan or obligation incurred or credit provided by
such bank or financial institution.
Effect of acquisition  The Bank or Financial institution is holding any
[Section 5(2), Section right, title or interest upon any tangible asset or
5(2A), Section 5(3), intangible asset to secure payment of any unpaid
Section 5(4)] portion.
 Upon acquisition by ARC, such right, title or
interest shall vest in the asset reconstruction
company on acquisition of such assets.
Transfer of all  Following documents shall be transferred -----
legal documents  Contracts
 Deeds
 Bonds
 Agreements
 Power – of – attorneys
 Legal representations
 Permissions
 Approvals
 Consents
 No – objections and
 Any other instrument

 The aforesaid documents shall satisfy 3
conditions namely ------
 Documents shall relate to the said financial
asset.
 Documents shall subsist immediately before
the acquisition of financial asset.
 Documents aforesaid are executed in favour
such Bank or Financial institution.
 Upon acquisition of such financial assets by the
asset reconstruction company, those documents-
 Be of full force and
 Is enforced in the name of Asset
Reconstruction Company.
Transfer of legal  On the date of acquisition of financial asset any
proceedings suit, appeal or other proceeding of whatever
nature relating to the said financial asset is
pending by or against the bank or financial
institution.
 Such suit, appeal or other proceeding shall not
abate or dis-continued or be in any way
prejudicially affected by the reason of acquisition
of financial asset.
 Moreover, the suit, appeal or other proceeding
may be continued, prosecuted and enforced by or
against the asset reconstruction company.
Particulars Details
Application
Asset reconstruction company
by whom?
Application  Debts recovery tribunal or
to whom?  Debts recovery appellate tribunal.
Option to request in
 Any other court or authority
case of pending suits
and appeals Purpose of Substitution of its name in any pending suit, appeal or
[Section 5(5)] application other proceedings.
Duty of On receipt of such application, such Debts Recovery
authority Tribunal or the Appellate Tribunal or court or Authority
concerned shall pass orders for the substitution of the asset
reconstruction company in such pending suit, appeal or
other proceedings.
6. TRANSFER OF PENDING APPLICATIONS TO ANY ONE OF DEBTS RECOVERY

TRIBUNALS IN CERTAIN CASES [SECTION 5A]
Particulars Details
Conditions to attract
Particulars Details
the section
Condition – 1 There are Secured debts.
[Section 5A (1)]

Condition – 2 Borrower has committed a default with respect to such
secured debts.
Condition – 3 Those secured debts belong to more than one bank or
financial institution.
Condition – 4 Such banks or financial institutions has filed
applications before two or more Debts Recovery
Tribunals for recovery.
Condition – 5 Such applications are pending and awaiting an order
of respective Tribunal.
Condition – 6 Such secured debts forming a financial asset is
acquired by an asset reconstruction company.
Right available The asset reconstruction company may file an
to the ARC application to the Appellate Tribunal having
jurisdiction over any of such Tribunals in which such
applications are pending for transfer of all pending
applications to any one of the Debts Recovery
Tribunals as it deems fit.
On receipt of such application for transfer of all pending applications, the
Discretionary powers
Appellate Tribunal may, after giving the parties to the application an
of Appellate Tribunal
opportunity of being heard, pass an order for transfer of the pending
[Section 5A (2)]
applications to any one of the Debts Recovery Tribunals.
Particulars Details
Who passed an
Order passed by Debts recovery appellate tribunal.
order?
Order passed
Order passed by the Appellate Tribunal under sub-
under which
section (2).
section?
Overriding effect of Non – obstante Order shall be binding notwithstanding anything
order passed – Binding clause contained in the Recovery of Debts Due to Banks and
decision Financial Institutions Act, 1993.
[Section 5A (3)] Note: Order so passed shall be binding on all the
Debts Recovery Tribunals before whom
applications are originally made and such order
even though passed by one appellate tribunal, it
binds all DRTs as if such order had been passed by
the Appellate Tribunal having jurisdiction on each
such Debts Recovery Tribunal.
Particulars Details
Condition – 1 Upon request by the asset reconstruction company to
transfer pending cases to a DRT, DRAT has transferred
Issuance of a recovery
the same to a DRT and issued a recovery certificate in
certificate according to
favour of DRT.
RDDBFI Act, 1993
Condition – 2 Any recovery certificate, issued by the Debts Recovery
[Section 5A (4)]
Tribunal to which all the pending applications are
transferred under sub-section(2), shall be executed in
accordance with the provisions contained in sub-

section (23) of section 19 and other provisions of the
Recovery of Debts Due to Banks and Financial
Institutions Act, 1993
7. NOTICE TO OBLIGOR AND DISCHARGE OF OBLIGATION OF SUCH OBLIGOR

[SECTION 6]
Particulars Details
Particulars Details
Notice by whom? Notice by Bank or Financial institution, if it considers
appropriate.
Notice to whom?  Obligor
 Any other concerned person
Notice of securitization
function  Concerned registering authority including
[Section 6(1)] Registrar of Companies in whose jurisdiction the
mortgage, charge, hypothecation, assignment or
other interest created on the financial assets had
been registered.
Notice of what? Notice of acquisition of financial assets by any asset
Particulars Details
Obligation on whom? Obligor who received a notice under Section
6(1).
Obligation cast on What is the obligation? The obligor as aforesaid shall make payment to
Obligor the concerned asset reconstruction company.
[Section 6(2)] Discharge of obligor’s Payment made to such company in discharge of
liability any of the obligations in relation to the financial
asset specified in the notice shall be a full
discharge to the obligor.
Particulars Details
Condition to attract Notice of acquisition of financial assets is not given
the section by Bank or Financial Institution to the Obligor.
Obligation of Bank  Any money or other properties subsequently
or Financial received by the bank or financial institution,
What if the notice of
Institution shall constitute monies or properties held in
acquisition is not given
trust for the benefit of and on behalf of the
to the obligor?
asset reconstruction company.
[Section 6(3)]
 Such bank or financial institution shall hold
such payment or property which shall
forthwith be made over or delivered to asset
reconstruction company, as the case may be, or
its agent duly authorised in this behalf.
8. ISSUE OF SECURITY BY RAISING OF RECEIPTS OR FUNDS BY ASSET

RECONSTRUCTION COMPANY [SECTION 7]

Particulars Details
Particulars Details
Option to ARC  Asset reconstruction company acquired
financial assets of a Bank or Financial
Institution.
 Asset reconstruction company may after
acquisition of any financial asset under
subsection (1) of section 5, offer security
receipts to -----
 Qualified buyers or
Conditions to attract
 Such other category of investors including
the section
non-institutional investors.
[Section 7(1)]
 The investors as aforesaid may subscribe to
the security receipts.
Issue & subscription The issue and subscription of security receipts
to be in accordance shall be made without prejudice to the provisions
with certain acts contained in -----
 Companies Act, 1956
 Securities Contracts (Regulation) Act, 1956
 Securities and Exchange Board of India Act,
1992.
An asset reconstruction company may raise funds from the qualified buyers
by formulating schemes for acquiring financial assets and shall keep and
Special condition for maintain separate and distinct accounts in respect of each such scheme for
qualified buyers every financial asset acquired out of investments made by a qualified buyer
[Section 7(2)] and ensure that realisations of such financial asset is held and applied
towards redemption of investments and payment of returns assured on
such investments under the relevant scheme.

9. EXEMPTION FROM REGISTRATION OF SECURITY RECEIPT [SECTION 8]
Particulars Details
Transaction Content
Any security receipt issued by the asset
reconstruction company, as the case may be, under
sub-section (1) of section 7, and not creating,
declaring, assigning, limiting or extinguishing any
Transactions not requiring 1
right, title or interest, to or in immovable property
compulsory registration
except in so far as it entitles the holder of the
[Section 8(a) and Section
security receipt to an undivided interest afforded by
8(b)]
a registered instrument.
2 Any transfer of security receipts.
Note: This section shall apply notwithstanding anything
contained in sub-section (1) of section 17 of the Registration Act,
1908.
10. MEASURES FOR ASSET RECONSTRUCTION [SECTION 9]

Particulars Details
Transaction Content
The proper management of the business of the borrower, by
1 change in, or takeover of, the management of the business of the
borrower.
The sale or lease of a part or whole of the business of the
2
borrower.
Measures for
3 Rescheduling of payment of debts payable by the borrower.
asset
Enforcement of security interest in accordance with the
reconstruction 4
[Section 9(1)(a)
to 5 Settlement of dues payable by the borrower.
Section 9(1)(g) Taking possession of secured assets in accordance with the
6
and provisions of this Act.
Proviso to Conversion of any portion of debt into shares of a borrower
7
Section 9(1)(g)] company.
Note – 1: As per proviso to section 9(1)(g), conversion of any part of debt into
shares of a borrower company shall be deemed always to have been valid, as if the
provisions of this clause were in force at all material times.
Note – 2: Without prejudice to the provisions contained in any other law for the
time being in force, an asset reconstruction company may, for the purposes of
asset reconstruction, provide for any one or more of the aforesaid measures.
Powers of Power Content
Reserve Bank The Reserve Bank shall, for the purposes of sub-section (1), determine
[Section 9(2) the policy and issue necessary directions including the direction for
1
and Section regulation of management of the business of the borrower and fees to
9(3)] be charged.

The asset reconstruction company shall take measures under sub-
2 section (1) in accordance with policies and directions of the Reserve
Bank determined under sub-section (2).
11. OTHER FUNCTIONS OF ASSET RECONSTRUCTION COMPANY [SECTION 10]
Particulars Details
Function An ARC registered under section 3 may -----
Act as an agent for any bank or financial institution for the
purpose of recovering their dues from the borrower on
1
payment of such fees or charges as may be mutually agreed
Various functions
upon between the parties.
possible
Act as a manager referred to in clause (c) of sub-section (4)
[Section 10(1)(a) to
2 of section 13 on such fee as may be mutually agreed upon
Section 10(1)(c)]
between the parties.
3 Act as receiver if appointed by any court or tribunal.
Note: As per proviso to section 10(1), no asset reconstruction company
shall act as a manager if acting as such gives rise to any pecuniary liability.
Prior approval of No asset reconstruction company which has been granted a certificate of
Reserve Bank required registration under sub-section (4) of section 3, shall commence or carry
in certain cases on, without prior approval of the Reserve Bank, any business other than
[Section 10(2)] that of securitisation or asset reconstruction.
An Asset reconstruction company which is carrying on, on or before the
commencement of this Act, any business other than the business of
Transitory provision
securitisation or asset reconstruction or business referred to in sub-
[Section 10(3)]
section (1), shall cease to carry on any such business within one year from
the date of commencement of this Act.
Non – inclusion of For the purposes of this section, asset reconstruction company does not
subsidiaries include its subsidiary.
[Explanation to Section That means subsidiary of an ARC shall not qualify as a ARC automatically,
10] it has to undergo complete registration process independently.
12. RESOLUTION OF DISPUTES [SECTION 11]

Particulars Details
 Bank
Dispute between  Financial Institution
whom?  Asset reconstruction company
 Qualified buyer
 Securitization or
Dispute relating to
 Reconstruction or
what?
 Non-payment of money due including interest
Who shall be resolving Conciliation or Arbitration as provided in the Arbitration and Conciliation
disputes? Act, 1996.

Note – 1: Dispute shall be settled as aforesaid as if the parties to the
dispute have consented in writing for determination of such dispute
by conciliation or arbitration.
Note – 2: Provisions of Arbitration and Conciliation Act, 1996 shall
apply in such case.
13. POWER OF RESERVE BANK TO DETERMINE POLICY AND ISSUE DIRECTIONS

[SECTION 12]
Particulars Details
Power with whom?
Power under this section with Reserve Bank
[Section 12(1)]
What is the nature of
 Determine the policy and
power?
 Give directions.
[Section 12(1)]
 Income recognition
 Accounting Standards
 Provision for Bad and Doubtful Debts
 Capital adequacy based on risk weight for assets
Directions on what?  Type of financial asset of a bank or financial institution which can be
[Section 12(1) read acquired and procedure for acquisition of such assets and valuation
with Section 12(2)] thereof.
 Aggregate value of financial assets which may be acquired by any asset
 Fee and other charges which may be charged.
 Transfer of security receipts issued to qualified buyers.
 Necessary in Public Interest or
 To regulate financial system of the country or
When Reserve Bank
 Prevent the affairs of any asset reconstruction company from being
exercises this power?
conducted in a manner detrimental to the interest of investors or
[Section 12(1)]
 In any manner prejudicial to the interest of such asset reconstruction
company.
14. POWER OF RESERVE BANK TO CALL FOR STATEMENTS AND INFORMATION

[SECTION 12A]
Particulars Details
Power with whom? Reserve Bank
Direct an asset reconstruction company to furnish it within such time as
What is the nature of may be specified by the Reserve Bank, with such statements and
power? information relating to the business or affairs of such asset reconstruction
company.
When Reserve Bank
Whenever Reserve Bank consider necessary or expedient.
exercises this power?

15. POWER OF RESERVE BANK TO CARRY OUT AUDIT AND INSPECTION [SECTION
12B]
Particulars Details
Power with whom?
Reserve Bank
[Section 12B (1)]
What is the nature of The Reserve Bank may, for the purposes of this Act, carry out or caused
power? to be carried out audit and inspection of an asset reconstruction company
[Section 12B (1)] from time to time.
 It shall be the duty of an asset reconstruction company and its officers
to provide assistance and cooperation to the Reserve Bank to carry
out audit or inspection.
Duty of ARC, its officers  It shall be the duty of every director or other officer or employee of
and employees the asset reconstruction company to produce before the person,
[Section 12B (2) read conducting an audit or inspection under sub-section (1), all such
with Section 12B (4)] books, accounts and other documents in his custody or control and to
provide him such statements and information relating to the affairs of
the asset reconstruction company as may be required by such person
within the stipulated time specified by him.
Where on audit or inspection or otherwise, the Reserve Bank is satisfied
that business of an asset reconstruction company is being conducted in a
manner detrimental to public interest or to the interests of investors in
security receipts issued by such asset reconstruction company, the
Reserve Bank may, for securing proper management of an asset
Action taken by the reconstruction company, by an order -----
Reserve on adverse
Remove the Chairman or any director or appoint additional
results of inspection
a directors on the board of directors of the asset reconstruction
[Section 12B (3)(a) and
company.
Section 12B (3)(b)]
Appoint any of its officers as an observer to observe the working
b
of the board of directors of such asset reconstruction company.
Note: As per proviso to Section 12B (3), no order for removal of
Chairman or director under clause (a) shall be made except after giving
him an opportunity of being heard.
SPACE FOR NOTES


CHAPTER III
ENFORCEMENT OF SECURITY INTEREST
Section Content
13 Enforcement of security interest
Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking
14
possession of secured asset
15 Manner and effect of takeover of management
16 No compensation to directors for loss of office
17 Application against measures to recover secured debts
17A Making of application to Court of District Judge in certain cases
18 Appeal to Appellate Tribunal
18A Validation of fees levied
18B Appeal to High Court in certain cases
18C Right to lodge a caveat
19 Right of borrower to receive compensation and costs in certain cases
16. ENFORCEMENT OF SECURITY INTEREST [SECTION 13]

Particulars Details
Particulars Details
Enforcement by
Secured Creditor.
whom?
What is the Any security interest created in favour of any secured
Supremacy in
power? creditor may be enforced, without the intervention of the
enforcing security
court or tribunal.
interest
[Section 13(1)] Mode of Any enforcement of security interest shall be in accordance
enforcement with the provisions of this Act.
Note: Enforcement under this section shall be carried notwithstanding
anything contained in section 69 or section 69A of the Transfer of
Property Act, 1882.
Particulars Details
When can notice be Where any borrower, who is under a
sent? liability to a secured creditor under a
Condition – 1 security agreement, makes any default
in repayment of secured debt or any
instalment thereof.
Notice to the Account of the borrower is classified by
borrower Condition – 2 the secured creditor as Non –
[Section 13(2)] performing asset.
Note: Section 2(zb) defines the term ‘security
agreement’ to mean – “An agreement, instrument
or any other document or arrangement under
which security interest is created in favour of the
secured creditor including the creation of mortgage
by deposit of title deeds with the secured creditor.”

What is the power The secured creditor may require the borrower by
given to secured notice in writing to discharge in full his liabilities to the
creditor? secured creditor within 60 days from the date of notice
failing which the secured creditor shall be entitled to
exercise all or any of the rights under sub-section (4).
No borrower shall, after receipt of notice referred to in sub-section (2), transfer
No right of transfer
by way of sale, lease or otherwise (other than in the ordinary course of his
to the borrower
business) any of his secured assets referred to in the notice, without prior
[Section 13(13)]
written consent of the secured creditor.
Particulars Details
Classification as The requirement of classification of secured debt as
NPA not required. non-performing asset under this sub-section shall not
Exemption in apply to a borrower who has raised funds through issue
certain cases of debt securities.
[Proviso i and Debenture trustee In the event of default, the debenture trustee shall be
Proviso ii to to enforce in entitled to enforce security interest in the same manner
Section 13(2)] certain cases. as provided under this section with such modifications
as may be necessary and in accordance with the terms
and conditions of security documents executed in
favour of the debenture trustee.
 Amount payable by the borrower.
 Secured assets intended to be enforced by the secured creditor in the event
Contents of Notice
of non-payment of secured debts by the borrower.
[Section 13(3)]
Note: As per Section 2(zc), “Secured asset” means the property on which
security interest is created.
Step Details
1 Secured creditor sent a notice under section 13(2).
On receipt of the notice under sub-section (2), the borrower -----
2  Makes any representation or
 Raises any objection.
Representation by
the borrower and Secured Creditor comes to the conclusion that such representation or
3
connected matters objection is not acceptable or tenable.
[Section 13(3A) Secured Creditor shall communicate within 15 days of receipt of such
read with proviso 4 representation or objection the reasons for non-acceptance of the
to section 13(3A)] representation or objection to the borrower.
As per proviso to section 13(3A), the reasons so communicated or the likely
action of the secured creditor at the stage of communication of reasons shall not
confer any right upon the borrower to prefer an application to the Debts
Recovery Tribunal under section 17 or the Court of District Judge under section
17A.
Options of In case the borrower fails to discharge his liability in full within the period
enforcement specified in sub-section (2), the secured creditor may take recourse to one or
available to more of the following measures to recover his secured debt, namely -----
Secured Creditor Mode Details

[Section 13(4)(a) Take possession of the secured assets of the borrower including the
to Section 1 right to transfer by way of lease, assignment or sale for realising the
13(4)(d)] secured asset.
Take over the management of the business of the borrower including
the right to transfer by way of lease, assignment or sale for realising
the secured asset.
Note – 1: As per 1st proviso to Section 13(4)(b), the right to transfer
by way of lease, assignment or sale shall be exercised only where the
substantial part of the business of the borrower is held as security for
2
the debt.
Note – 2: As per 2nd proviso to Section 13(4)(b), where the
management of whole of the business or part of the business is
severable, the secured creditor shall take over the management of
such business of the borrower which is relatable to the security for
the debt.
Appoint any person (hereafter referred to as the manager), to
3 manage the secured assets the possession of which has been taken
over by the secured creditor.
Require at any time by notice in writing, any person who has
acquired any of the secured assets from the borrower and from
4 whom any money is due or may become due to the borrower, to pay
the secured creditor, so much of the money as is sufficient to pay the
secured debt.
Without prejudice to the rights conferred on the secured creditor under or by
Special powers of this section, secured creditor shall be entitled to proceed against the guarantors
secured creditor or sell the pledged assets without first taking any of the measured specifies in
[Section 13(11)] clauses (a) to (d) of sub-section (4) in relation to the secured assets under this
Act.
Exercise of rights
of secured The rights of a secured creditor under this Act may be exercised by one or more
creditors of his officers authorised in this behalf in such manner as may be prescribed.
[Section 13(12)]
Deemed discharge Any payment made by any person referred to in clause (d) of sub-section (4) to
of liability the secured creditor shall give such person a valid discharge as if he has made
[Section 13(5)] payment to the borrower.
Particulars Details
Borrower committed a default and in connection
C1 with the enforcement, immovable property is
Sale and put for sale as an action of recovery.
acquisition of Powers during sale
For the sale of such immovable property, a
property through reserve C2
reserve price has been specified.
[Section 13(5A), price auction
However, the amount bid in the auction is less
(5B), (5C)] [Section 13(5A)] C3
than the reserve price.
Due to the same, the sale of an immovable
C4
property has been postponed.

It shall be lawful for any officer of the
secured creditor if so authorised by the
Result secured creditor in this behalf, to bid for the
immovable property on behalf of the
secured creditor at any subsequent sale.
Where the secured creditor, referred to in sub-section
What if, the secured (5A), is declared to be the purchaser of the immovable
creditor has bid for property at any subsequent sale, the amount of the
immovable property purchase price shall be adjusted towards the amount
at any subsequent of the claim of the secured creditor for which the
sale. auction of enforcement of security interest is taken by
[Section 13(5B)] the secured creditor, under sub-section (4) of section
13.
Application of The provisions of section 9 of the Banking Regulation
Banking Regulation Act, 1949 shall, as far as may be, apply to the
Act, 1949. immovable property acquired by secured creditor
[Section 13(5C)] under sub-section (5A).
Condition Details
1 There is a transfer of secured asset.
Such transfer is made either
2  After taking possession thereof or
 After takeover of management under sub-section (4).
Rights of
Such transfer shall be made either by
transferee of
secured assets 3  The Secured creditor or
[Section 13(6)]  By the manager on behalf of the secured creditor.
Then, all rights in, or in relation to, the secured asset transferred
shall vest in the transferee all rights in, or in relation to, the
Result
secured asset transferred as if the transfer had been made by the
owner of such secured asset.
Particulars Details
Action by secured An action has been taken against the borrower under
creditor section 13(4) by the secured creditor.
Incurring costs Secured creditor is of an opinion that he has properly
incurred costs, charges and expenses.
Recovery Such costs, charges and expenses shall be recoverable
Amount to be paid from the borrower.
[Section 13(7)] Money held in The money which is received by the secured creditor
trust shall, in the absence of any contract to the contrary, be
held by him in trust.
Application of the In payment of such costs, charges and
Stage – 1
amount received expenses.
as a result of In discharge of the dues of the secured
Stage – 2
creditor.

measures taken The residue of the money so received shall
u/s 13(4) Stage – 3 be paid to the person entitled thereto in
accordance with his rights and interests.
Condition Details
The amount of dues of the secured creditor together with all
1 costs, charges and expenses incurred by him is tendered to the
secured creditor.
Such amount is tendered at any time before the date of
publication of notice for public auction or inviting quotations or
2
tender from public or private treaty for transfer by way of lease,
No measures to be
assignment or sale of the secured assets.
taken in certain
cases
[Section 13(8)]  The secured assets shall not be transferred by way of lease
assignment or sale by the secured creditor and
 In case, any step has been taken by the secured creditor for
transfer by way of lease or assignment or sale of the assets
Result
before tendering of such amount under this sub-section, no
further step shall be taken by such secured creditor for
transfer by way of lease or assignment or sale of such
secured assets.
Step Details
There is a joint financing of a financial asset by more than one
1
secured creditor.
One of the secured creditors is desirous of taking measures under
2
section 13(4).
No secured creditor shall be entitled to exercise any or all of the

rights conferred on him under or pursuant to sub-section (4) unless
Measures taken in
case of joint Result exercise of such right is agreed upon by the secured creditors
financing representing not less than 60% in value of the amount outstanding
as on a record date.
[Section 13(9)]
Effect Such action shall be binding on all the secured creditors.
Note – 1: Explanation a below section 13(9) defines the term ‘record date’ to
mean the date agreed upon by the secured creditors representing not less than
60% in value of the amount outstanding on such date.
Note – 2: Explanation b below section 13(9) defines the term ‘amount
outstanding’ to include principal, interest and any other dues payable by the
borrower to the secured creditor in respect of secured asset as per the books of
account of the secured creditor.
Where dues of the secured creditor are not fully satisfied with the sale proceeds
Secured assets
of the secured assets, the secured creditor may file an application in the form
insufficient –
and manner as may be prescribed to the Debts Recovery Tribunal having
Remedy available?
jurisdiction or a competent court, as the case may be, for recovery of the balance
[Section 13(10)]
amount from the borrower.

17. CHIEF METROPOLITAN MAGISTRATE OR DISTRICT MAGISTRATE TO ASSIST
SECURED CREDITOR IN TAKING POSSESSION OF SECURED ASSET [SECTION 14]
Particulars Details
Particulars Details
When section gets  When the possession of any secured assets is required
attracted? to be taken by the secured creditor or
 If any of the secured assets is required to be sold or
transferred by the secured creditor under the
Option to request The secured creditor may, for the purpose of taking
whom? possession or control of any such secured assets, request,
in writing ------
Option to make a
 The Chief Metropolitan Magistrate or
request to
specified  The District Magistrate
authorities for within whose jurisdiction any such secured asset or other
documents relating thereto may be situated or found.
recovery
[Section 14(1)] Duty of CMM/DM The Chief Metropolitan Magistrate or as the case may be,
the District Magistrate shall, on such request being made
to him -----
 Take possession of such asset and documents
relating thereto and
 Forward such asset and documents to the secured
creditor.
Note: As per proviso to section 14(1), any application by the secured creditor
shall be accompanied by an affidavit duly affirmed by the authorised officer of
the secured creditor.
Sl.no Contents
 Aggregate amount of financial assistance granted and
i
 Total claim of the Bank as on the date of filing the application.+
 The borrower has created security interest over various properties.
 That the bank or financial institution is holding a valid and
ii subsisting security interest over such properties.
 The claim of the bank or financial institution is within the limitation
period.
Declaration in
iii Details of properties under security interest.
affidavit
[1 Proviso to
st The borrower has committed default in repayment of the financial
iv
section 14(1)] assistance granted aggregating the specified amount.
Consequent upon such default in repayment of the financial assistance
v the account of the borrower has been classified as a non-performing
asset.
Affirming that the period of 60 days’ notice as required by the
vi provisions of sub-section (2) of section 13, demanding payment of the
defaulted financial assistance has been served on the borrower.
The objection or representation in reply to the notice received from the
vii
borrower has been considered by the secured creditor and reasons for

non-acceptance of such objection or representation had been
communicated to the borrower.
The borrower has not made any repayment of the financial assistance
in spite of the above notice and the Authorised Officer is, therefore,
viii
entitled to take possession of the secured assets under the provisions
of sub-section (4) of section 13 read with section 14 of the principal Act.
The provisions of this Act and the rules made thereunder had been
ix
complied with.
Particulars Details
Orders of DM/ CMM  The District Magistrate or the Chief Metropolitan
[2nd Proviso] Magistrate received affidavit from the Authorised
Officer of secured creditor.
 The District Magistrate or the Chief Metropolitan
Magistrate shall be satisfied with the contents of
affidavit.
 Then, he shall pass orders for the purpose of taking
Orders passed by possession of the secured assets.
the authority and  Such order shall be passed within 30 from the date
transitory of making application.
provision Note: As per proviso to 2nd proviso to section 14(1),
[2nd, and 3th if no order is passed by the Chief Metropolitan
proviso to Magistrate or District Magistrate within the said period
section 14(1)] of thirty days for reasons beyond his control, he may,
after recording reasons in writing for the same, pass
the order within such further period but not exceeding
in aggregate sixty days.
Transitory provision The requirement of filing affidavit stated in the first
[3rd Proviso] proviso shall not apply to proceeding pending before
any District Magistrate or the Chief Metropolitan
Magistrate, as the case may be, on the date of
commencement of this Act.
The District Magistrate or the Chief Metropolitan Magistrate may authorise any
Power of DM/
officer subordinate to him, —
CMM to authorize
 To take possession of such assets and documents relating thereto and
[Section 14(1A)]
 To forward such assets and documents to the secured creditor.
Power of DM/ For the purpose of securing compliance with the provisions of sub-section (1),
CMM to take the Chief Metropolitan Magistrate or the District Magistrate may take or cause to
assistance be taken such steps and use, or cause to be used, such force, as may, in his opinion,
[Section 14(2)] be necessary.
No act of the Chief Metropolitan Magistrate or the District Magistrate or any
Protection to
officer authorised by the Chief Metropolitan Magistrate or District Magistrate
authorities
done in pursuance of this section shall be called in question in any court or before
[Section 14(3)]
any authority.

18. MANNER AND EFFECT OF TAKEOVER OF MANAGEMENT [SECTION 15]
Particulars Details
Particulars Details
When section When the management of business of a borrower is
gets attracted? taken over by an asset reconstruction company under
Section 9(a) or, by a secured creditor under section
13(4)(b).
Publication Where to publish? In 2 newspapers -----
 One in English language
and
 Another in newspaper
published in an Indian
Publication and
language in circulation in
appointment
the place where the
[Section 15(1)]
principal office of the
borrower is situated
Who shall publish? Secured Creditor
Appointment In case of Persons appointed shall act as
Company directors of that borrower in
accordance with the provisions
of that Act.
In case of other Persons appointed shall act as
than Company the administrator of the
business of the borrower.
Particulars Details
Vacation of In case of Company All persons holding office as
office directors of the company.
In case of other All persons holding any office
than Company having power of superintendence,
direction and control of the
business of the borrower.
Note: In both cases, the respective offices shall be
deemed to have vacated.
Effect of publication Termination of Which contracts? Contracts of management.
[Section 15(2)(a) contracts Contracts between Borrower and any director or
to whom? manager.
Section 15(2)(d)] What about the
Contracts shall be deemed to be
validity of
terminated.
contracts?
Custodian of The directors or the administrators appointed under this
properties and section shall take such steps as may be necessary to take
assets into their custody or under their control all the property,
effects and actionable claims to which the business of the
borrower is, or appears to be, entitled and all the
property and effects of the business of the borrower shall
be deemed to be in the custody of the directors or

administrators, as the case may be, as from the date of the
publication of the notice
Powers of The directors appointed under this section shall, for all
directors and purposes, be the directors of the company of the
administrators borrower and such directors or as the case may be, the
administrators appointed under this section, shall alone
be entitled to exercise all the powers of the directors or
as the case may be, of the persons exercising powers of
superintendence, direction and control, of the business of
the borrower whether such powers are derived from the
memorandum or articles of association of the company of
the borrower or from any other source whatsoever.
Particulars Details
Conditions to be  Borrower (defaulted) is a company.
satisfied  The management of the business of a borrower,
being a company is taken over by the secured
creditor.
Non-applicability of Result  It shall not be lawful for the shareholders of such
certain provisions in company or any other person to nominate or
case of a company appoint any person to be a director of the company.
[Section 15(3)(a) to  No resolution passed at any meeting of the
Section 15(3)(c)] shareholders of such company shall be given effect
to unless approved by the secured creditor.
 No proceeding for the winding up of such company
or for the appointment of a receiver in respect
thereof shall lie in any court, except with the consent
of the secured creditor.
Particulars Details
Obligation to Where the management of the business of a
restore the borrower had been taken over by the secured
management creditor, the secured creditor shall, on realisation of
his debt in full, restore the management of the
Restoration of
business of the borrower to him.
management
When restoration If any secured creditor jointly with other secured
[Section 15(4) and
obligation doesn’t creditors or any asset reconstruction company or
proviso to Section
arise? financial institution or any other assignee has
15(4)]
converted part of its debt into shares of a borrower
company and thereby acquired controlling interest in
the borrower company, such secured creditors shall
not be liable to restore the management of the
business to such borrower.

19. NO COMPENSATION TO DIRECTORS FOR LOSS OF OFFICE [SECTION 16]
Particulars Details
No managing director or any other director or a manager or any person in
charge of management of the business of the borrower shall be entitled to
any compensation for the loss of office or for the premature termination
No compensation under this Act of any contract of management entered into by him with
[Section 16(1)] the borrower.
Note: This provision shall apply notwithstanding anything to the
contrary contained in any contract or in any other law for the time
being in force.
Nothing contained in sub-section (1) shall affect the right of any such
Other sums not covered
managing director or any other director or manager or any such person in
by the provision
charge of management to recover from the business of the borrower,
[Section 16(2)]
moneys recoverable otherwise than by way of such compensation.
20. APPLICATION AGAINST MEASURES TO RECOVER SECURED DEBTS [SECTION 17]

Particulars Details
Particulars Details
Application by whom? Any person (including borrower).
Application to whom? An application under sub-section (1) shall be filed
[Section 17(1A)] before the Debts Recovery Tribunal within the local
limits of whose jurisdiction—
 The cause of action, wholly or in part, arises or
 Where the secured asset is located or
 The branch or any other office of a bank or
financial institution is maintaining an account
Application to
in which debt claimed is outstanding for the
DRT
time being.
[Section 17(1),
Section 17(1A), What is Purpose of  Measures are taken by the secured creditor
Proviso to making application? against the borrower u/s 13(4) and
Section 17(1),  Borrower is aggrieved by the measures of the
and secured creditor.
explanation] What is the time limit? Within 45 days from the date on which such
measures had been taken.
Note – 1: As per proviso to section 17(1), different fees may be prescribed for
making the application by the borrower and the person other than the borrower.
Note – 2: As per explanation below section 17(1) hereby declared that the
communication of the reasons to the borrower by the secured creditor for not
having accepted his representation or objection or the likely action of the secured
creditor at the stage of communication of reasons to the borrower shall not
entitle the person (including borrower) to make an application to the Debts
Recovery Tribunal under this sub-section.
Considering the
The Debts Recovery Tribunal shall consider whether any of the measures
application
referred to in sub-section (4) of section 13 taken by the secured creditor for
[Section 17(2)]

enforcement of security are in accordance with the provisions of this Act and the
rules made thereunder.
Particulars Details
Power with whom? Power vests with Debts Recovery Tribunal.
What is the decision DRT after examining the facts and circumstances of the
of DRT? case and evidence produced by the parties, comes to the
conclusion that any of the measures referred to in sub-
section (4) of section 13, taken by the secured creditor
What if, the are not in accordance with the provisions of this Act and
application is the rules made thereunder.
admitted? What are the  Declare the recourse to any one or more measures
[Section 17(3)] actions taken referred to in sub-section (4) of section 13 taken by
through an order? the secured creditor as invalid and
 Restore the possession of secured assets or
management of secured assets to the borrower or
such other aggrieved person and
 Pass such other direction as it may consider
appropriate and necessary.
Particulars Details
Power with whom? Power vests with Debts Recovery Tribunal.
What is the decision If, the Debts Recovery Tribunal declares the recourse
What if, the
of DRT? taken by a secured creditor under sub-section (4) of
application is not
section 13, is in accordance with the provisions of this
admitted?
Act and the rules made thereunder.
[Section 17(4)]
Rights of a Secured Secured creditor shall be entitled to take recourse to
Creditor one or more of the measures specified under sub-
section (4) of section 13 to recover his secured debt.
Condition Details
Application is made by a person aggrieved by the enforcement
1
made by secured creditor of any secured asset.
On such secured asset the applicant person claims any tenancy or
2
leasehold rights.
The Debts Recovery Tribunal, after examining the facts of the case
and evidence produced by the parties in relation to such claims
shall, for the purposes of enforcement of security interest, have
Special
the jurisdiction to examine whether lease or tenancy, —
provisions in case
 Has expired or stood determined or
of claims
[Section 17(4A)]  Is contrary to section 65A of the transfer of property act,
3 1882 or
 Is contrary to terms of mortgage or
 Is created after the issuance of notice of default and
demand by the Bank under subsection (2) of section 13 of
the Act.
Note: If any of the above cases are in existence, then, the Debt
Recovery Tribunal may pass such order as it deems fit in
accordance with the provisions of this Act.

 Any application made under sub-section (1) shall be dealt with by the Debts
Recovery Tribunal as expeditiously as possible and disposed of within 60
days from the date of such application.
 However, the Debts Recovery Tribunal may, from time to time, extend the
said period for reasons to be recorded in writing, so, however, that the total
Time limit for period of pendency of the application with the Debts Recovery Tribunal, shall
disposal of case not exceed four months from the date of making of such application made
[Section 17(5) under sub-section (1).
and Section  If the application is not disposed of by the Debts Recovery Tribunal within the
17(6)] period of 4 months as specified in sub-section (5), any party to the application
may make an application to the Appellate Tribunal for directing the Debts
Recovery Tribunal for expeditious disposal of the application pending before
the Debts Recovery Tribunal and the Appellate Tribunal may, on such
application, make an order for expeditious disposal of the pending application
by the Debts Recovery Tribunal.
21. APPEAL TO APPELLATE TRIBUNAL [SECTION 18]

Particulars Details
Appeal by whom? Any person aggrieved, by any order made by the Debts Recovery
[Section 18(1)] Tribunal under section 17.
Appeal to whom?
Debts recovery appellate tribunal.
[Section 18(1)]
Time limit Appeal shall be made within 30 days from the date of receipt of the
[Section 18(1)] order of Debts Recovery Tribunal.
 Different fees may be prescribed for filing an appeal by the
borrower or by the person other than the borrower.
 No appeal shall be entertained unless the borrower has
Fees, deposit and other issues
deposited with the Appellate Tribunal 50% of the amount of debt
[1st Proviso, 2nd Proviso and
due from him, as claimed by the secured creditors or determined
3rd Proviso to section 18(1)]
by the Debts Recovery Tribunal, whichever is less.
 Appellate Tribunal may, for the reasons to be recorded in
writing, reduce the amount to not less than 25% of debt.
Save as otherwise provided in this Act, the Appellate Tribunal shall,
Manner of disposal of appeal as far as may be, dispose of the appeal in accordance with the
[Section 18(2)] provisions of the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993.
22. VALIDATION OF FEES LEVIED [SECTION 18A]

Conditions Details
An appeal has been preferred to Debts Recovery Tribunal or the Appellate Tribunal
1
under this Act.
Such appeal is preferred before the commencement of the Enforcement of Security
2 Interest and Recovery of Debts Laws (Amendment) Act, 2004. [Latest amendment is
made in the year 2016]

Note: Enforcement of Security Interest and Recovery of Debts Laws (Amendment)
Act, 2004 is not an Act in itself. It is an Act with consolidates all debt recovery laws
in India via amendments. It factors in 3 laws namely -----
 SARFAESI Act, 2002
 RDDFBFI Act, 1993 and
 Companies Act, 2013.
Any fee levied and collected for preferring such appeal shall be deemed always to have
been levied and collected in accordance with law as if the amendments made to sections
17 and 18 of this Act by sections 10 and 12 of the said Act were in force at all material
3
times.
Note: Section 10 and Section 12 of ESIARDL Act corresponds to Section 17 and
Section 18 of the SARFAESI Act.
23. MAKING OF APPLICATION TO COURT OF DISTRICT JUDGE IN CERTAIN CASES

[SECTION 17A]
Conditions Details
1 Borrower is residing in the State of Jammu and Kashmir.
2 Such person is desirous of making an application under section 17.
Such application shall be made to the court of District Judge in that State having
jurisdiction over the borrower which shall pass an order on such application.
Note: Explanation below section 17A says that, the communication of the reasons to
3 the borrower by the secured creditor for not having accepted his representation or
objection or the likely action of the secured creditor at the stage of communication of
reasons shall not entitle the person (including borrower) to make an application to the
Court of District Judge under this section.
24. APPEAL TO HIGH COURT IN CERTAIN CASES [SECTION 18B]

Conditions Details
1 Borrower is residing in the State of Jammu and Kashmir.
Such borrower is aggrieved by any order made by the Court of District Judge under
2
section 17A.
3 He desires to prefer an appeal to the High Court having jurisdiction over such Court.
Such appeal shall be preferred within 30 days from the date of receipt of the order of
the Court of District Judge.
Note – 1: As per 1st proviso to section 18B, no appeal shall be preferred unless the
borrower has deposited, with the Jammu and Kashmir High Court, 50% of the amount
4 of the debt due from him as claimed by the secured creditor or determined by the Court
of District Judge, whichever is less.
Note – 2: As per 2nd proviso to section 18B, the High Court may, for the reasons to be
recorded in writing, reduce the amount to not less than 25% of the debt referred to in
the first proviso.

25. RIGHT OF BORROWER TO RECEIVE COMPENSATION AND COSTS IN CERTAIN
CASES [SECTION 19]
Conditions Details
An application has been made under section 17 or section 17A before DRT or Judge of
1 district court or an appeal has been preferred under section 18 or section 18A before
the Appellate Tribunal or the High Court.
Such judicial authority holds that the possession of secured assets by the secured
2
creditor is not in accordance with the provisions of this Act and rules made thereunder.
Therefore, the aforesaid judicial authority directs the secured creditors to return such
secured assets to the concerned borrowers or any other aggrieved person, who has filed
3
the application under section 17 or section 17A or appeal under section 18 or section
18A.
The borrower or such other person] shall be entitled to the payment of such
Result compensation and costs as may be determined by such Tribunal or Court of District
Judge or Appellate Tribunal or the High Court referred to in section 18B.

THE INSOLVENCY AND BANKRUPTCY CODE, 2016
1. DIVISION OF THE CHAPTER

PART CONCEPT COVERED SECTIONS
I PRELIMINARY 1–3
INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATE
II 4 – 77
PERSONS
INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS AND
III 78 – 187
PARTNERSHIP FIRMS
REGULATION OF INSOLVENCY PROFESSIONALS, AGENCIES AND
IV 188 – 223
INFORMATION UTILITIES
V MISCELLANEOUS 224 – 255
NOTE: ICAI HAS COVERED ONLY OVERVIEW OF IBC, 2016. THAT MEANS ONLY CERTAIN
SELECTED SECTIONS BETWEEN SECTION 1 AND SECTION 77 ARE APPLIED FOR EXAMS.
IN THIS MODULE, SYLLABUS APPLIED FOR EXAMS HAS BEEN EXHAUSTIVELY COVERED
ALONG WITH CASES WHEREVER REQUIRED.
2. PREAMBLE TO THE ACT

An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution
of corporate persons, partnership firms and individuals in a time bound manner for
maximisation of value of assets of such persons, to promote entrepreneurship, availability of
credit and balance the interests of all the stakeholders including alteration in the order of
priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board
of India, and for matters connected therewith or incidental thereto.
NOTE: THIS CODE HAS GOT ASSENT OF PRESIDENT ON 28 TH OF MAY 2016.
3. FEATURES OF THE CODE

Sl.no. Feature Content
Insolvency Code is a comprehensive law which envisages and
1 Comprehensive Law regulates the process of insolvency and bankruptcy of all persons
including corporates, partnerships, LLPs and individuals.
The Code has withered away the multiple laws covering the
Withering away recovery of debts and insolvency and liquidation process and
2
multiplicity of Laws presents singular platform for all the reliefs relating to recovery
of debts and insolvency.
The Code provides a low time resolution and defines fixed time
frames for insolvency resolution of companies and individuals.
The process is mandated to be completed within 180 days,
3 Low time Resolution extendable by maximum of 90 days. Further, for a speedier
process there is provision for fast-track resolution of corporate
insolvency within 90 days. If insolvency cannot be resolved, the
assets of the borrowers may be sold to repay creditors.
The Code has been drafted to provide one window clearance to
the applicant whereby he gets the appropriate relief by the same
4 Single window clearance
authority unlike the earlier position of law wherein case the
company is not able to revive the procedure for winding up and

liquidation has to be initiated under separate laws governed by

separate authorities.
There is one chain of authority under the Code. It does not even
allow the Civil Courts to interfere with the application pending
before the adjudicating authority, thereby reducing the
5 One Chain authority multiplicity of litigations. The National Company Law Tribunal
(NCLT) will adjudicate insolvency resolution for companies. The
Debt Recovery Tribunal (DRT) will adjudicate insolvency
resolution for individuals.
The Code also protects the interests of workman and employees.
Protects interests of
It excludes dues payable to workmen under provident fund,
6 workmen and
pension fund and gratuity fund from the debtor’s assets during
employees
liquidation.
It provides for constitution of a new regulatory authority,
‘Insolvency and Bankruptcy Board of India’ to regulate
New regulatory professionals, agencies and information utilities engaged in
7
authority resolution of insolvencies of companies, partnership firms and
individuals. The Board has already been established and has
started functioning.
4. STRUCTURE OF INSOLVENCY AND BANKRUPTCY CODE, 2016
INSOLVENCY AND INSOLVENCY PROFESSIONAL AGENCIES

BANKRUPTCY BOARD
INSOLVENCY PROFESSIONALS
OF INDIA
[IBBI] INFORMATION UTILITIES
IBC, 2016
ADJUDUCATING FOR CORPORATES NCLT
AUTHORITY
FOR
[AA] DRT
NON – CORPORATES
5. INSOLVENCY AND BANKRUPTCY BOARD OF INDIA

Particulars Details
What is IBBI? IBBI is the regulator of IBC, 2016
Function of IBBI  Oversee entities namely -----
 Insolvency Professionals Agency
 Insolvency Professionals
 Information Utility.
 Perform legislative, executive and quasi-judicial functions with
respect to the Insolvency Professionals, Insolvency Professional
Agencies and Information Utilities.
Date of establishment The Insolvency and Bankruptcy Board of India was established on
October 1, 2016.

Head office The head office of the Board is located at New Delhi.
Features of IBBI  Body Corporate
 Perpetual Succession
 Common Seal
 Acquire, hold, and dispose the property
 Capacity to contract
 Capacity to sue and to be sued.
6. INSOLVENCY PROFESSIONAL AGENCIES

The Code provides for establishment of insolvency professionals agencies to enrol and
regulate insolvency professionals as its members in accordance with the Insolvency and
Bankruptcy Code 2016 and read with regulations. IPA will perform three key functions:
Particulars Details
Regulatory functions Drafting detailed standards and codes of conduct through bye-laws, that
are made public and are binding on all members.
Executive functions  Monitoring, inspecting and investigating members on a regular
basis.
 Gathering information on their performance, with the over-arching
objective of preventing frivolous behaviour, and
 Malfeasance in the conduct of IP duties.
Quasi-judicial functions Addressing grievances of aggrieved parties, hearing complaints against
members and taking suitable actions.
7. INSOLVENCY PROFESSIONALS
 The Code provides for insolvency professionals as intermediaries who would play a
key role in the efficient working of the bankruptcy process. The role of the IP
encompasses a wide range of functions, which include adhering to procedure of the
law, as well as accounting and finance related functions. He shall have the power and
responsibility to monitor and manage the operations and assets of the enterprise.
 In the resolution process, the insolvency professional verifies the claims of the
creditors, constitutes a creditors committee, runs the debtor's business during the
moratorium period and helps the creditors in reaching a consensus for a revival plan.
In liquidation, the insolvency professional acts as a liquidator and bankruptcy trustee.
 An Insolvency Professional if appointed as a Resolution Professional shall act as a as
a neutral trustee of the assets of the organization.
Every insolvency professional shall abide by the following code of conduct:
1 To take reasonable care and diligence while performing his duties.
To comply with all requirements and terms and conditions specified in the bye-laws of the
2
insolvency professional agency of which he is a member.
3 To allow the insolvency professional agency to inspect his records.
To submit a copy of the records of every proceeding before the adjudicating authority to the board
4
as well as to the insolvency professional agency of which he is a member.
5 To perform his functions in such manner and subject to such conditions as may be specified.
8. INFORMATION UTILITIES

 The Code envisages creation of information utility to collect, collate, authenticate and
disseminate financial information of debtors in centralized electronic databases, at all
times.
 The Code requires creditors to provide financial information of debtors to multiple
utilities on an ongoing basis.
 Such information would be available to creditors, resolution professionals,
liquidators and other stakeholders in insolvency and bankruptcy proceedings.
 The purpose of this is to remove information asymmetry and dependency on the
debtor's management for critical information that is needed to swiftly resolve
insolvency.
Obligations of Information Utilities:
1 Create and store financial information in a universally accessible format.
Accept electronic submissions of financial information from persons who are under obligations
2
to submit financial information.
Accept, in specified form and manner, electronic submissions of financial information from
3
persons who intend to submit such information.
4 Meet such minimum service quality standards as may be specified by regulations.
Get the information received from various persons authenticated by all concerned parties
5
before storing such information.
Provide access to the financial information stored by it to any person who intends to access such
6
information in such manner as may be specified by regulations.
7 Publish such statistical information as may be specified by regulations.
8 Have inter-operatability with other information utilities.
9. SHORT TITLE, EXTENT AND COMMENCEMENT OF THE CODE [SECTION 1]

(1) This Code may be called the Insolvency and Bankruptcy Code, 2016.
(2) It extends to the whole of India:
Provided that Part III of this Code shall not extend to the State of Jammu and Kashmir.
(3) It shall come into force on such date as the Central Government may, by notification in the
Official Gazette, appoint:
Provided that different dates may be appointed for different provisions of this Code and any
reference in any such provision to the commencement of this Code shall be construed as a
reference to the commencement of that provision.
Particulars Details
Name of the Act
Insolvency and Bankruptcy code, 2016.
[Section 1(1)]
Act shall apply to whole of India including the state of Jammu and
Kashmir.
Extent of applicability However, Part III of this Code which deals with insolvency
[Section 1(2) and proviso resolution and bankruptcy of individuals and partnership firms
to Section 1(2)] shall not extend to the State of Jammu and Kashmir. [Omitted by the
Jammu and Kashmir Reorganisation (Adaptation of Central Laws)
Order, 2020 No.SO1123(E) dated 18th March, 2020.]

Vide Notification No. S.O. 3912 (E), dated 30th October, 2019,
this Act is made applicable to the Union territory of Jammu and
Kashmir and the Union territory of Ladakh.
Effective date
Act became effective from 5th August 2016.
[Section 1(3)]
All section not to take effect
on same date Different dates may be appointed for different provisions of this Code.
10. APPLICATION [SECTION 2]

The provisions of this Code shall apply to--
(a) any company incorporated under the Companies Act, 2013 or under any previous
company law;
(b) any other company governed by any special Act for the time being in force, except in so far
as the said provisions are inconsistent with the provisions of such special Act;
(c) any Limited Liability Partnership incorporated under the Limited Liability Partnership
Act, 2008;
(d) such other body incorporated under any law for the time being in force, as the Central
Government may, by notification, specify in this behalf;
(e) personal guarantors to corporate debtors;
(f) partnership firms and proprietorship firms; and
(g) individuals, other than persons referred to in clause (e).
Particulars Details
 Company incorporated under Companies Act, 2013.
 Companies governed by any special act.
 Limited Liability Partnership.
Applicability of
 Personal guarantors to corporate debtors.
provisions to whom?
 Partnership firms.
 Proprietorship firms.
 Individuals, other than personal guarantors to corporate debtors.
11. DEFINITIONS [SECTION 3 AND SECTION 5]

Term Definition
Corporate Debtor
Corporate debtor means a corporate person who owes a debt to any person.
[Section 3(8)]
Corporate person means a company as defined in clause (20) of section 2 of the
Corporate Person Companies Act, 2013, a limited liability partnership, or any other person
[Section 3(7)] incorporated with limited liability under any law for the time being in force but
shall not include any financial service provider.
Debt Debt means a liability or obligation in respect of a claim which is due from any
[Section 3(11)] person and includes a financial debt and operational debt.
Person Person includes----

[Section 3(23)] (a) An Individual;

(b) A Hindu Undivided Family;
(c) A Company;
(d) A Trust;
(e) A Partnership;
(f) A Limited liability partnership; and
(g) Any other entity established under a statute, and includes a person resident
outside India.
Person resident
Person resident outside India means a person other than a person resident in
outside India
India.
[Section 3(25)]
Person resident in
Person resident in India shall have the meaning as assigned to such term in
India
clause (v) of section 2 of the Foreign Exchange Management Act, 1999.
[Section 3(24)]
Claim means---
(a) A right to payment, whether or not such right is reduced to judgment, fixed,
disputed, undisputed, legal, equitable, secured or unsecured;
Claim
(b) Right to remedy for breach of contract under any law for the time being in
[Section 3(6)]
force, if such breach gives rise to a right to payment, whether or not such right
is reduced to judgment, fixed, matured, unmatured, disputed, undisputed,
secured or unsecured.
Creditor means any person to whom a debt is owed and includes a financial
Creditor
creditor, an operational creditor, a secured creditor, an unsecured creditor and
[Section 3(10)]
a decree-holder.
Financial debt" means a debt along with interest, if any, which is disbursed
against the consideration for the time value of money and includes--
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any acceptance credit facility or its
de-materialised equivalent;
(c) any amount raised pursuant to any note purchase facility or the issue of
bonds, notes, debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract
which is deemed as a finance or capital lease under the Indian Accounting
Standards or such other accounting standards as may be prescribed;
Financial debt (e) receivables sold or discounted other than any receivables sold on non-
[Section 5(8)] recourse basis;
(f) any amount raised under any other transaction, including any forward sale
or purchase agreement, having the commercial effect of a borrowing;
Explanation. -- For the purposes of this sub-clause,--
(i) any amount raised from an allottee under a real estate project shall be
deemed to be an amount having the commercial effect of a borrowing; and
(ii) the expressions, "allottee" and "real estate project" shall have the meanings
respectively assigned to them in clauses (d) and (zn) of section 2 of the Real
Estate (Regulation and Development) Act, 2016.
(g) any derivative transaction entered into in connection with protection against
or benefit from fluctuation in any rate or price and for calculating the value of

any derivative transaction, only the market value of such transaction shall be
taken into account;
(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond,
documentary letter of credit or any other instrument issued by a bank or
financial institution;
(i) the amount of any liability in respect of any of the guarantee or indemnity for
any of the items referred to in sub-clauses (a) to (h) of this clause
Operational debt means a claim in respect of the provision of goods or services
Operational debt including employment or a debt in respect of the payment of dues arising under
[Section 5(21)] any law for the time being in force and payable to the Central Government, any
State Government or any local authority.
Default means non-payment of debt when whole or any part or instalment of the
Default
amount of debt has become due and payable and is not paid by the debtor or the
[Section 3(12)]
corporate debtor, as the case may be.
Corporate applicant means-----
(a) Corporate debtor; or
(b) A member or partner of the corporate debtor who is authorised to make an
Corporate application for the corporate insolvency resolution process under the
applicant constitutional document of the corporate debtor; or
[Section 5(5)] (c) An individual who is in charge of managing the operations and resources of
the corporate debtor; or
(d) A person who has the control and supervision over the financial affairs of the
corporate debtor.
Corporate
Corporate guarantor means a corporate person who is the surety in a contract
guarantor
of guarantee to a corporate debtor.
[Section 5(5A)]
Financial creditor means any person to whom a financial debt is owed and
Financial Creditor
includes a person to whom such debt has been legally assigned or transferred
[Section 5(7)]
to.
Operational
Operational creditor means a person to whom an operational debt is owed and
Creditor
includes any person to whom such debt has been legally assigned or transferred.
[Section 5(20)]
Personal
Personal guarantor means an individual who is the surety in a contract of
guarantor
guarantee to a corporate debtor.
[Section 5(22)]
Adjudicating
Adjudicating Authority, for the purposes of this Part, means National Company
authority
Law Tribunal constituted under section 408 of the Companies Act, 2013.
[Section 5(1)]
Constitutional Constitutional document, in relation to a corporate person, includes articles of
document association, memorandum of association of a company and incorporation
[Section 5(4)] document of a Limited Liability Partnership.
Dispute includes a suit or arbitration proceedings relating to--
Dispute
(a) The existence of the amount of debt;
[Section 5(6)]
(b) The quality of goods or service; or

(c) The breach of a representation or warranty.

