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Post Graduate Diploma in Agricultural Extension Management (PGDAEM)
MANAGE Dr. Sangita Warade
Assistant Professor School of Agri-Business Management, Nagpur Dr. PDKV,Akola
Entrepreneurship • Haggen defines entrepreneurship as “the function of seeing investment and production opportunity, organizing and enterprise to undertake a new production process, raising capital, hiring labour, arranging the supply of raw materials and selecting top managers for day-to-day operation of the enterprise.” • Entrepreneurship involves task accomplishment that embodies a reasonable challenge to the individuals, competence. • Entrepreneur have many of the same traits as leaders.
Entrepreneurship • According to McClelland entrepreneur is “some one who exercises some control over the means of production and produces more than what he can consume in order to sell it for profit. He executes the functions of coordination, organization and supervision. Entrepreneur is basically an innovator who introduces new combinations.
Characteristics of Entrepreneur • • • • • • • • Desire for responsibility. Preference for moderate risk. Confidence to succeed Desire for immediate feedback: High level of energy Future orientation Skill at organizing Value of achievement over money
Business Plan • A Business Plan is a written description of your business’s future.
Reasons for writing a business plan include • • Support a loan application • • Raise equity funding • • Define and fix objectives and programs to achieve those objectives • • Create regular business review and course correction • • Define a new business • • Define agreements between partners • • Set a value on a business for sale or legal purposes • • Evaluate a new product line, promotion, or expansion
What makes a successful business plan? • • • • A well thought out idea Clear and concise writing A clear and logical structure Illustrates management’s ability to make the business a success • Shows profitability
Business plan consists of SEVEN key components • • • • • • • 1. 2. 3. 4. 5. 6. 7. Executive summary Business description Market strategies Competitive analysis Design and development plan Operations and management plan Financial factors
Types of Business Firms 1. Initiation Startups Established firms seeking help 2. Objectwise Miniplan Working Plan
Balance sheet Financial position of an entity on a specific date at the end of accounting period Asset & Liabilities Break – Even Analysis Number of units to be produced to get return at least equal to cost incurred.
Marketing Strategy: actions against or in respect of competition in market. Trade Show: show organised by industry for promotion of trade
Cash Management Cash: current asset, maintain liquidity Cash Management: Effective utilisation of cash.
Cash Management Problem in Cash management: 1.Controlling level of cash: Predictable and unpredictable discrepancies: discrepancies between inflow & outflow Sources of fund: current assets, Relation with banks 2. Control inflow of cash: Lock Box System: amount deposit in post office locker or regional bank office, collection through regional bank office. 3. Controlling outflow of cash: time adjustment between inflow and outflow, centralised cash payment system. 4. Optimal investment of surplus cash: short term instrument.
Cash Planning Forecasting the cash needs well in advance for a given period with a view to maintain adequate cash. Tools for cash control: Cash Budget report, Inflow and Outflow of cash, ratio analysis. Tools of cash planning : Net cash forecast, cash budget, forecasting an overall working capital position Cash Budget Estimation of the flow of cash for particular business. Maintaining the cash balance to ensure the business to make available sufficient cash to meet its needs as and when necessary.
Cash Budget Function of cash budget: • Evaluation of performance: budget act as standard • Sound dividend policy • Helpful in planning • Controlling cash expenditure • Testing the influence of proposed expansion programmed
Marketing Management system: An efficient marketing management system provides an incentive to farmers to produce more; conveys changing needs of the economy to enable production planning; and fosters competition among traders, and eliminates exploitation, particularly among the small and marginal farmers.
Agricultural Marketing: • Agricultural marketing includes the movement of agricultural produce from farms where it is produced to the consumers or manufacturers. • Agricultural marketing also includes the marketing of production inputs and services to the farmers. Some of these include fertilizers, pesticides and other agricultural chemicals; livestock feed; farm machinery, tools and equipment. • The American Marketing Association (AMA) defines “The process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.”
Marketing Concept vs. Selling Concept • If a product is not selling, more aggressive measures must be taken to sell it e.g., cutting price, advertising more, or hiring more aggressive sales-persons. • The marketing concept focuses on getting consumers what they seek, regardless of whether this entails coming up with entirely new products.