Financial position Financial position, in relation to any person, means the financial information of
[Section 5(9)] a person as on a certain date.
Information
Information memorandum means a memorandum prepared by resolution
memorandum
professional under sub-section (1) of section 29.
[Section 5(10)]
Insolvency commencement date means the date of admission of an application
for initiating corporate insolvency resolution process by the Adjudicating
Insolvency
Authority under sections 7, 9 or section 10, as the case may be;
commencement
Provided that where the interim resolution professional is not appointed in the
date
order admitting application under section 7, 9 or section 10, the insolvency
[Section 5(12)]
commencement date shall be the date on which such interim resolution
professional is appointed by the Adjudicating Authority.
Board Board means the Insolvency and Bankruptcy Board of India established under
[Section 3(1)] sub-section (1) of section 188.
Creditor means any person to whom a debt is owed and includes a financial
Creditor
creditor, an operational creditor, a secured creditor, an unsecured creditor and
[Section 3(10)]
a decree-holder.
Financial Service Financial service provider means a person engaged in the business of providing
Provider financial services in terms of authorisation issued or registration granted by a
[Section 3(17)] financial sector regulator.
Financial service includes any of the following services, namely:
(a) accepting of deposits;
(b) safeguarding and administering assets consisting of financial products,
belonging to another person, or agreeing to do so;
(c) effecting contracts of insurance;
(d) offering, managing or agreeing to manage assets consisting of financial
products belonging to another person;
(e) rendering or agreeing, for consideration, to render advice on or soliciting for
Financial Service the purposes of--
[Section 3(16)] i. Buying, selling, or subscribing to, a financial product;
ii. Availing a financial service; or
iii. Exercising any right associated with a financial product or financial
service;
(f) establishing or operating an investment scheme;
(g) maintaining or transferring records of ownership of a financial product;
(h) underwriting the issuance or subscription of a financial product; or
(i) Selling, providing, or issuing stored value or payment instruments or
providing payment services.
Financial sector regulator means an authority or body constituted under any law
for the time being in force to regulate services or transactions of financial sector
Financial Sector
and includes the Reserve Bank of India, the Securities and Exchange Board of
Regulator
India, the Insurance Regulatory and Development Authority of India, the
[Section 3(18)]
Pension Fund Regulatory Authority and such other regulatory authorities as
may be notified by the Central Government.

Insolvency Insolvency professional means a person enrolled under section 206 with an
Professional insolvency professional agency as its member and registered with the Board as
[Section 3(19)] an insolvency professional under section 207.
"Related party", in relation to a corporate debtor, means--
(a) a director or partner of the corporate debtor or a relative of a director or
partner of the corporate debtor;
(b) key managerial personnel of the corporate debtor or a relative of key
managerial personnel of the corporate debtor;
(c) a limited liability partnership or a partnership firm in which a director,
partner, or manager of the corporate debtor or his relative is a partner;
(d) a private company in which a director, partner or manager of the corporate
debtor is a director and holds along with his relatives, more than two per cent.
of its share capital;
(e) a public company in which a director, partner or manager of the corporate
debtor is a director and holds along with relatives, more than two per cent. of its
paid-up share capital;
(f) any body corporate whose board of directors, managing director or manager,
in the ordinary course of business, acts on the advice, directions or instructions
of a director, partner or manager of the corporate debtor;
(g) any limited liability partnership or a partnership firm whose partners or
employees in the ordinary course of business, acts on the advice, directions or
instructions of a director, partner or manager of the corporate debtor;
(h) any person on whose advice, directions or instructions, a director, partner
or manager of the corporate debtor is accustomed to act;
Related Party
(i) a body corporate which is a holding, subsidiary or an associate company of
[Section 5(24)]
the corporate debtor, or a subsidiary of a holding company to which the
corporate debtor is a subsidiary;
(j) any person who controls more than twenty per cent. of voting rights in the
corporate debtor on account of ownership or a voting agreement;
(k) any person in whom the corporate debtor controls more than twenty per
cent. of voting rights on account of ownership or a voting agreement;
(l) any person who can control the composition of the board of directors or
corresponding governing body of the corporate debtor;
(m) any person who is associated with the corporate debtor on account of--
(i) participation in policy making processes of the corporate debtor; or
(ii) having more than two directors in common between the corporate debtor
and such person; or
(iii) interchange of managerial personnel between the corporate debtor and
such person; or
(iv) provision of essential technical information to, or from, the corporate
debtor;
(24A) "related party", in relation to an individual, means--
(a) a person who is a relative of the individual or a relative of the spouse of the
individual;
(b) a partner of a limited liability partnership, or a limited liability partnership
or a partnership firm, in which the individual is a partner;

(c) a person who is a trustee of a trust in which the beneficiary of the trust
includes the individual, or the terms of the trust confers a power on the trustee
which may be exercised for the benefit of the individual;
(d) a private company in which the individual is a director and holds along with
his relatives, more than two per cent. of its share capital;
(e) a public company in which the individual is a director and holds along with
relatives, more than two per cent. of its paid-up share capital;
(f) a body corporate whose board of directors, managing director or manager, in
the ordinary course of business, acts on the advice, directions or instructions of
the individual;
(g) any limited liability partnership or a partnership firm whose partners or
employees in the ordinary course of business, act on the advice, directions or
instructions of the individual;
(h) a person on whose advice, directions or instructions, the individual is
accustomed to act;
(i) a company, where the individual or the individual along with its related party,
own more than fifty per cent. of the share capital of the company or controls the
appointment of the board of directors of the company.
Explanation.-- For the purposes of this clause,--
(a) "relative", with reference to any person, means anyone who is related to
another, in the following manner, namely:--
(i) members of a Hindu Undivided Family,
(ii) husband,
(iii) wife,
(iv) father,
(v) mother,
(vi) son,
(vii) daughter,
(viii) son's daughter and son,
(ix) daughters daughter and son,
(x) grandson's daughter and son,
(xi) granddaughters daughter and son,
(xii) brother,
(xiii) sister,
(xiv) brother's son and daughter,
(xv) sister's son and daughter,
(xvi) father's father and mother,
(xvii) mother's father and mother,
(xviii) father's brother and sister,
(xix) mother's brother and sister, and
(b) Wherever the relation is that of a son, daughter, sister or brother, their
spouses shall also be included.
Resolution Resolution applicant means a person, who individually or jointly with any other
applicant person, submits a resolution plan to the resolution professional pursuant to the
[Section 5(25)] invitation made under clause (h) of sub-section (2) of section 25.
Resolution plan Resolution plan means a plan proposed by resolution applicant for insolvency
[Section 5(26)] resolution of the corporate debtor as a going concern in accordance with Part II.

Explanation. -- For the removal of doubts, it is hereby clarified that a resolution

plan may include provisions for the restructuring of the corporate debtor,
including by way of merger, amalgamation and demerger.
Resolution Resolution professional, for the purposes of this Part, means an insolvency
professional professional appointed to conduct the corporate insolvency resolution process
[Section 5(27)] and includes an interim resolution professional.

APPENDIX TO THE DEFINITIONAL CLAUSES

(INTERPRETATIONS AND CASE LAWS)
Sl.no Term Definition Analysis

1 Creditor Section 3(10) reads as under: The Code of 2016 segregates creditors of a company into two broad categories of
Creditor means any person to whom a financial and operational creditor. The classification of a creditor of a company as
debt is owed and includes a financial secured, unsecured and statutory creditor stands to be replaced by financial or
creditor, an operational creditor, a operational creditor of a company in the initiation of an insolvency proceeding of a
secured creditor, an unsecured creditor Company under the Code of 2016. A creditor of a Company when involved in an
and a decree holder. insolvency proceeding of a company under the Code of 2016 does not lose the
character of being either a secured or unsecured or statutory creditor, of such
company as the case may be. However, in the insolvency proceedings, under the Code
of 2016, a creditor is also classified as a financial or an operational creditor to deal
with the insolvency proceeding of a company.
2 Debt Section 3 (11) defines the debt means  Debt gets invoked if and only if a claim is made.
a liability or obligation in respect of a  There must be a due.
claim which is due from any person and  Includes financial and operational debt.
includes a financial debt and
operational debt.
3 Claim Section 3(6) defines the claim means The term claim is associated with the ‘claim of any debt’ made
(a) a right to payment, whether or not Associated debt
by the creditors or claimants.
such right is reduced to judgment, Breaking up the The definition has 2 limbs, firstly a right to payment of any debt
fixed, disputed, undisputed, legal, term and secondly, a right to remedy for a breach of contract.
equitable, secured or unsecured; Right to Any enforceable obligation of the debtors to make the
(b) right to remedy for breach of payment payment.
contract under any law for the time Represents that the claim shall be made within the limitation
being in force, if such breach gives rise Enforceable
period.
to a right to payment, whether or not
Fixed claim is one where the creditor has right to payment of
such right is reduced to judgment, Fixed claim
specified amount.

fixed, matured, unmatured, disputed, In a legal claim, a plaintiff explains to the court how the
undisputed, secured or unsecured. defendant's actions cause him to suffer a loss. That loss could
have occurred in the past, or it may occur in the future.
Legal claim The goal in the legal claim is for the defendant to compensate
the plaintiff. If the plaintiff wins, the judge will order the
defendant to pay money to the plaintiff for loss or injury, also
known as "damages."
A plaintiff who seeks equitable relief is asking the court for an
injunction. An injunction is a court order compelling a party to
do or refrain from doing a specified act.
A court awards an injunction to prevent a future harmful action
Equitable claim
-- rather than to compensate for a past injury -- or to provide
relief from harm for which an award of money damages is not
a satisfactory solution or for which a monetary value is
impossible to calculate.
Remedy for Remedy may be exercised under any law and need not be under
breach of this law. Right entitles party to recover damages.
contract
Reason for Damages cannot be secured.
missing words
‘Secured or
Unsecured’
In insolvency proceedings a claim to payment of debt cannot be
Reason for made unless it has come to maturity and default has occurred
addition of new and therefore a question of unmatured doesn’t arise in case of
words ‘matured debt.
or unmatured’ However, damages can be claimed at any stage of breach.
Therefore, a question of unmatured may arise.
4 Case on claim Apex Court in the matter of Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. held that whereas a “claim” gives rise to
a “debt” only when it becomes “due”, a “default” occurs only when a “debt” becomes “due and payable” and is not paid by the
debtor. It is for this reason that a financial creditor has to prove “default” as opposed to an operational creditor who merely
“claims” a right to payment of a liability or obligation in respect of a debt which may be due. When this aspect is borne in mind,
the differentiation in the triggering of insolvency resolution process by financial creditors under Section 7 and by operational
creditors under Sections 8 and 9 of the Code becomes clear.
5 Person Person defines under Section 3 (23) of Creditor under this Act may be any person including a foreign creditor.
the Code includes: Case law:
(a) an individual; Hon’ble Supreme Court in the matter of Hindustan Construction Company Limited
(b) a Hindu Undivided Family; & Anr. Vs. Union of India & Ors. held that that the CIRP process can be initiated
(c) a company; against a government company by virtue of it being covered under the first part of
(d) a trust; ‘corporate person’ as provided in section 3(7) of the Code. The Court cleared that
(e) a partnership; NHPC, NTPC and IRCON, being PSUs are government companies as they are
(f) a limited liability partnership; and incorporated under the Companies Act, and they would be covered within the section
(g) any other entity established under a 3(7) of the Code. However, the Supreme Court also laid down that so far as the NHAI
statute, is concerned, referred to the Statement of Objects and Reasons of the National
and includes a person resident Highways Authority of India Act, 1988 and some sections of the said Act to show that
outside India. NHAI is a statutory body which functions as an extended limb of the Central
Government, and which is to carry out the sovereign function of laying down national
highways. The Insolvency Code cannot be used against such a statutory body, because
no resolution professional or private individual can take over the management of such
body, as it performs sovereign functions, nor can such body be driven to insolvency
under an Insolvency Code.
6 Financial Financial creditor defines under section  Financial creditor may be either secured or unsecured.
creditor 5 (7) means any person to whom a  That is a financial creditor is a person who has right to a financial debt including
financial debt is owed and includes a assignee. In order to understand the expression financial creditor, the
person to whom such debt has been requirements of expression financial debt have to be satisfied which is defined
legally assigned or transferred to. under Section 5 (8) of the IBC.
7 Financial Refer Section 5(8)  The opening words of the definition clause would indicate that a financial debt is
debt a debt along with interest which is disbursed against the consideration for the time
value of money and it may include any of the events enumerated in sub-clauses (a)
to (i).

 Therefore, the first essential requirement of financial debt has to be met, that the
debt is disbursed against the consideration for the time value of money and which
may include the events enumerated in various sub-clauses.
 The key feature of financial transaction as defined by section 5(8) is its
consideration for time value of money.
 It may also be a sum of money invested today to be repaid over a period of time in
a single or series of installments to be paid in future.
 It is significant to notice that in order to satisfy the requirement of this provision,
the financial transaction should be in the nature of debt and no equity has been
implied by the opening words of Section 5(8) of the IBC.
8 Home buyers  The above definition of ‘financial debt’ under section 5 (8) of the Code uses the word “includes”, thus the kinds of financial
– Case laws debts illustrated are not exhaustive as interpreted by NCLAT in case of B.V.S. Lakshmi v. Geometrix Laser Solutions
Private Limited.
 The phrase “disbursed against the consideration for the time value of money” has been the subject of interpretation only in
a handful of cases under the Code. The words “time value” have been interpreted to mean compensation or the price paid
for the length of time for which the money has been disbursed. This may be in the form of interest paid on the money as
elaborated by NCLAT in case of Nikhil Mehta and Sons (HUF) & Ors. Vs. AMR Infrastructure Ltd, or factoring of a discount
in the payment.
 Prior Amendment position: Explicitly nothing is said in the Act whether Home buyers shall be considered as financial or
operational creditors under the Code. Therefore, judiciary has a responsibility to judge the same and therefore following are
worth noting -----
 Nikhil Mehta v. AMR Infrastructure, NCLAT, New Delhi- If Developer has shown the amount taken from home buyer
under borrowing head and charged the interest thereon under Finance Cost in his Financial statements then that amount
is constituted as debt under IBC.
 Anil Mahindroo & Anr v. Earth Organics Infrastructure– Money disbursed by home buyer is against the consideration
for the time value of money and for all purpose, they come within the meaning of ‘Financial Creditor’ as defined in Section
5(7) of the ‘IBC’.
 Vinod Awasthy v. AMR Infrastructure Ltd., NCLT, Principal Bench, Delhi, CP No. (IB)-10(PB)/2017, Date of decision –
20 February, 2017- Home Buyer as neither fitting within the definition of ‘financial’ nor ‘operational’ creditors.
 Post Amendment position:

(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial
effect of a borrowing; [Existing provision as at amendment]
Explanation. -For the purposes of this sub-clause, - [Newly inserted]
(i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the
commercial effect of a borrowing; and
(ii) the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses
(d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016.
LEGISLATIVE INTENTION:
On a review of various financial terms of agreements between home buyers and builders and the manner of utilisation of the
disbursements made by home buyers to the builders, it is evident that the agreement is for disbursement of money by the
home buyer for the delivery of a building to be constructed in the future. The disbursement of money is made in relation to a
future asset, and the contracts usually span a period of 4-5 years or more. The amounts so raised are used as a means of
financing the real estate project, and are thus in effect a tool for raising finance, and on failure of the project, money is repaid
based on time value of money.
On a plain reading of section 5(8)(f), it is clear that it is a residuary entry to cover debt transactions not covered under any
other entry, and the essence of the entry is that “amount should have been raised under a transaction having the commercial
effect of a borrowing.” An example has been mentioned in the entry itself i.e. forward sale or purchase agreement.
Thus, not all forward sale or purchase are financial transactions, but if they are structured as a tool or means for raising
finance, there is no doubt that the amount raised may be classified as financial debt under section 5(8)(f). Drawing an analogy,
in the case of home buyers, the amounts raised under the contracts of home buyers are in effect for the purposes of raising
finance, and are a means of raising finance. Thus, the Committee deemed it prudent to clarify that such amounts raised under
a real estate project from a home buyer fall within entry (f) of section 5(8).
To conclude finally, the current definition of ‘financial debt’ is sufficient to include the amounts raised from home
buyers / allottees under a real estate project, and hence, they are to be treated as financial creditors under the Code.
However, given the confusion and multiple interpretations being taken, at this stage, it may be prudent to explicitly
clarify that such creditors fall within the definition of financial creditor, by inserting an explanation to section 5(8)(f)
of the Code.
9 Operational Operation creditors means as per  An operational creditor is a creditor whose claim arises out of a normal business
Creditor Section 5 (20) a person to whom an transaction that such creditor may have had with the legal entity. It would include
operational debt is owed and includes money receivable by an employee or a worker of the company as wages or salary.

any person to whom such debt has been It would also include a claim of a statutory authority on account of money
legally assigned or transferred. receivable pursuant to an imposition by a statute.
10 Operational The definition of the operation debt So, a trade payable, employee’s dues and dues payable to CG or SG under law are
Debt under Section 5 (21) covers following covered under the operation debt.
claim:
 Claim in respect of the provision of
goods or services
 Claim in respect of the provision
employment
 Debt in respect of the payment of
dues arising under any law for the
time being in force and payable to
the Central Government, any State
Government or any local authority.
11 Case laws A. On behalf of GST Department, can claims may be filed by the proper officer before the NCLT?
w.r.t. CBEC has clarified that in accordance with the provisions of the IBC and various legal pronouncements on the issue, no coercive
Operational action can be taken against the corporate debtor with respect to the dues for period prior to insolvency commencement date.
debt and The dues of the period prior to the commencement of CIRP will be treated as ‘operational debt’ and claims may be filed by the
creditor proper officer before the NCLT in accordance with the provisions of the IBC. The tax officers shall seek the details of supplies
made / received and total tax dues pending from the corporate debtor to file the claim before the NCLT. Moreover, section 14
of the IBC mandates the imposition of a moratorium period, wherein the institution of suits or continuation of pending suits or
proceedings against the corporate debtor is prohibited.
B. Whether a trade union could be said to be an operational creditor?
Supreme Court in the matter of JK Jute Mill Mazdoor Morcha Vs. Juggilal Kamlapat Jute Mills Company Ltd through Its
Director & Ors. held that the trade union represents its members who are workers, to whom dues may be owed by the employer,
which are certainly debts owed for services rendered by each individual workman, who are collectively represented by the
trade union. Equally, to state that for each workman there will be a separate cause of action, a separate claim, and a separate
date of default would ignore the fact that a joint petition could be filed under Rule 6 read with Form 5 of the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016, with authority from several workmen to one of them to file
such petition on behalf of all.

C. Whether the recovery of arrears of rent can be claimed as operational debt within the meaning of section 3(11) of
the Code?
An important question as to whether the transaction of lease of immovable property can be brought within the definition of
“Operational Debt” and landlord/lessor can be categorized as an “Operational Creditor” for the purpose of the Code.
NCLT, Kolkata Bench in the matter of Sarla Tantia V/s Nadia Health Care (P) Ltd. [CP(IB) No. 108/KB/2018 and CA(IB) No.
119/KB/2018, dated 05.10.2018] held that receiving any consideration by way of rent, lease from time to time, license fees for
letting out the premises would fall under the purview of providing services and the consideration that is receivable becomes
operational debt.
Court language is as follows:
In view of this, it has to be held that, “letting out premises on rent is nothing but providing the services. Section 5(21) of
the IB Code defines the operational debt as a claim in respect of the provision of goods or services including
employment or a debt in respect of the repayment of dues arising under the law for the time being in force and payable
to the Central Government, any State Government or any local authority.” Hence, receiving any consideration by way
of rent, lease from time to time, license fees for letting out the premises would fall under the purview of providing
services and the consideration that is receivable becomes operational debt. In view of these facts on record, I hold that
recovery of arrears of rent is operational debt within the meaning of section 5(21) of the Code.”
Contrary View:
However, NCLT in the matter of Mrs. Pramod Yadav Vs. M/s. Divine Infracon Pvt. ltd.-No. IB-209/ND/2017 dated 28.09.2017
held that in relation to immovable property the same cannot be considered as a transaction falling under the term ‘operation’
and ‘operational debt’ unless such a transaction having a correlation of direct input to the output produced or supplied by the
corporate debtor.
NCLAT in the matter of Jindal Steel & Power Ltd. Vs. DCM International Ltd. also held that the Appellant being a tenant,
having not made any claim in respect of the provisions of the goods or services and the debt in respect of the repayment of dues
does not arise under any law for the time being in force payable to the Central Government or State Government, we hold that
the Appellant tenant do not come within the meaning of ‘Operational Creditor’ as defined under sub-section (20) read with sub-
Section (21) of Section 5 of the Code for triggering Insolvency and Bankruptcy Process under Section 9 of the Code.
12 Corporate As per Section 3(8), Corporate Debtor  Corporate debtor means a corporate person.
Debtor means a corporate person who owes a  For whom corporate debtor is owed is not a corporate person, it may be a person
debt to any person. of any category.
13 Corporate Corporate person means a company as So, as per sub-section 7 of the Section 3, the corporate persons mean:
Person defined in clause (20) of section 2 of the  Company
Companies Act, 2013, a limited liability  LLP

partnership, as defined in clause (n) of  Any other persons incorporated with limited liability under any law.
sub-section (1) of section 2 of the BUT not included Financial Service provider.
Limited Liability Partnership Act, 2008, That is a financial creditor and an operational creditor cannot file application for
or any other person incorporated with initiation of CIRP against the financial service provider and financial service provider
limited liability under any law for the also cannot file application against himself.
time being in force but shall not include
any financial service provider
14 Financial  The Code is applicable to all entities other than those which are specifically engaged in business of providing financial
Service services listed in Section 3(16). Reliance has been placed on the definition of the financial service provider covered under
providers Section 3(17) to suggest that it must be engaged in the business of providing financial service.
and related  As per Sec. 3(17), financial service provider means a person engaged in the business of providing financial services in terms
concepts of authorisation issued or registration granted by a financial sector regulator.
Note-1: Financial sector regulator means an authority or body constituted under any law for the time being in force to regulate
services or transactions of financial sector and includes the Reserve Bank of India, the Securities and Exchange Board of India,
the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory Authority and such other
regulatory authorities as may be notified by the Central Government;
Note-2: Financial products means securities, contracts of insurance, deposits, credit arrangements including loans and
advances by banks and financial institutions, retirement benefit plans, small savings instruments, foreign currency contracts
other than contracts to exchange one currency (whether Indian or not) for another which are to be settled immediately, or any
other instrument as may be prescribed.
So, in general terms, we can say that following persons are not included in the definition of the Corporate Debtors:
1. Bank
2. Financial institutes
3. Asset Reconstruction Company
4. Mutual Funds
5. Insurance Companies
6. Collective Investment
7. Pension Funds
Subject to they are regulated by:
RBI

SEBI
IRDAI
PFRA
any other as notified by the Central Government.
15 Case laws on  In the matter of Randhiraj Thakur, Director, Mayfair Capital Private Limited Vs. M/s. Jindal Saxena Financial Services
FSPs Private Limited wherein NCLAT held that the application filed by financial creditor under Section 7 of the I&B Code is not
maintainable against the company which has been granted a certificate of Registration under the Reserve Bank of India Act,
1934 giving status of a “Non-Banking Financial Institution.
 The definition of “financial service” if read with definition of “financial service provider”, it is clear that it is not necessary
that the “financial service providers” must accept the deposits. The definition of ‘financial services’ as defined in Section
3(16) of the Code is not limited to the 9 activities as shown at Clause (a) to (i) of Section 3(16). The aforesaid Clauses (a) to
(i) are inclusive which means there are other services means there are other services which come within the meaning of
“financial services”. (Housing Development Finance Corporation Ltd Vs. RHC Holding Private Ltd-NCLAT).
CONCLUSION:
A financial creditor or an operational creditor cannot file application for initiating CIRP against financial service provider even
if they maybe corporate entities because these are not corporate debtors under the Insolvency and Bankruptcy Code, 2016. A
Financial Service provider can file application to initiate CIRP against any corporate debtor, if the corporate debtor commits
defaults. However, if a bank takes loan from the another (bank) or from any financial service provider, the debt taker bank
cannot file application for initiating CIRP against other bank(or against financial service provider) as debt owned bank is out of
purview of the Code as a financial service provider as discussed in the this article.
16 Corporate or Background:
Personal By a notification dated 15.11.2019, the Central Government via Ministry of Corporate Affairs has brought onto effect Part III of
guarantor the Insolvency and Bankruptcy Code (except with regard to fresh start process) dealing with Insolvency and Bankruptcy of
Individual and Partnership Firms in so far as it is applicable to Personal Guarantors of Corporate Debtors and Corporate
Guarantors. This was brought into effect from 1st of December 2019.
This notification shall apply to personal guarantors to Corporate Debtors. Subsequently, it has proposed that separate set of
rules and regulations for three different classes of non-corporate persons and its implementation.
Thus, two sets of regulations were released by Central government under this notification, the Insolvency and Bankruptcy
(Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules,

2019 and the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal
Guarantors to Corporate Guarantors) Rules, 2019.
Guarantor defined:
According to Section 5(22) of Insolvency and Bankruptcy Code 2016 “personal guarantor” means an individual who is the
surety in a contract of guarantee to a corporate debtor.
According to Rule 3(e) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency
Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 defines as: “Guarantor means a debtor
who is a personal guarantor to a corporate debtor and in respect of whom the guarantee has been invoked by the creditor and
remains unpaid in part or full”
According to Section 126 of the Contracts Act 1870: A ‘contract of guarantee’ is a contract to perform the promise, or
discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the ‘surety’; the
person in respect of whose default the guarantee is given is called the ‘principal debtor’, and the person to whom the guarantee
is given is called the ‘creditor’.
Explanation:
A contract of guarantee is between the creditor, the principal debtor and the surety, where under the creditor has a remedy in
relation to his debt against both the principal debtor and the surety. The surety here may be a corporate or a natural person
and the liability of such person goes as far the liability of the principal debtor. As per section 128 of the Indian Contract Act,
1872, the liability of the surety is co-extensive with that of the principal debtor and the creditor may go against either the
principal debtor, or the surety, or both, in no particular sequence. Though this may be limited by the terms of the contract of
guarantee, the general principle of such contracts is that the liability of the principal debtor and the surety is co-extensive and
is joint and several.
Judicial pronouncements:
Following question have been answered by NCLAT in the matter Dr. Vishnu Kumar Agarwal Vs. M/s. Piramal Enterprises
Ltd.
Whether the Corporate Insolvency Resolution Process can be initiated against two Corporate Guarantors simultaneously for the
same set of debt and default? The question can be looked from another angle. Whether the Financial Creditor can claim same
amount from the Resolution Professional appointed pursuant to the CIRP against the Corporate Guarantor No.1, as also from
the Resolution Professional appointed pursuant to CIRP initiated Corporate Guarantor No.2?
Judgment:

There is no bar in the ‘I&B Code’ for filing simultaneously two applications under Section 7 against the ‘Principal Borrower’ as
well as the ‘Corporate Guarantor(s)’ or against both the ‘Guarantors’. However, once for same set of claim application under
Section 7 filed by the ‘Financial Creditor’ is admitted against one of the ‘Corporate Debtor’ (‘Principal Borrower’ or ‘Corporate
Guarantor(s)’), second application by the same ‘Financial Creditor’ for same set of claim and default cannot be admitted against
the other ‘Corporate Debtor’ (the ‘Corporate Guarantor(s)’ or the ‘Principal Borrower’). Further, though there is a provision to
file joint application under Section 7 by the ‘Financial Creditors’, no application can be filed by the ‘Financial Creditor’ against
two or more ‘Corporate Debtors’ on the ground of joint liability (‘Principal Borrower’ and one Corporate Guarantor’, or
‘Principal Borrower’ or two ‘Corporate Guarantors’ or one ‘Corporate Guarantor’ and other ‘Corporate Guarantor’), till it is
shown that the ‘Corporate Debtors’ combinedly are joint venture company.

PART II – INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATE

PERSONS
12. APPLICATION OF THIS PART [SECTION 4]
This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors
where the minimum amount of the default is one lakh rupees.
Provided that the Central Government may, by notification, specify the minimum amount of
default of higher value which shall not be more than one crore rupees.
Particulars Details
 Part II shall apply to matters relating to -----
 Insolvency of Corporate Debtors and
Applicability of Part II
 Liquidation of Corporate Debtors.
[Section 4]
 This Part shall apply only if the minimum amount of the default is ₹
1,00,00,000.
13. DEFINITIONS APPLICABLE TO PART II – ALREADY COVERED IN TOPIC 3 ABOVE
CORPORATE INSOLVENCY RESOLUTION PROCESS

14. PERSONS WHO MAY INITIATE CORPORATE INSOLVENCY RESOLUTION
PROCESS [SECTION 6]
Where any corporate debtor commits a default, a financial creditor, an operational creditor or
the corporate debtor itself may initiate corporate insolvency resolution process in respect of
such corporate debtor in the manner as provided under this Chapter.
Particulars Details
 Financial Creditor
Who may initiate corporate
 Operational Creditor
insolvency resolution process?
 Corporate debtor itself.
Event of making application Default committed by Corporate Debtor.
15. INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS BY

FINANCIAL CREDITOR [SECTION 7]
(1) A financial creditor either by itself or jointly with other financial creditors, or any other
person on behalf of the financial creditor, as may be notified by the Central Government may
file an application for initiating corporate insolvency resolution process against a corporate
debtor before the Adjudicating Authority when a default has occurred.
Explanation. - For the purposes of this sub-section, a default includes a default in respect of a
financial debt owed not only to the applicant financial creditor but to any other financial
creditor of the corporate debtor.
Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6A)
of section 21, an application for initiation corporate insolvency resolution process against the
corporate debtor shall be filed jointly by not less than one hundred of such creditors in the
same class or not less than ten per cent. of the total number of such creditors in the same class,
whichever is less:

Provided further that for financial creditors who are allottees under a real estate project, an
application for initiating corporate insolvency resolution process against the corporate
debtor shall be filed jointly by not less than one hundred of such allottees under the same real
estate project or not less than ten per cent. of the total number of such allottees under the
same real estate project, whichever is less:
Provided also that where an application for initiating the corporate insolvency resolution
process against a corporate debtor has been filed by a financial creditor referred to in the first
or second provisos and has not been admitted by the Adjudicating Authority before the
commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such
application shall be modified to comply with the requirements of the first or second provisos
as the case may be within thirty days of the commencement of the said Act, failing which the
application shall be deemed to be withdrawn before its admission. [Inserted by the
Amendment Act w.e.f. 28 – 12 – 2019]
(2) The financial creditor shall make an application under sub-section (1) in such form and
manner and accompanied with such fee as may be prescribed.
(3) The financial creditor shall, along with the application furnish -
(a) record of the default recorded with the information utility or such other record or evidence
of default as may be specified;
(b)the name of the resolution professional proposed to act as an interim resolution
professional; and
(c) any other information as may be specified by the Board.
(4) The Adjudicating Authority shall, within fourteen days of the receipt of the application
under sub-section (2), ascertain the existence of a default from the records of an information
utility or on the basis of other evidence furnished by the financial creditor under sub-section
(3).
Provided that if the Adjudicating Authority has not ascertained the existence of default and
passed an order under sub-section (5) within such time, it shall record its reasons in writing
for the same.
(5) Where the Adjudicating Authority is satisfied that –
(a) a default has occurred and the application under sub-section (2) is complete, and there is
no disciplinary proceedings pending against the proposed resolution professional, it may, by
order, admit such application; or
(b) default has not occurred or the application under sub-section (2) is incomplete or any
disciplinary proceeding is pending against the proposed resolution professional, it may, by
order, reject such application:
Provided that the Adjudicating Authority shall, before rejecting the application under clause
(b) of sub-section (5), give a notice to the applicant to rectify the defect in his application
within seven days of receipt of such notice from the Adjudicating Authority.
(6) The corporate insolvency resolution process shall commence from the date of admission
of the application under sub-section (5).
(7) The Adjudicating Authority shall communicate-
(a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate
debtor;
(b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of
admission or rejection of such application, as the case may be.
Particulars Details

Who can make an  A financial creditor either by itself or

application?  A financial creditor jointly with other financial creditors or
[Section 7(1)]  Any other person on behalf of the financial creditor.
Application to whom?
Application shall be made to an Adjudicating Authority.
[Section 7(1)]
Who shall be protected
A default includes a default in respect of a financial debt owed not only to
on application made?
the applicant financial creditor but to any other financial creditor of the
[Explanation below
corporate debtor.
Section 7(1)]
 Applicant being financial creditors referred u/s
21(6A)(a) and (b).
 Application shall be filed jointly by-----
Case – 1  Not less than 100 creditors in the same class or
 Not less than 10% of total number of creditors in
same class
Requisite strength in
[Whichever is less]
special cases
 Applicant being financial creditors who are allottees
[1 Proviso and 2nd
st
under a real estate project.
Proviso to Section 7(1)]
 Application shall be filed jointly by-----
 Not less than 100 allottees in the same real estate
Case – 2
project or
 Not less than 10% of total number of allottees in
same real estate project.
[Whichever is less]
 Application for initiating CIRP against a corporate debtor has been
filed by a financial creditor as referred in case 1 and case 2.
Option to modify the  Such application has not been admitted by the Adjudicating Authority
application already made before the commencement of the Insolvency and Bankruptcy Code
in certain cases (Amendment) Act, 2020.
[3rd Proviso to section  Such application shall be modified to comply with the requirements
7(1)] of the first or second provisos as the case may be within thirty days
of the commencement of the said Act, failing which the application
shall be deemed to be withdrawn before its admission.
Mode of making
application
Application shall be made in Form – 1.
[Section 7(2) read with
Rule 4(1)]
Attachments to the  Record of default.
application  Name of Resolution professional proposed to act as an interim
[Section 7(3)] resolution professional.
Primary duty of NCLT on
Adjudicating authority shall within 14 days of the receipt of the
receipt of application?
application ascertain the existence of a default.
[Section 7(4)]

AA to specify reasons in
 AA has not ascertained the existence of default.
writing in certain cases
 However, passed an order under sub-section (5).
[Proviso to Section
 In such a case, it shall record its reasons in writing for the same.
7(4)]
 Default has occurred.
Conditions for admission
 The application is complete.
of application
 No disciplinary proceedings pending against the proposed resolution
[Section 7(5)(a)]
professional.
 Default hasn’t occurred.
Conditions for admission
 The application is incomplete.
of application
 Disciplinary proceedings pending against the proposed resolution
[Section 7(5)(b)]
professional.
Procedure before
Adjudicating Authority shall, before rejecting the application, give a
rejection
notice to the applicant to rectify the defect in his application within 7
[Proviso to Section
days of receipt of such notice from the Adjudicating Authority.
7(5)]
Commencement of CIRP The corporate insolvency resolution process shall commence from the
[Section 7(6)] date of admission of the application.
Communicate to financial creditor and
Communication by the In case of admission corporate debtor within 7 days of admission
AA of such application.
Section 7(7)(b)] Communicate to financial creditor within 7
In case of rejection
days of rejection of such application.

APPENDIX TO THE SECTION 7
Particulars Details
Meaning of the term “Any other Following persons has been notified who may file an application for initiating CIRP on behalf of the financial creditor:
person on behalf of the financial –
creditor, as may be notified by (i) a guardian;
the Central Government.” (ii) an executor or administrator of an estate of a financial creditor;
(iii) a trustee (including a debenture trustee); and
(iv) a person duly authorised by the Board of Directors of a Company.
Application made by advocate - Hon’ble Supreme Court in the matter of Sunrise Denmark Vs. Ravi Mahajan 61(IBC)01/2018 held that petition
maintainable? filed by an advocate would be maintainable.
Can POA holder file application NCLAT in the matter of Palogix Infrastructure Private Limited Vs. ICICI Bank Limited held that a Power of
under section 7 or 9 or 10? Attorney holder cannot file any application u/s 7 or Sec. 9 or Sec. 10 of Code.
Is time limit provided to AA for Hon’ble Supreme Court in Surendra Trading Company Vs. Juggilal Kamlapat Jute Mills Company Ltd. & Others
acceptance or rejection is 57(IBC)03/2017 held that the time limit prescribed in IBC, 2016 for admitting or rejecting a petition or initiation of
directory or mandatory? CIRP under proviso to sub-sec. (5) of Sec. 9, is directory. The same view has been taken by NCLAT under section 7 in
the matter of Techno Electric & Engineering Co. Ltd. Vs. McLeod Russel India Ltd. 161(IBC)126/2020.
Can fresh application u/s 7 be If the earlier application u/s 7 was dismissed for non-prosecution due to absence of the counsel for the Respondent
made if an earlier application (Financial Creditor), it was always open to the Respondent to file fresh application u/s 7-Venus Sugar Ltd. Vs. SASF
u/s 7 is filed and dismissed? 02(IBC)02/2020 -NCLAT.
Will AA considers money claims The AA under the Code is not a Court of Law & it does not decide money claim or Suit, it can only admit or reject the
and other suits? application filed under IBC – Hardeep Singh Sawhney Vs. Sawhney Builders Pvt. Ltd. – NCLAT.
Is AA a civil court under this The Adjudicating Authority is not a Civil Court to decide the breach of the contract between the parties – M/s
Act? Saregama India Limited Vs. M/s Home Movie Makers Private Limited – NCLAT.
In appropriate Corporate If any Corporate Guarantee is given against the provisions of the Companies Act, it is not open to any Shareholder,
guarantee – validity? Director or MD to raise such issue in petition u/s 7 of the Code– Padmaiah Vuppu Vs. Reliance Capital AIF Trustee
Company Pvt. Ltd. & Ors – NCLAT.
Non – disposal of application by If application is not disposed off by AA within one year & AA has been allowed for adjournment again and again,
NCLT – Remedy available? appellant can approach NCLAT & NCLAT can direct to AA for pass such order in such time – State Bank of India Vs.
Sri Lakshmikantha Spinners Ltd – NCLAT.

Joint application against two Facts of the case The ‘Financial Creditor’- (‘M/s. Piramal Enterprises Ltd.’) has claimed that it was owed
Corporate guarantors for very financial debt of Rs. 40,28,76,461/- from ‘Sunsystem Institute of Information Technology Pvt.
same claim – Permissible? Ltd.’- (“Corporate Guarantor No.2”), which means that the ‘Financial Creditor’ was owed debt
which is disbursed against the time value of money. Once such claim is made by the same very
‘Financial Creditor’- (‘M/s. Piramal Enterprises Ltd.’) against one of the ‘Corporate
Debtor’ (‘Corporate Guarantor No.2’) in respect of same financial debt for
triggering ‘Corporate Insolvency Resolution Process’ and such application is admitted (on
24th May, 2018), the question arises as to whether for same very claim and for same very
default, the application under Section 7 against the other ‘Corporate Debtor’- (‘Corporate
Guarantor No.1’)— ‘Sunrise Naturopathy and Resorts Pvt. Ltd.’ can be initiated?
In the present case, the Adjudicating Authority has accepted that there is a debt payable in law
by ‘Sunsystem Institute of Information Technology Pvt. Ltd.’- (“Corporate Guarantor No.2”)
and admitted the application on 24th May, 2018. The moment it is admitted, it is open to the
other ‘Corporate Guarantor No.1’ namely— ‘Sunrise Naturopathy and Resorts Pvt. Ltd.’ to say
that the debt in question is not due as it is not payable in law, having shown the same debt
payable by the ‘Corporate Guarantor No.2’ in its Form-1, and ‘Corporate Insolvency
Resolution Process’ having already been initiated against the ‘Corporate Guarantor No. 2’.
Question before Whether the Corporate Insolvency Resolution Process can be initiated against two Corporate
the judiciary Guarantors simultaneously for the same set of debt and default? The question can be looked
from another angle. Whether the Financial Creditor can claim same amount from the
Resolution Professional appointed pursuant to the CIRP against the Corporate Guarantor No.1,
as also from the Resolution Professional appointed pursuant to CIRP initiated Corporate
Guarantor No.2?
Brief about the There is no bar in the ‘I&B Code’ for filing simultaneously two applications under Section 7
judgment against the ‘Principal Borrower’ as well as the ‘Corporate Guarantor(s)’ or against both the
[NCLAT] ‘Guarantors’. However, once for same set of claim application under Section 7 filed by the
‘Financial Creditor’ is admitted against one of the ‘Corporate Debtor’ (‘Principal Borrower’ or
‘Corporate Guarantor(s)’), second application by the same ‘Financial Creditor’ for same set of
claim and default cannot be admitted against the other ‘Corporate Debtor’ (the ‘Corporate
Guarantor(s)’ or the ‘Principal Borrower’). Further, though there is a provision to file joint
application under Section 7 by the ‘Financial Creditors’, no application can be filed by the

‘Financial Creditor’ against two or more ‘Corporate Debtors’ on the ground of joint liability
(‘Principal Borrower’ and one Corporate Guarantor’, or ‘Principal Borrower’ or two ‘Corporate
Guarantors’ or one ‘Corporate Guarantor’ and other ‘Corporate Guarantor’), till it is shown that
the ‘Corporate Debtors’ combinedly are joint venture company.

16. INSOLVENCY RESOLUTION BY OPERATIONAL CREDITOR [SECTION 8]

(1) An operational creditor may, on the occurrence of a default, deliver a demand notice of
unpaid operational debtor copy of an invoice demanding payment of the amount involved in
the default to the corporate debtor in such form and manner as may be prescribed.
(2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice
or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational
creditor
(a) existence of a dispute, if any, or record of the pendency of the suit or arbitration proceedings
filed before the receipt of such notice or invoice in relation to such dispute;
(b) the payment of unpaid operational debt
(i) by sending an attested copy of the record of electronic transfer of the unpaid amount from
the bank account of the corporate debtor; or
(ii) by sending an attested copy of record that the operational creditor has encashed a cheque
issued by the corporate debtor.
Explanation. --For the purposes of this section, a "demand notice" means a notice served by an
operational creditor to the corporate debtor demanding payment of the operational debt in
respect of which the default has occurred.
Particulars Details
Right with whom?
Right under this section vests with Operational creditor.
[Section 8(1)]
When can he enforce
his rights? Rights under this section shall be enforced upon occurrence of a default.
[Section 8(1)]
Deliver a demand notice (Form 3) of unpaid operational debtor copy of an
invoice (Form 4) demanding payment of the amount involved in the default
Mode of enforcing to the corporate debtor.
rights "Demand notice" means a notice served by an operational creditor to the
[Section 8(1)] corporate debtor demanding payment of the operational debt in respect of which
the default has occurred.”
The corporate debtor shall bring to the notice of the operational creditor
within a period of 10 days of the receipt of the demand notice or copy of the
invoice any of the following -----
 Existence of dispute if any or
 Record of the pendency of the suit or
No Payment since
Obligation of the arbitration proceedings filed before the receipt
Corporate debtor of such notice or invoice
[Section 8(2)] Prove by sending the proof of payment -----
Send an attested copy of e –
E – Payment
Payment made transfer.
already Send an attested copy record
Cheque and
that the operational creditor
others
has encashed a cheque issued

17. APPLICATION FOR INITIATION OF CORPORATE INSOLVENCY PROCESS BY

OPERATIONAL CREDITOR [SECTION 9]
(1) After the expiry of the period of ten days from the date of delivery of the notice or invoice
demanding payment under sub-section (1) of section 8, if the operational creditor does not
receive payment from the corporate debtor or notice of the dispute under sub-section (2) of
section 8, the operational creditor may file an application before the Adjudicating Authority for
initiating a corporate insolvency resolution process.
(2) The application under sub-section (1) shall be filed in such form and manner and
accompanied with such fee as may be prescribed.
(3) The operational creditor shall, along with the application furnish--
(a) a copy of the invoice demanding payment or demand notice delivered by the operational
creditor to the corporate debtor;
(b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a
dispute of the unpaid operational debt;
(c) a copy of the certificate from the financial institutions maintaining accounts of the
operational creditor confirming that there is no payment of an unpaid operational debt by the
corporate debtor; if available;
(d) a copy of any record with information utility confirming that there is no payment of an
unpaid operational debt by the corporate debtor, if available; and
(e) any other proof confirming that there is no payment of an unpaid operational debt by the
corporate debtor or such other information, as may be prescribed.
(4) An operational creditor initiating a corporate insolvency resolution process under this
section, may propose a resolution professional to act as an interim resolution professional.
(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application
under sub-section (2), by an order
(i) admit the application and communicate such decision to the operational creditor and the
corporate debtor if, --
(a) the application made under sub-section (2) is complete;
(b) there is no payment of the unpaid operational debt;
(c) the invoice or notice for payment to the corporate debtor has been delivered by the
operational creditor;
(d) no notice of dispute has been received by the operational creditor or there is no record of
dispute in the information utility; and
(e) there is no disciplinary proceeding pending against any resolution professional proposed
under sub-section (4), if any;
(ii) reject the application and communicate such decision to the operational creditor and the
corporate debtor, if--
(a) the application made under sub-section (2) is incomplete;
(b) there has been payment of the unpaid operational debt;
(c) the creditor has not delivered the invoice or notice for payment to the corporate debtor;
(d) notice of dispute has been received by the operational creditor or there is a record of
dispute in the information utility; or
(e) any disciplinary proceeding is pending against any proposed resolution professional:
Provided that Adjudicating Authority, shall before rejecting an application under sub-clause
(a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven
days of the date of receipt of such notice from the Adjudicating Authority.
(6) The corporate insolvency resolution process shall commence from the date of admission of
the application under sub-section (5) of this section.

Particulars Details
 Section 9 gets initiated on expiry of period of 10 days from date of
delivery of the demand notice under section 8(1) and on satisfaction of 2
When section gets basic conditions-----
attracted?  Operational creditor doesn’t receive payment from the corporate
[Section 9] creditor.
 Operational creditor doesn’t receive notice of dispute under section
8(2).
Right of operational
The operational creditor may file an application before the Adjudicating
creditor
Authority for initiating a corporate insolvency resolution process.
[Section 9(1)]
Mode of making
 An operational creditor, shall make an application for initiating the
application
corporate insolvency resolution process against a corporate debtor
[Section 9(2) read
under section 9 of the Code in Form 5, accompanied with documents and
with Rule 6 of
records required therein and as specified in the Insolvency and
Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate
Bankruptcy
Persons) Regulations, 2016.
(Application to
 The applicant under sub-rule (1) shall dispatch forthwith, a copy of the
Adjudicating
application filed with the Adjudicating Authority, by registered post or
Authority) Rules,
speed post to the registered office of the corporate debtor.
2016. ]
 Copy of demand notice served on corporate debtor.
 An affidavit that no notice of dispute is given by corporate debtor.
 A copy of the certificate from the financial institutions maintaining
Attachments to the accounts of the operational creditor confirming that there is no payment
application of an unpaid operational debt by the corporate debtor; if available.
[Section 9(3)(a) to  A copy of any record with information utility confirming that there is
(e)] no payment of an unpaid operational debt by the corporate debtor, if
available.
 Any other proof confirming that there is no payment of an unpaid
operational debt by the corporate debtor.
Option to propose
An operational creditor initiating a corporate insolvency resolution process
name of resolution
under this section, may propose a resolution professional to act as an interim
professional
resolution professional.
[Section 9(4)]
 Application is complete.
 No payment of the unpaid operational debt.
Grounds of admission
 Demand notice for payment to the corporate debtor has been delivered
[Section 9(5)(i)(a)
by the operational creditor.
to Section
 No notice of dispute has been received by the operational creditor.
9(5)(i)(e)]
 There is no disciplinary proceeding pending against any resolution
professional proposed if any.
 Application is incomplete.
Grounds of rejection
 Payment of the unpaid operational debt has been made.

[Section 9(5)(ii)(a)  No demand notice for payment to the corporate debtor has been
to Section delivered by the operational creditor.
9(5)(ii)(e)]  Notice of dispute has been received by the operational creditor.
 There is any disciplinary proceeding pending against any resolution
professional proposed if any.
Opportunity before
Adjudicating Authority, shall before rejecting an application give a notice to
rejection
the applicant to rectify the defect in his application within 7 days of the date
[Proviso to Section
of receipt of such notice.
9(5)]
Date of
commencement of The corporate insolvency resolution process shall commence from the date
CIRP of admission of the application.
[Section 9(6)]

APPENDIX TO THE SECTION 8 AND 9
Particulars Details
Notice to corporate debtor for A demand notice means a notice served by an operational creditor to the corporate debtor demanding payment of
the dues of sister concern – the operational debt in respect of which the default has occurred. NCLAT held that demand notice issued u/s 8 of the
valid notice? Code, against the corporate debtor, for the dues of sister concern/group company, cannot be treated as a valid notice-
Anil Syal Vs. Sanjeev Kapoor (Proprietor Kapoor Logistics) & Anr.
Notice sent by the lawyer – Hon’ble Supreme Court in the matter of Macquarie Bank Limited Vs. Shilpi Cable Technologies Ltd.
Maintainable? 60(IBC)06/2017 held that a conjoint reading of Section 30 of the Advocates Act and Sections 8 and 9 of the Code
together with the Adjudicatory Authority Rules and Forms thereunder would yield the result that a notice sent on
behalf of an operational creditor by a lawyer would be in order.
Can Form 3 and Form 4 be NCLAT in the matter of M/s Flipkart India Private Limited 132(IBC)98/2020 held that the choice of issuance of
filed at the discretion? demand notice u/s 8(1) of the Code, either in Form 3 or Form 4, under the Application to Adjudicating Authority
Rules 2016, depends on the nature of Operational Debt. Section 8(1) does not provide the Operational Creditor, with
the discretion to send the demand notice either Form 3 or Form 4, as per its convenience. The applicability of Form
3 or Form 4 depends on whether the invoices were generated during the course of transaction or not. It is also made
clear that the copy of the invoice is not mandatory if the demand notice is issued in Form 3 of the Application to
Adjudicating Authority Rules 2016 provided the documents to prove the existence of operational debt and the
amount in default is attached with the application.
Nature of ‘Existence of Existence of the dispute and/or the suit or arbitration proceeding must be pre-existing (it must exist before the
dispute’ receipt of the demand notice or invoice) u/s 8– Ahluwalia Contracts (India) Limited Vs. Raheja Developers
Limited – NCLAT
When IBC cannot be invoked IBC is not intended to be substitute to a recovery forum & whenever there is existence of real dispute, the IBC
w.r.t. section 8 provisions cannot be invoked-Transmission Corporation of Andhra Pradesh Ltd. Vs. Equipment Conductors &
Cables Ltd.- Supreme Court.
Lease of immovable property Lease of immovable property cannot be considered as a supply of goods or rendering of any services and thus, cannot
– invokes section 8? fall within the definition of Operational Debt-Mr. M. Ravindranath Reddy Vs. Mr G. Kishan & Ors.-NCLAT
Jurisdiction to decide the Jurisdiction to decide whether the application u/s 9 is time barred by limitation or not, it is within the domain of the
limitation period with whom? Adjudicating Authority and not NCLAT-State Bank of India vs Sical Logistics Ltd.-NCLAT

Intention to make an Application u/s 9 with malicious intent (to realise only Interest) for any purpose other than for the Resolution of
application not to be Insolvency, or Liquidation of the Corporate Debtor is barred in view of Sec. 65 of the Code-S.S. Polymers Vs. Kanodia
malicious Technoplast Limited-NCLAT
AA not a civil court The Adjudicating Authority is not a Civil Court to decide the breach of the contract between the parties – M/s
Saregama India Limited Vs. M/s Home Movie Makers Private Limited – NCLAT.

18. INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS BY

CORPORATE APPLICANT [SECTION 10]
(1) Where a corporate debtor has committed a default, a corporate applicant thereof may file
an application for initiating corporate insolvency resolution process with the Adjudicating
Authority.
(2) The application under sub-section (1) shall be filed in such form, containing such
particulars and in such manner and accompanied with such fee as may be prescribed.
(3) The corporate applicant shall, along with the application furnish the information relating
to---
(a) its books of account and such other documents relating to such period as may be specified;
and
(b) the resolution professional proposed to be appointed as an interim resolution
professional.
(c) the special resolution passed by shareholders of the corporate debtor or the resolution
passed by at least three-fourth of the total number of partners of the corporate debtor, as the
case may be, approving filing of the application.
(4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the
application, by an order---
(a) admit the application, if it is complete; and no disciplinary proceeding is pending against
the proposed resolution professional; or
(b) reject the application, if it is incomplete or any disciplinary proceeding is pending against
the proposed resolution professional.
Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the
applicant to rectify the defects in his application within seven days from the date of receipt of
such notice from the Adjudicating Authority.
(5) The corporate insolvency resolution process shall commence from the date of admission
of the application under sub-section (4) of this section.
Particulars Details
Application by
Application by the Corporate applicant may apply to AA when corporate
whom?
debtor committed a default.
[Section 10(1)]
 A corporate applicant, shall make an application in Form 6 for initiating
the corporate insolvency resolution process against a corporate debtor
under section 10 of the Code in Form 6, accompanied with documents
Mode of application and records required therein and as specified in the Insolvency and
[Section 10(2) read Bankruptcy Board of India (Insolvency Resolution Process for Corporate
with Rule 7] Persons) Regulations, 2016.
 The applicant under sub-rule (1) shall dispatch forthwith, a copy of the
application filed with the Adjudicating Authority, by registered post or
speed post to the registered office of the corporate debtor.
 Information relating to its books of account.
Attachments to the
 Information relating to the resolution professional proposed to be
application
appointed as an interim resolution professional.
Section 10(3)(c)]  The special resolution passed by shareholders of the corporate debtor or
the resolution passed by at least three-fourth of the total number of

partners of the corporate debtor, as the case may be, approving filing of
the application.
 The Adjudicating Authority shall, within a period of fourteen days of the
Admission of
receipt of the application, by an order -----
application
 Admit the application, if it is complete and
[Section 10(4)(a)
 No disciplinary proceeding is pending against the proposed
and
 The Adjudicating Authority shall, within a period of fourteen days of the
Rejection of receipt of the application, by an order -----
application  Reject the application, if it is incomplete or
[Section 10(4)(b)]  Disciplinary proceeding is pending against the proposed resolution
professional.
Opportunity to rectify
Adjudicating Authority shall, before rejecting an application, give a notice to
the defects
the applicant to rectify the defects in his application within seven days from
[Proviso to Section
the date of receipt of such notice from the Adjudicating Authority.
10(4)]
Date of
commencement of The corporate insolvency resolution process shall commence from the date
CIRP of admission of the application.
[Section 10(5)]

APPENDIX TO THE SECTION 10
Fair revenue earning capacity – can NCLAT in Vyomit Shares Stock & Investments Pvt. Ltd. Vs. SEBI held that application u/s 10 can be rejected
be a ground for dismissal? on the ground that the Corporate Debtor is earning sufficient income.
Effect of amendment act NCLAT in the matter of Mr. Umesh Aggarwal Vs. RICOH India Ltd. held that prior approval of shareholders
in AGM/EGM has been substituted by amendment made on 06.06.18, which is not applicable in case of where
application was admitted before that date.

19. PERSONS NOT ENTITLED TO MAKE APPLICATION [SECTION 11]

The following persons shall not be entitled to make an application to initiate corporate
insolvency resolution process under this Chapter, namely: -
(a) a corporate debtor undergoing a corporate insolvency resolution process; or
(b) a corporate debtor having completed corporate insolvency resolution process twelve
months preceding the date of making of the application; or
(c) a corporate debtor or a financial creditor who has violated any of the terms of resolution
plan which was approved twelve months before the date of making of an application under this
Chapter; or
(d) a corporate debtor in respect of whom a liquidation order has been made.
Explanation I. - For the purposes of this section, a corporate debtor includes a corporate
applicant in respect of such corporate debtor.
Explanation II.- For the purposes of this section, it is hereby clarified that nothing in this section
shall prevent a corporate debtor referred to in clauses (a) to (d) from initiating corporate
insolvency resolution process against another corporate debtor.
Details [Aforesaid persons shall not be entitled to make an

Person covered
application to initiate CIRP in the following cases]
Corporate Debtor Undergoing CIRP.
Having completed corporate insolvency resolution process twelve
Corporate Debtor
months preceding the date of making of the application.
Who has violated any of the terms of resolution plan which was approved
Corporate Debtor or
twelve months before the date of making of an application under this
Financial creditor
Chapter.
Corporate Debtor In respect of whom a liquidation order has been made.
Note 1: Corporate Debtor includes a Corporate applicant of such corporate debtor.
Note 2: For the purposes of this section, it is hereby clarified that nothing in this section shall
prevent a corporate debtor referred to in clauses (a) to (d) from initiating corporate
insolvency resolution process against another corporate debtor.
20. TIME-LIMIT FOR COMPLETION OF INSOLVENCY RESOLUTION PROCESS

[SECTION 12]
(1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed
within a period of one hundred and eighty days from the date of admission of the application
to initiate such process.
(2) The resolution professional shall file an application to the Adjudicating Authority to extend
the period of the corporate insolvency resolution process beyond one hundred and eighty
days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by
a vote of sixty-six per cent. of the voting shares.
(3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied
that the subject matter of the case is such that corporate insolvency resolution process cannot
be completed within one hundred and eighty days, it may by order extend the duration of such
process beyond one hundred and eighty days by such further period as it thinks fit, but not
exceeding ninety days:

Provided that any extension of the period of corporate insolvency resolution process under
this section shall not be granted more than once.
Provided further that the corporate insolvency resolution process shall mandatorily be
completed within a period of three hundred and thirty days from the insolvency
commencement date, including any extension of the period of corporate insolvency resolution
process granted under this section and the time taken in legal proceedings in relation to such
resolution process of the corporate debtor:
Provided also that where the insolvency resolution process of a corporate debtor is pending
and has not been completed within the period referred to in the second proviso, such
resolution process shall be completed within a period of ninety days from the date of
commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019.
Particulars Details
Basic period of CIRP The corporate insolvency resolution process shall be completed
[Section 12(1)] within a period of 180 days from the date of admission.
The resolution professional shall file an application
to the Adjudicating Authority to extend the period of
Condition – 1
the corporate insolvency resolution process beyond
Extension of the time limit 180 days.
[Section 12(2)] Resolution professional can do so only if instructed
to do so by a resolution passed at a meeting of the
Condition – 2
committee of creditors by a vote of 66% of the
voting shares.
If AA is satisfied that the subject matter of the case is such that
corporate insolvency resolution process cannot be completed within
Satisfaction of AA
180 days, it may by order extend the duration of such process beyond
[Section 12(3)]
180 days by such further period as it thinks fit, but not exceeding 90
days.
Number of times extension
may be granted Any extension of the period of corporate insolvency resolution
[1 proviso to Section
st process under this section shall not be granted more than once.
12(3)
The corporate insolvency resolution process shall mandatorily be
completed within a period of 330 days from the insolvency
Maximum time permissible
commencement date, including any extension of the period of
to complete CIRP
corporate insolvency resolution process granted under this section
[2 Proviso Section 12(3)]
nd
and the time taken in legal proceedings in relation to such resolution
process of the corporate debtor.
Where the insolvency resolution process of a corporate debtor is
What if CIRP cannot be
pending and has not been completed within 330 days, such resolution
completed within 330 days
process shall be completed within a period of 90 days from the date
[3rd Proviso to Section
of commencement of the Insolvency and Bankruptcy Code
12(3)]
(Amendment) Act, 2019.

21. WITHDRAWAL OF APPLICATION ADMITTED UNDER SECTION 7,9 OR 10

[SECTION 12A]
The Adjudicating Authority may allow the withdrawal of application admitted under section 7
or section 9 or section 10, on an application made by the applicant with the approval of ninety
per cent. voting share of the committee of creditors, in such manner as may be specified.
Particulars Details
Power with whom? Adjudicating authority.
Nature of power Allow withdrawal of application already admitted under section 7 or 9 or 10.
When AA exercises Application made by the applicant with the approval of 90% voting share
the power? of the committee of creditors.

APPENDIX TO THE SECTION 11, 12, 12A
Particulars Details
Section referring the As per Section 12(1), the CIRP shall be completed within a period of 180 days from the date of admission of the
beginning date application to initiate such process. Date of admission of the application is mentioned under section 7(5) in case of
application filed by Financial Creditor, under section 9(5) in case of application filed by the Operation Creditor and
under section 10(4) where application filed by the Corporate Applicant.
Time limit is the maximum  The time period prescribed by the Code is the maximum time provided for the completion. There may be instances,
time limit where a resolution process can be completed before the maximum time period prescribed. NCLT, Mumbai bench in
the matter of SBI Vs. Jet Airways (India) Limited-CP2205(IB)/MB/2019 dated 20.06.2019 held that It is also to be
pointed out that that the IBC provision provides for 180 days for completion of the CIRP. But every effort should be
made by the IRP/RP, and members of COC to expedite the matter and try to finalise the resolution plan on the fast
track mode and they should not preferably wait for the completion of the statutory period of 180/270 days’ timeline
permissible under IBC”.
 In Prowess International Pvt. Ltd. v. Parker Hannifin India Pvt. Ltd.-Company Appeal (AT) (Insol.) No. 89 of
2017 dated- 18.08.2017, the NCLAT observed that “thereafter, in case(s) where all creditors have been satisfied and
there is no default with any other creditor, the formality of submission of resolution plan under section 30 or its
approval under section 31 is required to be expedited on the basis of plan if prepared. In such case, the Adjudicating
Authority without waiting for 180 days of resolution process, may approve resolution plan under section 31, after
recording its satisfaction that all creditors have been paid/ satisfied and any other creditor do not claim any amount
in absence of default and required to close the Insolvency Resolution Process. On the other hand, in case the
Adjudicating Authority do not approve resolution plan, will proceed in accordance with law.
Can application u/s 12 for A question arises whether the application for extension of the time period under section 12 can be filed after expiry of
extension be made after 180 days of CIRP (i.e. applications were filed after the completion of the 180-day period). NCLAT in the matter of
expiry of 180 days? Quantum Limited Vs. Indus Finance Corporation Limited held that the provision does not stipulate that such
application is to be filed before the Adjudicating Authority within 180 days. If within 180 days including the last day i.e.
180th day, a resolution is passed by the committee of creditors by a majority vote of 66% of the voting shares,
instructing the resolution professional to file an application for extension of period in such case, in the interest of justice
and to ensure that the resolution process is completed following all the procedures time should be allowed by the
Adjudicating Authority who is empowered to extend such period up to 90 days beyond 180th day.

Exclusions of certain period  The Supreme Court in the matter of Arcelormittal India Pvt. Ltd. Vs. Satish Kumar Gupta & Ors. held that where
a resolution plan is upheld by the Appellate Authority, either by way of allowing or dismissing an appeal before it,
the period of time taken in litigation ought to be excluded.
 NCLAT in the matter of Quinn Logistics India Pvt. Ltd. Vs Mack Soft Tech Pvt. Ltd held that if an application is
filed by the Resolution Professional or the Committee of Creditors or any aggrieved person for justified reasons, it is
always open to the Adjudicating Authority/Appellate Tribunal to ‘exclude certain period’ for the purpose of counting
the total period of 270 days, if the facts and circumstances justify exclusion, in unforeseen circumstances.
 The exceptions carved out in the Quinn Logistics (Supra) case to extend the time period include i.e. for following
good grounds and unforeseen circumstances, the intervening period can be excluded for counting of the total period
of 270 days of resolution process:-
 If the corporate insolvency resolution process is stayed by ‘a court of law or the Adjudicating Authority or the
Appellate Tribunal or the Hon’ble Supreme Court.
 If no ‘Resolution Professional’ is functioning for one or other reason during the corporate insolvency resolution
process, such as removal.
 The period between the date of order of admission/moratorium is passed and the actual date on which the
‘Resolution Professional’ takes charge for completing the corporate insolvency resolution process.
 Any other circumstances which justifies exclusion of certain period. However, after exclusion of the period, if
further period is allowed the total number of days cannot exceed 270 days which is the maximum time limit
prescribed under the Code.
 NCLAT in the matter of Vandana Garg Vs. Reliance Capital Ltd. & Anr. where COC moved an application before
the Adjudicating Authority for exclusion of 35 days of delay in appointing the Resolution Professional in place of the
Interim Resolution Professional and the period during which different applications were pending. Prayer was
rejected by NCLT. NCLAT allowed the prayer and exclude the period of 35 days of delay in appointing the Resolution
Professional in place of the Interim Resolution Professional for the purpose of counting 180 days or 270 days of
Resolution Process. NCLAT also excluded the period of pendency of 18 days during which the application remained
pending before the Adjudicating Authority. Thereby, we exclude the total period of 53 days for the purpose of
counting 180 days or 270 days.
 NCLAT in the matter of Ramchandra D. Choudhary Vs. CoC (Maharashtra Shetkari Sugar Limited) held that if
Promoters are neither handed over the records nor the management of the Corporate Debtor to IRP & the IRP/IP
subsequently resigned due to non co-operation, the period of IRP can be excluded from 270 days.

Interpretation of Section  The Insolvency and Bankruptcy Code (Amendment) Act, 2019 (Amendment Act), w.e.f. 16.08.2019, inserted two
12(3). provisos to section 12(3) of the Code to provide for overall time limit as under:
“Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period
of three hundred and thirty days from the insolvency commencement date, including any extension of the period of
corporate insolvency resolution process granted under this section and the time taken in legal proceedings in
relation to such resolution process of the corporate debtor:
Provided also that where the insolvency resolution process of a corporate debtor is pending and has not been
completed within the period referred to in the second proviso, such resolution process shall be completed within a
period of ninety days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act,
2019.”(Emphasis provided)
 Section 12 of the Code thus mandates that the CIRP of a CD must conclude within 330 days from the insolvency
commencement date. This period of 330 days includes:
(a) normal CIRP period of 180 days,
(b) one-time extension, if any, up to 90 days of such CIRP period granted by the Adjudicating Authority, and
(c) the time taken in legal proceedings in relation to the CIRP of the CD.
It also mandates that a CIRP, which was pending and not completed within the aforementioned period of 330 days
as on the date of commencement of the Amendment Act, that is, 16.08.2019, shall be completed within a further
period of 90 days from such date, that is, by 14.11.2019.
 In the case of Committee of Creditors of Essar Steel India Limited Through Authorised Signatory Vs. Satish Kumar
Gupta & Ors Supreme court held that “The effect of declaration under section 12(3) is that ordinarily the time taken
in relation to the CIRP must be completed within the outer limit of 330 days from the insolvency commencement
date, including extensions and the time taken in legal proceedings. If the delay or a large part thereof is attributable
to the tardy process of the AA and/or the NCLAT itself, it may be open in such cases for the AA and/or NCLAT to
extend time beyond 330 days. It is only in exceptional cases that time can be extended, the general rule being that
330 days is the outer limit within which resolution of the stressed assets of the CD must take place beyond which it
is to be driven into liquidation.”
Consequences if CIRP If the Resolution professional fails to submit the resolution plan within 180 days or within 330 days including any
cannot be completed in time extension (max. extension 90 days) and the time taken in legal proceedings, the Adjudicating Authority may initiate
limit Liquidation procedure. Once the liquidation procedure is initiated the Company will be wound up and the steps will be
taken for distribution of proceeds to creditors as per the provisions of the code.

If the resolution process does not get completed within the 180/270/330-day period, serious consequences thereof are
provided under Section 33 of the Code. As per that provision, in such a situation, the adjudicating authority is required
to pass an order requiring the corporate debtor to be liquidated in the manner as laid down in the said Chapter.
Object of Section 12A Section 12A is inserted by the Insolvency and Bankruptcy (Second Amendment) Act, 2018 with retrospective effect from
06.06.2018 on recommendation by Insolvency Law Committee Report submitted in Mar, 2018 to provide facility to
withdraw application made under section 7, 9 or 10 on settlement even if CIRP has been initiated. A matter can be
settled between the parties and an application(s) under Sections 7 or 9 or 10 can be withdrawn only at four stages:
I. Before admission of application under Sections 7 or 9 or 10.
II. After admission but before constitution of committee of creditors (COC).
III. After constitution of COC but before issue of invitation for expression of interest.
IV. After issue of invitation for expression of interest.
Regulation 30A read with Regulation 30A provides the procedure and compliance for withdrawal of an application. In absence of any settlement,
Section 12A if no withdrawal is made at the aforesaid four stages then Resolution Process continues and if any Resolution Plan is
found to be viable, feasible and having financial matrix and qualifies in terms of sub-section (2) of Section 30 and
approved by 66% of voting shares of the Committee of Creditors(COC), the Adjudicating Authority may pass order
approving the plan under Section 31.
Rule 8 read with Section 12A Withdrawal of application—The Adjudicating Authority may permit withdrawal of the application made under rules
4, 6 or 7, as the case may be, on a request made by the applicant before its admission.
Can NCLAT pass an order for Rule 11 – Inherent Powers
settlement similar to Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to
withdrawal vide its powers make such orders or give such directions as may be necessary for meeting the ends of justice or to prevent abuse of the
under Rule 11 of NCLAT process of the Appellate Tribunal.
rules, 2016 From the Judiciary
The question was answered by Hon’ble Supreme Court in the matter of Lokhandwala Kataria Construction Private
Limited Vs. Nisus Finance and Investment Managers LLP where an appeal was filed by the appellant/Corporate
Debtor against the order passed by the NCLT, Mumbai Bench whereby the application under section 7 of the Code has
been admitted. The parties submitted before the NCLAT that they have settled the dispute and part amount has already
been paid. The NCLAT, however, held that such settlement cannot be ground to interfere with the impugned order in
absence of any other infirmity. The NCLAT further held that Rule 11 of the National Company Law Appellate Tribunal
Rules, 2016 has not been adopted for the purpose of the Code and only Rules 20 and 26 have been adopted in absence
of any specific inherent power and where there is no merit, the question of exercising inherent power does not arise.

The Supreme Court upheld that in view of Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016, the NCLAT could not utilise the inherent power recognised by Rule 11 of the National Company
Law Appellate Tribunal Rules, 2016 to allow a compromise before it by the parties after admission of the matter.
Procedure for withdrawal of After constitution of COC
After issue of invitation
application but before issue of
Sl.no Particulars Before constitution of COC for expression of
invitation for
interest
expression of interest
Application By the applicant through the By the applicant through By the applicant through
IRP the IRP or the RP, as the the IRP or the RP, as the
case may be case may be and the
1 applicant shall state the
reasons justifying
withdrawal after issue of
such invitation
2 Form Form FA Form FA Form FA
Time limit for COC NA COC shall consider the COC shall consider the
3 application within 7 application within 7
days of its receipt days of its receipt
Approval of COC NA COC approval with 90% COC approval with 90%
4 voting share is required to voting share is required to
consider the withdrawal. consider the withdrawal.
Time limit to submit IRP shall submit the Where the Where the
the application to the application to the AA on application approved by application approved by
Adjudicating behalf of the applicant, the CoC with 90% voting the CoC with 90% voting
Authority within 3 days of its receipt. share, the RP shall submit share, the RP shall submit
5 such application along such application along
with the approval of the with the approval of the
CoC, to the AA on behalf of CoC, to the AA on behalf of
the applicant, within 3 the applicant, within 3
days of such approval. days of such approval.
6 Approval of AA AA may either admit or dismiss the application.

Cases Laws on section 12A a. Withdrawal of CIRP after issue of invitation for Expression of Interest [Regulation 30A (1)]:
Regulation 30A (1) imposes an additional condition for withdrawal of CIRP that such application shall be filed before
issue of invitation for expression of interest under regulation 36A. Hon’ble Supreme Court in the matter of Brilliant
Alloys Private Limited Vs. Mr. S. Rajagopal & Ors. allowed withdrawal of CIRP even after the issue of invitation for
expression of interest and set aside the order of NCLT and held that regulation 30A has to be read along with the main
provision section 12A, which contains no such stipulation. Hence, this stipulation under regulation 30A can only be
considered as directory in nature depending on the facts of each case. (The case has been considered under
Regulation 30A by amendment in July’19.)
b. Can Resolution applicant take the advantage provided by Section 12A?
Hon’ble Supreme Court in the matter of Maharasthra Seamless Limited Vs. Padmanabhan Venkatesh & Ors. held
that Maharasthra Seamless Limited (MSL), being Resolution Applicant, cannot withdraw from the proceeding in the
manner they have approached this Court. The exit route prescribed in Section 12A is not applicable to a Resolution
Applicant. The procedure envisaged in the said provision only applies to applicants invoking Sections 7, 9 and 10 of the
code. In this case, having appealed against the NCLAT order with the object of implementing the resolution plan, MSL
cannot be permitted to take a contrary stand in an application filed in connection with the very same appeal.
c. Can Resolution professional move an application u/s 12A?
NCLAT in the case of Federal Bank Ltd. Vs. Trio Fab (I) Pvt. Ltd held that, applicant can only move application for
withdrawal of the application before the Adjudicating Authority and not by the Resolution Professional.
d. Can AA further look into the matter if the application under section 12A is approved by requisite majority?
NCLAT in the matter of Sunshine Caterers Pvt. Ltd. Vs. Redreef Finance & Investment Pvt. Ltd. held that in case
application under Section 12A is not approved by 90% of Committee of Creditors and the withdrawal of application
under Section 7 is not allowed by the Adjudicating Authority. further held that we are of the opinion that if the
Committee of Creditors approved the application under Section 12A with majority voting share of 90%, the Adjudicating
Authority cannot further look into the matter and is required to allow the applicant to withdraw the application, if it is
filed.
e. Interpretation of Section 12A and 29A
NCLAT in the matter of Andhra Bank Vs. Sterling Biotech Ltd. (Through the Liquidator) & Ors held that from Section
12A and the decision of the Hon’ble Supreme Court in ‘Landmark judgment of Apex Court in the matter of Swiss Ribbons
Pvt. Ltd. & Anr. Vs. Union of India & Ors. under IBC’ , it is clear that the Promoters/Shareholders are entitled to settle
the matter in terms of Section 12A and in such case, it is always open to an applicant to withdraw the application under
Section 9 of the Code on the basis of which the CIRP was initiated and Section 29A is not applicable for

entertaining/considering an application under Section 12A as the Applicants are not entitled to file application under
Section 29A as ‘resolution applicant’.
Constitutional Validity of Enforcement of decrees and orders of Supreme Court and unless as to discovery, etc
Section 12A and legislative The Supreme Court in the exercise of its jurisdiction may pass such decree or make such
intent. Article 142 of COI, 1949 order as is necessary for doing complete justice in any cause or matter pending before it,
and any decree so passed or orders so made shall be enforceable throughout the territory
of India.
Powers of High Courts to issue certain writs
Every High Court shall have power, throughout the territories in relation to which it
exercises jurisdiction, to issue to any person or authority, including in appropriate cases,
Article 226 of COI, 1949 any Government, within those territories directions, orders or writs, including writs in the
nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, or any of
them, for the enforcement of any of the rights conferred by Part III and for any other
purpose.
Every High Court shall have superintendence over all courts and tribunals throughout the
Article 227 of COI, 1949
territories in relation to which it exercises jurisdiction.
From the above it is clear that, High Court exercising power under article 226 and 227 or Supreme Court exercising
power under article 142 of the Constitution of India can approve withdrawal of CIRP at any stage.
That means, if Section 12A is not inserted, High Court or Supreme Court as the case may be, would exercise their powers
under the aforesaid articles of the constitution of India on a case to case basis.
Legislative intention in Status in Law prior amendment:
bringing Section 12A Before the Section 12A, there was no provision in the Code or the regulations in relation to permissibility of withdrawal
post admission of a CIRP application. As discussed above, only rule 8 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 provide facility to withdraw the application on a request by the applicant before it
is admitted by the NCLT.
The NCLAT in Mother Pride Dairy India Pvt. Ltd. v. Portrait Advertising & Marketing Pvt. Ltd. -Company Appeal
(AT) (Insolvency) No. 94 of 2017 dated 13.07.2017, took the view that once an application is admitted, it cannot be
withdrawn since other creditors are entitled to raise claims.
In Parker Hannifin India Private Limited v. Prowess International Private Limited-C.P. (IB) No. 150/KB/2017
dated 17.10.2017, the Kolkata bench of the NCLT held that once a petition is admitted, neither of the parties have the
right to withdraw the petition.

However, the Chennai Bench of the NCLT took an opposite view in M/s. Phoenix Global DMCC v. M/s. A&A Trading
International Pvt. Ltd.-CP/500/(IB)CB/2017 dated 16.06.2017, while exercising its inherent powers under Rule 11 of
the National Company Law Tribunal Rules, 2016, the NCLT recalled its order for commencement of CIRP and declaration
of moratorium once the corporate debtor duly paid the outstanding amount and settled its dispute with the operational
creditor.
Reason for contrary view:
In the above said case, withdrawal was made because of following reasons ----
a) IRP is not appointed
b) No public announcement was made
c) No other dues existed other than the dues in this case which had been paid.
In Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Managers LLP -Company
Appeal (AT) (Insolvency) No. 95 of 2017 dated 13.07.2017, the NCLAT held that “before admission of an application
under Section 7, it is open to the Financial Creditor to withdraw the application but once it is admitted, it cannot be
withdrawn…Even the Financial Creditor cannot be allowed to withdraw the application once admitted, and matter
cannot be closed till claim of all the creditors are satisfied by the corporate debtor.
LEGISLATIVE INTENT:
1 Under rule 8 of the CIRP Rules, the NCLT may permit withdrawal of the application on a request
by the applicant before its admission. However, there is no provision in the Code or the CIRP Rules
in relation to permissibility of withdrawal post admission of a CIRP application.
2 There have been instances where on account of settlement between the applicant creditor and the
corporate debtor, judicial permission for withdrawal of CIRP was granted. This practice was deliberated
in light of the objective of the Code as encapsulated in the BLRC Report, that the design of the
Code is based on ensuring that “all key stakeholders will participate to collectively assess viability.”
3 The law must ensure that all creditors who have the capability and the willingness to restructure
their liabilities must be part of the negotiation process. The liabilities of all creditors who are not

part of the negotiation process must also be met in any negotiated solution. Thus, it was agreed
that once the CIRP is initiated, it is no longer a proceeding only between the applicant creditor and
the corporate debtor but is envisaged to be a proceeding involving all creditors of the debtor. The
intent of the Code is to discourage individual actions for enforcement and settlement to the exclusion
of the general benefit of all creditors.
4 On a review of the multiple NCLT and NCLAT judgments in this regard, the consistent pattern
that emerged was that a settlement may be reached amongst all creditors and the debtor, for the
purpose of a withdrawal to be granted, and not only the applicant creditor and the debtor.
5 On this basis read with the intent of the Code, the relevant rules may be amended to provide for
withdrawal post admission if the COC approves of such action by a voting share of ninety per cent.

22. DECLARATION OF MORATORIUM AND PUBLIC ANNOUNCEMENT [SECTION 13]

(1) The Adjudicating Authority, after admission of the application under section 7 or section 9
or section 10, shall, by an order—
(a) declare a moratorium for the purposes referred to in section 14;
(b) cause a public announcement of the initiation of corporate insolvency resolution process
and call for the submission of claims under section 15; and
(c) appoint an interim resolution professional in the manner as laid down in section 16.
(2) The public announcement referred to in clause (b) of sub-section (1) shall be made
immediately after the appointment of the interim resolution professional.
Particulars Details
When section gets
If Adjudicating Authority admits the application under section 7 or section 9
attracted?
or section 10.
[Section 13(1)]
What action shall AA
take? Adjudicating authority shall make an order.
[Section 13(1)]
Order 1
Declare Moratorium.
[Section 13(1)(a)]
What is the effect of Cause a Public announcement of the initiation of
Order 2
order? corporate insolvency resolution process and call for
[Section 13(1)(b)]
[Section 13(1)] the submission of claims.
Order 3
Appoint an interim resolution professional.
[Section 13(1)(c)]
When to make public
The public announcement shall be made immediately after the
announcement u/s 13(1)(b)?
appointment of the interim resolution professional.
[Section 13(2)]
23. MORATORIUM [SECTION 14]

(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date,
the Adjudicating Authority shall by order declare moratorium for prohibiting all of the
following, namely: —
(a) the institution of suits or continuation of pending suits or proceedings against the
corporate debtor including execution of any judgment, decree or order in any court of law,
tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its
assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate
debtor in respect of its property including any action under the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
(d) the recovery of any property by an owner or lessor where such property is occupied by or
in the possession of the corporate debtor.
Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding
anything contained in any other law for the time being in force, a licence, permit, registration,
quota, concession, clearance or a similar grant or right given by the Central Government, State

Government, local authority, sectoral regulator or any other authority constituted under any
other law for the time being in force, shall not be suspended or terminated on the grounds of
insolvency, subject to the condition that there is no default in payment of current dues arising
for the use or continuation of the license or a similar grant or right during moratorium period.
(2) The supply of essential goods or services to the corporate debtor as may be specified shall
not be terminated or suspended or interrupted during moratorium period.
(2A) Where the interim resolution professional or resolution professional, as the case may be,
considers the supply of goods or services critical to protect and preserve the value of the
corporate debtor and manage the operations of such corporate debtor as a going concern, then
the supply of such goods or services shall not be terminated, suspended or interrupted during
the period of moratorium, except where such corporate debtor has not paid dues arising from
such supply during the moratorium period or in such circumstances as may be specified.
(3) The provisions of sub-section (1) shall not apply to—
(a) such transactions, agreements or other arrangement as may be notified by the Central
Government in consultation with any financial sector regulator or any other authority;
(b) a surety in a contract of guarantee to a corporate debtor.
(4) The order of moratorium shall have effect from the date of such order till the completion
of the corporate insolvency resolution process:
Provided that where at any time during the corporate insolvency resolution process period, if
the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or
passes an order for liquidation of corporate debtor under section 33, the moratorium shall
cease to have effect from the date of such approval or liquidation order, as the case may be.
Particulars Details
Who has authority to
make order of Adjudicating authority.
Moratorium?
When Moratorium
On the insolvency commencement date.
shall be ordered?
 Institution of suits or
 Continuation of pending suits or
a
 Execution of any judgment, decree or order in any court of law,
tribunal, arbitration panel or other authority.
 Transferring any assets by Corporate Debtor.
 Encumbering any assets by Corporate Debtor.
b
Prohibition of what?  Alienating any assets by Corporate Debtor.
 Disposing any assets by Corporate Debtor.
Any action to foreclose, recover or enforce any security interest created
c by the corporate debtor in respect of its property including any action
under SARFAESI Act, 2002.
The recovery of any property by an owner or lessor where such
d
property is occupied by or in the possession of the corporate debtor.
No Moratorium in The supply of essential goods or services to the corporate debtor as may be
certain cases specified shall not be terminated or suspended or interrupted during
[Section 14(2)] moratorium period.

No Moratorium on what?  License

 Permit
 Registration
 Quota
 Concessions
 Clearance or
Licenses, Quotas etc  Similar grant or right
not to be brought Given by -----
under moratorium in  Central Government or
certain cases  State Government or
[Explanation below  Local authority or other sectoral
Section 14(1)] regulator.
Effect of exemption Aforesaid rights shall not be suspended or
terminated on the grounds of insolvency.
When exemption shall not There is a default in payment of current dues
be granted? arising for the use or continuation of the
license or a similar grant or right during
moratorium period.
Deciding authority  Interim resolution professional or
 Resolution professional.
What in the opinion shall Supply of goods or services critical to
IRP or RP decision not not be terminated or protect and preserve the value of the
to put moratorium in suspended or corporate debtor and manage the
certain cases interrupted? operations of such corporate debtor as a
[Section 14(2A)] going concern.
When IRP or RP has no Where such corporate debtor has not paid
such right? dues arising from such supply during the
moratorium period
Non – applicability of  Such transaction as may be notified by the Central Government in
Moratorium consultation with any financial regulator or any other authority.
[Section 14(3)]  A surety in a contract of guarantee to a corporate debtor.
Period of Moratorium The order of moratorium shall have effect from the date of such order till
[Section 14(4)] the completion of the corporate insolvency resolution process.
Decision taken during Events  AA approves resolution plan or
Moratorium – How it covered  AA passes an order for liquidation.
affects?
[Proviso to Section The moratorium shall cease to have effect from the date
Result
14(4)] of such approval or liquidation order, as the case may be.
24. PUBLIC ANNOUNCEMENT OF CORPORATE INSOLVENCY RESOLUTION PROCESS

[SECTION 15]
(1) The public announcement of the corporate insolvency resolution process under the order
referred to in section 13 shall contain the following information, namely: —

(a) name and address of the corporate debtor under the corporate insolvency resolution
process;
(b) name of the authority with which the corporate debtor is incorporated or registered;
(c) the last date for submission of claims, as may be specified;
(d) details of the interim resolution professional who shall be vested with the management of
the corporate debtor and be responsible for receiving claims;
(e) penalties for false or misleading claims; and
(f) the date on which the corporate insolvency resolution process shall close, which shall be
the one hundred and eightieth day from the date of the admission of the application under
sections 7, 9 or section 10, as the case may be.
(2) The public announcement under this section shall be made in such manner as may be
specified.
Content Details
Name and address of the corporate debtor under the corporate insolvency resolution
1
process.
2 Name of the authority with which the corporate debtor is incorporated or registered.
3 The last date for submission of claims.
Details of the interim resolution professional who shall be vested with the management of
4
the corporate debtor and be responsible for receiving claims.
5 Penalties for false or misleading claims.
The date on which the corporate insolvency resolution process shall close, which shall be
6 the one hundred and eightieth day from the date of the admission of the application under
sections 7, 9 or section 10, as the case may be.
25. APPOINTMENT AND TENURE OF INTERIM RESOLUTION PROFESSIONAL

[SECTION 16]
(1) The Adjudicating Authority shall appoint an interim resolution professional on the
insolvency commencement date.
(2) Where the application for corporate insolvency resolution process is made by a financial
creditor or the corporate debtor, as the case may be, the resolution professional, as proposed
respectively in the application under section 7 or section 10, shall be appointed as the interim
resolution professional, if no disciplinary proceedings are pending against him.
(3) Where the application for corporate insolvency resolution process is made by an
operational creditor and-
(a) no proposal for an interim resolution professional is made, the Adjudicating Authority shall
make a reference to the Board for the recommendation of an insolvency professional who may
act as an interim resolution professional;
(b) a proposal for an interim resolution professional is made under sub-section (4) of section
9, the resolution professional as proposed, shall be appointed as the interim resolution
professional, if no disciplinary proceedings are pending against him.
(4) The Board shall, within ten days of the receipt of a reference from the Adjudicating
Authority under sub-section (3), recommend the name of an insolvency professional to the
Adjudicating Authority against whom no disciplinary proceedings are pending.

(5) The term of the interim resolution professional shall continue till the date of appointment
of the resolution professional under section 22.
Particulars Details
Appointing authority Adjudicating authority.
Time limit Within 14 days from the insolvency commencement date.
If applicant is a
The resolution professional, as proposed respectively
financial
in the application under section 7 or section 10, shall be
creditor or
appointed as the interim resolution professional, if no
Corporate
disciplinary proceedings are pending against him.
Debtor.
The resolution professional as proposed,
Proposal shall be appointed as the interim
Mode of appointment
is made resolution professional, if no disciplinary
If applicant is proceedings are pending against him.
an operational The Adjudicating Authority shall make a
creditor. No reference to the Board for the
Proposal recommendation of an insolvency
made professional who may act as an interim
The Board shall, within 10 days of the receipt of a reference from the
Duty of the IBBI in
Adjudicating Authority, recommend the name of an insolvency
case of reference
professional to the Adjudicating Authority against whom no disciplinary
made.
proceedings are pending.
The term of the interim resolution professional shall continue till the date
Tenure of office
of appointment of the resolution professional under section 22.
26. MANAGEMENT OF AFFAIRS OF CORPORATE DEBTOR BY INTERIM RESOLUTION

PROFESSIONAL [SECTION 17]
(1) From the date of appointment of the interim resolution professional, —
(a) the management of the affairs of the corporate debtor shall vest in the interim resolution
professional;
(b) the powers of the board of directors or the partners of the corporate debtor, as the case
may be, shall stand suspended and be exercised by the interim resolution professional;
(c) the officers and managers of the corporate debtor shall report to the interim resolution
professional and provide access to such documents and records of the corporate debtor as may
be required by the interim resolution professional;
(d) the financial institutions maintaining accounts of the corporate debtor shall act on the
instructions of the interim resolution professional in relation to such accounts and furnish all
information relating to the corporate debtor available with them to the interim resolution
professional.
(2) The interim resolution professional vested with the management of the corporate debtor
shall—

(a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and
other documents, if any;
(b) take such actions, in the manner and subject to such restrictions, as may be specified by the
Board;
(c) have the authority to access the electronic records of corporate debtor from information
utility having financial information of the corporate debtor;
(d) have the authority to access the books of account, records and other relevant documents
of corporate debtor available with government authorities, statutory auditors, accountants
and such other persons as may be specified; and
(e) be responsible for complying with the requirements under any law for the time being in
force on behalf of the corporate debtor.
Particulars Details
From when
section 17 From the date of appointment of the interim resolution professional.
takes effect?
Management The management of the affairs of the corporate debtor shall vest
powers in IRP.
Suspension of The powers of the board of directors or the partners of the
existing corporate debtor, as the case may be, shall stand suspended and
Board be exercised by the interim resolution professional.
Effects of
appointment of The officers and managers of the corporate debtor shall report
Reporting to
IRP. to the IRP and provide access to such documents and records of
IRP
the corporate debtor as may be required by the IRP.
The financial institutions maintaining accounts of the corporate
Duty of
debtor shall act on the instructions of the IRP in relation to such
Financial
accounts and furnish all information relating to the corporate
institutions
debtor available with them to the IRP.
Documents Act and execute in the name and on behalf of the corporate
execution debtor all deeds, receipts, and other documents
Take such actions, in the manner as may be specified by the
Take actions
Board.
Access to Have the authority to access the electronic records of corporate
Duties of IRP
electronic debtor from information utility having financial information of
w.r.t. vested
records the corporate debtor.
management
Access to Have the authority to access the books of account, records and
external other relevant documents of corporate debtor available with
records government authorities, statutory auditors, and accountants.
Legal Be responsible for complying with the requirements under any
compliance law for the time being in force on behalf of the corporate debtor.
SECTIONS 18 – 20 ARE NOT APPLIED FOR SYLLABUS BY ICAI

27. COMMITTEE OF CREDITORS [SECTION 21]

(1) The interim resolution professional shall after collation of all claims received against the
corporate debtor and determination of the financial position of the corporate debtor,
constitute a committee of creditors.
(2) The committee of creditors shall comprise all financial creditors of the corporate debtor:
Provided that a financial creditor or the authorised representative of the financial creditor
referred to in sub-section (6) or sub-section (6A) or sub-section (5) of section 24, if it is a
related party of the corporate debtor, shall not have any right of representation, participation
or voting in a meeting of the committee of creditors:
Provided further that the first proviso shall not apply to a financial creditor, regulated by a
financial sector regulator, if it is a related party of the corporate debtor solely on account of
conversion or substitution of debt into equity shares or instruments convertible into equity
shares or completion of such transactions as may be prescribed, prior to the insolvency
commencement date;
(3) Subject to sub-sections (6) and (6A), where the corporate debtor owes financial debts to
two or more financial creditors as part of a consortium or agreement, each such financial
creditor shall be part of the committee of creditors and their voting share shall be determined
on the basis of the financial debts owed to them.
(4) Where any person is a financial creditor as well as an operational creditor, —
(a) such person shall be a financial creditor to the extent of the financial debt owed by the
corporate debtor, and shall be included in the committee of creditors, with voting share
proportionate to the extent of financial debts owed to such creditor;
(b) such person shall be considered to be an operational creditor to the extent of the
operational debt owed by the corporate debtor to such creditor.
(5) Where an operational creditor has assigned or legally transferred any operational debt to
a financial creditor, the assignee or transferee shall be considered as an operational creditor
to the extent of such assignment or legal transfer.
(6) Where the terms of the financial debt extended as part of a consortium arrangement or
syndicated facility provide for a single trustee or agent to act for all financial creditors, each
financial creditor may—
(a) authorise the trustee or agent to act on his behalf in the committee of creditors to the extent
of his voting share;
(b) represent himself in the committee of creditors to the extent of his voting share;
(c) appoint an insolvency professional (other than the resolution professional) at his own cost
to represent himself in the committee of creditors to the extent of his voting share; or
(d) exercise his right to vote to the extent of his voting share with one or more financial
creditors jointly or severally.
(6A) Where a financial debt—
(a) is in the form of securities or deposits and the terms of the financial debt provide for
appointment of a trustee or agent to act as authorised representative for all the financial
creditors, such trustee or agent shall act on behalf of such financial creditors;
(b) is owed to a class of creditors exceeding the number as may be specified, other than the
creditors covered under clause (a) or sub-section (6), the interim resolution professional shall
make an application to the Adjudicating Authority along with the list of all financial creditors,
containing the name of an insolvency professional, other than the interim resolution
professional, to act as their authorised representative who shall be appointed by the
Adjudicating Authority prior to the first meeting of the committee of creditors;
(c) is represented by a guardian, executor or administrator, such person shall act as authorised
representative on behalf of such financial creditors,

and such authorised representative under clause (a) or clause (b) or clause (c) shall attend the
meetings of the committee of creditors, and vote on behalf of each financial creditor to the
extent of his voting share.
(6B) The remuneration payable to the authorised representative—
(i) under clauses (a) and (c) of sub-section (6A), if any, shall be as per the terms of the financial
debt or the relevant documentation; and
(ii) under clause (b) of sub-section (6A) shall be as specified which shall form part of the
insolvency resolution process costs].
(7) The Board may specify the manner of voting and the determining of the voting share in
respect of financial debts covered under sub-sections (6) and (6A).
(8) All decisions of the committee of creditors shall be taken by a vote of not less than seventy-
five per cent. of voting share of the financial creditors:
Provided that where a corporate debtor does not have any financial creditors, the committee
of creditors shall be constituted and comprise of such persons to exercise such functions in
such manner as may be specified by the Board.
(9) The committee of creditors shall have the right to require the resolution professional to
furnish any financial information in relation to the corporate debtor at any time during the
corporate insolvency resolution process.
(10) The resolution professional shall make available any financial information so required
by the committee of creditors under sub-section (9) within a period of seven days of such
requisition.
Particulars Details
 COC shall be constituted by IRP.
Constitution of committee of
 Constitution is made after -----
creditors
 Collation of all claims received and
[Section 21(1)]
 Determination of the financial position.
Composition of COC The committee of creditors shall comprise all financial creditors of
[Section 21(2)] the corporate debtor.
 If a financial creditor is a related party of the corporate debtor, he
shall not have any right of representation, participation or voting
Exclusion in certain cases in a meeting of the committee of creditors.
[1st proviso to Section  If the authorised representative of the financial creditor is a
21(2)] related party of the corporate debtor, it shall not have any right of
representation, participation or voting in a meeting of the
committee of creditors.
 Exception to Financial creditor.
Exception to exclusion  Such financial creditor shall be regulated by financial sector
[2nd proviso to section regulator.
21(2)]  Such financial creditor became related party just because of
conversion of debt into equity shares.
Situation in case of  In case corporate debtor owes financial debts to two or more
Consortium lending financial creditors as part of a consortium lending scheme, then
[Section 21(3)] each such financial creditor shall be part of the committee of

creditors and their voting share shall be determined on the basis

of the financial debts owed to them.
 If a person holds capacities of both financial and as well as
operational creditor, -----
Dual capacities  Shall be treated as financial creditor to the extent of financial
[Section 21(4)] debt and shall be included into the COC.
 Shall be treated as an operational creditor to the extent of
operational debt and shall not be included into the COC.
Where an operational creditor has assigned or legally transferred any
Financial creditor assigned
operational debt to a financial creditor, the assignee or transferee
with operational debt
shall be considered as an operational creditor to the extent of such
[Section 21(5)]
assignment.
 Applies when financial debt is extended as a part of consortium
arrangement and such arrangement provides for appointment of
single trustee or agent to act for all financial creditors.
 In such case each financial creditor will have the following rights
-----
Single representative for all Authorise a trustee or agent to act on his behalf in the
financial creditors in certain Right – 1 committee of creditors to the extent of his voting
cases share.
[Section 21(6)(a) to Right – 2 Represent himself in the committee of creditors.
Section 21(6)(d)] Appoint an insolvency professional (other than the
Right – 3 resolution professional) at his own cost to represent
himself in the committee of creditors
Exercise his right to vote to the extent of his voting
Right – 4 share with one or more financial creditors jointly or
severally.
Form of FD Details
Where the terms of the financial debt provide
for appointment of a trustee or agent to act as
Case – 1
authorized representative for all the financial
Securities
creditors, such trustee or agent shall act on
behalf of such financial creditors.
Various cases of financial Then, the interim resolution professional shall
debt and representatives make an application to the Adjudicating
[Section 21(6A)] Authority along with the list of all financial
Case – 2
creditors, containing the name of an
Owed to class of
insolvency professional, other than the interim
creditors
resolution professional, to act as their
exceeding a
authorized representative who shall be
specified number
appointed by the Adjudicating Authority prior
to the first meeting of the committee of
creditors

Case – 3
Such person shall act as authorised
Represented by
representative on behalf of such financial
guardian or
creditors.
executor etc
Such authorised representative as aforesaid shall attend the meetings
of the committee of creditors, and vote on behalf of each financial
creditor to the extent of his voting share.
In case of Case – 1 Remuneration shall be as per the terms of the
Remuneration to authorised and Case – 3 financial debt or the relevant documentation.
representative Remuneration shall be as specified which shall
[Section 21(6B)] In case of Case – 2 form part of the insolvency resolution process
costs.
Board to specify the manner The Board may specify the manner of voting and the determining of
of voting the voting share in respect of financial debts covered under sub-
[Section 21(7)] sections (6) and (6A).
Approval and Voting share All decisions of the committee of creditors shall be taken by a vote of
[Section 21(8)] not less than 51% of voting share of the financial creditors.
What if, Corporate debtor
The committee of creditors, in such a case, shall be constituted and
does not have any financial
shall comprise of such persons to exercise such functions in such
creditors
manner as may be specified.
The committee of creditors shall have the right to require the
COC to have right to demand
resolution professional to furnish any financial information in
for information
relation to the corporate debtor at any time during the corporate
[Section 21(9)]
insolvency resolution process.
Time limit within which the
The resolution professional shall make available any financial
RP shall make information
information so required by the committee of creditors under sub-
available.
section (9) within a period of seven days of such requisition.
[Section 21(10)]
28. APPOINTMENT OF RESOLUTION PROFESSIONAL [SECTION 22]

(1) The first meeting of the committee of creditors shall be held within seven days of the
constitution of the committee of creditors.
(2) The committee of creditors, may, in the first meeting, by a majority vote of not less than
sixty- six per cent of the voting share of the financial creditors, either resolve to appoint the
interim resolution professional as a resolution professional or to replace the interim
resolution professional by another resolution professional.
(3) Where the committee of creditors resolves under sub-section (2)—
(a) to continue the interim resolution professional as resolution professional, subject to a
written consent from the interim resolution professional in the specified form it shall
communicate its decision to the interim resolution professional, the corporate debtor and the
Adjudicating Authority; or
(b) to replace the interim resolution professional, it shall file an application before the
Adjudicating Authority for the appointment of the proposed resolution professional.

(4) The Adjudicating Authority shall forward the name of the resolution professional proposed
under clause (b) of sub-section (3) to the Board for its confirmation and shall make such
appointment after confirmation by the Board.
(5) Where the Board does not confirm the name of the proposed resolution professional within
ten days of the receipt of the name of the proposed resolution professional, the Adjudicating
Authority shall, by order, direct the interim resolution professional to continue to function as
the resolution professional until such time as the Board confirms the appointment of the
proposed resolution professional.
Particulars Details
Time limit for
holding 1st meeting of The first meeting of the committee of creditors shall be held within 7 days of
COC the constitution of the committee of creditors.
[Section 22(1)]
Resolution 1 Appoint IRP as Resolution professional
Alternative OR
resolutions w.r.t. IRP Replace the interim resolution professional by another
at that 1st meeting of Resolution 2
COC.
Resolve at the first meeting of COC by a majority vote of not less than 66% of
the voting share of the financial creditors.
Communicate its decision to IRP, Corporate debtor and
If IRP is RP
adjudicating authority.
Duty of Committee of
creditors File an application before the Adjudicating Authority
If IRP is replaced for the appointment of the proposed resolution
professional.
Duty of AA in case of Forward the name of the resolution professional proposed to the Board for
replacement of its confirmation and shall make such appointment after confirmation by the
existing IRP. Board.
Board does not confirm the name of the proposed
Condition
resolution professional within 10 days of the receipt.
Consequence of non- The Adjudicating Authority shall, by order, direct the
confirmation by interim resolution professional to continue to function as
Board. Result the resolution professional until such time as the Board
confirms the appointment of the proposed resolution
professional.
29. RESOLUTION PROFESSIONAL TO CONDUCT CORPORATE INSOLVENCY

RESOLUTION PROCESS [SECTION 23]
(1) Subject to section 27, the resolution professional shall conduct the entire corporate
insolvency resolution process and manage the operations of the corporate debtor during the
corporate insolvency resolution process period.
Provided that the resolution professional shall continue to manage the operations of the
corporate debtor after the expiry of the corporate insolvency resolution process period, until

an order approving the resolution plan under sub-section (1) of section 31 or appointing a
liquidator under section 34 is passed by the Adjudicating Authority.
(2) The resolution professional shall exercise powers and perform duties as are vested or
conferred on the interim resolution professional under this Chapter.
(3) In case of any appointment of a resolution professional under sub-section (4) of section 22,
the interim resolution professional shall provide all the information, documents and records
pertaining to the corporate debtor in his possession and knowledge to the resolution
professional.
Particulars Details
Duty of resolution  Conduct entire CIRP and
professional  Manage operation of corporate debtor
[Section 27(1)] during CIRP.
Till when Resolution After the expiry of the CIRP but till an order approving the resolution
Professional shall manage plan under sub-section (1) of section 31 or appointing a liquidator
the operations of CD? under section 34 is passed by the Adjudicating Authority.
Powers of resolution He shall exercise powers and perform duties as are vested or
professional conferred on the interim resolution professional.
[Section 27(2)]
If Interim Resolution Then the interim resolution professional shall provide all the
professional is replaced by information, documents and records pertaining to the corporate
another Resolution debtor in his possession and knowledge to the resolution
professional u/s 22(4) professional.
[Section 27(3)]
30. MEETING OF COMMITTEE OF CREDITORS [SECTION 24]

(1) The members of the committee of creditors may meet in person or by such other electronic
means as may be specified.
(2) All meetings of the committee of creditors shall be conducted by the resolution
professional.
(3) The resolution professional shall give notice of each meeting of the committee of creditors
to-
(a) members of committee of creditors, including the authorised representatives referred to in
sub-sections (6) and (6A) of section 21 and sub-section (5)];
(b) members of the suspended Board of Directors or the partners of the corporate persons, as
the case may be;
(c) operational creditors or their representatives if the amount of their aggregate dues is not
less than ten per cent. of the debt.
(4) The directors, partners and one representative of operational creditors, as referred to in
sub-section (3), may attend the meetings of committee of creditors, but shall not have any right
to vote in such meetings:
Provided that the absence of any such director, partner or representative of operational
creditors, as the case may be, shall not invalidate proceedings of such meeting.