Market segmentation Market segmentation is the process in marketing of dividing a market into distinct subsets (segments) that behave in the same way or have similar needs.” Several different kinds of variables can be used for segmentation based on • • Demographic variables (income, gender, education, location ethnicity, and family size • • Physiographic Variables (Lifestyle and Values(religion wise)) • • Psychographie variables (Behavior, Preferences etc.,) • • On benefits sought
Marketing Environment The marketing environment involves factors that are beyond the control of the company. Competition Social Legal Economic Political Technological
Form of Product Consumer products: any FMCG Shopping Product: Car Specialty Product: drilling machine Levels of Product Core Product: original: Mango Actual Product: quality, features, brand: Pickle Augmented Product: come with product: warranty, insurance
A firm’s product line The lines refers to the assortment of similar things that the firm holds. Chilli pickle , mango pickle.
New product development stages. • New product strategy development. • Idea generation • Screening and evaluation • Business analysis • Development • Market testing • Commercialization
Price The value expressed in terms of money Pricing Objectives • • Maximize current profits and return on investments • • Exploit competitive position • • Survival in a competitive market • • Balance price over product line
Psychological Pricing: emotions, perception Product Line Pricing Optional Product Pricing: once consumer buys, extra charge Captive Product Pricing: Charge premium where market is captured Product Bundle Pricing Promotional Pricing Geographical Pricing Value Pricing
Place (Distribution) • A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a product and its title from production to consumption place is also known as channel, distribution, or intermediary. • It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer.
There are six basic ‘channel’ decisions: • 1. Do we use direct or indirect channels? (e.g. ‘direct’ to a consumer, ‘indirect’ via a wholesaler). • 2. Single or multiple channels. • 3. Cumulative length of the multiple channels. • 4. Types of intermediary. • 5. Number of intermediaries at each level (e.g. how many retailers in South India). • 6. Which companies as intermediaries to avoid ‘intra-channel conflict’ (i.e. infighting between local distributors).
Types of Channel Intermediaries 1. Wholesalers 2. Agents 3. Retailers 4. Internet
Promotion This includes all of the tools available to the marketer for ‘marketing communication’. The elements of the promotions mix are • • Personal Selling • • Sales Promotion • • Public Relations • • Direct Mail • • Trade Fairs and Exhibitions • • Advertising • • Sponsorship
Rural Marketing Rural Marketing means delivering manufactured or processed inputs or services to rural producers or consumers. Features of Indian Rural Markets • Heterogeneity: Landlords to peasant farmers • Annual Income • Collective Decision Making: buyer, decider, influencer are different , still take collective decision
Rural vs Urban Consumers – Challenges • Choices • Market Research • Segmentation • Agriculture, the Prime Business • Role of Retailer • Literacy Level
Marketing Strategies • Product • Pricing • Sales • Distribution
Rural Market Needs • 1. Small unit packing • 2. Simple and easily understandable literature • 3. New product designs • 4. Sturdy(strong) products • 5. Proper selection of colours • 6. Utility oriented products • 7. Brand name • 8. Usage of Logos • 9. Basic packaging • 10. Reusable packaging • 11. Innovative distribution strategies • 12. Developmental marketing • 13. Extensive distribution • 14. Appointing opinion leaders • 15. Relevant promotional strategies • 16. Taking care of price sensitivity
Role of Information Technology (IT) Combination of high-speed sleek computing machines having vast storage capacities, userfriendly-versatile software packages with Global communication network for gathering data, its storage, analysis, accessing and sharing the information. It lead to rapid and radical changes.
Benefits of IT Applications in Industry • Creation of databases of markets, customers and suppliers • Avoidance of repetitive jobs • Accuracy • Quick access to information • Quick and informed decision making • Sharing of common information • Saving of time and manpower • Data-based decision making
Procurement(Purchase) The importance of procurement function in agro-business is even more since • (1) cost of raw material constitutes a very high percentage of the total cost of processed products; • (2) it involves operations under highly fluctuating markets, and (3) it affects the economy of large number of producers (farmers) often inviting government intervention. • The importance of agro-processing is increasing in view of the expected large growth of demand for processed products for internal consumption and exports, • Demand for professional procurement managers is increasing with the entry of a number of large national and multinational corporations in organized retailing of processed agro-based products, fresh fruits and vegetables and other agricultural commodities .