(5) Subject to sub-sections (6), (6A) and (6B) of section 21, any creditor who is a member of the
committee of creditors may appoint an insolvency professional other than the resolution
professional to represent such creditor in a meeting of the committee of creditors:
Provided that the fees payable to such insolvency professional representing any individual
creditor will be borne by such creditor.
(6) Each creditor shall vote in accordance with the voting share assigned to him based on the
financial debts owed to such creditor.
(7) The resolution professional shall determine the voting share to be assigned to each creditor
in the manner specified by the Board.
(8) The meetings of the committee of creditors shall be conducted in such manner as may be
specified.
Particulars Details
Mode of meeting  In Person or
[Section 24(1)]  Such permissible electronic means.
Who shall conduct the
All meetings of the committee of creditors shall be conducted by the
meetings of COC?
[Section 24(2)]
Notice by whom? Resolution Professional
Notice to whom?  Members of COC.
 Authorized representatives referred to in
Section 21(6).
a  Authorized representatives referred to
in Section 21(6A).
 Authorized representatives referred to in
Notice concept
Section 24(5).
[Section 24(3)]
 Members of suspended Board of
b Directors or
 Partners of the Corporate persons.
Operational creditors or their
representatives if the amount of their
c
aggregate dues is not less than 10% of the
debt.
 Directors
 Partners and
Persons covered
 One representative of operational creditors
Rights and ineligibilities
(as referred above)
of Certain persons
Right entitled Attend the meetings of COC
[Section 24(4) and
Proviso to Section Dis-entitlement Right to vote
24(4)] The absence of any such director, partner or
What if, aforesaid
representative of operational creditors, as the
persons are
case may be, shall not invalidate proceedings of
absent to meeting?
such meeting.
There is a creditor
Right of representation Condition – 1
Author note: Necessarily a financial creditor.

[Section 24(5) and He shall be a member of COC

Condition – 2
Proviso to Section Author note: Had made his claim.
24(5)] Appoint an insolvency professional other than the
resolution professional to represent such creditor
in a meeting of the committee of creditors.
Right available Note: As per proviso to Section 24(5), fees
payable to such insolvency professional
representing any individual creditor will be
borne by such creditor.
Basis of voting Each creditor shall vote in accordance with the voting share assigned to
[Section 24(6)] him based on the financial debts owed to such creditor.
Determination of voting The resolution professional shall determine the voting share to be
share assigned to each creditor in the manner specified by the Board.
[Section 24(7)]
Manner of conducting The meetings of the committee of creditors shall be conducted in such
meetings manner as may be specified in the regulations.
[Section 24(8)]
31. DUTIES OF RESOLUTION PROFESSIONAL [SECTION 25]

(1) It shall be the duty of the resolution professional to preserve and protect the assets of the
corporate debtor, including the continued business operations of the corporate debtor.
(2) For the purposes of sub-section (1), the resolution professional shall undertake the
following actions, namely: -
(a) take immediate custody and control of all the assets of the corporate debtor, including the
business records of the corporate debtor;
(b) represent and act on behalf of the corporate debtor with third parties, exercise rights for
the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings;
(c) raise interim finances subject to the approval of the committee of creditors under section
28;
(d) appoint accountants, legal or other professionals in the manner as specified by Board;
(e) maintain an updated list of claims;
(f) convene and attend all meetings of the committee of creditors;
(g) prepare the information memorandum in accordance with section 29;
(h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him
with the approval of committee of creditors, having regard to the complexity and scale of
operations of the business of the corporate debtor and such other conditions as may be
specified by the Board, to submit a resolution plan or plans.
(i) present all resolution plans at the meetings of the committee of creditors;
(j) file application for avoidance of transactions in accordance with Chapter III, if any; and
(k) such other actions as may be specified by the Board.
Duty – Contents
Preserve and protect the assets of the corporate debtor.
FOR PRESERVATION AND PROTECTION, RESOLUTION PROFESSIONAL SHALL UNDERTAKE THE
FOLLOWING ACTIONS -----

Take immediate custody and control of all the assets and business records of the corporate debtor.
Represent and act on behalf of the corporate debtor with third parties.
Raise interim finance subject to approval u/s 28.
Appoint accountants, legal and other professionals.
Maintain an updated list of claims.
Convene and attend all meetings of COC.
Prepare information memorandum u/s 29.
Invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with
the approval of committee of creditors, having regard to the complexity and scale of operations of
the business of the corporate debtor and such other conditions as may be specified by the Board,
to submit a resolution plan or plans.
Present all resolution plans at the meetings of the committee of creditors.
32. RIGHTS AND DUTIES OF AUTHORISED REPRESENTATIVES OF FINANCIAL

CREDITORS [SECTION 25A]
(1) The authorised representative under sub-section (6) or sub-section (6A) of section 21 or
sub-section (5) of section 24 shall have the right to participate and vote in meetings of the
committee of creditors on behalf of the financial creditor he represents in accordance with the
prior voting instructions of such creditors obtained through physical or electronic means.
(2) It shall be the duty of the authorised representative to circulate the agenda and minutes of
the meeting of the committee of creditors to the financial creditor he represents.
(3) The authorised representative shall not act against the interest of the financial creditor he
represents and shall always act in accordance with their prior instructions:
Provided that if the authorised representative represents several financial creditors, then he
shall cast his vote in respect of each financial creditor in accordance with instructions received
from each financial creditor, to the extent of his voting share:
Provided further that if any financial creditor does not give prior instructions through physical
or electronic means, the authorised representative shall abstain from voting on behalf of such
creditor.
(3A) Notwithstanding anything to the contrary contained in sub-section (3), the authorised
representative under sub-section (6A) of section 21 shall cast his vote on behalf of all the
financial creditors he represents in accordance with the decision taken by a vote of more than
fifty per cent. of the voting share of the financial creditors he represents, who have cast their
vote:
Provided that for a vote to be cast in respect of an application under section 12A, the authorised
representative shall cast his vote in accordance with the provisions of sub-section (3).
(4) The authorised representative shall file with the committee of creditors any instructions
received by way of physical or electronic means, from the financial creditor he represents, for
voting in accordance therewith, to ensure that the appropriate voting instructions of the
financial creditor he represents is correctly recorded by the interim resolution professional or
resolution professional, as the case may be.
Explanation. -- For the purposes of this section, the "electronic means" shall be such as may be
specified.

Particulars Details
Section 25A deals with rights and duties of authorized
representative as referred to in section 21(6) or Section 21(6A) or
Section 24(5).
What section deals with?
Abstract of section 24(5) – Subject to sub-sections (6), (6A) and (6B) of section 21, any
[Section 25A]
creditor who is a member of the committee of creditors may appoint an insolvency
professional other than the resolution professional to represent such creditor in a
meeting of the committee of creditors.
Rights of authorized Right – 1 Right to represent
representative Right – 2 Right to Participate
[Section 25A(1)] Right – 3 Right to vote
Part 1: General case
To represents the financial creditor in accordance
Duty – 1 with the prior voting instructions of such creditors
obtained through physical or electronic means.
To circulate the agenda and minutes of the
Duty – 2 meeting of the committee of creditors to the
financial creditor he represents.
Shall not act against the interest of the financial
Duty – 3 creditor he represents and shall always act in
accordance with their prior instructions.
To file with the committee of creditors any
instructions received by way of physical or
electronic means, from the financial creditor he
represents, for voting in accordance therewith, to
Duties of authorized Duty – 4
ensure that the appropriate voting instructions of
representative
the financial creditor he represents is correctly
[Section 25A(2), Section
recorded by the interim resolution professional or
25A(3), 1st Proviso to
Section 25A(3), 2nd Proviso
Part 2: Special case
to Section 25A(3), Section
If the authorized representative represents
25A(3A and its Proviso),
What if he several financial creditors, then he shall cast his
Section 25A(4)]
represents vote in respect of each financial creditor in
several FC? accordance with instructions received from each
financial creditor, to the extent of his voting share.
What if, no If any financial creditor does not give prior
prior instructions through physical or electronic means,
instructions the authorised representative shall abstain from
are given? voting on behalf of such creditor.
The authorised representative under sub-section
(6A) of section 21 shall cast his vote on behalf of
Special
all the financial creditors he represents in
provision in
accordance with the decision taken by a vote of
case of AR
more than fifty per cent. of the voting share of the
u/s 21(6A)
financial creditors he represents, who have cast
their vote.

Note: Voting shall be in accordance with

Section 25A(3).
33. REPLACEMENT OF RESOLUTION PROFESSIONAL BY COMMITTEE OF CREDITORS

[SECTION 27]
(1) Where, at any time during the corporate insolvency resolution process, the committee of
creditors is of the opinion that a resolution professional appointed under section 22 is required
to be replaced, it may replace him with another resolution professional in the manner provided
under this section.
(2) The committee of creditors may, at a meeting, by a vote of sixty-six per cent. of voting shares,
resolve to replace the resolution professional appointed under section 22 with another
resolution professional, subject to a written consent from the proposed resolution professional
in the specified form.
(3) The committee of creditors shall forward the name of the insolvency professional proposed
by them to the Adjudicating Authority.
(4) The Adjudicating Authority shall forward the name of the proposed resolution professional
to the Board for its confirmation and a resolution professional shall be appointed in the same
manner as laid down in section 16.
(5) Where any discriplinary proceeding are pending against the proposed resolution
professional under sub-section (3), the resolution professional appointed under section 22
shall continue till the appointment of another professional under the section.
Particulars Details
When replacement
decision may be taken? At any time during corporate insolvency resolution process.
[Section 27(1)]
Decision to replace with Decision to replace the resolution professional appointed under section
whom? 22 with another resolution professional, vests with Committee of
[Section 27(1)] Creditors.
COC shall pass a resolution at a meeting resolved by a vote
of 66% of voting shares to replace the resolution
Step – 1
professional appointed under section 22 with another
Obtain written consent from the proposed resolution
Step – 2
professional.
Committee of creditors shall forward the name of the
Procedure to replace
Step – 3 insolvency professional proposed by them to the
[Section 27(2), (3) and
Adjudicating Authority.
(4)]
The Adjudicating Authority shall forward the name of the
Step – 4 proposed resolution professional to the Board for its
confirmation.
Appoint the resolution professional in the same manner as
Step – 5
provided in section 16.
Note: Where any disciplinary proceeding are pending against the
proposed resolution professional under sub-section (3), the

resolution professional appointed under section 22 shall continue

till the appointment of another professional under the section.
34. APPROVAL OF COMMITTEE OF CREDITORS FOR CERTAIN ACTIONS [SECTION

28]
Particulars Details
The resolution professional, during the corporate insolvency resolution
process, shall not take any of the following actions without the prior
approval of the committee of creditors namely -----
Action Details
Raise any interim finance in excess of the amount as may be
1
decided by the committee of creditors.
Create any security interest over the assets of the corporate
2
debtor.
Actions of RP that Change the capital structure of the corporate debtor,
requires prior approval including by way of issuance of additional securities, creating
3
of COC a new class of securities or buying back or redemption of
[Section 28(1)] issued securities in case the corporate debtor is a company.
4 Undertake any related party transaction.
Amend any constitutional documents of the corporate
5
debtor.
6 Delegate its authority to any other person.
Make any change in the management of the corporate debtor
7
or its subsidiary.
Make changes in the appointment or terms of contract of such
8
personnel as specified by the committee of creditors.
The resolution professional shall convene a meeting of the committee of
Conducting a meeting
creditors and seek the vote of the creditors prior to taking any of the
[Section 28(2)]
actions as aforesaid.
Voting pattern No action as aforesaid shall be approved by the committee of creditors
[Section 28(3)] unless approved by a vote of 66% of the voting shares.
Position of acts done in Where any action under sub-section (1) is taken by the resolution
contravention professional without seeking the approval of the committee of creditors
[Section 28(4)] in the manner as required in this section, such action shall be void.
Right of COC to refer the The committee of creditors may report the actions of the resolution
contravention professional under sub-section (4) to the Board for taking necessary
[Section 28(5)] actions against him under this Code.
35. PREPARATION OF INFORMATION MEMORANDUM [SECTION 29]

(1) The resolution professional shall prepare an information memorandum in such form and
manner containing such relevant information as may be specified by the Board for formulating
a resolution plan.
(2) The resolution professional shall provide to the resolution applicant access to all relevant
information in physical and electronic form, provided such resolution applicant undertakes—

(a) to comply with provisions of law for the time being in force relating to confidentiality and
insider trading;
(b) to protect any intellectual property of the corporate debtor it may have access to; and
(c) not to share relevant information with third parties unless clauses (a) and (b) of this sub-
section are complied with.
Explanation.—For the purposes of this section, “relevant information” means the information
required by the resolution applicant to make the resolution plan for the corporate debtor,
which shall include the financial position of the corporate debtor, all information related to
disputes by or against the corporate debtor and any other matter pertaining to the corporate
debtor as may be specified.
Particulars Details
Who shall prepare the Resolution professional
information memorandum?
How IM should be? It should in accordance with the
model specified by IBBI.
What is the need for IM? Formulating Resolution plan
Note:
As per Section 5(26), Resolution plan means a plan proposed by
Preparation of
resolution applicant for insolvency resolution of the corporate debtor as
information
a going concern in accordance with Part II.
memorandum
Explanation–For removal of doubts, it is hereby clarified that a
[Section 29(1)]
resolution plan may include provisions for the restructuring of the
corporate debtor, including by way of merger, amalgamation and
demerger.
As per Section 5(25), Resolution applicant means a person, who
individually or jointly with any other person, submits a resolution plan
to the resolution professional pursuant to the invitation made under
clause (h) of sub-section (2) of section 25.
The resolution professional shall provide to the resolution applicant
access to all relevant information in physical and electronic form.
Note:
Source for preparing a As per Explanation below Section 29, Relevant information means the
Resolution Plan information required by the resolution applicant to make the resolution
[Section 29(2)] plan for the corporate debtor, which shall include the financial position
of the corporate debtor, all information related to disputes by or against
the corporate debtor and any other matter pertaining to the corporate
debtor as may be specified.
Information memorandum shall be submitted to the resolution applicant
by the resolution professional if and only if the resolution applicant
Undertaking by the
undertakes -----
Resolution applicant
 To comply with provisions of law for the time being in force
relating to confidentiality and insider trading.
Section 29(2)(c)]
 To protect any intellectual property of the corporate debtor it
may have access to.

 Not to share relevant information with third parties unless

clauses (a) and (b) of this sub-section are complied with.
36. PERSONS NOT ELIGIBLE TO BE RESOLUTION APPLICANT [SECTION 29A]

Particulars Details
 Undischarged insolvent [Section 29A(a)]
 Wilful defaulter in accordance with the guidelines of the Reserve Bank.
[Section 29A(b)]
 At the time of submission of the resolution plan ----- [Section 29A(c)]
 Such person has an account or
 Corporate debtor under the management or control of such person has an
account or
 In whom such person is a promoter has an account
In all 3 cases of clause c as aforesaid -----

Condition 1: Such account is classified as NPA in accordance with the
guidelines of the RBI or the guidelines of a financial sector regulator AND
Condition 2: At least a period of 1 year has lapsed from the date of such
classification till the date of commencement of the corporate insolvency
resolution process of the corporate debtor.
+
Exception to above ineligibility: Person shall be eligible to submit a
resolution plan if such person makes payment of all overdue amounts with
In eligibilities interest thereon and charges relating to non-performing asset accounts before
submission of resolution plan. [Proviso 1 to Section 29A(c)]
Non – applicability of ineligibility: This ineligibility shall not apply to a
resolution applicant where such applicant is a financial entity and is not a
related party to the corporate debtor. [Proviso 2 to Section 29A(c)]
+
Non – inclusion into the term related party: For the purposes of this proviso,
the expression "related party" shall not include a financial entity, regulated by
a financial sector regulator, if it is a financial creditor of the corporate debtor
and is a related party of the corporate debtor solely on account of conversion
or substitution of debt into equity shares or instruments convertible into
equity shares or completion of such transactions as may be prescribed, prior to
the insolvency commencement date. [Explanation I below Section 29A(c)]
Non – applicability of Clause c in certain cases: For the purposes of this
clause, where a resolution applicant has an account, or an account of a
corporate debtor under the management or control of such person or of whom
such person is a promoter, classified as non-performing asset and such account
was acquired pursuant to a prior resolution plan approved under this Code,
then, the provisions of this clause shall not apply to such resolution applicant
for a period of three years from the date of approval of such resolution plan by
the Adjudicating Authority under this Code. [Explanation II below Section
29A(c)]
 Has been convicted for any offence punishable with imprisonment -----
 For 2 years or more under any Act specified under the Twelfth Schedule or
 For 7 years or more under any law for the time being in force.
Exception 1: This ineligibility shall not apply to a person after the expiry of a
period of two years from the date of his release from imprisonment. [1st Proviso
to Section 29A(d)]
Exception 2: This ineligibility shall not apply in relation to a connected person
referred to in clause(iii) of Explanation I. [2nd Proviso to Section 29A(d)]
 Is disqualified to act as a director under the Companies Act, 2013.
Exception: This ineligibility shall not apply in relation to a connected person
referred to in clause(iii) of Explanation I. [Proviso to Section 29A(e)]
 Is prohibited by the Securities and Exchange Board of India from trading in
securities or accessing the securities markets.
 Has been a promoter or in the management or control of a corporate debtor in
which a preferential transaction, undervalued transaction, extortionate credit
transaction or fraudulent transaction has taken place and in respect of which
an order has been made by the Adjudicating Authority under this Code.
Exception: This ineligibility shall not apply if a preferential transaction,
undervalued transaction, extortionate credit transaction or fraudulent transaction
has taken place prior to the acquisition of the corporate debtor by the resolution
applicant pursuant to a resolution plan approved under this Code or pursuant to a
scheme or plan approved by a financial sector regulator or a court, and such
resolution applicant has not otherwise contributed to the preferential transaction,
undervalued transaction, extortionate credit transaction or fraudulent
transaction.
 Has executed a guarantee in favour of a creditor in respect of a corporate
debtor against which an application for insolvency resolution made by such
creditor has been admitted under this Code and such guarantee has been
invoked by the creditor and remains unpaid in full or part.
 Is subject to any disability, corresponding to clauses (a) to (h), under any law
in a jurisdiction outside India.
 Has a connected person not eligible under clauses (a) to (i).
Meaning of the term ‘Connected person’: [Explanation I to Section 29A(j)]
(i) Any person who is the promoter or in the management or control of the
resolution applicant; or
(ii) Any person who shall be the promoter or in management or control of the
business of the corporate debtor during the implementation of the
resolution plan; or
(iii) The holding company, subsidiary company, associate company or related
party of a person referred to in clauses (i) and (ii).
Exception 1: Nothing in clause (iii) of Explanation I shall apply to a resolution
applicant where such applicant is a financial entity and is not a related party of the
corporate debtor. [1st Proviso to Section 29A(j)]
Exception 2: The expression "related party" shall not include a financial entity,
regulated by a financial sector regulator, if it is a financial creditor of the corporate
debtor and is a related party of the corporate debtor solely on account of
conversion or substitution of debt into equity shares or instruments convertible

into equity shares or completion of such transactions as may be prescribed, prior

to the insolvency commencement date. [2nd Proviso to Section 29A(j)]
Meaning of the term ‘Financial entity’: [Explanation II below Section 29A]
For the purposes of this section, "financial entity" shall mean the following entities
which meet such criteria or conditions as the Central Government may, in
consultation with the financial sector regulator, notify in this behalf, namely:—
(a) a scheduled bank;
(b) any entity regulated by a foreign central bank or a securities market regulator
or other financial sector regulator of a jurisdiction outside India which jurisdiction
is compliant with the Financial Action Task Force Standards and is a signatory to
the International Organisation of Securities Commissions Multilateral
Memorandum of Understanding;
(c) any investment vehicle, registered foreign institutional investor, registered
foreign portfolio investor or a foreign venture capital investor.
(d) an asset reconstruction company register with the Reserve Bank of India under
section 3 of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002.
(e) an Alternate Investment Fund registered with Securities and Exchange Board
of India.
(f) such categories of persons as may be notified by the Central Government.
37. SUBMISSION OF RESOLUTION PLAN [SECTION 30]

(1) A resolution applicant may submit a resolution plan along with an affidavit stating that he
is eligible under section 29A to the resolution professional prepared on the basis of the
information memorandum.
(2) The resolution professional shall examine each resolution plan received by him to confirm
that each resolution plan -
(a) provides for the payment of insolvency resolution process costs in a manner specified by
the Board in priority to the payment of other debts of the corporate debtor;
(b) provides for the payment of debts of operational creditors in such manner as may be
specified by the Board which shall not be less than-
(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor
under section 53; or
(ii) the amount that would have been paid to such creditors, if the amount to be distributed
under the resolution plan had been distributed in accordance with the order of priority in sub-
section (1) of section 53,
whichever is higher, and provides for the payment of debts of financial creditors, who do not
vote in favour of the resolution plan, in such manner as may be specified by the Board, which
shall not be less than the amount to be paid to such creditors in accordance with sub-section
(1) of section 53 in the event of a liquidation of the corporate debtor.
Explanation 1. — For removal of doubts, it is hereby clarified that a distribution in accordance
with the provisions of this clause shall be fair and equitable to such creditors.
Explanation 2. — For the purpose of this clause, it is hereby declared that on and from the date
of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the
provisions of this clause shall also apply to the corporate insolvency resolution process of a
corporate debtor-
(i) where a resolution plan has not been approved or rejected by the Adjudicating Authority;

(ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not
time barred under any provision of law for the time being in force; or
(iii) where a legal proceeding has been initiated in any court against the decision of the
Adjudicating Authority in respect of a resolution plan;
(c) provides for the management of the affairs of the Corporate debtor after approval of the
resolution plan;
(d) The implementation and supervision of the resolution plan;
(e) does not contravene any of the provisions of the law for the time being in force
(f) confirms to such other requirements as may be specified by the Board.
Explanation. — For the purposes of clause (e), if any approval of shareholders is required under
the Companies Act, 2013(18 of 2013) or any other law for the time being in force for the
implementation of actions under the resolution plan, such approval shall be deemed to have
been given and it shall not be a contravention of that Act or law.
(3) The resolution professional shall present to the committee of creditors for its approval such
resolution plans which confirm the conditions referred to in sub-section (2).
(4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-
six per cent. of voting share of the financial creditors, after considering its feasibility and
viability, the manner of distribution proposed, which may take into account the order of
priority amongst creditors as laid down in sub-section (1) of section 53, including the priority
and value of the security interest of a secured creditor and such other requirements as may be
specified by the Board:
Provided that the committee of creditors shall not approve a resolution plan, submitted before
the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017,
where the resolution applicant is ineligible under section 29A and may require the resolution
professional to invite a fresh resolution plan where no other resolution plan is available with
it:
Provided further that where the resolution applicant referred to in the first proviso is ineligible
under clause (c) of section 29A, the resolution applicant shall be allowed by the committee of
creditors such period, not exceeding thirty days, to make payment of overdue amounts in
accordance with the proviso to clause (c) of section 29A:
Provided also that nothing in the second proviso shall be construed as extension of period for
the purposes of the proviso to sub-section (3) of section 12, and the corporate insolvency
resolution process shall be completed within the period specified in that sub-section:
Provided also that the eligibility criteria in section 29A as amended by the Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who
has not submitted resolution plan as on the date of commencement of the Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2018.
(5) The resolution applicant may attend the meeting of the committee of creditors in which the
resolution plan of the applicant is considered:
Provided that the resolution applicant shall not have a right to vote at the meeting of the
committee of creditors unless such resolution applicant is also a financial creditor.
(6) The resolution professional shall submit the resolution plan as approved by the committee
of creditors to the Adjudicating Authority.

Particulars Details
Particulars Content
Who shall submit? Resolution applicant
Submit to whom? Submit to the resolution professional
Submission of
What shall be submitted? Resolution plan
Resolution plan
What is the basis of
[Section 30(1)] Information Memorandum
preparing resolution plan?
Affidavit that applicant is eligible u/s
Attachments?
29A.
The resolution professional shall examine each resolution plan received
by him to confirm that each resolution plan -----
Sl.no Requirement
Provides for the payment of insolvency resolution process
1 costs in priority to the payment of other debts of the corporate
debtor.
Provides for the payment of debts of operational creditors
which shall not be less than -----
The amount to be paid to such creditors in the event of a
liquidation of the corporate debtor under section 53 or
The amount that would have been paid to such creditors, if
the amount to be distributed under the resolution plan had
been distributed in accordance with the order of priority in
sub-section (1) of section 53.
whichever is higher
Examination of +
Resolution plan to meet
certain requirements Provides for the payment of debts of financial creditors, who do
[Section 30(2)] not vote in favour of the resolution plan which shall not be less
than the amount to be paid to such creditors in accordance with
2 sub-section (1) of section 53 in the event of a liquidation of the
corporate debtor.
Notes:
As per explanation I, it is hereby clarified that a distribution
in accordance with the provisions of this clause shall be fair and
equitable to such creditors.
As per explanation II, it is hereby declared that on and from
the date of commencement of the Insolvency and Bankruptcy
Code (Amendment) Act, 2019, the provisions of this clause
shall also apply to the corporate insolvency resolution process
of a corporate debtor-
(i) where a resolution plan has not been approved or rejected
by the Adjudicating Authority;
(ii) where an appeal has been preferred under section 61 or
section 62 or such an appeal is not time barred under any
provision of law for the time being in force; or

(iii) where a legal proceeding has been initiated in any court

against the decision of the Adjudicating Authority in respect of
a resolution plan.
Provides for the management of the affairs of the Corporate
3
debtor after approval of the resolution plan.
4 The implementation and supervision of the resolution plan.
Does not contravene any of the provisions of the law for the
5
time being in force.
Confirms to such other requirements as may be specified by the
6
Board.
Resolution plan to be in
The resolution professional shall present to the committee of creditors
compliance with sub-
for its approval such resolution plans which confirm the conditions
section 2
referred to in sub-section (2).
[Section 30(3)]
Particulars Details
Who shall approve? Committee of Creditors
Factors to be  Feasibility and Viability
considered by COC  Manner of distribution proposed as per
before approval section 53(1).
Voting requirement Vote of not less than 66% of voting share of the
financial creditors.
Notes:
As per 1st proviso to Section 30(4), the committee of creditors shall not
approve a resolution plan, submitted before the commencement of the
Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 where
the resolution applicant is ineligible under section 29A and may require
the resolution professional to invite a fresh resolution plan where no
other resolution plan is available with it. (Concept of Section 29A was
Approval of COC brought by aforesaid Ordinance)
[Section 30(4)] As per 2nd proviso to Section 30(4), where the resolution applicant
referred to in the first proviso is ineligible under clause (c) of section 29A,
the resolution applicant shall be allowed by the committee of creditors
such period, not exceeding thirty days, to make payment of overdue
amounts in accordance with the proviso to clause (c) of section 29A.
As per 3rd proviso to Section 30(4), nothing in the second proviso shall
be construed as extension of period for the purposes of the proviso to
sub-section (3) of section 12, and the corporate insolvency resolution
process shall be completed within the period specified in that sub-
section.
As per 4th proviso to Section 30(4), the eligibility criteria in section 29A
as amended by the Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2018 shall apply to the resolution applicant who has not
submitted resolution plan as on the date of commencement of the
Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.
Right of Resolution Rights  Right to attend the meeting in which resolution
applicant to attend plan of the applicant is considered.
meetings of COC

[Section 30(5) and  Right to represent

Proviso to Section  Right to vote only if such resolution applicant is a
30(5)] financial creditor.
Ineligibility Cannot vote if he is not a financial creditor.
Submission of
The resolution professional shall submit the resolution plan as approved
Resolution plan to AA
by the committee of creditors to the Adjudicating Authority.
[Section 30(6)]
38. APPROVAL OF RESOLUTION PLAN [SECTION 31]

(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the
committee of creditors under sub-section (4) of section 30 meets the requirements as referred
to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be
binding on the corporate debtor and its employees, members, creditors, including the Central
Government, any State Government or any local authority to whom a debt in respect of the
payment of dues arising under any law for the time being in force, such as authorities to whom
statutory dues are owed, guarantors and other stakeholders involved in the resolution plan.
Provided that the Adjudicating Authority shall, before passing an order for approval of
resolution plan under this sub-section, satisfy that the resolution plan has provisions for its
effective implementation.
(2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to
the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.
(3) After the order of approval under sub-section (1), -
(a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to
have effect; and
(b) the resolution professional shall forward all records relating to the conduct of the corporate
insolvency resolution process and the resolution plan to the Board to be recorded on its
database.
(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section
(1), obtain the necessary approval required under any law for the time being in force within a
period of one year from the date of approval of the resolution plan by the Adjudicating
Authority under sub-section (1) or within such period as provided for in such law, whichever
is later:
Provided that where the resolution plan contains a provision for combination, as referred to in
section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the
Competition Commission of India under that Act prior to the approval of such resolution plan
by the committee of creditors.
Particulars Details
Approval by whom? Adjudicating authority
Approval of what? Resolution plan already approved under
Approval of Resolution section 30(4) by the COC.
plan by AA Pre-requisite to Resolution plan meets the requirements as
[Section 31(1) and its sanction approval? referred to in Section 30(2).
proviso] Binding effect of The order shall bind -----
approval order of AA?  Corporate Debtor
 Employees of Corporate Debtor

 Members of Corporate Debtor

 Creditors of Corporate Debtor.
 Central Government
 State Government
 Local authority
 Guarantors and
 Other Stakeholders
Note: As per proviso to Section 31(1), Adjudicating Authority shall,
before passing an order for approval of resolution plan satisfy that the
resolution plan has provisions for its effective implementation.
What if, the resolution
plan is not in accordance
AA may, by an order, reject the resolution plan.
with Section 31(1)?
[Section 31(2)]
 Moratorium order passed by the AA shall cease to have effect.
Effect of approval order
 The RP shall forward all records relating to the conduct of the CIRP
[Section 31(3)]
and the resolution plan to the IBBI to be recorded on its database.
Condition – 1 Resolution applicant might have submitted a
resolution plan.
Condition – 2 That resolution plan is approved by the AA as per
section 31(1).
Condition – 3 Such resolution plan requires approvals from other
laws in force.
Result Resolution applicant shall obtain the approvals under
Compliance with other
other laws within a period of -----
laws
 1 year from the date of approval of the
[Section 31(4) and
resolution plan by the AA (or)
Proviso to Section
31(4)]  Within such period as provided for in such
law.
Whichever is Later.
Note: As per proviso to Section 31(4), where the resolution plan
contains a provision for combination, as referred to in section 5 of the
Competition Act, 2002, the resolution applicant shall obtain the approval
of the Competition Commission of India under that Act prior to the
approval of such resolution plan by the committee of creditors.
39. APPEAL [SECTION 32]

Particulars Details
Any appeal from an order approving the resolution plan shall be in the
Procedure
manner and on the grounds laid down in sub-section (3) of section 61.
 The approved resolution plan is in contravention of the provisions of
any law for the time being in force.
Grounds of appeal u/s
 There has been material irregularity in exercise of the powers by the
61(3)
resolution professional during the corporate insolvency resolution
period.

 The debts owed to operational creditors of the corporate debtor have

not been provided for in the resolution plan in the manner specified
by the board.
 The insolvency resolution process costs have not been provided for
repayment in priority to all other debts.
 The resolution plan does not comply with any other criteria specified
by the board.
40. INITIATION OF LIQUIDATION [SECTION 33]

Particulars Details
Power with whom? Adjudicating Authority
 Adjudicating Authority before the expiry of the insolvency
resolution process period or the maximum period permitted for
completion of the corporate insolvency resolution process under
Grounds for initiating section 12 does not receive a resolution plan under sub-section (6)
liquidation of section 30.
[Section 33(1)(a) and  Adjudicating Authority before the expiry of the fast track
Section 33(1)(b)] corporate insolvency resolution process under section 56 does not
receive a resolution plan under sub-section (6) of section 30.
 Adjudicating Authority rejects the resolution plan under section
31 for the non-compliance of the requirements specified therein.
 Adjudicating Authority shall pass an order requiring the corporate
Effect of attracting the debtor to be liquidated in the manner as laid down in this Chapter.
grounds  Adjudicating Authority shall issue a public announcement stating
[Section Section that the corporate debtor is in liquidation.
33(1)(b)(i)(ii) and (iii)]  Adjudicating Authority shall require such order to be sent to the
authority with which the corporate debtor is registered.
Ground – 1 Condition Where the resolution professional, at
any time during the corporate
insolvency resolution process but
before confirmation of resolution plan,
intimates the Adjudicating Authority
of the decision of the committee of
Other miscellaneous creditors approved by not less than
grounds for initiating 66% of the voting share to liquidate
liquidation the corporate debtor.
[Section 33(2), Section As per explanation below section
33(3) and Section 33(4)] 33(2), it is hereby declared that the
committee of creditors may take the
decision to liquidate the corporate
debtor, any time after its constitution
under sub-section (1) of section 21
and before the confirmation of the
resolution plan, including at any time

before the preparation of the

information memorandum.
Duty of The Adjudicating Authority shall pass
Adjudicating a liquidation order as referred to in
Authority sub-clauses (i), (ii) and (iii) of clause
(b) of sub-section (1).
Ground – 2 Condition Where the resolution plan approved
by the Adjudicating Authority is
contravened by the concerned
corporate debtor, any person other
than the corporate debtor, whose
interests are prejudicially affected by
such contravention, may make an
application to the Adjudicating
Authority for a liquidation order.
Duty of AA On receipt of an application under
sub-section (3), if the Adjudicating
Authority determines that the
corporate debtor has contravened the
provisions of the resolution plan, it
shall pass a liquidation order as
referred to in sub-clauses (i), (ii) and
(iii) of clause (b) of sub-section (1).
41. APPOINTMENT OF LIQUIDATOR [SECTION 34]

Particulars Details
Adjudicating Authority passes an order for liquidation of the corporate
1
debtor under section 33.
The resolution professional appointed for the corporate insolvency
Process steps
resolution process subject to submission of a written consent by the
[Section 34(1)]
2 resolution professional to the Adjudicatory Authority in specified form act
as the liquidator for the purposes of liquidation unless replaced by the
Adjudicating Authority.
Powers of On the appointment of a liquidator under this section, all powers of the board of
liquidator directors, key managerial personnel and the partners of the corporate debtor, as
[Section 34(2)] the case may be, shall cease to have effect and shall be vested in the liquidator.
42. POWERS AND DUTIES OF LIQUIDATOR [SECTION 35]

Particulars Details
1 To verify claims of all the creditors.
To take into his custody or control all the assets, property, effects and
2
actionable claims of the corporate debtor.
Duties
3 To evaluate the assets and property of the corporate debtor.
To take such measures to protect and preserve the assets and properties
4
of the corporate debtor.

To carry on the business of the corporate debtor for its beneficial

5
liquidation.
43. LIQUIDATION ESTATE [SECTION 36]
Particulars Details
Who shall form? For the purposes of liquidation, the liquidator shall form
Basics an estate of the assets mentioned in sub-section (3).
[Section 36(1)] Name? Such estate shall be called as liquidation estate in relation
to the corporate debtor.
Duty of liquidator The liquidator shall hold the liquidation estate as a fiduciary for the benefit of
[Section 36(2)] all the creditors.
Any assets over which the corporate debtor has ownership rights and
a interests including shares held in any subsidiary of the corporate
debtor.
Assets that may or may not be in possession of the corporate debtor
b
including but not limited to encumbered assets.
c Tangible assets, whether movable or immovable.
Intangible assets including but not limited to intellectual property,
securities (including shares held in a subsidiary of the corporate
d
Inclusions into debtor) and financial instruments, insurance policies, contractual
liquidation estate rights.
[Section 36(3)] Assets subject to the determination of ownership by the court or
e
authority.
Any assets or their value recovered through proceedings for avoidance
f
of transactions.
Any asset of the corporate debtor in respect of which a secured creditor
g
has relinquished security interest.
Any other property belonging to or vested in the corporate debtor at
h
the insolvency commencement date.
i All proceeds of liquidation as and when they are realised.
Assets owned by a third party which are in possession of the corporate
debtor, including -----
 Assets held in trust for a third party.
 Bailment contracts.
 All sums due to any workman or employee from the provident fund,
a
the pension fund and the gratuity fund.
Non-inclusions  Other contractual arrangements which do not stipulate transfer of
into the liquidation title but only use of the assets.
estate  Such other assets as may be notified by the central government in
[Section 36(4)] consultation with any financial sector regulator.
Assets in security collateral held by financial services providers and are
b subject to netting and set-off in multi-lateral trading or clearing
transactions.
personal assets of any shareholder or partner of a corporate debtor as
c the case may be provided such assets are not held on account of
avoidance transactions that may be avoided under this Chapter.

d Assets of any Indian or foreign subsidiary of the corporate debtor.

e any other assets as may be specified by the Board.
44. CONSOLIDATION OF CLAIMS [SECTION 38]

Particulars Details
Duty of liquidator The liquidator shall receive or collect the claims of creditors within a period of
[Section 38(1)] 30 days from the date of the commencement of the liquidation process.
A financial creditor may submit a claim to the liquidator by providing a record
Right of financial of such claim with an information utility.
creditor Note: As per proviso to section 38(2), where the information relating to the
[Section 38(2) claim is not recorded in the information utility, the financial creditor may
and proviso] submit the claim in the same manner as provided for the submission of claims
for the operational creditor under sub-section (3).
Right of
An operational creditor may submit a claim to the liquidator in such form and
operational
in such manner and along with such supporting documents required to prove
creditor
the claim as may be specified by the Board.
[Section 38(3)]
A creditor who is partly a financial creditor and partly an operational creditor
Joint status shall submit claims to the liquidator to the extent of his financial debt in the
[Section 38(4)] manner as provided in sub-section (2) and to the extent of his operational debt
under sub-section (3).
Withdrawal of
A creditor may withdraw or vary his claim under this section within 14 days
claim
of its submission.
[Section 38(5)]
45. CONNECTED ISSUES TO SECTION 38 [SECTION 39 TO SECTION 42]

Particulars Details
Duty of liquidator The liquidator shall verify the claims submitted
[Section 39(1)] under section 38 within such time as specified by the
Board.
Verification of
Power of liquidator The liquidator may require any creditor or the
claims
[Section 39(2)] corporate debtor or any other person to produce any
[Section 39]
other document or evidence which he thinks
necessary for the purpose of verifying the whole or
any part of the claim.
Power of liquidator The liquidator may, after verification of claims under
[Section 40(1) and section 39, either admit or reject the claim, in whole
proviso] or in part, as the case may be.
Admission or
Note: As per proviso to section 40(1), where the
rejection of claims
liquidator rejects a claim, he shall record in writing
[Section 40]
the reasons for such rejection.
Duty of liquidator The liquidator shall communicate his decision of
[Section 40(2)] admission or rejection of claims to the creditor and

corporate debtor within seven days of such

admission or rejection of claims.
Determination of
The liquidator shall determine the value of claims admitted under section 40
valuation of claims
in such manner as may be specified by the Board.
[section 41]
Appeal against the
A creditor may appeal to the Adjudicating Authority against the decision of the
decision of
liquidator accepting or rejecting the claims within 14 days of the receipt of
liquidator
such decision.
[Section 42]
46. PREFERENTIAL TRANSACTIONS AND RELEVANT TIME [SECTION 43]

Particulars Details
What section emphasizes Avoidance of preferential transactions.
Who shall apply to AA?  Liquidator or
 Resolution professional
Application for fraudulent Application to whom? Adjudicating Authority
preference Grounds of application Corporate debtor has at a relevant time
[Section 43(1)] given a preference in such transactions
and in such manner as laid down in
sub-section (2) to any persons as
referred to in sub-section (4).
Party covered Relevant time
Related party During the period of 2 years
Persons covered by the
(other than by reason only of preceding the insolvency
prohibition and relevant
being an employee). commencement date.
time
Person other than a related During the period of one year
[Section 43(4)]
party preceding the insolvency
commencement date.
Inclusions Exclusions
There is a transfer of property or Transfer made in the ordinary
an interest thereof of the course of the business or
corporate debtor for the benefit financial affairs of the corporate
of a creditor or a surety or a debtor or the transferee.
guarantor for or on account of an
antecedent financial debt or
Fraudulent preference –
operational debt or other
Inclusions and exclusions
liabilities owed by the corporate
[Section 43(2)(a), (b) and
debtor.
Section 43(3)(a), (b)]
The transfer under clause (a) Any transfer creating a security
has the effect of putting such interest in property acquired by
creditor or a surety or a the corporate debtor to the
guarantor in a beneficial extent that—
position than it would have been (i) Such security interest secures
in the event of a distribution of new value and was given at
the time of or after the signing

assets being made in accordance of a security agreement that

with section 53. contains a description of such
property as security interest
and was used by corporate
debtor to acquire such
property; and
(ii) Such transfer was registered
with an information utility
on or before thirty days after
the corporate debtor
receives possession of such
property.
For the purpose of sub-section (3) of this section, “new value” means
money or its worth in goods, services, or new credit, or release by the
transferee of property previously transferred to such transferee in a
Meaning of the term
transaction that is neither void nor voidable by the liquidator or the
“New value”
resolution professional under this Code, including proceeds of such
property, but does not include a financial debt or operational debt
substituted for existing financial debt or operational debt.
47. AVOIDANCE OF UNDERVALUED TRANSACTIONS [SECTION 45]

Particulars Details
A transaction shall be considered undervalued where the corporate debtor ---
Makes a gift to a person or
What are Enters into a transaction with a person which involves the transfer of one or
undervalued more assets by the corporate debtor for a consideration the value of which
transactions? is significantly less than the value of the consideration provided by the
[Section 45(2)] corporate debtor.
In both the above cases, such transaction has not taken place in the ordinary
course of business of the corporate debtor.
Particulars Details
 Liquidator or
Application by whom?
 Resolution Professional
Effect of Application to whom? Adjudicating Authority
undervalued  To declare such transactions as void and
Why application?
transactions  Reverse the effect of such transaction.
[Section 45(1)] Application on what On an examination of the transactions of the
basis? corporate debtor referred to in sub-section (2).
Undervalued during Undervalued during the relevant period under
which period? section 46.
48. RELEVANT PERIOD FOR AVOIDABLE TRANSACTIONS [SECTION 46]

Particulars Details

In an application for avoiding a transaction at undervalue, the liquidator or the

What is the duty resolution professional, as the case may be, shall demonstrate that—
cast on liquidator Such transaction was made with any person within the period of one year
or resolution preceding the insolvency commencement date; or
professional? Such transaction was made with a related party within the period of two
[Section 45(2)] years preceding the insolvency commencement date.is significantly less
than the value of the consideration provided by the corporate debtor.
Particulars Details
Power of AA to
Power with whom? Adjudicating Authority
have an
The Adjudicating Authority may require an
independent
independent expert to assess evidence relating to
assessment Nature of power?
the value of the transactions mentioned in this
[Section 45(1)]
section.
49. APPLICATION BY CREDITORS IN CASE OF UNDERVALUED TRANSACTIONS

[SECTION 47]
Particulars Details
When Section gets Where an undervalued transaction has taken place and the liquidator or the
attracted? resolution professional as the case may be, has not reported it to the
[Section 47(1)] Adjudicating Authority.
A creditor, member or a partner of a corporate debtor, as the case may be, may
Remedy available?
make an application to the adjudicating authority to declare such transactions
[Section 47(1)]
void and reverse their effect in accordance with this chapter.
Where the Adjudicating Authority, after examination of the application made
Opinion of AA under sub-section (1), is satisfied that—
[Section 47(2)(a) Undervalued transactions had occurred; and
and Section Liquidator or the Resolution Professional, as the case may be, after having
47(2)(b)] sufficient information or opportunity to avail information of such
transactions did not report such transaction to the Adjudicating Authority.
Adjudicating Authority shall pass an order -----
Restoring the position as it existed before such transactions and reversing
Power of AA
the effects thereof in the manner as laid down in section 45 and section 48.
[Section 47(2)]
Requiring the Board to initiate disciplinary proceedings against the
liquidator or the resolution professional as the case may be.
50. TRANSACTIONS DEFRAUDING CREDITORS [SECTION 49]

Particulars Details
When section gets
Where the corporate debtor has entered into an undervalued transaction as
attracted?
referred to in sub-section (2) of section 45 and the Adjudicating Authority is
[Section 49(a)
satisfied that such transaction was deliberately entered into by such corporate
and Section
debtor -----
49(b)]

For keeping assets of the corporate debtor beyond the reach of any person
who is entitled to make a claim against the corporate debtor; or
In order to adversely affect the interests of such a person in relation to the
claim.
Order of AA  Restoring the position as it existed before such transaction as if the
[Section 49(i) and transaction had not been entered into; and
Section 49(ii)]  Protecting the interests of persons who are victims of such transactions.
51. EXTORTINATE4 CREDIT TRANSACTIONS [SECTION 50]

Particulars Details
Where the corporate debtor has been a party to an extortionate credit
transaction involving the receipt of financial or operational debt during the
When section gets period within two years preceding the insolvency commencement date.
attracted? Note: As per explanation below section 50, it is clarified that any debt
[Section 50 (1)] extended by any person providing financial services which is in compliance
with any law for the time being in force in relation to such debt shall in no
event be considered as an extortionate credit transaction.
Relevant period During the period within 2 years preceding the insolvency commencement
[Section 50(1)] date.
Particulars Details
 Liquidator or
Application by whom?
 Resolution Professional
Application
[Section 50(1)] Application to whom? Adjudicating Authority
Avoidance of such transaction if the terms of such
Purpose of application transaction required exorbitant5 payments to be
made by the corporate debtor.
Power of AA to
The Board may specify the circumstances in which a transaction which shall
specify nature
be covered under sub-section (1).
[Section 50(2)]
52. SECURED CREDITOR IN LIQUIDATION PROCEEDINGS [SECTION 52]

Particulars Details
A secured creditor in the liquidation proceedings may—
Options available
Relinquish its security interest to the liquidation estate and
to Secured Creditor
Option – 1 receive proceeds from the sale of assets by the liquidator in
[Section 52(1)(a)
the manner specified in section 53.
and
Realize its security interest in the manner specified in this
Section 52(1)(b)] Option – 2
section.
4
Extortion = The practice of obtaining something, especially money, through force or threats
5
Exorbitant = Unreasonably higher prices
What if, secured

Where the secured creditor realises security interest under clause (b) of sub-
creditor realizes
section (1), he shall inform the liquidator of such security interest and identify
security interest?
the asset subject to such security interest to be realised.
[Section 50(2)]
Before any security interest is realised by the secured creditor under this
section, the liquidator shall verify such security interest and permit the
secured creditor to realise only such security interest, the existence of which
Duty of Liquidator may be proved either—
[Section 50(3)]
By the records of such security interest maintained by an information
a
utility.
b By such other means as may be specified by the Board.
53. DISTRIBUTION OF ASSETS [SECTION 53]

Particulars Details
The proceeds from the sale of the liquidation assets shall be distributed in
the following order of priority and within such period and in such manner as
may be specified, namely -----
The insolvency resolution process costs and the liquidation
Step – 1
costs paid in full.
The following debts which shall rank equally between and
among the following -----
Workmen’s dues for the period of 24 months preceding
a
Step – 2 the liquidation commencement date.
Debts owed to a secured creditor in the event such
b secured creditor has relinquished security in the
Manner of manner set out in section 52.
distribution Wages and any unpaid dues owed to employees other than
[Section 53(1)(a) Step – 3 workmen for the period of 12 months preceding the liquidation
to commencement date.
Section 53(1) (h)] Step – 4 Financial debts owed to unsecured creditors.
The following dues shall rank equally between and among the
following -----
Any amount due to the Central Government and the
State Government in respect of the whole or any part of
Step – 5 a
the period of two years preceding the liquidation
commencement date.
Debts owed to a secured creditor for any amount unpaid
b
following the enforcement of security interest.
Step – 6 Any remaining debts and dues.
Step – 7 Preference shareholders, if any.
Step – 8 Equity shareholders or partners, as the case may be.
Contractual
Any contractual arrangements between recipients under sub-section (1)
agreements between
with equal ranking, if disrupting the order of priority under that sub-section
recipients – valid?
shall be disregarded by the liquidator.
[Section 53(2)]

Adjustment of The fees payable to the liquidator shall be deducted proportionately from the
Liquidator’s fees proceeds payable to each class of recipients under sub-section (1), and the
[Section 53(3)] proceeds to the relevant recipient shall be distributed after such deduction.
Distribution in case It is hereby clarified that at each stage of the distribution of proceeds in
of equal ranking respect of a class of recipients that rank equally, each of the debts will either
[Explanation below be paid in full, or will be paid in equal proportion within the same class of
section 53] recipients, if the proceeds are insufficient to meet the debts in full.
FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

54. FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS [SECTION 55]
Particulars Details
A corporate insolvency resolution process carried out in accordance with this
Meaning
Chapter IV shall be called as fast track corporate insolvency resolution
[Section 55(1)]
process.
An application for fast track corporate insolvency resolution process may be
made in respect of the following corporate debtors, namely ----
Situations
a Small company under section 2(85) of Companies Act.
attracting FTCIRP
b A start-up (other than partnership firm) as defined by Ministry of
[Section 55(2)(a),
Commerce and Industry.
(b), (c)]
c An unlisted company with total assets not exceeding ₹ 1 crore as per
financial statement immediately preceding the financial year.
55. TIME PERIOD FOR COMPLETION OF FAST TRACK CORPORATE INSOLVENCY

RESOLUTION PROCESS [SECTION 56]
Particulars Details
General time period The fast track corporate insolvency resolution process shall be completed
[Section 56(1)] within a period of ninety days from the insolvency commencement date.
Particulars Details
Application by
Resolution professional.
whom?
Application to
Adjudicating Authority
whom?
What is the To extend the period of the fast track corporate
purpose? insolvency resolution process beyond 90 days.
Extension of time
Resolution professional shall file an application for
limits RP acts on
extension if so instructed to do by a resolution passed at
[Section 56(2) and whose
a meeting of the committee of creditors and supported
Section 56(3)] instruction?
by a vote of 75% of the voting share.
On receipt of an application under sub-section (2), if the
Adjudicating Authority is satisfied that the subject
matter of the case is such that fast track corporate
Action of AA
insolvency resolution process cannot be completed
within a period of 90 days, it may, by order, extend the
duration of such process beyond the said period of

ninety days by such further period, as it thinks fit, but

not exceeding 45 days.
Extension only once
Any extension of the fast track corporate insolvency resolution process
[Proviso to Section
under this section shall not be granted more than once.
56(3)]
56. MANNER OF INITIATING FAST TRACK CORPORATE INSOLVENCY RESOLUTION

PROCESS [SECTION 57]
Particulars Details
Particulars Details
Application by  Creditor or
Application for
whom?  Corporate debtor.
FTCIRP
Application to
Adjudicating Authority
whom?
Attachments to a The proof of the existence of default.
application b Such other information as may be specified by the Board.
VOLUNTARY LIQUIDATION OF CORPORATE PERSONS

57. VOLUNTARY LIQUIDATION OF CORPORATE PERSONS [SECTION 59]
Particulars Details
Who can apply for Condition Details
voluntary liquidation? 1 Applicant is a Corporate Person.
[Section 59(1)] 2 Has not committed any default.
Abide by the The voluntary liquidation of a corporate person under sub-section (1)
procedures of the IBBI shall meet such conditions and procedural requirements as may be
[Section 59(2)] specified by the Board.
Without prejudice to sub-section (2), voluntary liquidation proceedings of
a corporate person registered as a company shall meet the following
conditions, namely -----
A declaration from majority of the directors of the company verified
by an affidavit stating that—
 They have made a full inquiry into the affairs of the company
Special provisions a and they have formed an opinion that either the company has
w.r.t. liquidation of no debt or that it will be able to pay its debts in full from the
Corporate person being proceeds of assets to be sold in the voluntary liquidation AND
a Company  The company is not being liquidated to defraud any person.
[Section 59(3)] The declaration under sub-clause (a) shall be accompanied with the
following documents, namely -----
 Audited financial statements and record of business operations
b of the company for the previous 2 years or for the period since
its incorporation, whichever is later.
 A report of the valuation of the assets of the company, if any
prepared by a registered valuer.

Within 4 weeks of a declaration under sub-clause (a), there shall

be—
 A special resolution of the members of the company in a general
meeting requiring the company to be liquidated voluntarily and
appointing an insolvency professional to act as the liquidator
OR
c  A resolution of the members of the company in a general
meeting requiring the company to be liquidated voluntarily as a
result of expiry of the period of its duration, if any, fixed by its
articles or on the occurrence of any event in respect of which
the articles provide that the company shall be dissolved, as the
case may be and appointing an insolvency professional to act as
the liquidator.
The company shall notify the Registrar of Companies and the Board about
Intimation to ROC the resolution under sub-section (3) to liquidate the company within 7
[Section 59(4)] days of such resolution or the subsequent approval by the creditors, as the
case may be.
Subject to approval of the creditors under sub-section (3), the voluntary
Effective date of
liquidation proceedings in respect of a company shall be deemed to have
voluntary liquidation
commenced from the date of passing of the resolution under sub-clause
[Section 59(5)]
(c) of sub-section (3).
Application of section The provisions of sections 35 to 53 of Chapter III and Chapter VII shall
35 to 53 apply to voluntary liquidation proceedings for corporate persons with
[Section 59(6)] such modifications as may be necessary.
Where the affairs of the corporate person have been completely wound
Application to AA up, and its assets completely liquidated, the liquidator shall make an
[Section 59(7)] application to the Adjudicating Authority for the dissolution of such
corporate person.
The Adjudicating Authority shall on an application filed by the liquidator
Duty of AA under sub-section (7), pass an order that the corporate debtor shall be
[Section 59(8)] dissolved from the date of that order and the corporate debtor shall be
dissolved accordingly.
A copy of an order under sub-section (8) shall within fourteen days from
Filing
the date of such order, be forwarded to the authority with which the
[Section 59(9)]
corporate person is registered.

THE PREVENTION OF MONEY LAUNDERING ACT, 2002
1 Overview of PMLA, 1999

2 Objective of the Act
3 Short title, commencement and applicability
4 Basic definitions
5 Punishment for money laundering
6 Obligations of Banking Company, financial institutions and financial intermediaries
7 Attachment, confiscation and vesting of properties involved in money laundering
8 Adjudication and Appeals under PMLA
9 Offences and Special Courts
10 Reciprocal agreements
11 Miscellaneous

DIVISION OF THIS ACT

Chapter Content
I PRELIMINARY
II OFFENCE OF MONEY LAUNDERING
III ATTACHMENT, ADJUDICATION AND CONFISCATION
OBLIGATIONS OF BANKING COMPANIES, FINANCIAL INSTITUTIONS AND
IV
INTERMEDIARIES
V SUMMONS, SEARCHES AND SEIZURES, ETC
VI APPELLATE TRIBUNAL
VII SPECIAL COURTS
VIII AUTHORITIES
RECIPROCAL ARRANGEMENT FOR ASSISTANCE IN CERTAIN MATTERS AND
IX
PROCEDURE FOR ATTACHMENT AND CONFISCATION OF PROPERTY
X MISCELLANEOUS

1. OVERVIEW OF PMLA, 2002

1 The Prevention of Money Laundering Act (PMLA), 2002 was enacted in January, 2003.
The Act along with the Rules framed thereunder have come into force with effect from 1st July,
2
2005.
Section 3 of PMLA defines offence of money laundering as whosoever directly or indirectly
attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any
process or activity connected with the proceeds of crime and projecting it as untainted property
3 shall be guilty of offence of money-laundering. It prescribes obligation of banking companies,
financial institutions and intermediaries for verification and maintenance of records of the
identity of all its clients and also of all transactions and for furnishing information of such
transactions in prescribed form to the Financial Intelligence Unit-India (FIU-IND).
PMLA empowers certain officers of the Directorate of Enforcement to carry out investigations in
4 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
5 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
6
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
7 to try the offences punishable under PMLA and offences with which the accused may, under the
Code of Criminal Procedure 1973, be charged at the same trial.
PMLA allows Central Government to enter into an agreement with Government of any country
outside India for enforcing the provisions of the PMLA, exchange of information for the prevention
8
of any offence under PMLA or under the corresponding law in force in that country or
investigation of cases relating to any offence under PMLA.
2. OBJECTIVE OR PREAMBLE OF THE ACT

The PML Act seeks to combat money laundering in India and has three main objectives:
 To prevent and control money laundering
 To confiscate and seize the property obtained from the laundered money; and
 To deal with any other issue connected with money laundering in India.
 The Act also proposes punishment under section 4.

CHAPTER I - PRELIMINARY
3. SHORT TITLE EXTENT AND COMMENCEMENT [SECTION 1]
 This Act may be called the Prevention of Money laundering Act, 2002.
 It extends to the whole of India.
 It shall come into force on such date as the Central Government may, by notification in the Official
Gazette, appoint, and different dates may be appointed for different provisions of this Act and any
reference in any such provision to the commencement of this Act shall be construed as a reference
to the coming into force of that provision.
4. DEFINITIONS [SECTION 2]
Definition Content
Section
Money-laundering has the meaning assigned to it in section 3.
2(p)
Money
Laundering Whosoever directly or indirectly attempts to indulge or knowingly
[Section 2(p) assists or knowingly is a party or is actually involved in any
read with Section process or activity connected with the proceeds of crime including
Section 3] 3 its concealment, possession, acquisition or use and projecting or
claiming it as untainted property shall be guilty of offence of
money-laundering.
Proceeds of crime means any property derived or obtained, directly or
indirectly, by any person as a result of criminal activity relating to a scheduled
Proceeds of crime
offence or the value of any such property or where such property is taken or
[Section 2(u)]
held outside the country, then the property equivalent in value held within the
country or abroad.
Property means any property or assets of every description, whether corporeal
Property or incorporeal, movable or immovable, tangible or intangible and includes deeds
[Section 2(v)] and instruments evidencing title to, or interest in, such property or assets,
wherever located.
scheduled offence" means--
(i) The offences specified under Part A of the Schedule; or
Scheduled offence
(ii) The offences specified under Part B of the Schedule if the total value involved
[Section 2(y)]
in such offences is one crore rupees or more; or
(iii) The offences specified under Part C of the Schedule.
Value means the fair market value of any property on the date of its acquisition
Value
by any person, or if such date cannot be determined, the date on which such
[Section 2(zb)]
property is possessed by such person.
Transfer Transfer includes sale, purchase, mortgage, pledge, gift, loan or any other form
[Section 2(za)] of transfer of right, title, possession or lien.
Person includes--
(i) An individual,
Person
(ii) A Hindu undivided family,
[Section 2(s)]
(iii) A company,
(iv) A firm,

(v) An association of persons or a body of individuals, whether incorporated or

not,
(vi) Every artificial juridical person not falling within any of the preceding sub-
clauses, and
(vii) Any agency, office or branch owned or controlled by any of the above
persons mentioned in the preceding sub-clauses.
Payment system means a system that enables payment to be effected between a
payer and a beneficiary, involving clearing, payment or settlement service or all
Payment system of them.
[Section 2(rb)] Explanation.--For the purposes of this clause, "payment system" includes the
systems enabling credit card operations, debit card operations, smart card
operations, money transfer operations or similar operations.
Intermediary means -----
(i) A stock-broker, sub-broker, share transfer agent, banker to an issue, trustee
to a trust deed, registrar to an issue, merchant banker, underwriter, portfolio
manager, investment adviser or any other intermediary associated with
securities market and registered under section 12 of the Securities and Exchange
Intermediary Board of India Act, 1992 or
[Section 2(n)] (ii) An association recognised or registered under the Forward Contracts
(Regulation) Act, 1952 or any member of such association; or
(iii) Intermediary registered by the Pension Fund Regulatory and Development
Authority; or
(iv) A recognised stock exchange referred to in clause (f) of section 2 of the
Securities Contracts (Regulation) Act, 1956.
Definitions not applied for exams but relevant to understand the background
Banking company means a banking company or a co-operative bank to which
Banking Company
the Banking Regulation Act, 1949 applies and includes any bank or banking
[Section 2(e)]
institution referred to in section 51 of that Act.
Beneficial owner means an individual who ultimately owns or controls a client
Beneficial owner of a reporting entity or the person on whose behalf a transaction is being
[Section 2(fa)] conducted and includes a person who exercises ultimate effective control over a
juridical person.
Client means a person who is engaged in a financial transaction or activity with
Client
a reporting entity and includes a person on whose behalf the person who
[Section 2(ha)]
engaged in the transaction or activity, is acting.
Attachment Attachment means prohibition of transfer, conversion, disposition or movement
[Section 2(d)] of property by an order issued under Chapter III.
Investigation includes all the proceedings under this Act conducted by the
Investigation
Director or by an authority authorised by the Central Government under this Act
[Section 2(na)]
for the collection of evidence.
Person carrying Person carrying on designated business or profession means,--
on designated (i) A person carrying on activities for playing games of chance for cash or kind,
business or and includes such activities associated with casino;
profession (ii) A Registrar or Sub-Registrar appointed under section 6 of the Registration
[Section 2(sa)] Act, 1908 as may be notified by the Central Government;

(iii) Real estate agent, as may be notified by the Central Government;

(iv) Dealer in precious metals, precious stones and other high value goods, as
may be notified by the Central Government;
(v) Person engaged in safekeeping and administration of cash and liquid
securities on behalf of other persons, as may be notified by the Central
Government; or
(vi) Person carrying on such other activities as the Central Government may, by
notification, so designate, from time to time.
Reporting entity Reporting entity means a banking company, financial institution, intermediary
[Section 2(wa)] or a person carrying on a designated business or profession.
Special Court Special Court means a Court of Session designated as Special Court under sub-
[Section 2(z)] section (1) of section 43.

CHAPTER II – OFFENCE OF MONEY LAUNDERING

5. OFFENCE OF MONEY LAUNDERING [SECTION 3]
Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or
is actually involved in any process or activity connected with the proceeds of crime including its
concealment, possession, acquisition or use and projecting or claiming it as untainted property shall
be guilty of offence of money-laundering.
ANALYSIS ON THE SECTION

Particulars Details
 Whosoever directly or indirectly
 Attempts to indulge or In any process or activity
Who is guilty?  Knowingly assists or
Connected with proceeds of crime
and projecting it as untainted
 Knowingly is a party or
property
 Is actually involved.
 Whosoever involved in the following w.r.t. the proceeds of crime -----
 Concealment or
Additional
 Possession or And projecting it as untainted
liability
 Acquisition or property
 Use
APPENDIX TO THE SECTION [FOR INDEPTH UNDERSTADING – OPTIONAL

READING]
Issue 1 – Principal aspect constituting offence of Money Laundering
The principal aspect that constitutes the offence of money laundering under section 3, is involvement in
the process or activity connected with proceeds of crime and projecting it as an untainted property.
Issue 2 – Decoding the definition ‘Proceeds of crime’
a. The proceeds of crime referred above includes the normal crimes and scheduled crimes as well.
b. The punishment is prescribed in section 4 of the act.
c. The term has been defined to mean any property derived or obtained ‘directly or indirectly…..’
d. The law envisages that the proceeds of crime are parked in the property.
e. The proceeds of the crime may be employed or parked in a property either directly or indirectly.
f. The term ‘indirectly’ is very important in defining the scope and reach of law.
g. The proceeds of the crime may be invested through a company or a subsidiary of a company. In case
of individuals the property may be held in the name of any relative or minor or HUF.
h. All these situations could be wrapped up by the enforcement authorities under the umbrella of the
term ‘indirectly’.
i. It should be noted that there must be a nexus between criminal activity and the property which has
been derived or obtained by any person.
Issue 3 – Offence of money laundering committed before commencement of the act – Will it be
punishable under this act? – Hasan Ali v/s Union of India
In this case it was held that, even the projection of proceeds of crime as untainted has taken place before
the commencement of the act, the charge of an offence punishable under the act cannot be levelled with
respect to such transactions. In other words, the crucial date would be the date on which the projection
of proceeds of crime as ‘untainted’ takes place and if this has been taken place before the commencement
of the act, then that person cannot be prosecuted for the offence punishable under section 4.

Issue 4 – What is the intention of law maker in using the words ‘projecting or claiming’? – Is it an
official projection in financials or mere oral claim? – Hasan Ali v/s Union of India
a. The essence of the offence defined in section 3 of the Act is projecting proceeds of crime as ‘untainted
property’.
b. One may think that it is only when a legitimate source of earning with respect to the tainted property;
i.e. proceeds of crime, is suggested or attempted to be suggested that the offence punishable under
section 4 of the act would be said to be committed. In other words, it requires consideration whether
where a person having proceeds of crime in his possession puts them in a Bank Account and then
transfers the same to another account, he can be said to have projected money as “untainted
property”.
c. Court held that, proceeds of crime remains proceeds of crime, irrespective of whether they are kept
in the house, or deposited in a Bank Account or kept with somebody else. Projecting them as
“untainted property” which is the essence of the offence punishable under section 4 of the Act,
involves offering of some explanation with respect to the acquisition of the said property and
showing it to be having a lawful source of earning. Prima facie view in this regard is that it is only
when an attempt is made to show the source of that money as something legitimate, it would amount
to projecting the proceeds as “untainted property”.
6. PUNISHMENT FOR MONEY LAUNDERING [SECTION 4]

Whoever commits the offence of money-laundering shall be punishable with rigorous
imprisonment for a term which shall not be less than three years but which may extend to seven
years and shall also be liable to fine.
Provided that where the proceeds of crime involved in money-laundering relates to any offence
specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have
effect as if for the words "which may extend to seven years", the words "which may extend to
ten years" had been substituted.

Particulars Details
Who is liable? Whoever commits the offence of money laundering.
Offence specified under Rigorous Imprisonment Minimum – 3 years
Paragraph 2 of Part A of AND Maximum – 10 years
What is the the Schedule Fine Un specified
punishment? Rigorous Imprisonment Minimum – 3 years
All other offences AND Maximum – 7 years
Fine Unspecified
APPENDIX TO THE SECTION [FOR INDEPTH UNDERSTADING – OPTIONAL

READING]
Issue 1 – Proceeds of crime – Any Crime or Scheduled crimes?
a. It is important to note that the proceeds of crime derived or obtained as a result of criminal activity
must be related to a scheduled offence.
b. No offence other than the offences listed in the Schedule comes under the purview of the Act.
c. Thus, the prosecuting agency has to establish a nexus with the proceeds of crime to a Scheduled
offence appended to the Act.

Issue 2 – Burden to prove on whom? – Accused or Prosecution?

a. In the scheme of this act, initial burden lies on the accused to prove his innocence.
b. Once it is discharged, the burden is shifted on the prosecuting agency to establish the guilt on the
accused.
c. In this regard, it is considered necessary to discuss section 24 of the act which is reproduced as
under -----
24. Burden of proof.--In any proceeding relating to proceeds of crime under this
Act,--
(a) in the case of a person charged with the offence of money-laundering under
section 3, the Authority or Court shall, unless the contrary is proved, presume
that such proceeds of crime are involved in money-laundering; and
(b) in the case of any other person the Authority or Court, may presume that such
proceeds of crime are involved in money-laundering.
Issue 3 – What is rigorous imprisonment?
a. The punishment prescribed for the offence of money laundering provides for rigorous
imprisonment and not a simple one. The Law imposes hard labour on a particular section of
convicted prisoners who are sentenced to rigorous imprisonment. The difference between the two
is that in simple imprisonment, there is no work while rigorous imprisonment involves hard
labour.
b. Section 53 of Indian Penal Code explains the term “rigorous imprisonment” as imprisonment with
“hard labour”. However, hard labour does not mean to victimize a prisoner by forcing on him
particularly to do harsh jobs but only that the person sentenced to rigorous imprisonment has no
option of choosing a work and is required by law to undergo hard labour.
Issue 4 – Word to Word interpretation
a. Knowingly assist:
Not only those is who are actually involved, but those who knowingly assists in any process related to
proceeds of crime shall be guilty of offence of money laundering.
b. Indulge:
The term “indulge” as per Oxford Dictionary means “take ones pleasure freely, gratify”. Therefore, any
person who attempts to indulge in any process related to proceeds of crime shall be guilty of offence
of money laundering.
c. Attempt:
The attempt is successor the words ‘directly or indirectly’. If the attempt to indulge is a direct attempt,
it doesn’t require any further explanation. However, the explanation is required only if it is an indirect
attempt to indulge.
THE SCHEDULE
PART A
PARAGRAPH CONTENT
1 OFFENCES UNDER THE INDIAN PENAL CODE, 1860
OFFENCES UNDER THE NARCOTIC DRUGS AND PSYCHOTROPIC SUBSTANCES ACT,
2
1985
3 OFFENCES UNDER THE EXPLOSIVE SUBSTANCES ACT,1908
4 OFFENCES UNDER THE UNLAWFUL ACTIVITIES (PREVENTION) ACT, 1967
5 OFFENCES UNDER THE ARMS ACT, 1959
6 OFFENCES UNDER THE WILD LIFE (PROTECTION) ACT, 1972
7 OFFENCES UNDER THE IMMORAL TRAFFIC (PREVENTION) ACT, 1956

8 OFFENCES UNDER THE PREVENTION OF CORRUPTION ACT, 1988

9 OFFENCES UNDER THE EXPLOSIVES ACT, 1884
10 OFFENCES UNDER THE ANTIQUITIES AND ARTS TREASURES ACT, 1972
OFFENCES UNDER THE SECURITIES AND EXCHANGE BOARD OF
11
INDIA ACT, 1992
12 OFFENCES UNDER THE CUSTOMS ACT, 1962
13 OFFENCES UNDER THE BONDED LABOUR SYSTEM (ABOLITION) ACT, 1976
OFFENCES UNDER THE CHILD LABOUR (PROHIBITION AND REGULATION) ACT,
14
1986
15 OFFENCES UNDER THE TRANSPLANTATION OF HUMAN ORGANS ACT, 1994
OFFENCES UNDER THE JUVENILE JUSTICE (CARE AND PROTECTION OF CHILDREN)
16
ACT, 2000
17 OFFENCES UNDER THE EMIGRATION ACT, 1983
18 OFFENCES UNDER THE PASSPORTS ACT, 1967
19 OFFENCES UNDER THE FOREIGNERS ACT, 1946
20 OFFENCES UNDER THE COPYRIGHT ACT, 1957
21 OFFENCES UNDER THE TRADE MARKS ACT, 1999
22 OFFENCES UNDER THE INFORMATION TECHNOLOGY ACT, 2000
23 OFFENCES UNDER THE BIOLOGICAL DIVERSITY ACT, 2002
OFFENCES UNDER THE PROTECTION OF PLANT VARIETIES AND FARMERS RIGHTS
24
ACT, 2001
25 OFFENCES UNDER THE ENVIRONMENT PROTECTION ACT, 1986
OFFENCES UNDER THE WATER (PREVENTION AND CONTROL OF POLLUTION) ACT,
26
1974
OFFENCES UNDER THE AIR (PREVENTION AND CONTROL OF POLLUTION) ACT,
27
1981
OFFENCES UNDER THE SUPPRESSION OF UNLAWFUL, ACTS AGAINST SAFETY
28 OF MARITIME NAVIGATION AND FIXED PLATFORMS ON
CONTINENTAL SHELF ACT, 2002
29 OFFENCE UNDER THE COMPANIES ACT, 2013
PART – B
OFFENCES UNDER THE CUSTOMS ACT, 1962
PART – C
AN OFFENCE WHICH IS THE OFFENCE OF CROSS BORDER IMPLICATIONS AND IS
1
SPECIFIED IN PART A.
THE OFFENCES AGAINST PROPERTY UNDER CHAPTER XVII OF THE INDIAN PENAL
2
CODE.
THE OFFENCE OF WILLFUL ATTEMPT TO EVADE ANY TAX, PENALTY OR INTEREST
3 REFERRED TO IN SECTION 51 OF THE BLACK MONEY (UNDISCLOSED FOREIGN INCOME
AND ASSETS) AND IMPOSITION OF TAX ACT, 2015.
Notes for understanding
1. Offences enumerated in Part A of the Schedule to the Act, related to the property
derived or obtained from those offences irrespective of the value unlike the offence in
Part B where the total value involved in such offence is one crore rupees.
2. The monetary limit is specified only for offences specified in Part B.
3. Briefly put, offences against the state or conspiracy against the state, offences relating
to narcotics and similar offences are covered under Part A.
7. ATTACHMENT OF PROPERTY INVOLVED IN MONEY LAUNDERING [SECTION 5]

(1)Where the Director or any other officer not below the rank of Deputy Director authorised
by the Director for the purposes of this section, has reason to believe (the reason for such
belief to be recorded in writing), on the basis of material in his possession, that--
(a) any person is in possession of any proceeds of crime; and
(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner
which may result in frustrating any proceedings relating to confiscation of such proceeds of
crime under this Chapter,
he may, by order in writing, provisionally attach such property for a period not exceeding one
hundred and eighty days from the date of the order, in such manner as may be prescribed:
Provided that no such order of attachment shall be made unless, in relation to the scheduled
offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal
Procedure, 1973, or a complaint has been filed by a person authorised to investigate the
offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the
scheduled offence, as the case may be, or a similar report or complaint has been made or filed
under the corresponding law of any other country:
Provided further that, notwithstanding anything contained in first proviso, any property of
any person may be attached under this section if the Director or any other officer not below
the rank of Deputy Director authorised by him for the purposes of this section has reason to
believe (the reasons for such belief to be recorded in writing), on the basis of material in his
possession, that if such property involved in money-laundering is not attached immediately
under this Chapter, the non-attachment of the property is likely to frustrate any proceeding
under this Act.
3 Provided also that for the purposes of computing the period of one hundred and eighty days,
the period during which the proceedings under this section is stayed by the High Court, shall
be excluded and a further period not exceeding thirty days from the date of order of vacation
of such stay order shall be counted.;
(2) The Director, or any other officer not below the rank of Deputy Director, shall,
immediately after attachment under sub-section (1), forward a copy of the order, along with
the material in his possession, referred to in that sub-section, to the Adjudicating Authority,
in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority
shall keep such order and material for such period as may be prescribed.
(3) Every order of attachment made under sub-section (1) shall cease to have effect after the
expiry of the period specified in that sub-section or on the date of an order made under 4[sub-
section (3)] of section 8, whichever is earlier.
(4) Nothing in this section shall prevent the person interested in the enjoyment of the
immovable property attached under sub-section (1) from such enjoyment.
Explanation.--For the purposes of this sub-section, "person interested", in relation to any
immovable property, includes all persons claiming or entitled to claim any interest in the
property.
(5) The Director or any other officer who provisionally attaches any property under sub-
section (1) shall, within a period of thirty days from such attachment, file a complaint stating
the facts of such attachment before the Adjudicating Authority.

Particulars Details
What is power given
Power to make a provisional attachment
under this section?

[Section 5(1)]
Who shall exercise the
 Director (or)
powers?
 An officer not below the rank of a deputy director.
[Section 5(1)]
 The Director or an officer not below the rank of a deputy director, has a
Basis of exercising the reason to believe on basis of material in his possession that -----
powers  Any person is in possession of any proceeds of crime; and
[Section 5(1)(a) and  Such proceeds of crime are likely to be concealed, transferred or dealt
Section 5(1)(b)] with in any manner which may result in frustrating any proceedings
relating to confiscation of such proceeds of crime under this Chapter.
Period of provisional
The officer concerned may provisionally attach such property for a period
attachment
not exceeding 180 days from the date of the order.
[Section 5(1)]
Pre-condition for  Order of provisional attachment shall not be made unless -----
provisional  A report has been forwarded to a Magistrate under section 173 of
attachment in certain CRPC, 173. [Concept of FIR] (or)
cases  A complaint has been filed by a person authorised to investigate the
[Proviso to Section offence mentioned in that Schedule, before a Magistrate or court for
5(1)] taking cognizance of the scheduled offence.
Powers under 2nd
The powers under 2nd proviso are applicable
proviso are having
notwithstanding anything contained in first proviso.
overriding effect
 Director or
Power with whom?  Any other officer not below the rank of Deputy
Sweeping powers of Director.
Director
[2nd proviso to If such property involved in money-laundering is not
Section 5(1)] What is the attached immediately under this Chapter, the non-
opinion? attachment of the property is likely to frustrate any
proceeding under this Act.
What is basis of Such authority has reason to believe (the reasons for
forming such such belief to be recorded in writing), on the basis of
opinion? material in his possession.
Exclusion of certain Which days are excluded The period during which the proceedings
days and extension in from 180 days? under this section is stayed by the High Court
certain cases
[3rd proviso to Extension beyond stay A further period not exceeding 30 days from
Section 5(1)] period the date of order of vacation of such stay.
 Director or
Duty on whom?
 Any officer not below the rank of Deputy Director.
Duty of director
To Adjudicating Authority, in a sealed
[Section 5(2) read Intimate
envelope.
with Section 5(5)] Duty – 1
Immediately after provisional
When?
attachment.

Forward a copy of the provisional

Mode? attachment order, along with the
material in his possession.
File a complaint stating the facts of
Intimate? such attachment before the
Duty – 2 Adjudicating Authority.
Time Within a period of 30 days from such
limit? attachment.
Till when provisional
attachment shall have  Till expiry of period of 180 days or
Whichever is earlier.
effect?  Till the date of order made under Section 8(3).
[Section 5(3)]
This section shall not prevent the person interested in the enjoyment of the
Interested person –
immovable property attached.
Has every right to
Note: Person interested, in relation to any immovable property,
enjoy the property
includes all persons claiming or entitled to claim any interest in the
[Section 5(4)]
property.
8. ADJUDICATION [SECTION 8]
(1) On receipt of a complaint under sub-section (5) of section 5, or applications made under
sub-section (4) of section 17 or under sub-section (10) of section 18, if the Adjudicating
Authority has reason to believe that any person has committed an offence under section 3 or is
in possession of proceeds of crime, it may serve a notice of not less than thirty days on such
person calling upon him to indicate the sources of his income, earning or assets, out of which or
by means of which he has acquired the property attached under sub-section (1) of section 5, or,
seized or frozen under section 17 or section 18, the evidence on which he relies and other
relevant information and particulars, and to show cause why all or any of such properties
should not be declared to be the properties involved in money-laundering and confiscated by
the Central Government:
Provided that where a notice under this sub-section specifies any property as being held by a
person on behalf of any other person, a copy of such notice shall also be served upon such other
person:
Provided further that where such property is held jointly by more than one person, such notice
shall be served to all persons holding such property.
(2) The Adjudicating Authority shall, after--
(a) considering the reply, if any, to the notice issued under sub-section (1);
(b) hearing the aggrieved person and the Director or any other officer authorised by him in this
behalf; and
(c) taking into account all relevant materials placed on record before him,
by an order, record a finding whether all or any of the properties referred to in the notice issued
under sub-section (1) are involved in money-laundering:
Provided that if the property is claimed by a person, other than a person to whom the notice
had been issued, such person shall also be given an opportunity of being heard to prove that
the property is not involved in money-laundering.
(3) Where the Adjudicating Authority decides under sub-section (2) that any property is
involved in money-laundering, he shall, by an order in writing, confirm the attachment of the

property made under sub-section (1) of section 5 or retention of property or record seized or
frozen under section 17 or section 18 and record a finding to that effect, whereupon such
attachment or retention or freezing of the seized or frozen property or record shall--
(a) continue during investigation for a period not exceeding three hundred and sixty-five days
or the pendency of the proceedings relating to any offence under this Act before a court or
under the corresponding law of any other country, before the competent court of criminal
jurisdiction outside India, as the case may be; and
(b) become final after an order of confiscation is passed under sub-section (5) or sub-section
(7) of section 8 or section 58B or sub-section (2A) of section 60 by the Special Court;
9Explanation.--For the purposes of computing the period of three hundred and sixty-five days
under clause (a), the period during which the investigation is stayed by any court under any
law for the time being in force shall be excluded.
(4) Where the provisional order of attachment made under sub-section (1) of section 5 has been
confirmed under sub-section (3), the Director or any other officer authorised by him in this
behalf shall forthwith take the possession of the property attached under section 5 or frozen
under sub-section (1A) of section 17, in such manner as may be prescribed:
Provided that if it is not practicable to take possession of a property frozen under sub-section
(1A) of section 17, the order of confiscation shall have the same effect as if the property had
been taken possession of.
(5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the
offence of money-laundering has been committed, it shall order that such property involved in
the money laundering or which has been used for commission of the offence of money-
laundering shall stand confiscated to the Central Government.
(6) Where on conclusion of a trial under this Act, the Special Court finds that the offence of
money laundering has not taken place or the property is not involved in money-laundering, it
shall order release of such property to the person entitled to receive it.
(7) Where the trial under this Act cannot be conducted by reason of the death of the accused or
the accused being declared a proclaimed offender or for any other reason or having
commenced but could not be concluded, the Special Court shall, on an application moved by the
Director or a person claiming to be entitled to possession of a property in respect of which an
order has been passed under sub-section (3) of section 8, pass appropriate orders regarding
confiscation or release of the property, as the case may be, involved in the offence of money-
laundering after having regard to the material before it.
(8) Where a property stands confiscated to the Central Government under sub-section (5), the
Special Court, in such manner as may be prescribed, may also direct the Central Government to
restore such confiscated property or part thereof of a claimant with a legitimate interest in the
property, who may have suffered a quantifiable loss as a result of the offence of money
laundering.
Provided that the Special Court shall not consider such claim unless it is satisfied that the
claimant has acted in good faith and has suffered the loss despite having taken all reasonable
precautions and is not involved in the offence of money laundering.
Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant
for the purposes of restoration of such properties during the trial of the case in such manner as
may be prescribed.
Particulars Details

Exercise of powers by
whom? Powers under this section are exercised by adjudicating authority.
[Section 8(1)]
What powers are
 Issuing a show cause notice and
exercisable?
 Confirming the attachment.
[Section 8(1)]
 On receipt of a complaint under sub-section (5) of section 5 (or)
Basis of issuing a SCN
 On receipt of applications made under sub-section (4) of section 17 (or)
[Section 8(1)]
 On receipt of applications made under sub-section (10) of section 18.
 The Adjudicating Authority has reason to believe that any person -----
Satisfaction of AA
 Has committed an offence under section 3 or
[Section 8(1)]
 Is in possession of proceeds of crime.
 Issue a show cause notice.
 Giving a minimum period of 30 days to indicate -----
What action AA would  Sources of his income Out of which or by means of which
take?  Earnings or Assets he has acquired such property
[Section 8(1)]  SCN shall clearly specify as to why all or any of such properties should
not be declared to be the properties involved in money-laundering and
confiscated by the Central Government.
If property is held by
the person on behalf of A copy of such Show cause notice shall also be
Show cause notice in another person served upon such other person.
special cases [1st Proviso]
[1 and 2nd Proviso
st
to Section 8(1)] If property is held by

Such Show cause notice shall be served to all
joint holders
persons holding such property.
[2nd Proviso]
 The AA shall by an order, record a finding whether all or any of the
properties referred to in the notice issued under sub-section (1) are
Reply by the party and involved in money-laundering on the basis of -----
further action by AA  Reply to the SCN.
[Section 8(2)]  Hearing the aggrieved person and the Director.
 Taking into account all relevant materials placed on record before
him.
 If the Adjudicating Authority decides that any property is involved in
What if reason to money-laundering, he shall -----
believe becomes  Confirm the attachment of the property made under sub-section (1)
decision? of section 5 (or)
[Section 8(3)]  Retention of property or record seized or frozen under section 17 or
section 18.
Period of attachment  The attachment or retention shall continue during ------
or retention  Investigation for a period not exceeding 365 days or
[Section 8(3)(a) and  Pendency of proceedings relating to any offence under this Act
Section 8(3)(b)] before a court as the case may be. [In or outside India]

 The attachment shall become final after an order of confiscation has

been passed by the Special court.
Period to be excluded
while calculating 365
The period during which the investigation is stayed by any court under any
days
law for the time being in force shall be excluded.
[Explanation to
Section 8(3)]
Possession of Where attachment is confirmed, the director or any other officer authorised
properties by him shall take forthwith, the physical possession of property attached or
[Section 8(4)] frozen.
The special court finds that the offence Property involved in money
of money-laundering has been laundering shall stand confiscated
Results of conclusion committed to the Central Government.
of Trial
[Section 8(5) + The special court finds that the offence
It shall order release of such
Section 8(6)] of money laundering has not taken
property to the person entitled to
place or the property is not involved in
receive it.
money-laundering
The Special Court shall pass
appropriate orders regarding
Where the trial under this Act cannot
Situations where trial confiscation or release of the
be conducted by reason of the death of
cannot be conducted property on an application moved
the accused or the accused being
[Section 8(7)] by the Director or a person
declared a proclaimed offender.
claiming to be entitled to
possession of a property.
Conditions to admit the claim and restore the confiscated property:
 Claimant with legitimate interest suffered a quantifiable loss as a result
of the offence of money laundering.
Claims of Legitimate
 Special Court shall not consider such claim unless it is satisfied that the
interest
claimant has acted in good faith.
[Section 8(8) and 1st,
 Special court shall be satisfied that he has suffered the loss despite
2nd Provisos]
having taken all reasonable precautions.
 Special court shall be satisfied that the claimant is not involved in the
offence of money laundering.
9. VESTING OF PROPERTY IN CENTRAL GOVERNMENT [SECTION 9]

Where an order of confiscation has been made under sub-section (5) or sub-section (7) of
section 8 or section 58B or sub-section (2A) of section 60 in respect of any property of a person,
all the rights and title in such property shall vest absolutely in the Central Government free
from all encumbrances: Provided that where the Special Court or the Adjudicating Authority,
as the case may be, after giving an opportunity of being heard to any other person interested in
the property attached under this Chapter, or seized or frozen under Chapter V, is of the opinion
that any encumbrance on the property or lease-hold interest has been created with a view to
defeat the provisions of this Chapter, it may, by order, declare such encumbrance or lease-hold
interest to be void and thereupon the aforesaid property shall vest in the Central Government
free from such encumbrances or lease-hold interest: Provided further that nothing in this

section shall operate to discharge any person from any liability in respect of such
encumbrances which may be enforced against such person by a suit for damages.
ANALYSIS ON SECTION
Particulars Details
When Section gets
Order of Confiscation is made under section 8(5) or section 8(7).
attracted?
What shall be the All the rights and title in such property shall vest absolutely in the Central
effect if confiscated? Government free from all encumbrances.
 Special court or Adjudicating authority shall give an OBH to any person
interested in the property attached.
 Special court or Adjudicating authority is of the opinion that any
Malafide interests –
encumbrance on the property or lease-hold interest has been created
Will it invalidate
with a view to defeat the provisions of this Chapter.
confiscation?
 Then, it may, by order, declare such encumbrance or lease-hold interest
to be void and thereupon the aforesaid property shall vest in the Central
Government free from such encumbrances or lease-hold interest.
Confiscation order – Nothing in this section shall operate to discharge any person from any
Will it discharge liability in respect of such encumbrances which may be enforced against
third party liability? such person by a suit for damages.
10. ADJUDICATING AUTHORITIES, COMPOSITION, POWERS, ETC [SECTION 6]

Particulars Details
Who is the establishing
Central Government shall by notification in the Official Gazette.
authority?
Exercise the jurisdiction, powers and authority conferred by or
Purpose of establishment?
under this act.
 A Chairperson
Composition of AA  Two members, each shall be a person having experience in the
field of law, administration, finance or accountancy.
11. AUTHORITIES UNDER ACT [SECTION 48]

Particulars Details
 There shall be the following classes of authorities for the
purposes of this Act, namely ------
 Director or
Authorities under this act  Additional Director or
 Deputy Director
 Joint Director or
 Assistant Director
12. APPELLATE TRIBUNAL [SECTION 25]

Particulars Details
The Appellate Tribunal constituted under sub-section (1) of section
12 of the Smugglers and Foreign Exchange Manipulators (Forfeiture
Appellate Tribunal to be a
of Property) Act, 1976 shall be the Appellate Tribunal for hearing
shared tribunal
appeals against the orders of the Adjudicating Authority and the
other authorities under this Act.
13. APPEAL TO APPELLATE TRIBUNAL [SECTION 26]

Particulars Details
 The Director or
Appeal by whom?  Any person aggrieved by an order made by the Adjudicating
[Section 26(1) and Section Authority.
26(2)]  Any reporting entity aggrieved by any order of the Director made
under sub-section (2) of section 13.
Appeal to whom?
 Appeal to Appellate Tribunal.
[Section 26(2)]
 Every appeal preferred under sub-section (1) or sub-section (2)
shall be filed within a period of 45 days from the date on which
a copy of the order made by the Adjudicating Authority or
Time limit for filing an appeal
Director is received.
[Section 26(3) and proviso
 The Appellate Tribunal may, after giving an opportunity of being
to Section 26(3)]
heard, entertain an appeal after the expiry of the said period of
45 days if it is satisfied that there was sufficient cause for not
filing it within that period.
 Appellate Tribunal may pass such orders for -----
Decision of the Appellate
 Confirming or
Tribunal
 Setting aside
[Section 26(4)]
Of the order appealed against.
Appellate Tribunal send final The Appellate Tribunal shall send a copy of every order made by it
order copy to the parties to the appeal and to the concerned Adjudicating
[Section 26(5)] Authority or the Director, as the case may be.
Time limit for disposal of
appeal Dispose within 6 months from the date of filing of the appeal.
[Section 26(6)]
14. PROCEDURE AND POWERS OF APPELLATE TRIBUNAL [SECTION 35]

Particulars Details
 Appellate Tribunal is not bound by the procedure laid down in CPC,
Basic procedure
1904.
[Section 35(1)]
 Appellate Tribunal shall be guided by the principles of natural justice.
 Appellate Tribunal shall have the following Civil court powers -----
Powers of a Civil court
 Summoning and enforcing the attendance of any person.
[Section 35(2)]
 Examination on oath.

 Requiring the discovery and production of documents.

 Receiving evidence on affidavit.
 Issuing commissions for the examination of witnesses.
15. DECISION TO BE BY MAJORITY [SECTION 38]

Particulars Details
If the Members of a Bench consisting of two Members differ in opinion on
any point, they shall state the point or points on which they differ, and
make a reference to the Chairman who shall either hear the point or
points himself or refer the case for hearing on such point or points by
Provision
third Member of the Appellate Tribunal and such point or points shall be
decided according to the opinion of the majority of the Members of the
Appellate Tribunal who have heard the case, including those who first
heard it.
16. CIVIL COURT NOT TO HAVE JURISDICTION[SECTION 41]
Particulars Details
No civil court shall have jurisdiction to entertain any suit or proceeding
in respect of any matter which the Director, an Adjudicating Authority or
Civil court not to the Appellate Tribunal is empowered by or under this Act to determine
interfere and no injunction shall be granted by any court or other authority in
respect of any action taken or to be taken in pursuance of any power
conferred by or under this Act.
17. APPEAL TO HIGH COURT [SECTION 42]
Particulars Details
Who shall prefer an Any person aggrieved by any decision or order of the Appellate Tribunal
appeal? may file an appeal to the High court.
Within 60 days from the date of communication of the decision or order
Time Limit
of the Appellate Tribunal.
The High Court may, if it is satisfied that the appellant was prevented by
Maximum Extension sufficient cause from filing the appeal within the said period, allow it to
be filed within a further period not exceeding 60 days.
18. SPECIAL COURTS [SECTION 43]

Particulars Details
The Central Government, in consultation with the Chief Justice of the High
Court, shall, for trial of offence punishable under section 4, by
Establishment
notification, designate one or more Courts of Session as Special Court or
[Section 43(1)]
Special Courts or such area or areas or for such case or class or group of
cases as may be specified in the notification.
In this sub-section, “High Court” means the High Court of the State in
Meaning of the term
which a Sessions Court designated as Special Court was functioning
“High Court”
immediately before such designation.

[Explanation to Section
43(1)]
While trying an offence under this Act, a Special Court shall also try an
Dual trial possible!!! offence, other than an offence referred to in sub-section (1), with which
[Section 43(2)] the accused may, under the Code of Criminal Procedure, 1973, be charged
at the same trial.
19. OFFENCES TRIABLE BY SPECIAL COURTS [SECTION 44]

Particulars Details
What does the special An offence punishable under section 4 and any scheduled offence
court do? connected to the offence under that section shall be triable by the Special
[Section 44(1)(a)] Court constituted for the area in which the offence has been committed.
No need accused to Special Court may, upon a complaint made by an authority authorised in
commit the trial this behalf under this Act cognizance of offence under section 3, without
[Section 44(1)(b)] the accused being committed to it for trial.
If the court which has taken cognizance of the scheduled offence is other
than the Special Court which has taken cognizance of the complaint of the
What if multiple special offence of money-laundering under sub-clause (b), it shall, on an
courts are involved? application by the authority authorised to file a complaint under this Act,
[Section 44(1)(c)] commit the case relating to the scheduled offence to the Special Court and
the Special Court shall, on receipt of such case proceed to deal with it
from the stage at which it is committed.
A Special Court while trying the scheduled offence or the offence of
Trial to be in accordance
money-laundering shall hold trial in accordance with the provisions of
with CrPC, 1973
the Code of Criminal Procedure, 1973 as it applies to a trial before a Court
[Section 44(1)(d)]
of Session.
20. OFFENCES TO BE COGNIZABLE AND NON-BAILABLE [SECTION 45]

Particulars Details
Nature of offences All offences under this act w.r.t. money laundering are cognizable and
[Section 45] non bailable.
 A person accused of an offence under this Act shall not be released on
bail or on his own bond unless—
 The Public Prosecutor has been given an opportunity to oppose
Circumstances for Bail
the application for such release; and
[Section 45(1)(i) and
 Where the Public Prosecutor opposes the application, the court is
Section 45(1)(ii)]
satisfied that there are reasonable grounds for believing that he is
not guilty of such offence and that he is not likely to commit any
offence while on bail.
A person, who, is under the age of 16 years, or is a woman or is sick or
Additional cases of Bail
infirm, or is accused either on his own or along with other co-accused of
[1st Proviso to Section
money-laundering a sum of less than ₹1 crore may be released on bail,
45(1)]
if the Special Court so directs.

 The Special Court shall not take cognizance of any offence punishable
Cognizance of offence by
under section 4 except upon a complaint in writing made by ------
Special Court
 The Director or
[2 Proviso to Section
nd
 Any officer of the Central Government or
45(1)]
 Any officer of the State Government.
Notwithstanding anything contained in the Code of Criminal Procedure,
Police cant investigate at
1973, or any other provision of this Act, no police officer shall investigate
his own procedure
into an offence under this Act unless specifically authorised, by the
[Section 45(1A)]
Central Government.
Bail limitation is not the The limitation on granting of bail specified in sub-section (1) is in
only limitation addition to the limitations under the Code of Criminal Procedure, 1973
[Section 45(2)] or any other law for the time being in force on granting of bail.
21. APPLICATION OF CODE OF CRIMINAL PROCEDURE, 1973 TO PROCEEDINGS

BEFORE SPECIAL COURT [SECTION 46]
Particulars Details
Save as otherwise provided in this Act, the provisions of the Code of
Criminal Procedure, 1973 (including the provisions as to bails or bonds),
shall apply to the proceedings before a Special Court and for the purposes
Applicability of CrPC
of the said provisions, the Special Court shall be deemed to be a Court of
Session and the persons conducting the prosecution before the Special
Court, shall be deemed to be a Public Prosecutor.
22. APPEAL AND REVISION [SECTION 47]

Particulars Details
The High Court may exercise, so far as may be applicable, all the powers
Appeal as per CrPC conferred by Chapter XXIX or Chapter XXX of the Code of Criminal
Procedure, 1973, on a High Court.
23. AGREEMENTS WITH FOREIGN COUNTRIES [SECTION 56]

Particulars Details
Agreements between
The Central Government may enter into an agreement with the
whom?
Government of any country outside India.
[Section 56(1)]
 Enforcing the provisions of this Act.
Purpose of agreements
 Exchange of information for the prevention of any offence under this
Act or under the corresponding law in force in that country or
Section 56(1)(b)]
investigation of cases relating to any offence under this Act.
24. LETTER OF REQUEST TO A CONTRACTING STATE IN CERTAIN CASES [SECTION

57]
Particulars Details

An investigation of a case under this act is carried on by

Step – 1
Investigating officer.
An application is made to a Special Court by the Investigating
Step – 2 Officer or any officer superior in rank to the Investigating
Officer.
Application specify that any evidence is required in
connection with investigation into an offence or proceedings
Step – 3
under this Act and he is of opinion that such evidence may be
available in any place in a contracting State.
Steps in application of The Special Court, on being satisfied that such evidence is
section required in connection with the investigation into an offence
[Section 57(1)] Step – 4 or proceedings under this Act, may issue a letter of request to
a court or an authority in the contracting State competent to
deal with such request.
 The court or an authority in the contracting State
competent to deal with such request shall-----
 Examine facts and circumstances of the case.
Step – 5  Take such steps as the special court may specify in
such letter of request.
 Forward all the evidence so taken or collected to the
special Court issuing such letter of request.
Letter of request to be
The letter of request shall be transmitted in such manner as the Central
made as per rules
Government may specify in this behalf.
[Section 57(2)]
Statements recorded etc
Every statement recorded or document or thing received under sub-
shall be deemed to be
section (1) shall be deemed to be the evidence collected during the course
evidence of a case
of investigation.
[Section 57(3)]
25. ASSISTANCE TO A CONTRACTING STATE IN CERTAIN CASES [SECTION 58]

Particulars Details
Step – 1 A letter of request is received by the Central Government.
Such letter of request shall be made by a court or authority in
Steps in application of Step – 2
a contracting State requesting for investigation.
section
[Section 58] Upon such receipt, the Central Government may forward such
Step – 3 letter of request to the Special Court for execution of such
request.
26. DISCLOSURE OF INFORMATION [SECTION 66]

Particulars Details
Obligation on whom?  Director or
[Section 66(1)]  Any Officer authorised by Director.

 Furnish any information received or obtained by such Director or any

other authority, specified by him in the performance of their
What is the obligation? functions under this Act, as may, in the opinion of the Director or the
[Section 66(1)] other authority, be necessary for the purpose of the officer, authority
or body specified in clause (i) or clause (ii) to perform his or its
functions under that law.
 Any officer, authority or body performing any functions under any
law relating to ------
 Imposition of tax, duty or cess.
Whom to disclose?  Dealings in foreign exchange.
[Section 66(1)(i) and  Prevention of illicit traffic in the narcotic drugs and psychotropic
Section 66(1)(ii)] substances.
 Such other officer, authority or body performing functions under any
other law as the Central Government may, if in its opinion it is
necessary so to do in the public interest, specify.
27. PUNISHMENT FOR VEXATIOUS SEARCH [SECTION 62]

Particulars Details
 Any authority or officer exercising powers under this Act or any rules
When section gets made thereunder, who, without reasons recorded in writing,
attracted?  Searches or causes to be searched any building or place; or
 Detains or searches or arrests any person
Imprisonment Maximum 2 Years
What is the
Fine Maximum ₹ 50,000
Punishment?
Both
28. PUNISHMENT FOR FALSE INFORMATION OR FAILURE TO GIVE INFORMATION,

ETC [SECTION 63]
Section Content Who is Liable? Punishment/ Penalty
Willfully and maliciously giving Imprisonment
false information and so causing Maximum – 2 Years
63(1) Any Person
an arrest or a search to be made Fine
under this Act Maximum – ₹ 50,000
Being legally bound to state the
truth of any matter relating to an
63(2)(a) offence under section 3, refuses Any Person
to answer any question put to He shall pay, by way of penalty, a
him by an authority sum ------
Refuses to sign any statement Minimum – ₹ 500
made by him in the course of any Maximum – ₹ 10000
63(2)(b) proceedings under this Act, Any Person
which an authority may legally
require to sign.

To whom a summon is issued

under section 50 either to attend
to give evidence or produce
books of account or other
63(2)(c) Any Person
documents at a certain place and
time, omits to attend or produce
books of account or documents at
the place or time
29. COGNIZANCE OF OFFENCES [SECTION 64]

Particulars Details
Cognizance of No court shall take cognizance of any offence under section 62 or sub-section
Offence (1) of section 63 except with the previous sanction of the Central
[Section 64(1)] Government.
Time limit The Central Government shall, by an order, either give sanction or refuse to
[Section 64(2)] give sanction within ninety days of the receipt of the request in this behalf.
30. CODE OF CRIMINAL PROCEDURE, 1973 TO APPLY [SECTION 65]

Particulars Details
The provisions of the Code of Criminal Procedure, 1973 shall apply, in so far
as they are not inconsistent with the provisions of this Act, to arrest, search
CrPC to apply
and seizure, attachment, confiscation investigation, prosecution and all other
proceedings under this Act.
31. RECOVERY OF FINE OR PENALTY [SECTION 69]

Particulars Details
Who shall recover? The director or any other officer authorised by him.
Where any fine or penalty imposed on any person under section 13 or
When recovery? section 63 is not paid within six months from the day of imposition of fine or
penalty.
Recover the amount from the said person in the same manner as prescribed
Mode of recovery?
in schedule ii of the income-tax act, 1961.
32. OFFENCES BY COMPANIES [SECTION 70]

Particulars Details
Who is the contravener?
Where a person committing a contravention is a Company.
[Section 70(1)]
What is contravened?
Any provisions of this Act or of any rule, direction or order.
[Section 70(1)]
Every person who, at the time the contravention was committed, was in
Who is Liable?
charge of and was responsible to the company, for the conduct of the
[Section 70(1)]
business of the company as well as the company, shall be deemed to be

guilty of the contravention and shall be liable to be proceeded against and

punished accordingly.
Relief from the Liability Nothing contained in this sub-section shall render any such person liable
– When? to punishment if he proves that the contravention took place without his
[Proviso to Section knowledge or that he exercised all due diligence to prevent such
70(1)] contravention.
Notwithstanding anything contained in sub-section (1), where a
contravention of any of the provisions of this Act or of any rule, direction
or order made thereunder has been committed by a company and it is
What if, the guilty is proved that the contravention has taken place with the consent or
established? connivance of, or is attributable to any neglect on the part of any director,
[Section 70(2)] manager, secretary or other officer of any company, such director,
manager, secretary or other officer shall also be deemed to be guilty of the
contravention and shall be liable to be proceeded against and punished
accordingly.
For the purposes of this section,—
Only Companies are
i. “Company” means any Body corporate and includes a firm or other
covered?
[Explanation]
ii. “Director”, in relation to a firm, means a partner in the firm.
33. CONTINUATION OF PROCEEDINGS IN THE EVENT OF DEATH OR INSOLVENCY

[SECTION 72]
Particulars Details
When section gets
attracted? Any property of a persons has been attached under section 8.
[Section 72(1)]
It shall be lawful for the legal
No appeal has preferred against the
representatives of such person or
attachment and such person dies or
the official assignee or the official
is adjudicated an insolvent before
receiver, as the case may be, to
preferring an appeal to the
Situations visualized by prefer an appeal to the Appellate
Appellate Tribunal.
the section Tribunal.
[Section 72(1)(a) and It shall be lawful for the legal
Section 72(1)(b)] Appeal has been preferred to the representatives of such person or
Appellate Tribunal and such person the official assignee or the official
dies or is adjudicated an insolvent receiver, as the case may be, to
during the pendency of the appeal. continue the appeal before the
Appellate Tribunal.
No appeal has preferred against
order of Appellate Tribunal to the It shall be lawful for the legal
Additional situations
High Court u/s 42 and the person representatives of such person, or
visualized by section
entitled to file the appeal dies or is the official assignee or the official
adjudicated an insolvent before receiver, as the case may be, to
Section 72(2)(b)]
preferring an appeal to the High prefer an appeal to the high court.
Court.

Any such appeal has been preferred It shall be lawful for the legal
to the High Court and the person representatives of such person, or
who had filed the appeal dies or is the official assignee or the official
adjudicated an insolvent during the receiver, as the case may be, to
pendency of the appeal before the continue the appeal before the high
High Court court.
34. REPORTING ENTITY TO MAINTAIN RECORDS [SECTION 12]

Particulars Details
 Maintain a record of all transactions, including information relating to
transactions covered under clause (b), in such manner as to enable it
to reconstruct individual transaction.
 Furnish to the Director within such time as may be prescribed,
Obligations of the
information relating to such transactions, whether attempted or
Reporting entity
executed, the nature and value of which may be prescribed.
 Verify the identity of its clients.
Section 12(1)(e)]
 Identify the beneficial owner, if any, of such of its clients.
 Maintain record of documents evidencing identity of its clients and
beneficial owners as well as account files and business
correspondence relating to its clients.
Information to be kept Every information maintained, furnished or verified, save as otherwise
confidential provided under any law for the time being in force, shall be kept
[Section 12(2)] confidential.
 The records referred to in clause (a) of sub-section (1) shall be
maintained for a period of 5 years from the date of transaction
Period of maintenance between a client and the reporting entity.
[Section 12(3) and  The records referred to in clause (e) of sub-section (1) shall be
Section 12(4)] maintained for a period of five years after the business relationship
between a client and the reporting entity has ended or the account has
been closed, whichever is later
Power of CG to exempt
The Central Government may, by notification, exempt any reporting entity
certain companies
or class of reporting entities from any obligation under this Chapter.
[Section 12(5)]
35. ACCESS TO INFORMATION [SECTION 12A]

Particulars Details
The Director may call for from any reporting entity any of the records
Power of director
referred to in sub-section (1) of section 12 and any additional information
[Section 12A(1)]
as he considers necessary for the purposes of this Act.
Obligation on Reporting Every reporting entity shall furnish to the Director such information as
Entity may be required by him under sub-section (1) within such time and in
[Section 12A(2)] such manner as he may specify.

Director to maintain Save as otherwise provided under any law for the time being in force,
confidentiality every information sought by the Director under sub-section (1), shall be
[Section 12A(3)] kept confidential.
36. POWERS OF DIRECTOR TO IMPOSE FINE [SECTION 13]

Particulars Details
Powers with whom? The Director either Suo moto or on an application made by any authority,
[Section 13(1)] officer or person.
What is the power?  Make such inquiry personally or
[Section 13(1)]  Cause an inquiry to be made.
Inquiry into what?
Inquiry to be made, with regard to the obligations of the reporting entity.
[Section 13(1)]
If at any stage of inquiry, the Director having regard to the nature and
Special audit in certain complexity of the case, is of the opinion that it is necessary to do so, he
cases may direct the concerned reporting entity to get its records, as may be
[Section 13(1A)] specified, audited by an accountant from amongst a panel of
accountants, maintained by the Central Government for this purpose.
Expenses of audit The expenses of, and incidental to, any audit under sub-section (1A) shall
[Section 13(1B)] be borne by the Central Government.
 Issue a warning in writing; or
 Direct such reporting entity or its designated director on the board or
any of its employees, to comply with specific instructions; or
 Direct such reporting entity or its designated director on the board or
Action by director in any of its employees, to send reports at such interval as may be
case of failure in prescribed on the measures it is taking; or
compliance  By an order, impose a monetary penalty on such reporting entity or
[Section 13(2)] its designated director on the Board or any of its employees, which
shall not be less than ₹ 10000 but may extend to ₹ 100000 for each
failure.
Note: This consequence shall apply without prejudice to any other action that may be taken
under any other provisions of this Act.
37. NO CIVIL OR CRIMINAL PROCEEDINGS AGAINST REPORTING ENTITY, ITS

DIRECTORS AND EMPLOYEES IN CERTAIN CASES [SECTION 14]
Particulars Details
Save as otherwise provided in section 13, the reporting entity, its directors
No Liability in certain and employees shall not be liable to any civil or criminal proceedings
cases against them for furnishing information under clause (b) of sub-section
(1) of section 12.
38. PROCEDURE AND MANNER OF FURNISHING INFORMATION BY REPORTING
ENTITIES [SECTION 15]
Particulars Details

The Central Government may, in consultation with the Reserve Bank of

Procedures as per India, prescribe the procedure and the manner of maintaining and
rules furnishing information by a reporting entity under sub-section (1) of
section 12 for the purpose of implementing the provisions of this Act.

THE ARBITRATION AND CONCILIATION ACT, 1996
1. PREAMBLE
An Act to consolidate and amend the law relating to domestic arbitration, international
commercial arbitration and enforcement of foreign arbitral awards as also to define the
law relating to conciliation and for matters connected therewith or incidental thereto.
Particulars Details
Consolidate and amend the law relating to -----
 Domestic arbitration
Objective
 International commercial arbitration and
 Enforcement of foreign arbitral awards
Additional Define the law relating to conciliation and for matters connected therewith or
objective incidental thereto.
2. AN INTRODUCTION
India opened a fresh chapter in its arbitration laws in 1996 when it enacted the Arbitration and
Conciliation Act.
The Pre-1996 Position:
Prior to 1996, the arbitration law of the country was governed by a 1940 Act. This Act was largely
premised on mistrust of the arbitral process and afforded multiple opportunities to litigants to
approach the court for intervention. Coupled with a sluggish judicial system, this led to delays
rendering arbitrations inefficient and unattractive. A telling comment on the working of the old Act can
be found in a 1981 judgment of the Supreme Court where the judge (Justice DA Desai) in anguish
remarked ‘the way in which the proceedings under the (1940) Act are conducted and without an
exception challenged in Courts, has made lawyers laugh and legal philosophers weep …….’
A New Act, A New Beginning:
India (in the good company of several other nations) enacted its new Arbitration Act based on the
United Nations Commission on International Trade Law Model Law on International Commercial
Arbitration and the Arbitration Rules of the United Nations Commission on International Trade Law
1976. This was in January 1996. The Statement of Objects and Reasons to the Act made no bones of the
inefficiency of the old legislation. It said that the same had ‘become outdated’ and there was need to
have an Act ‘more responsive to contemporary requirements’. It added: ‘Our economic reforms may
not become fully effective if the law dealing with settlement of both domestic and international
commercial disputes remains out of tune.’
Amongst the main objectives of the new Act (set out in the Statement of Objects and Reasons) are ‘to
minimize the supervisory role of courts in the arbitral process’ and ‘to provide that every final arbitral
award is enforced in the same manner as if it were a decree of the Court’.
This is how Supreme Court dwelled on the New Act:
To attract the confidence of International Mercantile community and the growing volume of India’s
trade and commercial relationship with the rest of the world after the new liberalization policy of the
Government, Indian Parliament was persuaded to enact the Arbitration & Conciliation Act of 1996 in
UNCITRAL model and therefore in interpreting any provisions of the 1996 Act Courts must not ignore
the objects and purpose of the enactment of 1996. A bare comparison of different provisions of the
Arbitration Act of 1940 with the provisions of Arbitration & Conciliation Act, 1996 would unequivocally
indicate that 1996 Act limits intervention of Court with an arbitral process to the minimum.
The Scheme of the Act:
The Act is a composite piece of legislation. It provides for domestic arbitration, international
commercial arbitration, enforcement of foreign award and conciliation (the latter being based on the
UNCITRAL Conciliation Rules of 1980).

The more significant provisions of the Act are to be found in Parts I and II thereof. Part I contains the
provisions for domestic and international commercial arbitration. Any arbitration to be conducted in
India would be governed by Part I, irrespective of the nationalities of the parties. Part II provides for
enforcement of foreign awards.

Particulars Details
Name
This Act may be called the Arbitration and Conciliation Act, 1996.
[Section 1(1)]
Extent of
applicability It extends to the whole of India.
[Section 1(2)]

Term Definition
Arbitration Arbitration means any arbitration whether or not administered by permanent
[Section 2(1)(a)] arbitral institution.
Arbitration
agreement Arbitration agreement means an agreement referred to in section 7.
[Section 2(1)(b)]
Arbitral award
Arbitral award includes an interim award.
[Section 2(1)(c)]
Arbitral Tribunal
Arbitral tribunal means a sole arbitrator or a panel of arbitrators.
[Section 2(1)(d)]
“Court” means—
(i) In the case of an arbitration other than international commercial
arbitration, the principal Civil Court of original jurisdiction in a district,
and includes the High Court in exercise of its ordinary original civil
jurisdiction, having jurisdiction to decide the questions forming the
subject-matter of the arbitration if the same had been the subject-matter
Court of a suit, but does not include any Civil Court of a grade inferior to such
[Section 2(1)(e)] principal Civil Court, or any Court of Small Causes;
(ii) In the case of international commercial arbitration, the High Court in
exercise of its ordinary original civil jurisdiction, having jurisdiction to
decide the questions forming the subject-matter of the arbitration if the
same had been the subject-matter of a suit, and in other cases, a High
Court having jurisdiction to hear appeals from decrees of courts
subordinate to that High Court.
International commercial arbitration means an arbitration relating to disputes
International arising out of legal relationships, whether contractual or not, considered as
Commercial commercial under the law in force in India and where at least one of the parties
Arbitration is -----
[Section 2(1)(f)] (i) An individual who is a national of, or habitually resident in, any country
other than India; or

(ii) A body corporate which is incorporated in any country other than India;
or
(iii) An association or a body of individuals whose central management and
control is exercised in any country other than India; or
(iv) The Government of a foreign country.
Party
Party means a party to an arbitration agreement.
[Section 2(1)(h)]

5. FEATURES OF ARBITRATION
Term Definition
“Arbitration agreement” means an agreement by the parties to submit to
arbitration of all or certain disputes which have arisen or which may arise between
them in respect of a defined legal relationship, whether contractual or not.
No arbitration can happen without the consent of the parties.
The consent is contained within an arbitration agreement. This agreement
Arbitration
clearly specifies the desire of the parties to arbitrate their dispute.
agreement
In other words, they clearly note that in the event of a dispute between them they
would not go to the court, instead they will proceed to arbitrate their dispute.
This agreement takes the form of a binding contract.
Note: The Act states that the relationship between the parties need not be
contractual. Hence, a dispute in tort 6 can also be referred.
 Arbitrator also known as the arbitral tribunal is similar to a judge of the court.
 The arbitrator decides the disputes between the parties.
 Just like the judge an arbitrator is also required to be completely neutral,
impartial and not favour any party.
Arbitrator
 Because the parties can choose the arbitrators, it inspires confidence in the
arbitrators, the process and the decisions taken by the arbitrators. If, however
the arbitrators who are not independent then they could be removed by the
court.
 Seat means the legal system which would supervise the arbitration to ensure
that mandatory legal requirements are complied with. The courts of the seat
would provide assistance through supportive measures.
Seat of For Example
Arbitration If India is the seat then Indian laws would apply and Indian courts would have the
authority to provide supportive assistance such as issuance of interim measures,
etc. It would also be the court which would hear challenges against the arbitral
award.
 Arbitration also gives the parties the choice of applicable law especially if the
Party arbitration is an international commercial arbitration.
autonomy  Additionally, there is enormous flexibility to choose the type and kind of
procedure that the parties want to adopt for the arbitration.
Usually there is no appeal against an arbitral award. An arbitral award can only be
Finality of
set aside on very few grounds such as invalid arbitration agreement, parties’
outcome
incapacity, independence and impartiality of an arbitrator, unfair procedure, etc.
 An important feature of arbitration is that whatever that happens in arbitration
remains private. It is only known to the parties and the arbitrators.
 All of them are prohibited with sharing with third parties who are not involved
Confidentiality in arbitration, any document or information that is received during the course
of arbitration.
 This is done to ensure that parties feel free to share all information during
arbitration so that a proper solution can be arrived at.
6
Tort means wrongful act or infringement of a right

Arbitral An award is a decision by the arbitrator on the dispute that was submitted to it for
Awards adjudication.
Enforcement
It is much simpler to enforce an arbitral award in foreign nations than a judgment
of arbitral
rendered by a court. Such enforcement happens under an international treaty.
awards
6. ARBITRATION AGREEMENT [SECTION 7]

Particulars Details
“Arbitration agreement” means an agreement by the parties to submit to
Meaning of
arbitration all or certain disputes which have arisen or which may arise
arbitration agreement
between them in respect of a defined legal relationship, whether contractual
[Section 7(1)]
or not.
Forms of arbitration
An arbitration agreement may be in the form of an arbitration clause in a
agreement
contract or in the form of a separate agreement.
[Section 7(2)]
Written agreement
An arbitration agreement shall be in writing.
[Section 7(3)]
Option Content
1 A document signed by the parties.
Options of a written An exchange of letters, telex, telegrams or other means of
arbitration agreement 2 telecommunication including communication through
[Section 7(4)(a) to electronic means which provide a record of the agreement.
Section 7(4)(c)] An exchange of statements of claim and defense in which the
3 existence of the agreement is alleged by one party and not
denied by the other.
Validity through The reference in a contract to a document containing an arbitration clause
contract papers constitutes an arbitration agreement if the contract is in writing and the
[Section 7(5)] reference is such as to make that arbitration clause part of the contract.

APPENDIX – CASES AND INTERPRETATION

Particulars Details
Meaning of Every promise and every set of promises, forming the consideration for each other, is
agreement an agreement. [As per Indian Contract Act, 1872]
The purpose of an arbitration agreement is to submit disputes to arbitration and the
law defines an arbitration agreement on the basis of whether existing or future
disputes would be submitted to arbitration. Thus, the two basic types of arbitration
Types of agreement are:
arbitration (a) Arbitration clause - A clause contained within a principal contract. The parties
agreement undertake to submit disputes in relation to or in connection with the principal
contract that may arise in future to arbitration.
(b) Submission agreement - An agreement to refer disputes that already exist to
arbitration. Such an agreement is entered into after the disputes have arisen.
Example Content
In 2014, Company A, an automobile manufacturer entered into a joint
venture agreement (JVA) with Company B the largest manufacturer of
tyres for supply of all terrain tyres for its latest car. Both the companies
are registered under the Companies Act 2013.
1
The JVA carries the following clause “Clause 56.1. All disputes shall be
arbitrated in Mumbai.” This would be an arbitration clause. It is
contained in the principal contract (JVA) and no disputes have arisen till
yet. It concerns future disputes that may arise.
In 2014, Company A, an automobile manufacturer entered into a joint
Examples
venture agreement (JVA) with Company B the largest manufacturer of
tyres for supply of all terrain tyres for its latest car. Both the companies
are registered under the Companies Act 2013.
The JVA does not have any clause relating to arbitration. Disputes arose
2 between the parties concerning quality of tyres in 2016. To resolve this
dispute, parties entered into an agreement that noted “That all disputes
including quality of tyres supplied by Company B to Company A shall be
submitted to arbitration. The parties hereby agree to abide by the
decision of the arbitrator.” Such an agreement that is made after the
disputes have arisen would be called a submission agreement.

7. DIFFERENCE BETWEEN LITIGATION AND ARBITRATION

Sl.no Point of difference Litigation Arbitration
1 Place to take effect Takes place in court. The place of arbitration is chosen by the parties.
A judge is assigned by the court. The litigants have no say The arbitrator(s) is selected by the parties. Parties
on who will judge their disputes. therefore are able to choose people with the appropriate
2 Verdict giver
expertise, educational qualifications, trade experience, etc.,
as arbitrators.
The procedure followed by the court is fixed and The parties have adequate flexibility to choose the
determined by the Rules of the court. In India it would be procedures that would apply to their arbitration. They
3 Procedure
governed by the Code of Civil procedure and rules could either construct such procedures or adopt
applicable to the particular court. procedures of an arbitral institution.
The proceedings are generally open to public. In other Confidentiality is one of the most important characteristics
Open vs close words, there is very little privacy and confidentiality. of arbitration. In other words, apart from the parties
4
ended (including their lawyers) no other person is permitted to
participate in the arbitral proceedings.
5 Appeals Court decisions are subject to numerous appeals. Arbitral awards can be challenged on very limited grounds.
It is often difficult to enforce judgments of court of one Enforcing an arbitral award in foreign nations is much
Enforcement of country in a foreign country. easier and is governed by international treaties such as the
6
foreign judgements Recognition and Enforcement of Foreign Arbitral Awards,
1958.

8. REQUIREMENTS OF VALID ARBITRATION AGREEMENT

Particulars Details
Unlike the possibility of an oral contract, arbitration agreement is required to be
mandatorily in writing. There is however no requirement for the same to be in
writing in one document. There is also no particular form or template for an
arbitration agreement.
Example – 1:
C owns a shop in Chandni Chowk dealing in readymade clothes. D is a supplier of
clothes to C. They have been doing business for many years. No separate written
contract exists between them. However, for each consignment D issues an
individual invoice to C on the basis of which payment is made. Each invoice
contains the following note “All disputes pertaining to this transaction if any will
be subject to the Arbitration Rules & Regulations of Bharat Merchant Chamber".
Writing
This is an arbitration agreement in writing.
Example – 2:
Vikram wants to start a Sweet and Confectionary Shop and contacts Ahuja
Confectioners & Bakers for supply of cakes. The entire communication between the
parties took place over email. One of the emails received by Vikram from Ahuja
Bakers had, among other terms of service, the following condition “any disputes
regarding quality or delivery shall be submitted to arbitration conducted under the
aegis of Indian Confectionary Manufacturers Association. Please place your order
if the above terms and conditions are agreeable to you.” Vikram placed an order.
The contract stood affirmed by reason of their conduct. This would be an
arbitration agreement in writing contained in correspondence between the parties.
 The intention to go to arbitration must be clear in other words there must be
consensus ad idem.
 Utilization of vague words cannot be considered to be adequate.
 The intention has to be gathered from the wordings of the agreement.
 The words used should disclose a determination and obligation on the part of
parties to go to arbitration and not merely contemplate the possibility of going for
arbitration. If it is only a possibility then it is not an arbitration agreement.
Clarity in
consent Example:
The parties had a contract with a clause "(16) that if during the continuance of the
partnership or at any time afterwards any dispute touching the partnership arises
between the partners, the same shall be mutually decided by the partners or shall
be referred for arbitration if the parties so determine." This would not be an
arbitration agreement, because of the need for parties to further agree whether or
not to go for arbitration. The underlined portion clearly highlights the need for
further agreement between the parties.
 This term has been borrowed from the UNCITRAL Model Law.
 The statute does not define this term.
Defined
 The important idea here is that any dispute that arises from a legal relationship
legal
can be submitted to arbitration unless it is expressly or impliedly barred by a
relationship
Statute.
 Thus, disputes concerning illegal activities cannot be submitted to arbitration.

Parties to the arbitration agreement must agree that the determination of their
substantive rights by a neutral third person acting as the arbitral tribunal would be
final and binding upon them.
Example:
‘Any other questions, claim right, matter, thing, whatsoever, in any way arising out
of or relating to the contract designs, drawings, specifications estimates,
instructions, or orders, or those conditions or failure to execute the same whether
Final and
arising during the progress of' the work, or after the completion, termination or
binding
abandonment thereof, the dispute shall, in the first place, be referred to the Chief
award
Engineer who has jurisdiction over the work specified in the contract. The Chief
Engineer shall within a period of ninety days from the date of being requested by
the Contractor to do so, given written notice of his decision to the contractor. Chief
Engineer's decision final.’ Is this a valid arbitration agreement?
Answer:
Since in the given case Chief Engineer is not a neutral party and has a Control over
the work specified in the contract, so this is not a valid arbitration agreement.
Specific The mere use of words like ‘arbitration’ or ‘arbitrator’ in a clause will not make it an
words arbitration agreement. Usage of such words is not a necessary requirement.
There must be a present or a future dispute/difference in connection with some
Dispute
contemplated affairs that is proposed to be submitted to arbitration.
 The disputes submitted/ proposed to be submitted to arbitration must be
arbitrable.
 In other words that law must permit arbitration in that matter.
 There are certain disputes that the law retains exclusively for the court, and the
same cannot be submitted for arbitration.
Arbitrability
 The rationale is that given the nature of disputes, the courts are the only
appropriate forum for adjudicating the matter.
Example:
Criminal offences, matrimonial disputes, guardianship matters, testamentary
matters, mortgage suit for sale of a mortgaged property, etc. cannot be arbitrated.
Signature is only required when the arbitration agreement is contained in a contract
Signature i.e. in one set of documents. However, no signature is required if the arbitration
agreement is contained in correspondence or exchange of pleadings.
9. ARBITRATION AGREEMENT THROUGH REFERENCE

Particulars Details
The Arbitration and Conciliation Act, 1996 envisages a possibility of an arbitration
agreement coming into being through incorporation. In other words, parties to an
agreement could agree to arbitrate by referring to another contract containing an
arbitration agreement. The requirement is that the reference must leave no doubt in
Basic
the mind of the reader that the parties indeed wanted to incorporate the arbitration
provision
agreement into the agreement between them.
Example:
In Groupe Chimique Tunisien SA v. Southern Petrochemicals Industries
Corporation Ltd (SC), the respondent had placed an order of purchase of various

quantities of phosphoric acid from the petitioner. The purchase order noted that
the terms and conditions were to be as per the Fertilizer Association of India (FAI)
Terms and Conditions for Sale and Purchase of Phosphoric Acid. Clause 15 of the
terms provided for settlement of disputes by arbitration.
Is this a valid reference for an arbitration agreement to come into existence?
Answer:
Yes. It was held by the Supreme Court of India that for a reference to constitute an
arbitration agreement the contract should be writing and reference should be such
as to make that arbitration clause a part of the contract. Both the conditions were
held to be fulfilled in the present instance.
10. ARBITRATOR OR ARBITRAL TRIBUNAL
Particulars Details
An arbitrator(s) or arbitral tribunal performs the function of a judge, in other words
Nature
an arbitrator adjudicates/judges the dispute between the parties.
Arbitral Tribunal cannot be construed as a court just because of presence of an
Not a court
arbitrator who is like a judge.
 There could be one (sole) arbitrator or more than one arbitrator. Both would be
referred to as arbitral tribunal.
 The parties tend to have high level of freedom when deciding on the number of
persons that can be chosen as arbitrators.
 There are many things that should be kept in mind at the time of appointment of
arbitrators such as -----
Number of  Fees for arbitrators
arbitrators  Complexity of dispute
 Time required for meetings
 Duration of sessions
 Coordination of timings
 The advantage is more arbitrators results in greater discussions which can
improve the quality of awards. It also brings greater expertise as arbitrators may
be from different speciality and background.
Any person capable of contracting, in theory can be an arbitrator. Since arbitration is
Who can be
a private arrangement, whereby when dispute arise it would be submitted to a
an
private party instead of courts, the arbitrator can be anyone who is capable of
arbitrator?
contracting with the parties.
An important principle of arbitration is the principle of party autonomy. Party
autonomy means the ‘freedom to choose’ whether it is the procedure, the venue, the
Appointment seat or the arbitrators. The parties have the right to choose the persons who would
act as arbitrators in their dispute. However, this right to choose is not absolute but
instead is subject to certain limits that are provided under the applicable law.
Option Details
Procedure
1 Parties can jointly appoint.
for
Each party will appoint one and the two arbitrators would appoint the
appointment 2
rest.

Appointment would be made by an unrelated person or institution, e.g.

3
President of ICAI, President FICCI, etc.
Examples of each type with explanation

When an appointment is made jointly by both parties, both parties have to
agree upon who the arbitrator would be. Usually one party writes to other
party forwarding a list of names of potential arbitrators. If the other party
approves one name from the list, then that individual would be the
arbitrator. If not, then the other party would propose new names to the first
party. This would go on till both parties agree upon one name.
1
Example:
When a joint appointment was required, Party 1 sent the following names
to Party 2 – A, B, C, D, E. None of them was acceptable to Party 2, which sent
the following names to Party 1 – F, G, H, I, J. From this list, Party 1 was
agreeable for J and informed Party 2. In this case J would be the arbitrator
and would be considered to be jointly appointed.
When three arbitrators were to be appointed, Party 1 selected ‘B’ as their
arbitrator, while Party 2 selected ‘D’ as their arbitrator. The two arbitrators
then jointly discussed the following names S, P and M out of which they
2
selected M as the third (presiding) arbitrator. Similarly, where 5 arbitrators
are to be appointed, every party will appoint two arbitrators and the four
arbitrators will together appoint the presiding arbitrator.
There is also the possibility that although the parties had selected a
procedure to appoint an arbitrator, a party, person or institution may not
do what is required of them under the procedure.
Example:
 If according to the agreed procedure the appointment of the
arbitrator(s) was to be made by the ICADR (The International Centre
for Alternative Dispute Resolution) president, but such an appointment
was not made. In such situations the parties would have to approach
3
the authorities designated under the Arbitration and Conciliation Act
1996 for appointment of arbitrators. The designated authority is either
the Supreme Court of India (for international commercial arbitration)
or the High Court (for domestic arbitration).
 The law prescribes a detailed procedure for appointment of arbitrators,
but what is important is that even when the court steps in it firstly
requires parties to take action, and if that does not happen, only in the
last instance it does step in to appoint arbitrators.
Parties fail to appoint arbitrator in accordance with agreed procedure.
1 OR
Parties had not decided on a procedure to appoint an arbitrator.
Parties are required to proceed in accordance with default procedure
2
noted in the Act.
Steps
If any party fails to follow the default procedure, then other party can
3
approach the court.
The court may require the parties to act in accordance with their
4 agreement.
OR

The court may itself appoint the arbitrator.
11. REQUIREMENTS OF ARBITRAL TRIBUNAL

Particulars Details
 The arbitrator could be of any nationality.
 There is no requirement that the arbitrator should be of the nationality of one of
the parties. This is relevant in international commercial arbitration, when the
Any parties are from different countries.
Nationality  In such a situation an arbitrator who belongs to the nationality of one of the
parties may be considered as biased. At the same time merely because the
arbitrator is of the nationality of one of the parties, it would not automatically
amount to presence of bias.
 The arbitrator should be capable of contracting. This is because arbitration is a
private arrangement and requires consent of all involved i.e. parties and
arbitrators.
Capable of
 There is a contractual relation between the arbitrator and the parties, whereby
contracting
the arbitrator renders a service of adjudication to parties for remuneration.
 Therefore, all requirements of a contract as noted in the Indian Contract Act
1872 required to be fulfilled.
An arbitrator should remain neutral, unbiased and should not favour any party in
arbitration.
Grounds of (1) When a person is approached in connection with his possible
challenge appointment as an arbitrator, he shall disclose in writing any
[Section 12] circumstances-
a. such as existence either direct or indirect of any past or present
relationship with or interest in any of the parties or in relation to
the subject matter in dispute, whether financial, business,
professional or other kind, which is likely to give rise to justifiable
doubts as to his independence or impartiality; and
b. which are likely to affect his ability to devote sufficient time to
the arbitration and in particular his ability to complete the entire
arbitration within a period of twelve months.
Lack of bias Some  Arbitrator is an employee, consultant, advisor or has any other
instances of past or present business relationship with a party,
Bias  The arbitrator currently represents the lawyer or law firm
acting as counsel for one of the parties
 The arbitrator has given legal advice or provided an expert
opinion on the dispute to a party or an affiliate of one of the
parties
 A close family member of the arbitrator has a significant
financial interest in one of the parties or an affiliate of one of
the parties
 The arbitrator is a legal representative of an entity that is a
party in the arbitration
 The arbitrator has a significant financial interest in one of the
parties or the outcome of the case

 The arbitrator has previous involvement in the case.

Dependence is presence of certain relationship between the arbitrator and a party
such as previous employment, creditor, etc.
Example:
Anil, who is a Chartered Accountant with his own independent practice, is the
Independence
arbitrator in an arbitration between Tata Tea Inc., and Suzuki Ltd. Prior to starting
his practice, Anil had worked for five years with Tata Tea Inc.
Answer:
In this situation the law would deem Anil to be lacking independence.
Impartiality is the state of mind of the arbitrator i.e. by his / her behaviour the
arbitrator gives an impression that they are favouring one party over the other. It
can be understood as a pre-conceived notion to decide a case or an issue in a
particular manner.
Example:
Anil, who is a Chartered Accountant with his own independent practice, is the
arbitrator in an arbitration between Tata Tea Inc., and Suzuki Ltd. During the
proceedings before the arbitral tribunal, Anil would allow Tata Tea to take many
Impartiality liberties, for instance taking as much time for making oral arguments, cross
examining the witnesses, for submitting documents, etc. Also the proceedings
were adjourned (postponed) whenever so requested by Tata Tea. When Suzuki
Motors wanted to take extra time they were not allowed. In few instances when
they were permitted, they are asked to pay heavy cost to Tata Tea for delaying the
proceedings.
Answer:
This would be a case where the arbitral tribunal clearly favours and is partial
towards Tata Tea, and therefore lacks impartiality.
12. DUTIES AND LIABILITIES OF ARBITRATOR

Particulars Details
 It is necessary that the arbitrator conducts the proceeding as expeditiously as
possible.
 One of the advantages of arbitration is that there is a dedicated arbitrator to
decide the matter.
No delay  Longer proceedings would mean more cost to parties and delay in resolution.
 This does not mean that arbitrator should conduct the proceedings arbitrarily
just to finish faster.
 He has to ensure that all legal requirements are met, and unnecessary delay is
avoided.
As per section 18, Impartiality maintains the sanctity and integrity of the process
Impartial and the outcome. A biased outcome is no outcome, and would not be acceptable
under law.
 A highlight of arbitration is that whatever happens in arbitration remains in
Confidentiality arbitration. Confidentiality allows the parties to fully explore all aspects of the
dispute so as to arrive at a more acceptable solution.

 This requirement of confidentiality extends to all including the arbitral

tribunal, who is under a duty to not divulge any information that comes to their
knowledge during the process the arbitration.
 As per section 31(1), An arbitral award shall be made in writing and shall be
signed by the members of the arbitral tribunal.
 Arbitral tribunal should properly discuss all issues before issuing a decision or
award. The award should be a reasoned award.
Deliberation  As per section 29(1), Unless otherwise agreed by the parties, in arbitral
proceedings with more than one arbitrator, any decision of the arbitral
tribunal shall be made by a majority of all its members.
 In other words, the arbitrators should discuss the matter with each other
thoroughly and through a majority render the award.
 Any communication to be made on the case, shall be communicated to all the
entitled parties.
No unilateral  This is necessary to ensure that no allegation of bias can be made against the
communication arbitrator.
 The arbitral tribunal should ensure that all parties have copies of all
communication and documents received from any party.
Arbitral award
to comply with Unless the award complies with all the legal requirements the award would not be
legal enforced. This would render the entire process futile.
requirements
13. TERMINATION, REMOVAL OR SUBSTITUTION OF ARBITRAL TRIBUNAL

Particulars Details
There is a possibility that the arbitrator that has been chosen by the parties or
appointment made by the court may for different reasons become unsuitable. In
such instances an arbitrator has to be removed and replaced by another arbitrator.
There are clear processes for doing so. Removal of arbitrator may come about in 4
instances namely -----
 When the arbitrator leaves voluntarily.
Introduction
 When all parties involved in the arbitration agree that the arbitrator should
be removed.
 Operation of law.
 Arbitrator unable to continue
 When the arbitration process ends
 When the court decides that the arbitrator should be removed.
 It is possible that the arbitrator for reasons which he may or may not disclose
to the parties, decides to no longer act as the arbitrator.
Voluntary exit  It is important to remember that being a private consent-based arrangement
an individual cannot be forced against their will to act or continue acting as an
arbitrator.
At times all the parties involved may decide to no longer continue with a particular
Removal
arbitrator.

Example:
A person was appointed as arbitrator for his expertise as a civil engineer.
However, the parties during the arbitration found out that his experience was
inadequate in construction projects involving large dams. The parties could
through a unanimous decision, decide to have another person as arbitrator.
Situation Content
As per section 14(1), The mandate of an arbitrator shall terminate
and he shall be substituted by another arbitrator, if -----
 He is de jure7 unable to perform his functions or
 He is de facto8 unable to perform his functions or
 He has for other reasons fails to act without undue delay.
Example:
Assume for an instance where the arbitrator falls ill and is unable
1 to, for a very long period of time, conduct any proceedings.
Arbitrator Similarly, there could be other issues, the arbitrator became
unable to busy with other matters, his own business or simply lost interest
continue in the matter. These are factual inability. (de facto)
Example:
Operation of There may also be a possibility that law no longer permits the
law person to remain as an arbitrator. This is a de jure.
As per section 14(2), If a controversy remains concerning any of
the grounds 3 grounds referred above, a party may, unless
otherwise agreed by the parties, apply to the Court to decide on the
termination of the mandate.
The process of arbitration may end in various ways namely -----
 As per section 29A (1), the award in matters other than
2 international commercial arbitration shall be made by the
When arbitral tribunal within a period of 12 months from the date
arbitration of completion of pleadings.9
process  As per section 32, the process can end when final award
ends has been made.
 As per section 25, when the parties decide to no longer
continue with arbitration.
In addition to all of the above, there may be a possibility, where none of the above
is present for example the arbitrator is working without delay, parties are satisfied
with their performance, etc., but still a party feels that the arbitrator should not
continue, then it could, for reasons of bias approach the court to remove the
Decision of the
arbitrator. [Section 12 and Section 13]
court
STEPS IN CHALLENGING THE INTEGRITY OF THE ARBITRATOR.
Step – 1 Challenge must be raised before the arbitral tribunal itself.
Step – 2 Then, appear before the District Court (for domestic arbitration) and
High Court (for international commercial arbitration).
7
de jure means a state of affairs that is in accordance with law (i.e. that is officially sanctioned).
8
de facto means a state of affairs that is true in fact, but that is not officially sanctioned.
9
Pleading means a formal statement of the cause of an action or defence – simply date of complaint.

In case of termination, the law provides that a new arbitrator could be appointed
keeping in mind the original method of appointment. If, however that fails, then
the parties are free to approach the Supreme Court of India (in international
commercial arbitration) or High Court (for domestic arbitration) for appointment.
Example:
Query: Rahul was member of a three-person arbitral tribunal to adjudicate a
dispute between Dell Inc., Microsoft and Intel Corporation. Rahul was appointed
by Microsoft. He had on an earlier occasion been associated as a software
consultant with Microsoft. When the arbitration proceedings were ongoing on
two occasions Rahul privately met with Microsoft lawyers and failed to inform
either the other arbitrators or parties about the meeting or the contents of the
meeting. It was also observed that Rahul adopted an unduly harsh attitude
towards representatives of Dell and Intel, all the while remaining extremely
friendly with Microsoft representatives and lawyers.
Answer: Here in this case, Rahul can be challenged on grounds of bias. His
previous association and actions during the proceedings clearly point to his
tendency to favour Microsoft above other parties.
Assume that Rahul was removed. A new arbitrator had to be appointed. In
such a situation the original method, i.e. Microsoft making the appointment,
would apply again. If however Microsoft fails to make an appointment, the other
parties can approach the court to fill the vacancy.
14. ARBITRAL AWARD

Particulars Details
 An arbitral award is similar to a judgment given by a court of law.
 In other words, an arbitral award is given by the arbitral tribunal as a decision
on various issues in a matter which the parties had placed before the arbitral
tribunal.
Introduction
 It represents a resolution of dispute between the parties.
 As per section 2(1)(c), Arbitral award includes an interim award. That
means, the provisions that are applicable for a final arbitral award shall
equally apply to the interim award.
Particulars Details
Who can challenge? Only a party to the arbitration agreement can challenge
an arbitral award. A person who is not a party to the
arbitration cannot raise a challenge against an arbitral
award.
Challenge before An award can only be challenged before a court, which
General
whom? would include a district court and a High Court
principles
exercising original jurisdiction (for awards from
domestic arbitration) and High Court (for awards from
international commercial arbitration).
Limitation period? Limitation refers to by when a challenge against arbitral
award can be raised. The law notes an initial time period
of 3 months from when the award is received by party,

with a maximum extension of 30 more days by the

court.
Example:
The award was rendered on 1st January 2017.
Therefore, the award can be challenged by 31st
March. This date could be extended by another 30
days on application to the court i.e. till 30th April
2017. There can be no further extensions.
Particulars Details
Introduction Under the law there four types of award, namely:
 Final award
 Interim award
 Settlement award
 Additional award
Final award An award that is made in accordance with the
requirements of the law (including signature, reason
and delivery), and finally adjudicates on the issues
submitted to arbitration, would be a final award.
Interim award There are 2 types of interim awards namely:
 One which remains in force till the final award is
rendered and
 Another, is final as regards the matters it deals
with.
Settlement award  During the arbitration process, the parties may
Types of [Section 30] choose to settle the matter instead of having it
Arbitral awards adjudicated by the arbitrator.
 In such a situation the arbitrator could assist the
parties in arriving at the settlement.
 If a settlement is arrived at, and the arbitrator has no
objection with it, then terms of the settlement could
be made part of an award.
 This is referred to as a settlement award.
Additional award  when a final award has been rendered, but it is later
[Section 33(4)] found out that certain claims that had been
submitted to the arbitral tribunal were not
resolved/adjudicated, the parties can request the
arbitral tribunal to make an additional award
covering the issues that had been left out.
 Such a request must be made within 30 days from
the date of receipt of the final award.
Example:
Essentials or Particulars Details

requirements of Majority decision All decisions, including an award, must be made through
an arbitral majority. An award must also be complete concerning all
award

issues that are submitted to the arbitral tribunal for

adjudication.
Writing, Signed and Writing An award should be existed in writing.
Dated Signed An award should have signature of majority of
the members of the arbitral tribunal.
Note:
 It is quite possible that a particular
arbitrator may not agree with the
contents of the award.
 Therefore, the law only requires
majority of the arbitrators to sign.
 The law however requires the award to
note why the signature of an arbitrator
was missing.
Dated An award should clearly mention the date.
Note:
This helps determining various timelines,
for instance within how much time can an
award be challenged before the court, etc.
Reasoned awards A mandatory requirement for an award is that it should
be reasoned. Failure to state reasons would make the
award invalid.
Exception:
The only exception is when the parties have agreed
that no reasons need be given for the award.
Award not to be The arbitral award should be both certain and clearly
vague note which party has to do what. In other words, it must
be clear about decision on each issue, what liabilities
each party has and finally what relief has been awarded
to parties. In other words it should not seem like a
recommendation, must not be tentative, and must not
leave a party with an option to either perform what is
required or not.
Example:
The award notes - “The Arbitral Tribunal finds that Sunil
was required to deliver the goods to Anil at the rates
which had been fixed in 2015 and not 2016. Owing to
refusal to provide goods at the agreed rates, Anil was
forced to find a different supplier. Anil, as a consequence
suffered losses to the tune of 2 crores. Sunil’s actions
were clearly in violation of the agreement between
them.” It added the following lines:
Scenario 1 Sunil should compensate Anil.
Sunil should pay Anil 2 crores, in two
Scenario 2
instalments.
Sunil should pay Anil 2 crores, within 2
Scenario 3 weeks from the date of the award along
with 10% interest. Failure to do so will

attract additional 2% per day interest

on the outstanding amount till the
amount is finally paid. Payment should
be done either through RTGS or
through a demand draft.
In this instance only Scenario III is clear enough. Even
Scenario II though seemingly clear, does not clearly
specify by when it should be paid. Every award should
clearly specify all these details.
Award should be The award should be capable of being performed. The
capable of being award must be realistic in what it suggests, and should
performed not ask parties to do something that is not possible or
illegal. An unenforceable award would be set aside.

CONCILIATION
INTRODUCTION
Arbitration is one of the many ADR methods utilized to resolve dispute outside of the
court system. However, Arbitration remains adversarial in nature. It mimics the court
system, and therefore like a court adjudicates a matter. This however means that the
parties remain as adversaries, with one party having won and the other losing the contest.
This win-loss creates a feeling of bitterness, and often tends to destroy relations. In order
to avoid these consequences of arbitration, other methods of ADR are adopted.
15. CHARACTERISTICS OF CONCILIATION

Particulars Details
 The process of conciliation is voluntary which implies that all parties have to
agree to have their disputes conciliated. Unless all the parties involved in the
dispute agree, the matter cannot be conciliated.
Voluntary
 No party can be forced to conciliate matter or attend conciliation proceedings.
If a party is forced, then the outcome of such conciliation would not be binding
on that party.
unlike arbitration or court-based adjudication the parties don’t compete against
each other to prove themselves as correct and others as wrong. Parties don’t
Non-Adversarial behave as adversaries, who can only win by defeating the other party. Instead of
focusing on win-lose, the attempt is to find a solution to the problem that best
suits all the parties involved, in such a manner that no party is made worse off.
The conciliation proceedings can be crafted in a manner which most suits the
Assisted
parties’ convenience. At all times to assist the parties in arriving at a solution the
procedure
conciliator(s) are present.
Finality of The outcome i.e. settlement as an end result of the conciliation process is final
settlement and binding between the parties.
All aspects of the conciliation process are confidential. In other words, the
Confidentiality conciliator(s) and the parties cannot disclose to persons not party to conciliation,
any matter relating to the conciliation proceedings.
16. OTHER ISSUES IN CONCILIATION

Particulars Details
The number of conciliators depends upon the parties, but with a maximum of
Number of
three conciliators. In other words, number of conciliators can range from one to
conciliators
three.
Conciliator appointments are subject to party consent, in other words, the
conciliators are appointed by the parties. The law also permits parties to request
Appointment of an institution or some other person to recommend a conciliator. This allows
conciliators parties to approach institutions that provide professional conciliation services,
such as the ICADR. While appointment it must be ensured that independent and
impartial conciliators are selected.
Procedure for Once the conciliators have been appointed both parties are required to submit
conciliation their statements in writing, supply documents and other evidence to the

conciliator. The conciliator then provides a copy of the statements, documents

and other evidence of one party to the other party. The conciliator is then
required to encourage and assist parties to engage in discussions based on the
information to arrive at a settlement.
When the conciliation proceedings are ongoing parties cannot start arbitration
Bar on judicial
proceedings or approach a court regarding the same dispute which is part of
or arbitral
conciliation proceedings. The exception to this rule is that when it concerns
proceedings
preserving its right, the party can approach a court or initiate arbitration.
An Example:
Prakash and Rumi are business partners. Their partnership firm (Fruits & Flowers) are dealers in
fresh fruits and exotic flowers. Their clientele includes various high-end hotels, marriage venues and
other institutions in and around Delhi. They have standing orders from many for daily supply of
flowers, both exotic and otherwise. One of their regular clients is Orion Decorators in Gurgaon, which
specialises in flower decorations. Over the years it has built a name for itself in the business of flower
decorations at marriage venues. Fruits & Flowers and Orion Decorators have had business dealings
for many years.
In 2016 Fruits & Flowers was sold by Prakash and Rumi to Sanjay. One of the first things that Sanjay
did after taking over was to drastically increase price for exotic flowers. One of the clients that was
most hit was Orion Decorators, because they had already taken several orders based on previous
pricings of Fruits & Flowers. The increased pricing meant that Orion Decorators would incur
substantial loss. Being the peak of marriage season, Orion Decorators requested Fruits & Flowers to
honour their long-standing business relation and provide flowers at earlier prices. Sanjay refused
outright but agreed to have the matter conciliated. The conciliation proceedings started next day.
Sanjay however refused to provide flowers unless the higher rate was paid.
In this scenario what could Orion Decorators have done to ensure they continued to receive exotic
flowers required by them to fulfil their orders?
Answer:
Under Section 77 of the Arbitration and Conciliation Act 1996, even though approach to court is
prohibited during the conciliation proceedings, as an exception a party could approach the court to
protect its rights. Orion Decorators could approach the court for interim measures, whereby till the
conclusion of conciliation proceedings it could request the court to direct Sanjay to continue providing
flowers at the lower rate. The court would have the power to grant the requested measure of
protection on such conditions as it deems appropriate.

17. DIFFERENCE BETWEEN MEDIATION AND CONCILIATION
Sl.no Point of difference Mediation Conciliation

Mediator plays a facilitative role and attempts to guide the The Conciliator plays a more proactive role. He acts a
1 Role parties towards a solution. Thus, the solution should come facilitator, evaluator and intervener. In other words, he can
from the parties themselves. also along with the parties suggest solutions.
2 Outcome The outcome is an agreement between the parties. The outcome is a settlement agreement.
The agreement reached by the parties is a contract The settlement agreement reached between the parties has
3 Enforceability enforceable by law. the same status as an arbitral award on agreed terms. In
other words, it is executable as a decree of the civil court.
Legislative Mediation is governed by Section 89 of the Code of Civil Conciliation is governed by Part III of the Arbitration and
4
governance Procedure, 1908. Conciliation Act, 1996.
If the agreement is breached, the parties would have to If the agreement is breached, the parties would have to
Breach of
5 proceed in the usual process adopted for breach of proceed in the usual process adopted for breach of
agreement
contract. contract.

18. SETTLEMENT AGREEMENT

Particulars Details
Attempt of conciliation is to resolve the dispute and arrive at a settlement. This
Initial steps settlement could be based on suggestions made by the Conciliator(s) or the
parties.
If the parties reach a settlement, then it has to be written down as an agreement.
This agreement is known as settlement agreement (at times it is also referred to
as Memorandum of Conciliation). It can be made by the parties or by the
Agreement
Conciliator on behalf of the parties. However, the conciliator is required to
authenticate the agreement without which the agreement would have no legal
sanctity.
The settlement agreement has the same status as that of an arbitral award. An
Enforcement arbitral award is final and binding on the parties and persons claiming under
them.

THE SECURITIES CONTRACTS (REGULATION) ACT, 1956
1. PREAMBLE
An Act to prevent undesirable transactions in securities by regulating the business of dealing
therein, by providing for certain other matters connected therewith.

(1) This Act may be called the Securities Contracts (Regulation) Act, 1956.
(2) It extents to the whole of India.
(3) It shall come into force on such date as the Central Government may, by notification in the
Official Gazette, appoint.
3. ACT NOT TO APPLY IN CERTAIN CASES [SECTION 28]

Particulars Details
 The provisions of this Act shall not apply to—
 The Government.
 The Reserve Bank of India.
 Any local authority.
Non – applicability  Any corporation set up by a special law.
 Any person who has effected any transaction with or through the agency
of any such authority.
 Any convertible bond or share warrant or any option or right in relation
thereto

Term Definition
“Securities” include—
(i) Shares, scrips stocks, bonds, debentures, debenture stock or other
marketable securities of a like nature in or of any incorporated company
or other body corporate;
(ia) Derivative;
(ib) Units or any other instrument issued by any collective investment scheme to
the investors in such schemes;
Securities (ic) Security receipt as defined in clause (zg) of section 2 of the Securitization and
[Section 2(h)] Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
(id) Units or any other such instrument issued to the investors under any mutual
fund scheme.
[Explanation.—For the removal of doubts, it is hereby declared that "securities"
shall not include any unit linked insurance policy or scrips or any such instrument
or unit, by whatever name called, which provides a combined benefit risk on the
life of the persons and investment by such persons and issued by an insurer
referred to in clause (9) of section 2 of the Insurance Act, 1938]

(ie) Any certificate or instrument (by whatever name called), issued to an investor
by any issuer being a special purpose distinct entity which possesses any debt or
receivable, including mortgage debt, assigned to such entity, and acknowledging
beneficial interest of such investor in such debt or receivable including mortgage
debt, as the case may be.
(ii) Government securities; and
(iii) Rights or interests in securities.
“Derivative” includes—
(A) A security derived from a debt instrument, share, loan, whether secured or
unsecured, risk instrument or contract for differences or any other form of
security.
Derivative
(B) A contact which derives its value from the prices, or index of prices, of
[Section 2(ac)]
underlying securities.
(C) Commodity derivatives; and
(D) Such other instruments as may be declared by the Central Government to be
derivatives.
“Commodity derivative” means a contract—
(i) For the delivery of such goods, as may be notified by the Central
Government in the Official Gazette, and which is not a ready delivery
Commodity contract; or
derivative (ii) For differences, which derives its value from prices or indices of prices of
[Section 2(bc)] such underlying goods or activities, services, rights, interests and events, as
may be notified by the Central Government, in consultation with the Board,
but does not include securities as referred to in sub-clauses (A) and (B) of
clause (ac).
Goods “Goods” mean every kind of movable property other than actionable claims, money
[Section 2(bb)] and securities.
“Government security” means a security created and issued, whether before or
Government
after the commencement of this Act, by the Central Government or a State
Security
Government for the purpose of raising a public loan and having one of the forms
[Section 2(b)]
specified in clause (2) of section 2 of the Public Debt Act, 1944.
Contract
“Contract” means a contract for or relating to the purchase or sale of securities.
[Section 2(a)]
“Stock exchange” means—
(a) any body of individuals, whether incorporated or not, constituted before
corporatisation and demutualisation under sections 4A and 4B, or
Stock Exchange
(b) a body corporate incorporated under the Companies Act, 1956 whether under
[Section 2(j)]
a scheme of corporatisation and demutualisation or otherwise, for the purpose of
assisting, regulating or controlling the business of buying, selling or dealing in
securities
Recognised Stock “Recognised stock exchange” means a stock exchange which is for the time being
exchange recognised by the Central Government under section 4.

[Section 2(f)]
“Corporatisation” means the succession of a recognised stock exchange, being a
body of individuals or a society registered under the Societies Registration Act,
Corporatisation
1860, by another stock exchange, being a company incorporated for the purpose
[Section 2(aa)]
of assisting, regulating or controlling the business of buying, selling or dealing in
securities carried on by such individuals or society.
“Demutualisation” means the segregation of ownership and management from the
Demutualisation
trading rights of the members of a recognised stock exchange in accordance with
[Section 2(ab)]
a scheme approved by the Securities and Exchange Board of India.
Member
“Member” means a member of a recognised stock exchange.
[Section 2(c)]
“Ready delivery contract” means a contract which provides for
the delivery of goods and the payment of a price therefor, either
Ready delivery
immediately, or within such period not exceeding eleven days
Contract
after the date of the contract, and the period under such
[Section 2(ea)
contract not being capable of extension by the mutual consent
of the parties thereto or otherwise.
“Spot delivery contract” means a contract which provides for,—
(a) Actual delivery of securities and the payment of a price
therefor either on the same day as the date of the contract or
on the next day, the actual period taken for the dispatch of the
securities or the remittance of money therefor through the post
Spot delivery
Various types of being excluded from the computation of the period aforesaid if
Contract
Contracts the parties to the contract do not reside in the same town or
[Section 2(i)]
locality.
(b) Transfer of the securities by the depository from the
account of a beneficial owner to the account of another
beneficial owner when such securities are dealt with by a
depository.
“Specific delivery contract” means a commodity derivative
which provides for the actual delivery of specific qualities or
Specific delivery
types of goods during a specified future period at a price fixed
Contract
thereby or to be fixed in the manner thereby agreed and in
[Section 2(ha)]
which the names of both the buyer and the seller are
mentioned.
“Option in securities” means a contract for the purchase or sale of a right to buy or
Option in securities
sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji
[Section 2(d)]
mandi, a galli, a put, a call or a put and call in securities.

PART 2: BASICS OF STOCK EXCHANGE

5. APPLICATION FOR RECOGNITION OF STOCK EXCHANGE [SECTION 3 READ WITH
RULE 3, 4 AND 5]
Particulars Details
Any stock exchange, which is desirous of being recognised for the purposes of this
Act, may make an application in the prescribed manner to the Central Government.
Application by An application under section 3 of the Act for recognition of a stock
whom? Rule 3 exchange shall be made to the Securities and Exchange Board of
[Section 3(1)] India in Form A.
There shall be paid in respect of every application under Rule 3 a
Rule 4
fee of ͅ₹ 500.
 Every application shall contain following particulars and shall be
accompanied by such copies of rules and bye-laws.
 The governing body of such stock exchange, its constitution and powers
of management and the manner in which the business is to be transacted.
 The powers and duties of the office bearers of the stock exchange.
Documents to be
 The admission into the stock exchange of various classes of members, the
attached
qualifications for memberships, and the exclusion, suspension,
[Section 3(2)]
expulsion and re-admission of members therefrom or there into.
 The procedure for the registration of partnerships as members of the
stock exchange.
Every application shall be accompanied by 4 copies of the rules and 4
Rule 5
copies of bye-laws of the stock exchange.
6. GRANT OF RECOGNITION TO STOCK EXCHANGES [SECTION 4]

Particulars Details
Grant of recognition
by whom? Grant of recognition of stock exchange shall be given by Central Government.
[Section 4(1)]
Conditions verified
 The rules and bye-laws of a stock exchange applying for registration are in
by CG before granting
conformity with such conditions.
recognition
 The stock exchange is willing to comply with any other conditions.
[Section 4(1)(a) to
 It would be in the interest of the trade and also in the public interest.
Section 4(1)(c)]
 The qualifications for membership of stock exchanges.
 The manner in which contracts shall be entered into and enforced as
Conditions that may between members.
be imposed by CG  The representation of the central government on each of the stock exchanges
[Section 4(2)] by such number of persons not exceeding three.
 The maintenance of accounts of members and their audit by Chartered
accountants.

Notification in official
Every grant of recognition to a stock exchange under this section shall be
gazette
published in the Gazette.
[Section 4(3)]
No application for the grant of recognition shall be refused except after giving
Refusal to be
an opportunity to the stock exchange concerned to be heard in the matter; and
subjected to OBH
the reasons for such refusal shall be communicated to the stock exchange in
[Section 4(4)]
writing.
No rules of a recognised stock exchange relating to any of the matters specified
Amendment of rules
in sub-section (2) of section 3 shall be amended except with the approval of the
[Section 4(5)]
Central Government.
The recognition granted to a stock exchange shall be in Form B
and be subject to the following conditions, namely :—
Form of
(a) That the recognition unless granted on a permanent basis,
recognition
shall be for such period not less than one year as may be
[Rule 6]
specified in the recognition.
(b) That the stock exchange shall comply with such conditions.
Content prescribed
by the Rules (1) Three months before the expiry of the period of recognition,
[Rule 6 and Rule 7] a recognised stock exchange desirous of renewal of such
recognition may make an application to the SEBI in Form A.
Renewal of
(2) The provisions of rule 3, rule 4, rule 5, rule 5A and rule 6 shall
recognition
apply in relation to renewal of recognition as they apply in
[Rule 7]
relation to grant of recognition except that the fee payable in
respect of an application for renewal of recognition shall be
rupees two hundred.
7. WITHDRAWAL OF RECOGNITION [SECTION 5]

Particulars Details
 Power to withdraw vests with Central Government.
 Withdrawal made must be -----
 In the interest of the trade and
Procedure to withdraw
 In the interest of the public.
recognition granted
[Section 5(1)]  Serve a notice on the governing body of the Stock exchange stating the
reasons for withdrawal.
 Withdrawal shall be made only after giving an opportunity to the
governing body to be heard.
Withdrawal to take a
prospective effect Withdrawal shall not affect the validity of any contract entered into or made
[Proviso to Section before the date of the notification.
5(1)]
Mandatory withdrawal Where the recognised stock exchange has not been corporatised or
in certain cases demutualised within the specified time therefor or the scheme has been

[Section 5(2)] rejected by the SEBI, the recognition granted to such stock exchange under
section 4, shall, notwithstanding anything to the contrary contained in this
Act, stand withdrawn and the Central Government shall publish, by
notification in the Official Gazette, such withdrawal of recognition.
8. CONDITIONS FOR LISTING [SECTION 21]

Particulars Details
Where securities are listed on the application of any person in any recognised
Provision stock exchange, such person shall comply with the conditions of the listing
agreement with that stock exchange.
9. DELISTING OF SECURITIES [SECTION 21A]

Particulars Details
Delisting by whom?
Delisting by the recognised stock exchange where the securities are listed.
[Section 21A(1)]
RSE to specify the
reasons Delisting may be made only after giving reasons therefor in writing.
[Section 21A(1)]
Principles of natural
justice to be followed The securities of a company shall not be delisted unless the company
[Proviso to Section concerned has been given a reasonable opportunity of being heard.
21A(1)]
A recognized stock exchange may, without prejudice to any other action that
may be taken under the Act or under any other law for the time being in force,
delist any securities listed thereon on any of the following grounds in
accordance with the regulations made by the Securities and Exchange Board
of India, namely ------
The company has incurred losses during the preceding 3 consecutive years
AND it has negative net worth.
Trading in the securities of the company has remained suspended for a
Grounds for delisting
period of more than 6 months.
[Section 21A(1) read
The securities of the company have remained infrequently traded during
with Rule 21 of the
the preceding 3 years.
SCR, rules 1957]
The company or any of its promoters or any of its director has been
convicted for failure to comply with any of the provisions of the act or the
securities and exchange board of India act, 1992 or the depositories act,
1996 or rules, regulations, agreements made thereunder, as the case may
be and awarded a penalty of not less than rupees one crore or
imprisonment of not less than 3 years.
The addresses of the company or any of its promoter or any of its directors,
are not known or false addresses have been furnished or the company

has changed its registered office in contravention of the provisions of the

companies act, 1956/2013.
Shareholding of the company held by the public has come below the
minimum level applicable to the company as per the listing agreement
under the act and the company has failed to raise public holding to the
required level within the time specified by the recognized stock exchange.
 Listed Company or
Appeal by whom?
 An aggrieved investor.
Appeal to whom? Appeal before Securities Appellate Tribunal.
Appeal against delisting Within 15 days from the date of the decision of the
Appeal time limit
[Section 21A(2) and recognised stock exchange.
its Proviso] The Securities Appellate Tribunal may, if it is satisfied
Extension of time that the company was prevented by sufficient cause
limit from filing the appeal within the said period, allow it
[Proviso] to be filed within a further period not exceeding 1
month.
10. RIGHT OF APPEAL AGAINST REFUSAL BY STOCK EXCHANGES TO LIST SECURITIES

OF PUBLIC COMPANIES [SECTION 22]
Particulars Details
A recognised stock exchange acting in pursuance of any power given to it by
Action under this
its bye-laws, refuses to list the securities of any public company or collective
section
investment scheme.
Rights of the Company  Receive the notice of RSE that it intends to refuse to list and
or Scheme  Entitled to be furnished with the reasons for such refusal.
Appeal to whom? Appeal to Central Government [Option 1 – Section 22]
If notice of refusal is Within 15 days from the date on which the reasons for
communicated such refusal are furnished to it.
If SE has omitted or
failed to dispose of
Appeal within what the application
time Within 15 days from the date of expiry of specified
within 10 weeks
time or within such further period, not exceeding one
from the closing of
month as Central Government permits.
subscription lists
(as per S.73 of CA
1956)
 Vary or set aside the decision of the stock exchange or
Action by CG on such  Where the stock exchange has omitted or failed to dispose of the
appeal made application within the specified time, grant or refuse the permission, and
where the Central Government sets aside the decision of the recognised

stock exchange or grants the permission, the stock exchange shall act in
conformity with the orders of the Central Government.
11. RIGHT OF APPEAL TO SECURITIES APPELLATE TRIBUNAL AGAINST REFUSAL OF

STOCK EXCHANGE TO LIST SECURITIES OF PUBLIC COMPANIES [SECTION 22A]
Particulars Details
Action under this A recognised stock exchange acting in pursuance of any power given to it by
section its bye-laws, refuses to list the securities of any public company.
 Receive the notice of RSE that it intends to refuse to list and
Rights of the Company
 Entitled to be furnished with the reasons for such refusal.
Appeal to whom? Securities Appellate Tribunal [Option 2 – Section 22A]
If notice of refusal is Within 15 days from the date on which the reasons
communicated for such refusal are furnished to it.
If SE has omitted or
Appeal within what failed to dispose of the
Within 15 days from the date of expiry of specified
time application within 10
time or within such further period, not exceeding
weeks from the
one month as Securities Appellate Tribunal
closing of subscription
permits.
lists (as per S.73 of CA
1956)
 Vary or set aside the decision of the stock exchange or
 Where the stock exchange has omitted or failed to dispose of the
application within the specified time, grant or refuse the permission, and
Action by SAT on such
where the Securities Appellate Tribunal sets aside the decision of the
appeal made
recognised stock exchange or grants the permission, the stock exchange
shall act in conformity with the orders of the Securities Appellate
Tribunal.
Time Limit for disposal
SAT shall dispose the appeal within 6 months.
of appeal
12. PROCEDURE AND POWERS OF SECURITIES APPELLATE TRIBUNAL [SECTION 22B]

Particulars Details
Basic procedure  SAT is not bound by the procedure laid down in CPC, 1904.
[Section 22B(1)]  SAT shall be guided by the principles of natural justice.
 SAT shall have the following Civil court powers -----
 Summoning and enforcing the attendance of any person.
Powers of a Civil court
 Examination on oath.
[Section 22B(2)]
 Requiring the discovery and production of documents.
 Receiving evidence on affidavit.

 Issuing commissions for the examination of witnesses.

SAT deemed as a civil  Every proceeding before SAT shall be deemed to be a judicial proceeding
court for securities laws and
[Section 22B(3)]  SAT shall be deemed to be a civil court.
13. RIGHT TO LEGAL REPRESENTATION [SECTION 22C]

Particulars Details
 The appellant may -----
 Either appear in person or
Legal representation  Authorise one or more chartered accountants or company secretaries
or cost accountants or legal practitioners or any of its officers to
present his or its case.
14. CIVIL COURT NOT TO HAVE JURISDICTION [SECTION 22E]

Particulars Details
Civil court shall not have a jurisdiction to -----
Civil court not to Entertain any suit or proceeding in Which a SAT is empowered by or
interfere respect of any matter under this Act to determine.
Pass an injunction order Which a SAT is empowered pass.
15. APPEAL TO HIGH COURT [SECTION 22F]

Particulars Details
Appeal against whom? Any decision or order of the Securities Appellate Tribunal.
Appeal by whom? Any person aggrieved.
Appeal to whom? Appeal to High court.
File an appeal to the High Court within 60 days from the date of
Time limit to file appeal
communication of the decision or order of the SAT.
Appeal on what? Appeal may be on any question of fact or law.
If appellant is prevented by sufficient cause from filing the appeal within
Extension by High court the said period, allow it to be filed within a further period not exceeding
60 days.

PART 3 – JUDICIARY UNDER SECURITIES CONTRACTS (REGULATION) ACT, 1956

PENALTIES AND PROCEDURES
16. PENALTIES PART – 1 [SECTION 23]
Section Particulars [Any person who…….] Details
23(1)(a) Without reasonable excuse fails to comply with any requisition made under section 6(4).
Enters into any contract in contravention of any of the provisions contained in section 13 or
23(1)(b)
section 16.
23(1)(c) Contravenes the provisions contained in section 17 or section 17A, or section 19.
23(1)(d) Enters into any contract in derivative in contravention.
Owns or keeps a place other than that of a recognised stock exchange which is used for the
23(1)(e) purpose of entering into or performing any contracts in contravention of any of the
Shall, without prejudice to any
provisions of this act and knowingly permits such place to be used for such purposes.
award of penalty by the
Manages, controls, or assists in keeping any place other than that of a recognised stock Adjudicating Officer or THE
23(1)(f) exchange which is used for the purpose of entering into or performing any contracts in SECURITIES AND EXCHANGE
contravention of any of the provisions of this act. BOARD OF INDIA under this
Not being a member of a recognised stock exchange or his agent authorised as such under Act, on conviction, be
the rules or bye-laws of such stock exchange or not being a dealer in securities licensed under punishable with imprisonment
23(1)(g)
section 17 wilfully represents to or induces any person to believe that contracts can be for a term which may extend to
entered into or performed under this act through him 10 years or with fine, which
may extend to 25 crore rupees
Not being a member of a recognised stock exchange or his agent authorised as such under or with both.
the rules or bye-laws of such stock exchange or not being a dealer in securities licensed under
23(1)(h) section 17, canvasses, advertises or touts in any manner either for himself or on behalf of any
other persons for any business connected with contracts in contravention of any of the
provisions of this act.
Joins, gathers or assists in gathering at any place other than the place of business specified in
the bye-laws of a recognised stock exchange any person or persons for making bids or offers
23(1)(i)
or for entering into or performing any contracts in contravention of any of the provisions of
this act

17. PENALTIES PART – 2 [SECTION 23A TO 23H]

Section Particulars Details
Any person, who is required under this Act or any rules made thereunder Shall be liable to a penalty of -
23A(a) to furnish any information, document, books, returns or report to a ----
Penalty for failure to recognised stock exchange, OR WHO FURNISHES FALSE, INCORRECT Minimum: ₹ 1,00,000
furnish information, OR INCOMPLETE INFORMATION FAILS TO FURNISH THE SAME Maximum: ₹ 1,00,000 for each
return, etc WITHIN THE TIME specified therefor in the listing agreement or day subject to maximum of ₹ 1
conditions or bye-laws of the recognised stock exchange. crore
Any person, who is required under this Act or any rules made thereunder Shall be liable to a penalty of -
23A(b) to maintain books of account or records, as per the listing agreement or ----
Penalty for failure to conditions, or bye-laws of a recognised stock exchange, fails to maintain Minimum: ₹ 1,00,000
furnish information, the same. Maximum: ₹ 1,00,000 for each
return, etc day subject to maximum of ₹ 1
crore.
If any person, who is required under this Act or any bye-laws of a Shall be liable to a penalty of -
23B recognised stock exchange made thereunder, to enter into an agreement ----
Penalty for failure by any with his client, fails to enter into such an agreement. Minimum: ₹ 1,00,000
person to enter into an Maximum: ₹ 1,00,000 for each
agreement with clients. day subject to maximum of ₹ 1
crore.
If any stock broker or sub-broker or a company whose securities are
Shall be liable to a penalty of -
listed or proposed to be listed in a recognised stock exchange, after
23C ----
having been called upon by the Securities and Exchange Board of
Penalty for failure to Minimum: ₹ 1,00,000
India or a recognised stock exchange in writing, to redress the
redress Investors Maximum: ₹ 1,00,000 for each
grievances of the investors, fails to redress such grievances within the
grievances day subject to maximum of ₹ 1
time stipulated by the Securities and Exchange Board of India or a
crore.
recognised stock exchange
If any person, who is registered under section 12 of the Securities and Shall be liable to a penalty of -
23D
Exchange Board of India Act, 1992 as a stock broker or sub-broker, fails ----

Penalty for failure to to segregate securities or moneys of the client or clients or uses the Minimum: ₹ 1,00,000
segregate securities or securities or moneys of a client or clients for self or for any other client Maximum: ₹ 1 crore
moneys of client or clients
23E If a company or any person managing collective investment scheme or
Penalty for failure to mutual fund OR REAL ESTATE INVESTMENT TRUST OR
----
comply with of listing INFRASTRUCTURE INVESTMENT TRUST OR ALTERNATIVE
Minimum: ₹ 5,00,000
conditions or delisting INVESTMENT FUND, fails to comply with the listing conditions or
Maximum: ₹ 25 Crores
conditions or grounds delisting conditions or grounds or commits a breach thereof.
23F If any issuer dematerialises securities more than the issued securities of
Penalty for excess a company or delivers in the stock exchanges the securities which are not
----
dematerialisation or listed in the recognised stock exchange or delivers securities where no
Minimum: ₹ 5,00,000
delivery of unlisted trading permission has been given by the recognised stock exchange.
Maximum: ₹ 25 Crores
securities
If a recognised stock exchange fails or neglects to furnish periodical
returns OR FURNISHES FALSE, INCORRECT OR INCOMPLETE
23G Shall be liable to a penalty of -
PERIODICAL RETURNS to the Securities and Exchange Board of India or
Penalty for failure to ----
fails or neglects to make or amend its rules or bye-laws as directed by the
furnish periodical returns, Minimum: ₹ 5,00,000
Securities and Exchange Board of India or fails to comply with directions
etc. Maximum: ₹ 25 Crores
issued by the Securities and Exchange Board of India, such recognised
stock exchange.
----
23GA Where a stock exchange or a clearing corporation fails to conduct its
Minimum: ₹ 5 Crore
Penalty for failure to business with its members or any issuer or its agent or any person
Maximum
conduct business in associated with the securities markets in accordance with the rules or
₹ 25 Crores or 3 times the gain
accordance with rules, etc regulations mad by the Securities and Exchange Board of India.
made out of such failure,
whichever is higher.
Whoever fails to comply with any provision of this Act, the rules or Shall be liable to a penalty of -
23H articles or bye-laws or the regulations of the recognised stock exchange ----
Minimum: ₹ 1,00,000

Penalty for contravention or directions issued by the Securities and Exchange Board of India for Maximum: ₹ 1Crore
where no separate penalty which no separate penalty has been provided.
has been provided

SECURITIES (CONTRACTS) REGULATION ACT, 1956
18. POWER TO ADJUDICATE [SECTION 23 I]

Particulars Details
Purpose of section For the purpose of adjudging under sections 23A, 23B, 23C, 23D, 23E,
[Section 23I(1)] 23F, 23G and 23H.
Who shall adjudge the Any officer not below the rank of a Division Chief of the Securities and
penalty? Exchange Board of India.
[Section 23I(1)] [Note: Such division chief may be appointed by SEBI]
Purpose of adjudication  Holding an inquiry and
After giving a reasonable OBH
[Section 23I(1)]  Imposing a penalty
Adjudicating officer to  Adjudicating officer shall exercise the following civil court powers
exercise powers of a civil in the course of holding an inquiry ------
court  summon and enforce the attendance of any person.
[Section 23I(2)]  Production of documents
 The Board may call for and examine the record of any proceedings
under this section and if it considers that the order passed by the
adjudicating officer is erroneous, it may, pass an order enhancing
Power of SEBI to enhance the quantum of penalty.
the penalty  No such order shall be passed unless the person concerned has
[Section 23I(3) + 1st been given anopportunity of being heard in the matter.
Proviso + 2nd Proviso]  Nothing contained in this sub-section shall be applicable after an
expiry of a period of three months from the date of the order
passed by the adjudicating officer or disposal of the appeal under
section 23L, whichever is earlier.
19. FACTORS TO BE TAKEN INTO ACCOUNT WHILE ADJUDGING QUANTUM OF
PENALTY [SECTION 23J – AMENDED 2019]
Particulars Details
Penalty at whose  Securities and Exchange Board of India (or)
discretion  Adjudicating officer.
Discretion on penalty  Section 12A or
under which sections?  Section 23I [Adjudging under section 23A to 23H]
 The amount of disproportionate gain or unfair advantage.
Factors to be considered  The amount of loss caused to an investor or group of investors.
 The repetitive nature of the default.
20. SETTLEMENT OF ADMINISTRATIVE AND CIVIL PROCEEDINGS [SECTION 23JA]
Particulars Details
This section is inserted to provide compounding type affect to the civil
Purpose of the section
proceedings under this act.
Who can apply for Any person, against whom any proceedings have been initiated or may
settlement? be initiated under section 12A or section 23-I.
File an application in writing to the SEBI for settlement of the
Application to whom?
proceedings initiated or to be initiated for the alleged defaults.

 Nature of default.
Factors considered by
 Gravity of default.
SEBI before settlement
 Impact of default.
21. APPEAL TO SECURITIES APPELLATE TRIBUNAL [SECTION 23L]

Particulars Details
 Any person aggrieved by -----
 The order or decision of the recognised stock exchange or
Appeal by whom?
 The order or decision of the adjudicating officer or
[Section 23L(1)]
 Any order made by the Securities and Exchange Board of India
under section 4B or sub-section (3) of section 23-I.
Appeal to whom?
Prefer an appeal before the Securities Appellate Tribunal.
[Section 23L(1)]
Procedure of appeal The provisions of sections 22B, 22C, 22D and 22E of this Act, shall
[Section 23L(1)] apply, to such appeals.
Time for filing appeal Every appeal shall be filed within a period of 45 days from the date on
[Section 23L(2)] which a copy of the order or decision is received by the appellant.
Extension of time limit The Securities Appellate Tribunal may entertain an appeal after the
[Proviso to Section expiry of the said period of 45 days if it is satisfied that there was
23L(2)] sufficient cause for not filing it within that period.
Principles of natural justice
to be followed SAT shall give an OBH before passing any order.
[Section 23L(3)]
The Securities Appellate Tribunal shall send a copy of every order
Copies of order
made by it to the parties to the appeal and to the concerned
[Section 23L(4)]
adjudicating officer.
Time limit for disposal of
Appeal shall be disposed of within 6 months from the date of receipt
appeal
of the appeal.
[Section 23L(5)]
22. OFFENCES [SECTION 23M]

Particulars Details
 If any person contravenes or attempts to contravene or abets the
contravention of -----
When provision gets  Provisions of this Act or
attracted?  Provisions of any rule or
[Section 23M(1)]  Provisions of any regulation or
 Bye laws
For which no punishment is provided elsewhere in this Act.
Imprisonment – Up to 10 years or
What is the punishment?
Fine – Up to ₹ 25 Crore or
[Section 23M(1)]
Both.

Section 23M to be This section is applicable without prejudice to any award of penalty by
cumulative the adjudicating officer or the Securities and Exchange Board of India
[Section 23M(1)] under this Act.
If any person fails to pay the penalty imposed by the adjudicating
officer or the Securities and Exchange Board of India or fails to comply
Failure to pay penalty
with the direction or order he shall be punishable with imprisonment
leading to an offence
for a term which shall not be less than one month but which may
[Section 23M(2)]
extend to ten years, or with fine, which may extend to twenty-five
crore rupees, or with both.
23. ESTABLISHMENT OF SPECIAL COURTS [SECTION 26A]

Particulars Details
Who establishes special
The Central Government may by notification, establish or designate as
court?
many Special Courts as may be necessary.
[Section 26A(1)]
Purpose of Special courts
For the purpose of providing speedy trial of offences under this Act.
[Section 26A(1)]
A Special Court shall consist of a single judge who shall be appointed
Composition of Special
by the Central Government with the concurrence of the Chief Justice of
court
the High Court within whose jurisdiction the judge to be appointed is
[Section 26A(2)]
working.
A person shall not be qualified for appointment as a judge of a Special
Qualification of Judge of a
Court unless he is, immediately before such appointment, holding the
Special court
office of a Sessions Judge or an Additional Sessions Judge, as the case
[Section 26A(3)]
may be.
24. APPEAL AND REVISION [SECTION 26C]

Particulars Details
Appeal to whom? Appeal to High court.
Which provisions are All the powers conferred by Chapters XXIX and XXX of the Code of
applicable? Criminal Procedure, 1973.
25. COMPOSITION OF OFFENCES [SECTION 23N]

Particulars Details
Which offences are Any offence punishable under this Act, not being an offence punishable
compoundable? with imprisonment only, or with imprisonment and also with fine.
Time for compounding Either before or after the institution of any proceeding.
Who shall be the Securities appellate Tribunal or any court before which proceedings
compounding authority? are pending.
Section to have This section shall apply notwithstanding anything contained in the
overriding effect Code of Criminal Procedure, 1973.

PART 4 – ADMINISTRATION OF STOCK EXCHANGES

Before we start with this part, it is worth noting various powers of SEBI and SE to
administer the functions.
Connected
Sl.no. Section Content
Rule(s)
Power of Central Government to call for periodical returns
1 6 14, 15, 17A,
or direct inquiries to be made
Annual reports to be furnished to the Central Government
2 7 17
by stock exchanges
Power of recognised stock exchange to make rules
3 7A -
restricting voting rights, etc.
Power of Central Government to direct rules to be made or
4 8 -
to make rules
5 9 Power of recognised stock exchanges to make bye-laws -
Power of Securities and Exchange Board of India to make
6 10 -
or amend byelaws of recognised stock exchanges
Power of Central Government to supersede governing
7 11 -
body of a recognised stock exchange
8 12 Power to suspend business of recognised stock exchanges -
9 12A Power to issue directions -
26. POWER OF CENTRAL GOVERNMENT TO CALL FOR PERIODICAL RETURNS OR

DIRECT INQUIRIES TO BE MADE [SECTION 6]
Particulars Details
Every recognised stock exchange shall furnish to the Securities and
Exchange Board of India such periodical returns relating to its affairs as
may be prescribed.
As per Rule 17A, Every recognised stock exchange shall furnish the
Securities and Exchange Board of India periodical returns relating to—
Obligation of RSE The official rates for the securities enlisted.
[Section 6(1) read with The number of shares delivered through the clearing house.
Rule 17A of SCR Rules The making-up prices.
1957] Note: Making up prices are prices tailor made by SE at the day ending
to carry forward to next trading day.
The clearing house programmes.
The number of securities listed and de-listed during the previous
three months.
Any other matter as may be specified by SEBI
Every recognised stock exchange and every member thereof shall
maintain and preserve for such periods not exceeding five years such
Obligation of RSE and
books of account, and other documents as under -----
Members w.r.t. Books of
As per Rule 14, Every RECOGNISED STOCK EXCHANGE shall
accounts
maintain and preserve the following books of account and documents
[Section 6(2) read with
for a period of 5 years ------
Rule 14 and 15 of SCR
 Minute books of the meetings of
Rules, 1957]
 Members
 Governing body and

 Other Committees
Register of members showing their full names and addresses.
Register of authorised clerks.
Margin deposits book.
Ledgers
Journals
Cash book
Bank Pass book
As per Rule 15, Every MEMBER OF A RECOGNISED STOCK
EXCHANGE shall maintain and preserve the following books of account
and documents for a period of 5 years ------
Register of transactions (Sauda book).
Clients’ ledger
General ledger
Journals
Cash book
Bank pass-book
 Every member of a recognised stock exchange shall maintain and
preserve the following documents for a period of 2 years -----
 Member’s contract books.
 Counterfoils or duplicates of contract notes issued to clients.
 Written consent of clients in respect of contracts entered into
as principals.
 If it is necessary in -----
When SEBI
 Public interest or
conducts inquiry?
 Interest of the trade.
 Call upon a recognised stock exchange or any
Power of SEBI to conduct member thereof to furnish in writing such
inquiry information or explanation relating to the
[Section 6(3)] affairs of the stock exchange or of the member
Nature of Powers in relation to the stock exchange.
 Appoint one or more persons to make an
inquiry and Submit a report of the result if
such inquiry to the Securities and Exchange
Board of India
 Where an inquiry in relation to the affairs of a recognised stock
exchange or the affairs of any of its members in relation to the stock
Duty of officers and exchange has been undertaken under sub-section (3) ------
members to provide  Every director, manager, secretary or other officer of such stock
information exchange.
[Section 6(4)]  Every member of such stock exchange.
shall be bound to produce before the authority making the inquiry all
such books of account, and other documents in his custody or power.
27. ANNUAL REPORTS TO BE FURNISHED TO THE CENTRAL GOVERNMENT BY

STOCK EXCHANGES [SECTION 7 READ WITH RULE 17]

Particulars Details
Every recognised stock exchange shall furnish the Central Government with a copy of
the annual report, and such annual report shall contain such particulars as may be
prescribed.
Every recognised stock exchange shall before the 31st day of January in each year
furnish the Securities and Exchange Board of India annually with a report about its
activities during the preceding calendar year, which shall inter alia contain
detailed information about the following matters ------
Annual Changes in rules and bye-laws, if any.
report
Changes in the composition of the governing body.
[Section 7
Admissions, re-admissions, deaths or resignations of members.
read with
Disciplinary action against members.
Rule 17]
Arbitration of disputes (nature and number) between members and non-
members.
Securities listed and de-listed
Every recognised stock exchange shall within 1 month of the date of the holding of
its annual general meeting, furnish the Securities and Exchange Board of India
with a copy of its audited balance-sheet and profit and loss account for its preceding
financial year.
28. POWER OF RECOGNISED STOCK EXCHANGE TO MAKE RULES RESTRICTING

VOTING RIGHTS, ETC [SECTION 7A]
Particulars Details
 A recognised stock exchange may make rules or amend any rules made by it to
provide for all or any of the following matters, namely—
 The restriction of voting rights to members only in respect of any matter
placed before the stock exchange at any meeting.
Power with  The regulation of voting rights in respect of any matter placed before the
whom? stock exchange at any meeting so that such member may be entitled to
[Section 7A(1)] have one vote only, irrespective of his share of the paid-up equity capital
of the stock exchange.
 The restriction on the right of a member to appoint another person as his
proxy to attend and vote at a meeting of the stock exchange.
 Such incidental consequential and supplementary matters
Rules requiring Rules made or amended shall not take effect until they have been approved by
approval the Central Government and published by that Government in the Official
[Section 7A(2)] Gazette.
29. POWER OF CENTRAL GOVERNMENT TO DIRECT RULES TO BE MADE OR TO

MAKE RULES [SECTION 8]
Particulars Details
Discretionary powers of  Power vests with SEBI.
SEBI  Power to order all RSE’s in general or any RSE in particular.
[Section 8(1)]  Order to make or amend the rules with respect to Section 3(2).

Time limit to comply with

RSE shall comply with the order within 2 months from the date of
the orders of SEBI
order.
[Section 8(1)]
If any recognised stock exchange fails or neglects to comply with any
SEBI power to apply the
order made under sub-section (1) within the period specified therein,
rules
the Central Government may make the rules for, or amend the rules
[Section 8(2)]
made by, the recognised stock exchange.
30. POWER OF RECOGNISED STOCK EXCHANGES TO MAKE BYE-LAWS [SECTION 9]

Particulars Details
Prior approval of SEBI to Any recognised stock exchange may, subject to the previous approval
make bye-laws of the Securities and Exchange Board of India, make bye-laws for the
[Section 9(1)] regulation and control of contracts.
 The opening and closing of markets and the regulation of the hours
of trade.
 A clearing house for
 Periodical settlement of contracts.
 Periodical settlement of differences.
 Delivery and payment for securities.
Illustrative list of bye – laws  The manner of submission by the clearing house to the SEBI the
[Section 9(2)] details of contracts settled and delivered.
 The regulation or prohibition of blank transfers.
 The determination and declaration of market rates, including the
opening, closing, highest and lowest rates for securities.
 The levy and recovery of fees, fines and penalties.
 The fixing of a scale of brokerage.
 The separation of the functions of the jobbers and brokers.
31. POWER OF SECURITIES AND EXCHANGE BOARD OF INDIA TO MAKE OR AMEND

BYE LAWS OF RECOGNISED STOCK EXCHANGES [SECTION 10]
Particulars Details
Power vests with whom?
Power under this section vests with the SEBI.
[Section 10(1)]
Amendment upon whose
 Request in writing by the governing body of a Stock Exchange.(or)
initiative?
 SEBI on its own motion.
[Section 10(1)]
Nature of Power
Power to make or amend the bye laws.
[Section 10(1)]
The bye laws so made or amended shall be published in the Gazette of
Publishing in Official
India and also in the Official Gazette of the State in which the principal
Gazette
office of the recognised stock exchange is situated and such bye laws
[Section 10(2)]
shall come into effect from the date of such publication.

 Bye-laws are made or amended under this section by the Securities

and Exchange Board of India on its own motion.
 Governing body of a recognised stock exchange objects to any bye-
Objection to the Suo moto
laws made or amended by SEBI.
powers of SEBI
 Governing body may apply within 2 months of the publication
[Section 10(3)]
thereof in the Gazette of India to the Securities and Exchange Board
of India for revision thereof, and the Securities and Exchange
Board of India revise the bye-laws so made or amended.
32. POWER OF CENTRAL GOVERNMENT TO SUPERSEDE GOVERNING BODY OF A

RECOGNISED STOCK EXCHANGE [SECTION 11]
Particulars Details
Power vests with Central Government.
[Section 11(1)]
What is the power vested? Power to order for supersession of the governing body of any
[Section 11(1)] recognised stock exchange.
 Central Government shall form an opinion that governing body of
any recognised stock exchange should be superseded.
 Central Government may serve on the governing body a written
notice that the Central Government is considering the
supersession of the governing body.
Procedure for supersession
 Central Government shall give a reasonable OBH before such
[Section 11(1)]
supersession.
 Central Government shall publish that fact in Official Gazette.
 Central Government may appoint any person or persons to
exercise and perform all the powers and duties of the governing
body.
33. POWER TO SUSPEND BUSINESS OF RECOGNISED STOCK EXCHANGES [SECTION

12]
Particulars Details
Power vests with whom? Power vests with Central Government.
If in the opinion of the Central Government an emergency has risen
Suspension on what
and for the purpose of meeting the emergency the Central Government
grounds?
considers it expedient so to do.
 Central Government may by notification in the Official Gazette
direct a recognised stock exchange to suspend such of its business
What CG shall do? for such period not exceeding 7 days.
 That period may be extended by a like notification if it is in
Interests of the trade and in public interest.
34. POWER TO ISSUE DIRECTIONS [SECTION 12A]

Particulars Details


Power vests with Securities and Exchange Board of India.
[Section 12A(1)]
 Interests of investors (or)
 Orderly development of securities market (or)
Purpose of issuing
 Prevent the affairs of any recognised stock exchange or clearing
directions
corporation being conducted in a manner detrimental to the
[Section 12A(1)(a) to
interests of investors or securities market.
Section 12A(1)(c)]
 Secure the proper management of any such stock exchange or
clearing corporation.
PART V – MISCELLANEOUS CONCEPTS

35. ADDITIONAL TRADING FLOOR [SECTION 13A]
Particulars Details
Meaning of Additional Additional trading floor means a trading ring or trading facility
Trading Floor offered by a recognised stock exchange outside its area of operation
[Explanation to Section to enable the investors to buy and sell securities through such
13A] trading floor under the regulatory framework of that stock exchange.
A stock exchange may establish additional trading floor with the prior
Establishment of ATF approval of the Securities and Exchange Board of India in accordance
with the terms and conditions stipulated by the said Board.
36. MEMBERS MAY NOT ACT AS PRINCIPALS IN CERTAIN CIRCUMSTANCES

[SECTION 15]
Particulars Details
Member of a recognised stock exchange shall not in respect of any
Basic Prohibition securities enter into any contract as a principal with any person other
than a member of a recognised stock exchange.
A member may act as a principal and trade for
Consent by a note, himself if he has secured the consent or
memorandum or authority of such person and discloses in the
agreement note, memorandum or agreement of sale or
purchase that he is acting as a principal
When permitted?
Where the member has secured the consent or
authority of such person otherwise than in
Consent not in
writing he shall secure written confirmation by
writing
such persons of such consent or authority
within three days from the date of the contract.
ANALYSIS ON THIS SECTION [NOT APPLICABLE FOR EXAMS]

As per section 13 ------
CONTRACTS IN NOTIFIED AREAS ILLEGAL IN CERTAIN CIRCUMSTANCES.—
If the Central Government is satisfied, having regard to the nature or the volume of
transactions in securities in any State or States or area, that is necessary so to do, it may, by
notification in the Official Gazette, declare this section to apply to such State or States or area,

and thereupon every contract in such State or States or area which is entered into after the
date of the notification otherwise than between members of a recognised stock exchange or
recognised stock exchanges in such State or States or area or through or with such member
shall be illegal.
In the case of P. Ravinder vs National Stock Exchange of India [21/Oct/2003] it was held that
In view of the language of Section 13, in all the areas to which Section 13 applied, members of a
recognized Stock Exchange/Stock Brokers can enter into a contract for the purchase of sale of
securities, that is, a member of the Stock Exchange can purchase for himself or sell the securities from
another stock broker. If Section 13 is interpreted literally an individual owning “security” cannot
legally either sell or purchase unless he also becomes a "member" of the Stock Exchange. Such a
situation would result in a great inconvenience to the owner of "securities" who is not a stock broker
and would defeat his right to either freely transfer or acquire "securities". Therefore, the law-makers
enabled such persons to carry on the activity of sale or purchase of the "securities" through the
members of the Stock Exchange/Stock Brokers. This conclusion is a necessary implication of a
combined reading of Sections 13 and 15 of the 1956 Act. In fact, Section 15 reads as follows:
"Members may not act as principals in certain circumstances.--No member of a recognized stock
exchange shall in respect of any securities enter into any contract as a principal with any person other
than a member of a recognized stock exchange, unless he has secured the consent or authority of such
person and discloses in the note, memorandum or agreement of sale or purchase that he is acting as
a principal;"
Section 15 also recognises a right of a stock broker to purchase "securities" from persons other than
"stock brokers". Having regard to the dual capacity of the stock broker either to purchase or sell
securities for himself, which he may retain or trade in future, the stock broker is also required to sell
or purchase securities on behalf of persons who are not stock brokers (for convenience, hereinafter
referred to as "clients"). Section 15 mandates that the stock broker shall not enter into any contract
as a principal with any person other than a stock broker and if a stock broker desires to enter into
such a contract as principal, he is required to obtain the consent or authority of the client which is
required to be in writing either in the form of a note, memorandum or agreement of sale. These
expressions, "note" and "memorandum" are not defined anywhere, but they are the documents which
are invented by the stock brokers and exchanges over a period of time for the smooth facilitation of
their business.
37. CONTRACTS IN DERIVATIVES [SECTION 18A]

Particulars Details
 Contracts in derivative shall be legal and valid if such contracts are
----
Legal validity to  Traded on a recognised stock exchange
derivative contracts  Settled on the clearing house of the recognised stock exchange;
or in accordance with the rules and bye-laws of such stock
exchange.
Note that ICAI study material has incorrectly specified the section no as 18. It is
section 18A.

38. CLEARING CORPORATION [SECTION 8A]

Particulars Details
 A recognised stock exchange may, with the prior approval of the
Securities and Exchange Board of India, transfer the duties and functions
Purpose of clearing
of a clearing house to a clearing corporation, being a company
corporation
incorporated under the Companies Act, 2013 for the purpose of—
[Section 8A(1)(a) to
 The periodical settlement of contracts and differences thereunder.
Section 8A(1)(c)]
 The delivery of, and payment for, securities.
 Any other matter incidental to, or connected with, such transfer.
Every clearing corporation shall, for the purpose of transfer of the duties and
Prepare bye laws for
functions of a clearing house to a clearing corporation referred to in sub-
clearing corporation
section (1), make bye-laws and submit the same to the Securities and
[Section 8A (2)]
Exchange Board of India for its approval.
The Securities and Exchange Board of India may, on being satisfied that it is
in the interest of the trade and also in the public interest to transfer the
Sanction by SEBI duties and functions of a clearing house to a clearing corporation, grant
[Section 8A (3)] approval to the bye-laws submitted to it under sub-section (2) and
approve the transfer of the duties and functions of a clearing house to a
clearing corporation referred to in sub-section (1).
Applicability for The provisions of sections 4, 5, 6, 7, 8, 9, 10, 11 and 12 shall, as far as
certain provisions for may be, apply to a clearing corporation referred to in sub - section (1) as
clearing corporation they apply in relation to a recognised stock exchange.
[Section 8A(4)]

39. TITLE TO DIVIDENDS [SECTION 27]; RIGHT TO RECEIVE INCOME FROM COLLECTIVE INVESTMENT SCHEME [SECTION 27A];
RIGHT TO RECEIVE INCOME FROM MUTUAL FUND [SECTION 27B]
Particulars Section 27 Section 27A Section 27B
 Section applies to holder of  Section applies to holder of  Section applies to holder of securities, being
securities of a company. securities, being units issued by a units issued by a Mutual Fund.
 Such holder shall transfer the CIS.  Such holder shall transfer the securities,
Basic
securities to another person being a  Such holder shall transfer the being units issued by a CIS to another person
Conditions
transferee. securities, being units issued by a namely a transferee.
CIS to another person namely a
transferee.
Such holder is entitled to receive and Such holder is entitled to receive and Such holder is entitled to receive and retain any
retain any dividend declared by the retain any income in respect of units or income in respect of units or other instruments
company in respect thereof for any other instruments issued by the issued by the mutual fund declared by the
Rights
year, notwithstanding that the said collective investment scheme declared mutual fund in respect thereof for any year,
available to
security has already been transferred by the collective investment scheme in notwithstanding that the said security, being
the holder
by him for consideration. respect thereof for any year, units or other instruments issued by the mutual
being the
notwithstanding that the said security, fund, has already been transferred by him for
transferor
being units or other instruments consideration.
legally
issued by the collective investment
scheme, has already been transferred
by him for consideration.

Transferee has lodged the

security and all other
documents relating to the
Transferee has lodged the
transfer which may be Transferee has lodged the security
security and all other
required by the collective and all other documents relating to
documents relating to the
investment scheme with the transfer which may be required
transfer which may be
Circumstances the collective investment by the mutual fund with the mutual
required by the company
under which General General scheme for being General fund for being registered in his name
with the company for being
holder is not registered in his name within fifteen days of the date on
registered in his name
entitled and within fifteen days of the which the income in respect of units
within fifteen days of the
transferee is date on which the income or other instruments issued by the
date on which the dividend
entitled in respect of units or other mutual fund became due.
became due.
instruments issued by the
collective investment
scheme became due.
Due to death of transferee Due to death of transferee Due to death of transferee
Delay Due to loss of transfer deed Delay Due to loss of transfer deed Delay Due to loss of transfer deed
Due to postal fault Due to postal fault Due to postal fault
Note Delay by any other reason other the above 3 reasons, makes the transferor entitled to the dividends/Income, as the case may be.

SECURITIES AND EXCHANGE BOARD OF INDIA (LODR)
REGULATIONS, 2015
A 3600 ROUND – UP ON SECURITIES MARKET IN INDIA – A HISTORICAL PERSPECTIVE
OF THE SECURITIES MARKET REFORMS IN INDIA
I. BEFORE WE GO INTO THE HISTORIC SETTING LETS HAVE SOME QUESTIONS:
 Let me start with a very innocuous question: Which is the most televised structure in
India?
I am told that a study has revealed that it is not the Rastrapati Bhawan or
Parliament House; it is not the Taj Mahal; it is not even the abode of Lord
Tirupati; it is the Pheroze Jeejeebhoy Towers which houses the oldest securities
market participant in India, i.e. THE BOMBAY STOCK EXCHANGE.
This indicates our intimate relationship with the securities market. In today’s rational
world, it really means the immense contribution of the securities market to our life
and economy.
 Which is the most reformed sector / segment / market in the Indian economy?
 Which sector / segment / market of the economy has witnessed as much as nine
special legislative interventions during the last decade?
 Which market / segment / sector acquired the first ever autonomous regulator
(which in course time became the model regulator) in India?
 Which sector / segment / market of the economy consumes 3/4th space of the pink
newspapers every day?
 Which sector / segment / market of the economy most promptly reflects the feel-good
factor?
 More than anything else which segment of CA Final Paper 4 gives 15 Marks…..
The answer to all these questions is the

SECURITIES MARKET.

REGULATIONS, 2015
II. FURTHER QUESTIONS
 Which is the securities market first to set up demutualised stock exchanges in the
World?
 Which is the securities market first to use satellite communication technology for
securities transactions?
 Which is the securities market first to introduce the straight through processing in
securities transactions?
 Which major securities market has implemented T+2 rolling settlement?
 Which is the largest market for stock futures?
 Which securities market started real time on line position monitoring of brokers?
 Which is the securities market where trading terminals go off automatically when the
margins are exhausted?
The answer to all these questions is the
INDIAN SECURITIES MARKET.

III. HISTORY
 The importance of the securities market in our life and our economy, as stated so far,
did not happen overnight. Countless people have slogged for over two centuries to
bring the market to the centre stage. In honour of such people, I would like to briefly
reminiscence the evolution of the Indian securities market. And I could not have got a
better occasion to do so.
 Though the historical records relating to securities market in India is meagre and
obscure, there is evidence to indicate that the loan securities of the East Indian
Company used to be traded towards close of the 18 th century. By 1830’s, the trading
in shares of banks started. The trader by the name of broker emerged in 1830 when
6 persons called themselves as share brokers. This number grew gradually. Till 1850,
they traded in shares of banks and securities of the East India Company in Mumbai
under a sprawling Banyan Tree in front of the Town Hall, which is now in the
Horniman Circle Park. It is no surprise that the majestic Phiroze Jeejeebhoy Towers is
located at the Horniman Circle. In 1850, the Companies Act introducing limited
liability was enacted heralding the era of modern joint stock company which
propelled trading volumes.
 The American Civil War broke out in 1861 which cut off supply of cotton from the USA
to Europe. This heightened the demand for cotton from India. Cotton prices increased.
Exports of cotton grew; payments were received in bullion. The great and sudden
spurt in wealth produced by cotton price propelled setting up companies for every
conceivable purpose. Between 1863 and 1865, the new ventures raised nearly Rs.30
crore in the form of paid up capital and nearly Rs. 38 crore of the premia. Rarely was

REGULATIONS, 2015
a share which did not command a premium between 1861 and 1865. The Back Bay
Reclamation share with Rs.5,000 paid up was at Rs.50,000 premium, the Port Canning
share with Rs. 1,000 paid up was at Rs.11,000 premium, etc. There was a share mania
and every body was after a piece of paper, variously called ‘allotments’, ‘scrips’ and
‘shares’. The people woke up only when the American Civil war ended. Then all rushed
to sell their securities but there were no buyers. They were left with huge mass of
unsaleable paper. This occurred then. This also occurs today at regular intervals. I
think, little seems to have changed since then; the bubbles and burst continue to be a
perennial feature of the securities market world over.
 The depression was so severe that it paved way for setting up of a formal market. The
number of brokers, which had increased during the civil war to about 250, declined.
During the civil war, they had become so influential and powerful that even the police
had only salams for them. But after the end of the civil war, they were driven from
pillar to post by the police. They moved from place to place till 1874 when they found
a convenient place, which is now appropriately called Dalal Street after their name.
They organized an informal association on or about 9 th July 1875 for protecting their
interests. On 3rd December 1887, they established a stock exchange called ‘Native
Share and Stock Brokers’ Association’. This laid the foundation of the oldest stock
exchange in India. The word ‘native’ indicated that only natives of India could be
brokers of the Exchange.
 In 1880s a number of textile mills came up in Ahmedabad. This created a need for
trading of shares of these mills. In 1894, the brokers of Ahmedabad formed "The
Ahmedabad Share and Stock Brokers' Association".
 The 1870s saw a boom in jute prices, 1880s and 1890s saw boom in tea prices, then
followed coal boom. When the booms ended, there were endless differences and
disputes among brokers in eastern India which was home to production of jute, tea
and coal. This provoked the establishment of "The Calcutta Stock Exchange
Association" on June 15, 1908.
IV. LEGAL DEVELOPMENTS IN SECURITIES MARKETS

 Control of capital issues was introduced through the Defence of India Rules in 1943
under the Defence of India Act, 1939 to channel resources to support the war effort.
The control was retained after the war with some modifications as a means of
controlling the raising of capital by companies and to ensure that national resources
were channelled to serve the goals and priorities of the government, and to protect
the interests of investors. The relevant provisions in the Defence of India Rules were
replaced by the Capital Issues (Continuance of Control) Act in April 1947.
 Though the stock exchanges were in operation, there was no legislation for their
regulation till the Bombay Securities Contracts Control Act was enacted in 1925. This
was, however, deficient in many respects. Under the constitution which came into
force on January 26, 1950, stock exchanges and forward markets came under the
exclusive authority of the central government. Following the recommendations of the
A. D. Gorwala Committee in 1951, the Securities Contracts (Regulation) Act, 1956 was
enacted to provide for direct and indirect control of virtually all aspects of securities

REGULATIONS, 2015
trading and the running of stock exchanges and to prevent undesirable transactions
in securities.
V. THE LIBERALISATION
 More liberalised a securities market is, the better is its impact on economic growth.
Interventions in the securities market were originally designed to help governments
expropriate much of the seigniorage and control and direct the flow of funds for
favoured uses.
 These helped governments to tap savings on a low or even no-cost basis. Besides,
government used to allocate funds from the securities market to competing
enterprises and decide the terms of allocation.
 The result was channelization of resources to favoured uses rather than sound
projects. In such circumstances accumulation of capital per se meant little, where rate
of return on some investments were negative while extremely remunerative
investment opportunities were foregone.
 This kept the average rate of return from investment lower than it would otherwise
have been and, given the cost of savings, the resulting investment was less than
optimum. Hence, it was necessary to do away interventions hindering optimum
allocation of resources.
VI. REGULATIONS INTRODUCED
 Do you know what a ‘security’ is? Our laws provide an inclusive definition of
‘securities’. It says that ‘securities’ include shares, bonds, debentures, units of CIS, etc.
It does not define in terms of ingredients an instrument must have to be considered
as ‘securities’. I have not seen an ingredient type definition of ‘securities’ in any other
jurisdiction. It is precisely because ‘securities’ are most insecure instruments. The
only ingredient common to all types of securities is its associated ‘insecurity’.
 If it is a market for such insecure instruments, market would collapse if somebody
does not regulate away the insecurities.
 We need regulations to correct for identified market imperfections which produce
sub-optimal outcomes and to prevent market failures. In the absence of regulation by
a specialized agency, each participant would do its own due diligence before
undertaking any transaction in the market. This imposes huge social costs. Besides,
regulations signal minimum standards of quality and hence enhance confidence in
markets. With a known asymmetric information problem, risk averse investors may
exit the market altogether if such minimum standards are not signaled. In its extreme
form the market breaks down completely.
 There is an apparent contradiction that the reforms aim at liberalization while
regulations appear to restrict liberalization. Liberalisation does not mean scrapping
of all codes and statutes, as some market participants may wish. It rather means
replacement of one set by another set of more liberal code / statute, which allow full
freedom to economic agents, but influence or prescribe the way they should carry out
their activities, so that the liberalized markets operate in an efficient and fair manner
and the risks of systemic failure are minimized. It is, however, desirable to keep in
mind the contradiction to ensure that we do not resort to excessive regulation and
regulations are designed and implemented properly. Otherwise the costs of
regulation would exceed the benefits from regulation.

REGULATIONS, 2015
VII. THE DEVELOPMENT
 Unless you develop market, what do you regulate? Unless there is regulation, how
does the market develop? It is a chicken and egg issue. Regulation is necessary to
develop market and once the market develops, it needs to be regulated. That is why
many of the reform initiatives combine the elements of regulation and development.
VIII. THE SEBI REGULATIONS
Issued Regulations
Year
1992 SEBI (Merchant Bankers) Regulations, 1992 [Last amended on March 6, 2017]
Securities and Exchange Board of India (Stock Brokers) Regulations, 1992 - [Last amended
1992
on April 01, 2019]
SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 [Last amended
1993
on May 30, 2018]
1993 SEBI (Underwriters) Regulations, 1993 [Last amended on March 6, 2017]
Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993 [Last
1993
amended on May 07, 2019]
1994 SEBI (Bankers to an Issue) Regulations, 1994 [Last amended on May 30, 2018]
1996 SEBI (Custodian Of Securities) Regulations, 1996 [Last amended on March 22, 2019]
1996 SEBI (Mutual Funds) Regulations, 1996 [Last amended on March 06, 2020]
1998 SEBI (Buy Back Of Securities) Regulations, 1998 [Last amended on on March 6, 2017]
SEBI (Collective Investment Schemes) Regulations, 1999 [Last amended on March 06,
1999
2017]
1999 SEBI (Credit Rating Agencies) Regulations, 1999 [last amended on September 11, 2018]
SEBI (Foreign Venture Capital Investors) Regulations 2000 [last amended on March 6,
2000
2017]
2001 SEBI (Employees’ Service) Regulations, 2001 [Last amended on May 08, 2019]
2001 SEBI (Procedure for Board Meetings) Regulations, 2001
2002 SEBI (Issue of Sweat Equity) Regulations, 2002
SEBI (Central Database Of Market Participants) Regulations, 2003 [Last amended on
2003
January 07, 2014]
2003 SEBI (Ombudsman) Regulations, 2003 [Last Amended on Nov 09, 2006]
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)
2003
Regulations, 2003 [Last amended on March 13, 2020]
2004 SEBI (Self-Regulatory Organisations) Regulations, 2004 [last amended on March 6, 2017]
SEBI (Regulatory Fee on Stock Exchanges) Regulations, 2006 [Last amended on March 22,
2006
2019]
SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007 [Last
2007
amended on February 07, 2014]
2008 SEBI (Intermediaries) Regulations, 2008 [Last amended on November 21, 2017]
Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations,
2008
2008 [Last amended on May 07, 2019]
Securities and Exchange Board of India (Issue and Listing of Securitised Debt Instruments
2008
and Security Receipts) Regulations, 2008 [Last amended on October 09, 2018]
2009 SEBI (Delisting of Equity Shares) Regulations, 2009 - [last amended on July 29, 2019]
SEBI (Investor Protection and Education Fund) Regulations, 2009 [Last amended on March
2009
6, 2017]

REGULATIONS, 2015
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (Last amended on
2009
February 12, 2018)
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 [last amended on
2011
July 29, 2019]
SEBI {KYC (Know Your Client) Registration Agency} Regulations, 2011 [last amended on
2011
March 6, 2017]
2012 SEBI (Alternative Investment Funds) Regulations, 2012 [Last amended on May 10, 2019]
2013 SEBI (Investment Advisers) Regulations 2013 [Last amended on December 08, 2016]
SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations,
2013
2013 [last amended on October 09, 2018]
SEBI (Infrastructure Investment Trusts) Regulations, 2014 (Last amended on March 02,
2014
2020)
2014 SEBI (Real Estate Investment Trusts) Regulations, 2014 [last amended on March 02, 2020].
2014 SEBI (Research Analysts) Regulations, 2014 [Last amended on December 08, 2016]
2014 SEBI (Share Based Employee Benefits) Regulations, 2014 [Last amended on March 6, 2017]
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Last
2015
amended on January 10, 2020)
2015 SEBI (Procedure for Search and Seizure) Repeal Regulations, 2015
SEBI (Prohibition of Insider Trading) Regulations, 2015 (Last amended on September 17,
2015
2019) Circular on Reporting of Code of Conduct Violations
Securities and Exchange Board of India (Issue and Listing of Municipal Debt Securities)
2015
Regulations, 2015 [Last amended on September 27, 2019]
2018 SEBI (Buy-back of Securities) Regulations 2018 [Last amended on July 29, 2019]
2018 SEBI (Settlement Proceedings) Regulations, 2018
Securities and Exchange Board of India (Appointment of Administrator and Procedure for
2018
Refunding to the Investors) Regulations, 2018
Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018
2018
[Last amended on February 21, 2020]
Securities and Exchange Board of India (Issue Of Capital And Disclosure Requirements)
2018
Regulations, 2018 [Last amended on January 01, 2020]
Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations)
2018
Regulations, 2018 [Last amended on June 04, 2019]
Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019
2019
[Last amended on April 7, 2020]
2020 Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020

REGULATIONS, 2015
THE SECURITIES AND EXCHANGE BOARD OF INDIA (LISTING OBLIGATIONS AND
DISCLOSURE REQUIREMENTS) REGULATIONS, 2015
[AMENDED TILL 10TH JANUARY 2020]
1. THE INTRODUCTION
Sl.no Details
Securities and Exchange Board of India (SEBI), on September 2, 2015, issued SEBI (Listing and
1 Disclosure) Regulations, 2015 on listing of different segments of the capital market and
disclosure norms in relation thereto.
These regulations have been structured into single document with the aim to consolidate and
streamline the provision of existing listing agreements for different segments of capital
2
markets, such as equity shares (including convertibles), non-convertible debt securities, etc.
for ensuring better enforceability.
2. APPLICABILITY [REGULATION 3]
Particulars Details
Condition – 1 There must be a listed entity.
Such entity must have issued any of the designated
Condition – 2
securities and listed them on a recognised stock exchange.
Applicable to
Note: As per Regulation 2(p), Listed entity means an entity which has listed,
whom?
on a recognised stock exchange(s), the designated securities issued by it or
[Regulation 3]
designated securities issued under schemes managed by it, in accordance with
the listing agreement entered into between the entity and the recognised stock
exchange(s)
Regulation Content
Specified securities listed on main board or SME Exchange or
a
institutional trading platform.
What are Non-convertible debt securities, non-convertible redeemable
designated b preference shares, perpetual debt instrument, perpetual non-
securities? cumulative preference shares.
[Regulation 3(a) c Indian depository receipts.
to 3(f)] d Securitized debt instruments.
da Security receipts.
e Units issued by mutual funds.
f Any other securities as may be specified by the Board.
3. THE BOARD OF DIRECTORS [REGULATION 17]

Particulars Details
Particulars Contents
Combination Board of directors shall have an optimum
Composition of Board
combination of executive and non-executive
of directors
directors.
[Regulation 17(1)(a)]
Woman director Board shall have at least one woman director.

REGULATIONS, 2015
Minimum non – Not less than 50% of the board of directors shall
executive comprise of non-executive directors.
Special proviso for  Applicable to top 500 and 1000 listed entities.
specified entities  Conditions to be satisfied:
 It shall have shall have at least one
independent woman director by April 1,
2019.
 The Board of directors of the top 1000
listed entities shall have at least one
independent woman director by April 1,
2020
Date of determining The top 500 and 1000 entities shall be determined
status of top 500 on the basis of market capitalisation, as at the end
and 1000 of the immediate previous financial year.
[Explanation]
Chairperson of
Number of Independent directors
Board of directors
Non-executive At least one-third of the board of directors shall
director comprise of independent directors.
All other cases At least half of the board of directors shall
comprise of independent directors.
Note: As per proviso to Regulation 17(1)(b), where the regular non-
executive chairperson is a promoter of the listed entity or is related to any
Chairperson and
promoter or person occupying management positions at the level of board
Independent directors
of director or at one level below the board of directors, at least half of the
[Regulation 17(1)(b)]
board of directors of the listed entity shall consist of independent directors.
Note: As per Explanation below Regulation 17(1)(b), the expression
“related to any promoter" shall have the following meaning:
(i) If the promoter is a listed entity, its directors other than the
independent directors, its employees or its nominees shall be
deemed to be related to it;
(ii) If the promoter is an unlisted entity, its directors, its employees or
its nominees shall be deemed to be related to it.
Board meetings The board of directors shall meet at least 4 times a year, with a maximum
[Regulation 17(2)] time gap of 120 days between any two meetings.
The quorum for every meeting of the board of directors of the top 1000
Quorum for Board listed entities with effect from April 1, 2019 and of the top 2000 listed
meetings entities with effect from April 1, 2020 shall be one-third of its total strength
[Regulation 17(2A)] or three directors, whichever is higher, including at least one independent
director.
The board of directors shall periodically review compliance reports
Review of compliance
pertaining to all laws applicable to the listed entity, prepared by the listed
report
entity as well as steps taken by the listed entity to rectify instances of non-
[Regulation 17(3)]
compliances.

REGULATIONS, 2015
4. RESTRICTIONS ON COMMITTEE MEMBERSHIP [REGULATION 26(1)]
Particulars Details
 Director shall not be a member in more than 10 committees or act as
chairperson of more than 5 committees across all listed entities in which
he is a director.
 For purpose of considering the limit of committees on which a director
can serve, all listed and unlisted public companies will be included, but
Restrictions imposed
other companies (private companies, foreign companies, section 8
companies) will be excluded.
 Further, only two committees i.e. Audit committee and Stockholders'
Relationship Committee shall be considered for purpose of the limit, i.e.
membership of other committees will not be considered.

SECURITIES AND EXCHANGE BOARD OF INDIA (LODR) REGULATIONS, 2015
5. VARIOUS COMPLIANCES
Regn. Type of Nature of
Contents to be filed with the recognised stock exchange(s) by a listed entity Time – Limit
No compliance compliance
What is to be Within 21 days
A statement of investor complaints.
filed? from the end of
Grievance Details in the Complaints pending at the beginning of the quarter. xxx each quarter.
13(3) Quarterly Redressal statement Complaints received during the quarter xxx
Mechanism
Complaints disposed of during the quarter. xxx
Complaints remaining unresolved at the end of the quarter. xxx
What is to be A statement showing holding of securities and shareholding pattern
filed? separately for each class of securities.
Events and Event Content
Holding of time lines 1 day prior to
1 listing of its securities on the stock exchange.
Specified listing.
31(1) Quarterly Securities and  There is a capital restructuring. Within 10 days of
Shareholding
2  Due to such capital restructuring, there is a change any capital
Pattern restructuring.
exceeding 2% of the total paid-up share capital.
Within 21 days
3 Generally, irrespective of any event. from the end of
each quarter.
Within 45 days of
Financial The listed entity shall submit quarterly and year-to-date standalone financial end of each
33(3) Quarterly
results results to the stock exchange. quarter, other than
the last quarter.

What is to be A listed entity shall submit to the stock exchange the following
filed? statement(s) on a quarterly basis for public issue, rights issue,
preferential issue etc.
Deviations, if any, in the use of proceeds from the
objects stated in the offer document or explanatory
Deviation – 1
Statement of statement to the notice for the general meeting, as
32(1) Quarterly deviations or applicable. Quarterly basis
variations Details in the Category wise variation (capital expenditure, sales
statement and marketing, working capital etc.) Between
projected utilisation of funds made by it in its offer
Deviation – 2
document or explanatory statement to the notice
for the general meeting, as applicable and the
actual utilisation of funds.
Other
A listed entity shall submit quarterly compliance report on corporate governance Within 15 days
Corporate
27(2) Quarterly in the format as specified by the Board from time to time to the recognized stock from end of
governance
exchange. quarter.
requirements
The listed entity shall submit annual audited standalone financial results for the
financial year. Within 60 days
Financial
33(3) Annual Note: Audit report in all cases shall be as follows ----- from the end of the
Results
Form A – For Audit report with unmodified opinion. financial year.
Form B – For Audit report with modified opinion.
What is to be
Annual report to be published on the website
filed?
Event Content
34 Annual Annual Report
Events and Publish a copy of the annual report sent to the Not later than the
time lines 1 shareholders along with the notice of the annual general day of
meeting. commencement of

dispatch to its
shareholders
Not later than 48
In the event of any changes to the annual report, the
hours after the
2 revised copy along with the details of and explanation for
annual general
the changes shall be sent.
meeting.
Documents and Not less than
36(2) Annual information to The listed entity shall send annual report to the holders of securities. 21days before the
shareholders AGM.
At least 5 days in
advance excluding
Prior
Financial The listed entity shall give prior intimation to stock exchange about the meeting of the date of the
29(1) Intimation of
Results the board of directors in which financial results is due to be considered. intimation and
Board meeting
date of the
meeting.
All other proposals like -----
 Proposal for Voluntary Delisting by the listed entity from the stock
exchange(s).
 Fund raising by way of further public offer, rights issue, American Depository
Receipts/Global Depository Receipts/Foreign Currency Convertible Bonds, At least 2 working
qualified institutions placement, debt issue, preferential issue or any other days in advance,
Prior All proposals
method and for determination of issue price. excluding the date
29(2) Intimation of other than
 Declaration/recommendation of dividend, issue of convertible securities of the intimation
Board meeting financial results
including convertible debentures or of debentures carrying a right to subscribe and date of the
to equity shares or the passing over of dividend. meeting.
 The proposal for declaration of bonus securities where such proposal is
communicated to the board of directors of the listed entity as part of the agenda
papers.
 Proposal for Buyback of Securities.

The listed entity shall give prior intimation to stock exchange about the meeting of
the board of directors in which following is due to be considered -----
At least 11 working
Proposal – 1 Any alteration in the form or nature of any of its securities that
Prior days before any of
Intimation of are listed on the stock exchange or in the rights or privileges of
29(3) Intimation of the said proposals
alteration the holders thereof.
Board meeting is placed before the
Proposal – 2 Any alteration in the date on which, the interest on debentures or
board of directors.
bonds, or the redemption amount of redeemable shares or of
debentures or bonds, shall be payable.
At least 7 working
days.
Prior The listed entity shall give notice in advance to stock exchange(s) of record date
42(2) Record Date (Excluding the date
Intimation specifying the purpose of the record date.
of intimation and
the record date)
At least 5working
days.
(Excluding the date
Condition General due of intimation and
42(3) The listed entity shall recommend or declare all dividend and/or cash bonuses.
imposed date the record date)
before the record
date fixed for the
purpose.
Within 2 working
Post Website days from the date
46(3) The listed entity shall update any change in the content of its website.
intimation updation of such change in
content.

REGULATIONS, 2015
6. ROLE OF COMPLIANCE OFFICER [REGULATION 6]
Particulars Details
Regulatory Compliance Officer ensure listed Company confirms with regulatory provisions in
Compliance letter and spirit.
Coordination between Board and Stock Exchange.
Note: As per Regulation 2(c) of SEBI (LODR) Regulations, 2015, Board means
Coordination
the Securities and Exchange Board of India established under section 3 of the
Act.
Reporting Report to Board and Stock Exchange.
Filing of
Ensure that Correct, Authentic, Comprehensive info is filed.
information
Email
Monitor email id for grievance redressal.
monitoring
Materiality
Determining materiality of information to be reported to stock exchange.
judgement
Compliance
Ensure compliance with SS 1(Board Meeting) and SS 2(General Meeting).
with Standards
7. SHARE TRANSFER AGENT [REGULATION 7]

Particulars Details
The listed entity shall appoint a share transfer agent or manage the share transfer
Obligation
facility in house.

8. COMMITTEES UNDER REGULATIONS

Committee Basics Composition Meetings Chairperson and Other issues
Every listed entity  Minimum 3 directors as  The audit committee shall  The chairperson of the audit
shall constitute a members. meet at least 4 times in a committee shall be an independent
qualified and  2/3rd of members shall be year and not more than 120 director and he shall be present at
independent audit independent directors. days shall elapse between Annual general meeting to answer
Audit committee.  In case of a listed entity two meetings. shareholder queries.
Committee having outstanding SR  Quorum shall be 2  The Company Secretary shall act as
[Regulation 18] equity shares, the audit members or 1/3rd of the the secretary to the audit committee.
committee shall only members of the audit  All members of audit committee shall
comprise of independent committee, whichever is be financially literate and at least one
directors. greater, with at least 2 member shall have accounting or
Note: Superior voting rights independent directors. related financial management
expertise.
Every listed entity  The committee shall  The nomination and  The Chairperson of the nomination
shall constitute a comprise of at least 3 remuneration committee and remuneration committee shall be
Nomination and directors. shall meet at least once in a an independent director.
Remuneration  All directors of the year.  The chairperson of the listed entity,
Committee committee shall be non-  The quorum for a meeting whether executive or non-executive,
executive directors. of the nomination and may be appointed as a member of the
Nomination and  At least 50% of the remuneration committee Nomination and Remuneration
Remuneration directors shall be shall be either 2 members Committee and shall not chair such
Committee independent directors and or 1/3rd of the members of Committee.
[Regulation 19] in case of a listed entity the committee, whichever  The Chairperson of the nomination
having outstanding SR is greater, including at least and remuneration committee may be
equity shares, two thirds of 1 independent director in present at the annual general meeting,
the nomination and attendance. to answer the shareholders' queries;
remuneration committee however, it shall be up to the
shall comprise of chairperson to decide who shall
independent directors. answer the queries.

The listed entity At least 3 directors, with at The stakeholder’s relationship  The chairperson of this committee
shall constitute a least 1 being an independent committee shall meet at least shall be a non-executive director.
committee called as director, shall be members of once in a year.  The Chairperson of the Stakeholders
Stakeholders the Committee and in case of a Relationship Committee shall be
Relationship listed entity having present at the annual general
Stakeholder’s
Committee to outstanding SR equity shares, meetings to answer queries of the
relationship
specifically look at least 2/3rds of the security holders.
Committee
into various aspects Stakeholders Relationship
[Regulation 20]
of interest of Committee shall comprise of
shareholders, independent directors.
debenture holders
and other security
holders.
The board of The majority of members of The risk management  The Chairperson of the Risk
directors of top 500 Risk Management Committee committee shall meet at least management committee shall be a
listed entities, shall consist of members of the once in a year. member of the board of directors and
determined on the board of directors and in case senior executives of the listed entity
basis of market of a listed entity having may be members of the committee.
Risk capitalisation, as at outstanding SR equity shares,  The board of directors shall define the
management the end of the at least 2/3rd of the Risk role and responsibility of the Risk
[Regulation 21] immediate previous Management Committee shall Management Committee and may
financial year shall comprise of independent delegate monitoring and reviewing of
constitute a Risk directors. the risk management plan to the
Management committee and such other functions
Committee. as it may deem fit such function shall
specifically cover cyber security.

REGULATIONS, 2015
9. CORPORATE GOVERNANCE REQUIREMENTS WITH RESPECT TO SUBSIDIARY OF
LISTED ENTITY [REGULATION 24]
Particulars Details
At least one independent director on the board of directors of the listed entity
shall be a director on the board of directors of an unlisted material subsidiary,
Mandatory whether incorporated in India or not.
directorship Note: Explanation below regulation 24(1) defined the term ‘material
[Regulation 24(1)] subsidiary’ to mean, a subsidiary, whose income or net worth exceeds 20%
of the consolidated income or net worth respectively, of the listed entity and
its subsidiaries in the immediately preceding accounting year.
Obligation of audit The audit committee of the listed entity shall also review the financial
committee statements, in particular, the investments made by the unlisted subsidiary.
[Regulation 24(2)]
The minutes of the meetings of the board of directors of the unlisted
Placing of minutes
subsidiary shall be placed at the meeting of the board of directors of the listed
[Regulation 24(3)]
entity.
The management of the unlisted subsidiary shall periodically bring to the
Obligation to notify
notice of the board of directors of the listed entity, a statement of all significant
[Regulation 24(4)]
transactions and arrangements entered into by the unlisted subsidiary.
Condition Details
1 There is a listed entity.
Such listed entity is desirous of disposing the shares in its
2
material subsidiary.
Such disposal results in reduction of its shareholding
(either on its own or together with other subsidiaries) to
3
Disposal of shares in less than 50% or cease the exercise of control over the
certain cases subsidiary.
[Regulation 24(5)] Requirement Pass a special resolution in its General Meeting.
Exception:
Where such divestment is made -----
 Under a scheme of arrangement duly approved by a Court/Tribunal or
 Under a resolution plan duly approved under section 31 of the Insolvency
Code and such an event is disclosed to the recognized stock exchanges
within one day of the resolution plan being approved.
Condition Details
1 There is a material subsidiary.
Such material subsidiary is desirous of selling, disposing
2
and leasing of assets.
Disposal of assets in Such disposal is amounting to more than 20% of the assets
certain cases 3 of the material subsidiary on an aggregate basis during a
[Regulation 24(6)] financial year.
Requirement Pass a special resolution in its General Meeting.
Exception:
Such sale or disposal is made -----
 Under a scheme of arrangement duly approved by a Court/Tribunal or

REGULATIONS, 2015
 Under a resolution plan duly approved under section 31 of the Insolvency
Code and such an event is disclosed to the recognized stock exchanges
within one day of the resolution plan being approved.

SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992
(1) PREAMBLE TO THE ACT
An Act to provide for the establishment of a Board to protect the interests of investors
in securities and to promote the development of, and to regulate, the securities
market and for matters connected therewith or incidental thereto.
(2) SHORT TITLE, EXTENT AND COMMENCEMENT [SECTION 1]
Particulars Details
Short title This Act may be called the Securities and Exchange Board of India Act,
[Section 1(1)] 1992.
Extent of applicability It extends to whole of India
[Section 1(2)]
Commencement of the Act It shall be deemed to have come into force on the 30th day of January,
[Section 1(3)] 1992.
(3) SELECTED DEFINITIONS [SECTION 2]

Particulars Details
Board Board means the Securities and Exchange Board of India
[Section 2(1)(a)] established under section 3
Collective investment scheme Collective investment scheme means any scheme or arrangement
[Section 2(1)(ba)] which satisfies the conditions specified in section 11AA
Judicial Member Judicial member means a member of the securities appellate
[Section 2(1)(db)] tribunal appointed under sub-section (1) of section 15MA and
includes the presiding officer
Member Member means a member of the board and includes the chairman
[Section 2(1)(e)]
Technical Member Technical member means a technical member appointed under
[Section 2(1)(j)] sub-section (1) of section 15MB
(4) ESTABLISHMENT AND INCORPORATION OF BOARD [SECTION 3]

Particulars Details
Establishment details With effect from such date as the Central Government may, by notification,
[Section 3(1)] appoint, there shall be established, for the purposes of this Act, a Board by
the name of the Securities and Exchange Board of India
Incorporation features  Body Corporate
[Section 3(2)]  Perpetual succession
 Common seal
 Acquire, hold and dispose of property
 Contract in its own name
 Capacity to sue or to be sued
Head office and Head Office Mumbai
branches Branch Office Such other places as decided
[Section 3 and Section
4]

(5) MANAGEMENT OF THE BOARD [SECTION 4]
Particulars Details
Composition of the  Chairman
Board  2 members from amongst the officials of the Ministry of the Central
[Section 4(1)(a) to Government dealing with Finance and administration of the
Section 4(1)(d)] Companies Act, 2013.
 1 member from amongst the officials of the Reserve Bank
 5 other members of whom at least 3 shall be the whole-time members
Appointed by whom? Appointed by Central Government
[Section 4(1)]
Powers vest with Board The general superintendence, direction and management of the affairs of
of members the Board shall vest in a Board of members, which may exercise all powers
[Section 4(2)] and do all acts and things which may be exercised or done by the Board.
Qualifications required The requisite qualification for Chairman and 5 other members (not 2 nd
[Section 4(5)] and 3rd category as aforesaid) shall be as follows:
 Ability, integrity and standing who have shown capacity in dealing
with problems relating to securities market or
 Special knowledge or experience of:
 Law
 Finance
 Economics
 Accountancy
 Administration
(6) TERM OF OFFICE AND CONDITIONS OF SERVICE OF CHAIRMAN AND MEMBERS

OF THE BOARD [SECTION 5 R/W. RULE 3 OF SEBI RULES, 1992]
Particulars Details
What section deals Section deals with term of office and conditions of service including
with? termination of office of---
 Chairman and
 5 other members
Note: Section doesn’t deal with appointment and term of office of Ministry
members and RBI member
Power of CG The term of office and other conditions of service of the Chairman and the 5
[Section 5(1)] other members shall be such as may be prescribed by the CG by the rules.
As per Rule 3(2)
The Chairman and every whole-time Member shall hold office for such period,
not exceeding 5 years, as many be specified in the order of his appointment;
but he shall be eligible for reappointment.
However, no person shall hold office as the Chairman or a Member after he
attains the age of 65 years.
CG power to The Central Government shall have the right to terminate the services of the
terminate and Chairman or any of the 5 other members, at any time before the expiry of the
power of members period prescribed under sub-section (1), by giving him notice of not less than

to terminate 3 months in writing or 3 months’ salary and allowances in lieu thereof, and the
[Section 5(2)] Chairman or a member, as the case may be, shall also have the right to
relinquish his office, at any time before the expiry of the period prescribed
under sub-section (1), by giving to the Central Government notice of not less
than 3 months in writing.
(7) REMOVAL OF MEMBERS OF THE BOARD [SECTION 6]
Particulars Details
Who has power to Central Government
remove?
[Section 6]
Grounds of removal  Is, or at any time has been, adjudicated as insolvent.
[Section 6(a) to (e)]  Is of unsound mind and stands so declared by a competent court.
 Has been convicted of an offence which, in the opinion of the central
government, involves a moral turpitude.
*******Clause deleted*********
 Has, in the opinion of the central government, so abused his position
as to render his continuation in office detrimental to the public
interest.
Principles of natural No member shall be removed under this clause unless he has been given a
justice to be followed reasonable opportunity of being heard in the matter.
[Proviso to section 6]
(8) MEETINGS OF THE BOARD [SECTION 7]
Particulars Details
Meetings as per Regulations The Board shall meet at such times and places, and shall observe
[Section 7(1)] such rules of procedure in regard to the transaction of business at
its meetings (including quorum at such meetings) as may be
provided by regulation.
Presiding officer in case of The Chairman or, if for any reason, he is unable to attend a meeting
absence of chairman of the Board, any other member chosen by the members present
[Section 7(2)] from amongst themselves at the meeting shall preside at the
meeting.
Voting at the meetings All questions which come up before any meeting of the Board shall
[Section 7(3)] be decided by a majority votes of the members present and voting,
and, in the event of an equality of votes, the Chairman, or in his
absence, the person presiding, shall have a second or casting vote.
(9) MEMBER NOT TO PARTICIPATE IN MEETINGS IN CERTAIN CASES [SEC.7A]

Particulars Details
Interest of the member and Any member, who is a director of a company and who as such
consequences director has any direct or indirect pecuniary interest in any matter
coming up for consideration at a meeting of the Board, shall, as
soon as possible after relevant circumstances have come to his

knowledge, disclose the nature of his interest at such meeting and

such disclosure shall be recorded in the proceedings of the Board,
and the member shall not take any part in any deliberation or
decision of the Board with respect to that matter.
(10) VACANCIES ETC., NOT TO INVALIDATE PROCEEDINGS OF THE BOARD

[SECTION 8]
Particulars Details
No effect on proceedings before No act or proceeding of the Board shall be invalid merely by reason
the board of--
 Any vacancy in, or any defect in the constitution of, the Board;
or
 Any defect in the appointment of a person acting as a member
of the Board; or
 Any irregularity in the procedure of the Board not affecting the
merits of the case.
(11) FUNCTIONS OF THE BOARD [SECTION 11]

Particulars Details
Basic function It shall be the duty of the Board to protect the interests of investors in securities
and to promote the development of, and to regulate the securities market, by such
measures as it thinks fit.
Other functions  Regulating the business in stock exchanges and any other securities markets.
 Registering and regulating the working of ----
 Stock brokers
 Sub-brokers
 Share transfer agents
 Bankers to an issue
 Trustees of trust deeds
 Registrars to an issue
 Merchant bankers
 Underwriters
 Portfolio managers
 Investment advisers
 Depositories
 Depository participants
 Foreign institutional investors
 Credit rating agencies
 Venture Capital funds
 Collective investment schemes
 Mutual Funds
 Promoting and regulating self-regulatory organisations.

 Promoting investors' education and training of intermediaries of securities

markets.
 Prohibiting insider trading in securities.
 Regulating substantial acquisition of shares and take-over of companies.
 Calling for information from, undertaking inspection, conducting inquiries and
audits of the stock exchanges, mutual funds, other persons associated with the
securities market intermediaries & self-regulatory organisations in the
securities market.
 Board has following civil court powers
 Summoning and enforcing the attendance of persons
 Examining them on oath
 Discovery and production of books of account and other documents.
 Inspection of any books, registers and other documents of any person
referred to in section 12.
 Issuing commissions for the examination of witnesses or documents.
 SEBI shall have following special powers w.r.t. investigation (either pending or
complete) ----
 Suspend the trading of any security in a recognised stock exchange;
 Restrain persons from accessing the securities market and prohibit any
person associated with securities market to buy, sell or deal in securities;
 Suspend any office-bearer of any stock exchange or self regulatory
organisation from holding such position;
 Impound and retain the proceeds or securities in respect of any transaction
which is under investigation;
 Attach, for a period not exceeding ninety days, bank accounts or other
property of any intermediary or any person associated with the securities
market in any manner involved in violation of any of the provisions of this
act, or the rules or the regulations made there under. [Amended 2019]
However, the Board shall, within 90 days of the said attachment, obtain
confirmation of the said attachment from the Special Court, established
under section 26A, having jurisdiction and on such confirmation, such
attachment shall continue during the pendency of the aforesaid
proceedings and on conclusion of the said proceedings, the provisions
of section 28A shall apply.
However, that only property, bank account or accounts or any
transaction entered therein, so far as if related to the proceeds actually
involved in violation of any of the provisions of this Act, or the rules or
the regulations made there under shall be allowed to be attached.]
 Direct any intermediary or any person associated with the securities
market in any manner not to dispose of or alienate an asset forming part of
any transaction which is under investigation.
However, the Board may, without prejudice to the provisions contained
in sub-section (2) or sub-section (2A), take any of the measures
specified in clause (d) or clause (e) or clause (f), in respect of any listed
public company or a public company (not being intermediaries referred
to in section 12) which intends to get its securities listed on any
recognised stock exchange where the Board has reasonable grounds to

believe that such company has been indulging in insider trading or

fraudulent and unfair trade practices relating to securities market:
However, that the Board shall, either before or after passing such
orders, give an opportunity of hearing to such intermediaries or
persons concerned.
 Without prejudice to the provisions contained in sub-sections (1), (2), (2A),
(3) and (4), section 11B and Section 15-I, the Board may, by an order, for
reasons to be recorded in writing, levy penalty under sections 15A, 15B,
15C, 15D, 15E, 15EA, 15EB, 15F, 15G, 15H, 15HA and 15HB after holding
an inquiry in the prescribed manner. [Amended 2019]
 The amount disgorged, pursuant to a direction issued, under section 11B
of this Act or section 12A of the Securities Contracts (Regulation) Act, 1956
(42 of 1956) or section 19 of the Depositories Act, 1996 (22 of 1996), 12[or
under a settlement made under section 15JB or section 23JA of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956) or section 19-IA
of the Depositories Act, 1996 (22 of 1996)] as the case may be, shall be
credited to the Investor Protection and Education Fund established by the
Board and such amount shall be utilised by the Board in accordance with
the regulations made under this Act.
(12) BOARD TO REGULATE OR PROHIBIT ISSUE OF PROSPECTUS, OFFER

DOCUMENT OR ADVERTISEMENT SOLICITING MONEY FOR ISSUE OF
SECURITIES [SECTION 11A]
Particulars Details
How regulated? Regulated through ----
 Regulations (ICDR and LODR)
 Orders
What are the By  The matters relating to issue of capital, transfer of securities.
controls? regulations  Disclosures required.
By Orders  Prohibit any company from issuing prospectus, any offer
document, or advertisement soliciting money from the public
for the issue of securities.
 Specify the conditions subject to which the prospectus, such
offer document or advertisement, if not prohibited, may be
issued.
(13) COLLECTIVE INVETMENT SCHEME [SECTION 11AA]

Particulars Details
What shall be Any scheme or arrangement which satisfies the conditions referred below shall be
construed as a a collective investment scheme:
CIS? Condition Content [Section 11AA(2)]
[Section Condition – 1 The contributions, or payments made by the investors, are
11AA(1) read pooled and utilized for the purposes of the scheme or
with Section arrangement.
11AA(2) and

Section Condition – 2 The contributions or payments are made to such scheme or

11AA(2A)] arrangement by the investors with a view to receive profits,
income, produce or property, whether movable or immovable,
from such scheme or arrangement.
Condition – 3 The property, contribution or investment forming part of
scheme or arrangement, whether identifiable or not, is managed
on behalf of the investors.
Condition – 4 The investors do not have day-to-day control over the
management and operation of the scheme or arrangement.
(or)
Condition Content [Section 11AA(2A)]
Only 1 Any scheme or arrangement made or offered by any person
Condition satisfying the conditions as may be specified in accordance with
What shall not The following shall not be treated as CIS:
be treated as a Particulars Details
CIS? [Proviso Proviso to Any pooling of funds under any scheme or arrangement, which
to 11AA(1) Section is not registered with the Board or is not covered under sub-
read with 11AA(1) section (3), involving a corpus amount of ₹ 100 crore or more
Section shall be deemed to be a collective investment scheme.
11AA(3)(i) to Clause i Any scheme or arrangement offered by
Section  Cooperative society registered under the Cooperative
11AA(3)(ix)] Societies Act, 1912 or
 Society being a society registered or deemed to be registered
under any law relating to co-operative societies for the time
being in force in any State.
Clause ii Any scheme or arrangement offered by
 Under which deposits are accepted by nonbanking financial
companies.
Clause iii Any scheme or arrangement
 Being a contract of insurance to which the Insurance Act,
1938.
Clause iv Any scheme or arrangement
 Providing for Any Scheme, Pension Scheme Or The
Insurance Scheme Framed Under The Employees Provident
Funds And Miscellaneous Provisions Act, 1952.
Clause v Any scheme or arrangement
 Under which deposits are accepted under section 58A of the
Companies Act, 2013.
Clause vi Any scheme or arrangement
 Under which deposits are accepted by a company declared
as a Nidhi or a Mutual Benefit Society.
Clause vii Any scheme or arrangement
 Falling within the meaning of chit business

Clause viii Any scheme or arrangement

 Under which contributions made are in the nature of
subscription to a mutual fund.
Clause ix Such other scheme or arrangement as central government
deem fit.
(14) POWER TO ISSUE DIRECTIONS AND LEVY PENALTY [SECTION 11B]

Particulars Details
Who has power to SEBI has power to issue directions.
issue directions?
When SEBI issues Upon an enquiry being conducted, SEBI has formed an opinion that
directions?  It is necessary in interest of investors or
[Section 11B(i) to  Orderly development of securities market or
Section 11B(iii)]  To prevent the affairs of any intermediary or other persons referred to
in section 12 being conducted in a manner detrimental to the interests
of investors or securities market or
 To secure proper management of any intermediary or person
Directions are issued to  To any person or class of persons referred to in section 12 or
whom?  To any person associated with securities market.
[Section 11B(a) &  To any company in respect of matters specified in section 11A.
Section 11B(b)]
Power to order For the removal of doubts, it is hereby declared that the power to issue
disgorgement directions under this section shall include and always be deemed to have
[Explanation to been included the power to direct any person, who made profit or averted
section 11B] loss by indulging in any transaction or activity in contravention of the
provisions of this Act or regulations made thereunder, to disgorge an
amount equivalent to the wrongful gain made or loss averted by such
contravention.
(15) INVESTIGATION [SECTION 11C]

Particulars Details
Grounds for  The transactions in securities are being dealt with in a manner
investigation detrimental to the investors or the securities market or
[Section 11C(1)]  Any intermediary or any person associated with the securities market
has violated any of the provisions of this Act or the rules or the
regulations made or directions issued by the Board thereunder.
Power to investigate SEBI
with whom?
What is the power of  Order Investigating authority to investigate the affairs.
SEBI?  Order to report to Board after investigation.
[Section 11C (1)]
Obligation on  Intermediary
whom?  Person associated with securities market (or)

Duty of various persons  Manager or

[Section 11C(2) &  Managing director or
Section 11C(3)]  Officer and
 Employees
of the Company and every intermediary referred to in
section 12 (or)
 Every person associated with securities market
What is the Produce all books, registers & other required documents in
obligation? their custody or power.
Period of custody  Investigating authority may keep in custody for a period of 6 months.
[Section 11C(4) + 1st  Investigating authority may call for books or register or any record if
Proviso + 2nd needed again
Proviso]  Investigating authority shall give certified copies of such documents if
required
Investigating authority has a power to examine on oath any manager or
Examination on oath managing director or officer or any other employee.
[Section 11C(5)]
Consequences of Nature of  Fails to produce to the Investigating Authority any book,
contravention [Section contravention register, other document and record which is his duty
11C(6)] to produce. (or)
 Fails to provide any information. (or)
 Fails to appear before investigating authority
personally. (or)
 Fails to give answer for questions put before him. (or)
 Fails to sign notes on examination
What is the He shall be punishable with imprisonment for a term which
punishment? may extend to 1 year, or with fine, which may extend to 1
crore rupees, or with both, and also with a further fine
which may extend to 5 lakh rupees for every day after the
first during which the failure or refusal continues.
Notes on examination Notes of any examination shall be taken down in writing and shall be read
and evidence [Section over to, or by, and signed by, the person examined, and may thereafter be
11C(7)] used in evidence against him
Power to seize Power with Investigating authority
[Section 11C(8) and whom?
Section 11C(9) read What is the Power to seize books, registers and records.
with Proviso to power?
Section 11C(9)]
When can he If investigating authority has a reason to believe that the
exercise such books, registers, other records are likely to be --
power?  Destroyed
 Mutilated
 Altered
 Falsified or

 Secreted
Seize with The Magistrate or Judge of such designated court in
whose Mumbai.
permit?
What are Authorise the Investigating authority to –
powers of  Enter such place where books are kept
Magistrate or  Search such place
Judge?  Seize the books and documents
Restriction on The Magistrate or Judge of the Designated Court] shall not
seizure in authorise seizure of books, registers, other documents and
certain cases record, of any listed public company or a public company
(not being the intermediaries specified under section 12)
which intends to get its securities listed on any recognised
stock exchange unless such company indulges in insider
trading or market manipulation.
Power to request for The authorised officer may requisition the services of any police officer or
police assistance any officer of the Central Government, or of both, to assist him for all or any
[Section 11C(8A)] of the purposes specified in sub-section (8).
Period of retention of  The Investigating Authority shall keep in its custody the books, registers,
documents obtained on other documents and record seized under this section for such period
search and power to not later than the conclusion of the investigation.
place id marks  The Investigating Authority may, before returning such books, registers,
[Section 11C(10) + other documents and record as aforesaid, place identification marks on
Proviso to Section them or any part thereof.
11C(10)]
Search and Seizure Every search or seizure made under this section shall be carried out in
shall be as per Cr.PC, accordance with the provisions of the Code of Criminal Procedure, 1973.
1973 [Section
11C(11)]
(16) CEASE AND DESIST PROCEEDINGS [SECTION 11D]

Particulars Details
Power to order  If the Board finds, after causing an inquiry to be made, that any person has
for cease and violated, or is likely to violate, any provisions of this Act, or any rules or
desist regulations made thereunder, it may pass an order requiring such person to
cease and desist from committing or causing such violation.
 However, the Board shall not pass such order in respect of any listed public
company or a public company (other than the intermediaries specified under
section 12) which intends to get its securities listed on any recognised stock
exchange unless the Board has reasonable grounds to believe that such company
has indulged in insider trading or market manipulation.

(17) REGISTRATION OF STOCK BROKERS, SUB-BROKERS, SHARE TRANSFER
AGENTS, ETC [SECTION 12]
Particulars Details
Applicable to whom?  Stock broker
 Sub – broker
 Share transfer agent
 Banker to an issue
 Trustee to a trust deed
 Registrar
 Merchant banker
 Underwriter
 Portfolio Manager
 Investment adviser
 Depository participant
 Foreign Institutional Investor
 Credit rating agency
 Sponsor to any scheme
What is the obligation? The persons so specified shall not buy or sell or deal in the securities except
in accordance with the conditions specified by the board in the certificate
of registration.
(18) PROHIBITION OF MANIPULATIVE AND DECEPTIVE DEVICES, INSIDER
TRADING AND SUBSTANTIAL ACQUISITION OF SECURITIES OR CONTROL
[SECTION 12A]
Particulars Details
Which acts are  Use or employ, in connection with the issue, purchase or sale of any
prohibited? securities listed or proposed to be listed on a recognised stock exchange,
[Section 12A(a), (b), any manipulative or deceptive device or contrivance in contravention of
(c)] the provisions of this Act or the rules or the regulations made thereunder;
 Employ any device, scheme or artifice to defraud in connection with issue
or dealing in securities which are listed or proposed to be listed on a
recognised stock exchange;
 Engage in any act, practice, course of business which operates or would
operate as fraud or deceit upon any person, in connection with the issue,
dealing in securities which are listed or proposed to be listed on a
recognised stock exchange, in contravention of the provisions of this Act
or the rules or the regulations made thereunder;
 Engage in insider trading;
 Deal in securities while in possession of material or non-public
information or communicate such material or non-public information to
any other person, in a manner which is in contravention of the provisions
of this Act or the rules or the regulations made thereunder;
 Acquire control of any company or securities more than the percentage
of equity share capital of a company whose securities are listed or
proposed to be listed on a recognised stock exchange in contravention of

(19) GRANTS BY THE CENTRAL GOVERNMENT [SECTION 13]
Particulars Details
Grants by CG The Central Government may make to the Board grants of such sums of money as
that Government may think fit for being utilised for the purposes of this Act.
(20) FUND [SECTION 14]

Particulars Details
Name of the fund The Securities and Exchange Board of India General Fund.
[Section 14(1)]
Credits and Debits to the Debits Credits
fund the salaries, allowances and other All grants, fees and charges
[Section 14(1)(a) and remuneration of the members,
(b) read with Section officers and other employees of
14(2)] the Board.
the expenses of the Board in the All other sums received
discharge of its functions u/s.11.
Other expenses to achieve objects.
(21) ACCOUNTS AND AUDIT [SECTION 15]
Particulars Details
Maintenance of books as per CG The Board shall maintain proper Books as prescribed by CG in
stipulations consultation with C & AGI.
[Section 15(1)]
Audit The accounts of the Board shall be audited by the Comptroller
[Section 15(2)] and Auditor-General of India.
Powers of C & AGI during the Same as powers during the course of audit of government
course of audit company.
[Section 15(3)]
Place before parliament The accounts certified by C&AGI shall be placed before both
[Section 15(4)] houses of parliament.

(22) PENALTIES AND ADJUDICATION [SECTION 15 A TO SECTION 15 JB]
Particulars When Liable? Who is Liable? What is the Liability?
Penalty for  Fails to furnish any document, return or report Any Person who Imprisonment No
failure to furnish to the Board. is required to Liable to a penalty
information,  Furnishes or files false, incorrect or incomplete comply.
return, etc. information, return, report, books or other Minimum ₹ 1,00,000
[Section 15A] documents Maximum ₹ 1,00,000 every day till a
 Fails to file any return or furnish any maximum of ₹ 1 crore
information, books or other documents within
the time specified.
 Fails to maintain books of account or records.
Penalty for Fails to enter into an agreement with his client. Any person, Imprisonment No
failure by any who is Liable to a penalty
person to enter registered as an
into agreement intermediary. Minimum ₹ 1,00,000
with clients Maximum ₹ 1,00,000 every day till a
[Section 15B] maximum of ₹ 1 crore.
Penalty for Fails to redress the grievances of investors. Listed company Imprisonment No
failure to or any person Liable to a penalty
redress who is
investors’ registered as an Minimum ₹ 1,00,000
grievances intermediary Maximum ₹ 1,00,000 every day till a
[Section 15C] maximum of ₹ 1 crore.
Such Company Imprisonment No
Liable to a penalty
Penalty for Failure to comply with any of the regulations Asset Minimum ₹ 1,00,000
failure to providing for restrictions on the activities of the management Maximum ₹ 1,00,000 every day till a
observe rules asset management companies. maximum of ₹ 1 crore.
33
CA KOUSHIK MUKHESH
8
and regulations
by an asset
management
company
[Section 15E]
Penalty for Fails to comply with the regulations made by the Any person Imprisonment No
default in case of Board in respect of alternative investment funds, Shall be liable to a penalty
alternative infrastructure investment trusts and real estate
investment investment trusts or fails to comply with the Minimum ₹ 1,00,000
funds, directions issued by the Board. Maximum ₹ 1,00,000 every day till a
infrastructure maximum of ₹ 1 crore or
investment three times the amount of
trusts and real gains made out of such
estate failure, whichever is higher.
investment
trusts.
[Section 15 EA]
Penalty for Fails to comply with the regulations made by the Investment Liable to a penalty
default in case of Board or directions issued by the Board, such adviser or Minimum ₹ 1,00,000
investment investment adviser or research analyst. research analyst
adviser and Maximum ₹ 1,00,000 every day till a
research analyst. maximum of ₹ 1 crore.
[Section 15 EB]
Penalty for Fails to issue contract notes in the form and Person, Case 1 Liable to a penalty
default in case of manner specified by the stock exchange of which registered as a Minimum – More than ₹ 1
stock brokers such broker is a member. [Case 1] Stock Broker Lakh and
[Section 15 F] Maximum – extend up to
amount on contract note

Fails to deliver any security or fails to make Case 2 Liable to a penalty

payment of the amount due to the investor in the Minimum – ₹ 1 lakh
manner within the period specified in the Maximum – ₹ 1,00,000
regulations. [Case 2] every day till a maximum of
₹ 1 crore.
Charges an amount of brokerage which is in excess Case 3 Liable to a penalty
of the brokerage specified in the regulations. [Case Minimum – More than ₹ 1
3] lakh
Maximum – 5 times of the
Brokerage charged in
excess.
Penalty for non- Ground 1 – Fails to disclose the aggregate of his Any person who Liable to a penalty
disclosure of shareholding in the body corporate before he is required to Minimum – ₹ 10 Lakhs
acquisition of acquires any shares of that body corporate. comply Maximum – ₹ 25 crores or 3 times profit so
shares and Ground 2 – Fails to make a public announcement made whichever is higher.
takeovers to acquire shares at a minimum price.
[Section 15 H] Ground 3 – Fails to make public offer by sending
letter of offer to the shareholders of the concerned
company.
Ground 4 – Fails to make payment of
consideration to the shareholders who sold their
shares pursuant to letter of offer.
Penalty for Indulges in fraudulent and unfair trade practices Any Person Liable to a penalty
fraudulent and relating to securities Minimum – ₹ 5 Lakhs
unfair trade Maximum – ₹ 25 crores or 3 times profit so
practices made whichever is higher
[Section 15HA]
Penalty for Fails to comply with any provision of this Act, the Whoever Liable to a penalty
contravention rules or the regulations made or directions issued Minimum – ₹ 1 Lakh

where no by the Board thereunder for which no separate Maximum – ₹ 1 Crore

separate penalty penalty has been provided.
has been
provided
[Section 15HB]
Penalty for Ground 1: Deals in securities of a body corporate Any Insider Liable to a penalty
Insider Trading listed on any stock exchange on the basis of any Minimum – ₹ 10 Lakhs
[Section 15G] unpublished price-sensitive information. Maximum – ₹ 25 crores or 3 times profit so
made whichever is higher.
Ground 2: Communicates any unpublished price-
sensitive information to any person, with or
without his request for such information except as
required under law.
Ground 3: Counsels, or procures for any other
person to deal in any securities of anybody
corporate on the basis of unpublished price
sensitive information
Penalty for Ground 1: Without obtaining certificate of Any Person Imprisonment No
certain defaults registration from the Board sponsoring or carrying Liable to a penalty
in case of mutual on any collective investment scheme, including
funds mutual funds. Minimum ₹ 1,00,000
[Section 15D] Ground 2: Fails to comply with the terms and Maximum ₹ 1,00,000 every day till a
conditions of certificate of registration. maximum of ₹ 1 crore.
Ground 3: Fails to list its schemes of Mutual funds
or C.I.S.
Ground 4: Fails to dispatch unit certificates.
Ground 5: Fails to refund the application money
paid.
Ground 6: Fails to invest for requisite purpose.

(23) POWER TO ADJUDICATE [SECTION 15 – I]
Particulars Details
Purpose of Section For the purpose of adjudging under sections 15A, 15B, 15C, 15D, 15E,
[Section 15-I(1)] 15EA, 15EB, 15F, 15G, 15H, 15HA & 15HB.
Power to appoint with SEBI
whom?
[Section 15-I(1)]
Qualification of Adjudication Any officer not below the rank of a Division Chief of SEBI.
authority
[Section 15-I(1)]
Purpose of adjudication  Holding an inquiry and
[Section 15-I(1)]  Imposing a penalty
After giving a reasonable opportunity of being heard.
Power of adjudicating officer  Summon and enforce the attendance of any person.
during inquiry  Produce any document.
[Section 15-I(2)]
Special powers of SEBI  If, SEBI considers that the order passed by the adjudicating officer
[Section 15-I(3)] is erroneous,
 It shall give an OBH and
 Pass an order enhancing the quantum of penalty
(24) FACTORS TO BE TAKEN INTO ACCOUNT WHILE ADJUDGING QUANTUM OF
PENALTY [SECTION 15J]
Particulars Details
When section gets attracted? Section gets attracted while adjudging the quantum of
penalty under 15-I or section 11 or section 11B.
Factors to be considered  Amount of disproportionate gain or unfair advantage.
 Amount of loss caused to investor or investor group.
 Repetitive nature of default.
(25) CREDITING SUMS REALISED BY WAY OF PENALTIES TO CONSOLIDATED FUND
OF INDIA [SECTION 15JA]
Particulars Details
Crediting the sums All sums realised by way of penalties under this Act shall
be credited to the Consolidated Fund of India.
(26) SETTLEMENT OF ADMINISTRATIVE & CIVIL PROCEEDINGS [SECTION 15 JB]
Particulars Details
Settlement of proceedings  Proceedings that actually or likely to initiate under ---
under which sections?  Section 11 or
[Section 15JB(1)]  Section 11B or
 Section 11D or
 Section 12(3) or
 Section 15 – I

Application to whom, for The person concerned may file an application in writing to the Board
settlement? proposing for settlement of the proceedings initiated or to be initiated
[Section 15JB(1)] for the alleged defaults
Power of Board to settle The Board may, after taking into consideration the nature, gravity and
the default impact of defaults, agree to the proposal for settlement, on payment of
[Section 15JB(2)] such sum by the defaulter or on such other terms as may be determined
by the Board in accordance with the regulations made under this Act.
Settlement as per The settlement proceedings under this section shall be conducted in
procedure specified accordance with the procedure specified in the regulations made under
[Section 15JB(3)] this Act.
No appeal No appeal shall lie under section 15T against any order passed by the
[Section 15JB(4)] Board or adjudicating officer, as the case may be, under this section.
Sums to be credited All settlement amounts, excluding the disgorgement amount and legal
[Section 15JB(5)] costs, realised under this Act shall be credited to the Consolidated Fund
of India.

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MODULE – 2

Mail id: koushikmukeshramaraj88@gmail.com

IN THIS CHAPTER WE WILL LEARN THE FOLLOWING

1 INDIA BEFORE FEMA

2. WHY FEMA? [NOT FOR EXAMS]

2.1. PREAMBLE OF FEMA

2.2. SHORT TITLE, EXTENT, APPLICATION AND COMMENCEMENT

2.3. STRUCTURE OF FEMA,1999

3. DEMARKATION BETWEEN FERA AND FEMA [NOT FOR EXAMS]

Director of Director of Enforcement means the Director of Enforcement appointed

5. RESIDENTIAL STATUS AND ITS RELEVANCE IN FEMA

Any person or Body corporate  Incorporated/Registered in India

Resident outside India for

Has gone abroad or stays Has not come to India for

Resident outside Resident

Resident in India for

 A person resident in India for employment of a specified duration (irrespective of

 It may be noted that when it comes to employment, business or vocation, the

6. BASICS OF FEMA – TRANSACTIONS AND REGULATION WISE [SECTION 3 AND 4]

6.2. HOLDING OF FOREIGN EXCHANGE [SECTION 4]

7. EXPORTS UNDER FEMA [SECTION 7(3)(a) READ WITH FOREIGN EXCHANGE

(1) Every exporter of goods shall—

Furnish to the RBI, a declaration in such form and in such manner

PART 3: EXPORT REGULATIONS [SIMPLIFIED] This part is sub-divided into 13 parts as

PART 3B: AUTHORITY TO WHOM DECLARATION IS TO BE FURNISHED AND THE

 The declaration in form EDF shall be submitted in duplicate to the Commissioner of

 The declaration in Form SOFTEX in respect of export of computer software and

PART 3D: INDICATION OF IMPORTER-EXPORTER CODE NUMBER

PART 3E: MANNER OF PAYMENT OF EXPORT VALUE OF GOODS

PART 3F: SUBMISSION OF EXPORT DOCUMENTS

PART 3G: PAYMENT FOR EXPORT

PART 3H: PERIOD WITHIN WHICH EXPORT VALUE OF GOODS/SOFTWARE/ SERVICES

PART 3I: CERTAIN EXPORTS REQUIRING PRIOR APPROVAL

PART 3K: ADVANCE PAYMENT AGAINST EXPORTS

PART 3L: PROJECT EXPORTS

PART 3M: EXEMPTIONS

PART 4: APPENDIX – FORM EDF AND SOFTEX

Exporters Name & Address: AD Name & Address:

Consignee’s Name & Address: Mode of Realisation : [ ] L/C [ ] BG [ ]

Third Party name & Address ( In case of third Party

Name of the Indian bank and AD code, in case of LC/BG

Total FOB value in words (INR): Custom Assessable value (INR)*:

2. Invoice –Wise details of Export Value

Date: (Signature of Exporter)

EXPORT – FLOW CHART

Exports made through

Goods Software Services

Declaration shall be Declaration shall

Export of service Export of

EXPORTS MADE THROUGH NON-EDI PORTS – PROCEDURE FOR FURNISHING

Exporter shall submit the

* For reasons beyond the

8. REALISATION AND REPATRIATION OF FOREIGN EXCHANGE AND EXEMPTION

ANALYSIS ON THE SECTION AND CORRESPONDING REGULATIONS

Possession without limit of foreign currency and coins by an authorised

APPENDIX TO SECTION 7 AND 8

 Every exporter is expected to take reasonable steps to recover and realise

 In the given case, the exporter is involved in export of garments by a firm,

9. AUTHORISED PERSON [SECTION 10 – SECTION 12]

(c) Securing compliance with the provisions of this

10. CAPITAL ACCOUNT TRANSACTIONS [SECTION 6 READ WITH FOREIGN EXCHANGE

PART 2: CONNECTED DEFINITION

PART 3: ANALYSIS ON CAPITAL ACCOUNT TRANSACTIONS