• Procurement and Marketing: “Buying is Marketing Too!” A person selling / marketing his product needs a buyer. Without buyer there is no selling and without seller one cannot buy. For a transaction to take place we need both – seller and buyer.
Procurement of Agricultural commodities Agril Commodities are organic matter. Their procurement is affected due to their perishable nature, seasonality of production, production density, degree of freedom in quality control, etc.
Procurement Management Environment • Indian agriculture is an economic activity with mainly a small unit of management . • The small size causes two problems. On one hand, providing knowledge of modern agricultural practices (extension services), credit, inputs, irrigation, power and other services (including infrastructure) to each farmer and other primary producers becomes increasingly difficult and costly. On the other hand, small units produce small quantities; two units may produce the same commodity but of somewhat different qualities. • From this small produce he keeps some for his consumption and some for seed for next season. This marketable surplus is even smaller. This small surplus somehow gets pooled and then reaches the market.
Procurement Function Sales Forecast - Production Schedule - Procurement Action Types of Purchasing • There are two types of purchasing: • (i) purchasing for resale • ii) purchasing for conversion or consumption.
In agro-processing there are three distinct types of factories: • 1st type: Does not make finished end products. Only does crude processing. Eg Lint(ginning) • 2nd type: Makes finished goods. Buys material from 1st type. Eg cloth(textile) • 3rd type: Has its own plantations. It processes the crude raw material as well as produces finished products. (Operate full chain)
Procurement Objective The classical definition of procurement objective is to buy materials and services • • of the right quality: grading , standards • • of the right quantity: order cost, storage cost, optimum • • at the right price: perfect/imperfect competition, distance between market and storage reduce cost • • from the right source: Supplier, own plantation, semi-finished goods, selection of vendor over other • • at the right time
Sources of Information on Suppliers There are: • • Suppliers’ Catalogs • • Trade registers and directories • • Trade Journals • • The “Yellow Pages” • • Purchasing department’s vendor file • • File on mailing pieces (mail advertisement) • • Salesmen • • Trade Exhibits • • Company personnel (having past experience of purchasing)
Evaluating a New Supplier • Plant Visit: Procurement Manager should personally visit the plant of the supplier, and check the following: • Plant location and capacity • Technology used and process followed • Hygienic conditions at all stages of handling, processing, and storage and transport • Technology and process for quality control • Variety of commodities processed • Financial condition • Overall reputation in the market • Management • Services the supplier can provide
Developing a Source of Supply Depending upon the availability, a manager can buy a commodity locally, nationally or internationally. • A company may buy some green and leafy vegetables, grains, oilseeds etc. locally; • some vegetables like onion, potato and fruits, grains, oilseeds etc nationally from various production and supply zones in the country; and some fruits like apple, peaches, kiwi etc, • some oil & oilseeds (e.g. palm oil), soybean, coco etc. from other countries i.e. internationally.
Vendor Performance Rating
How to Obtain the Right Price? • Information about prevailing prices in the market is obtained from • published pricelists, • competitive bidding(auction), • negotiation and • price investigation.
Timings of Purchase This depends on • (i) Policies for Purchasing: These should be in relation to quality, source, price and quantity. • (ii) Speculative Buying: It means buying at one price and selling it at higher price later. The purpose of buying here is making profit by this transaction. • (iii) Forward Buying: Here company purchases quantity which is more than its current requirement. The surplus quantity is stored for its future use. • (iv) Hand-to-mouth Buying: But buy the quantity needed according to their daily or weekly capacity and/or demand for the processed product.
Buy or Produce Reasons for company buying the raw materials and processing the material in its own factory are • Quality consideration • Reliable Supply • Vertical Integration • Cost Consideration
Transportation Purchased goods have to be transported from suppliers to various locations (depending on the use of material) such as processing plant, godowns, cold storage, collection, cleaning and grading centers etc. While deciding about the transport contract the company has to check the following: • The point at which the buyer takes the legal title of the goods. • freight charge • responsible for prosecuting claims against carriers for loss or damage
Planning Technique for Procurement Major constituents of a total company budget are • 1. Budget for Capital equipment • (i) Production department • (ii) Other line and staff departments. • 2. Budget for production material expense (including procurement, transport, storage). • 3. Budget for production labor expense . • 4. Budget for production labor expense. • 5. Operating budget for other line and staff departments. • 6. Budget for finished goods inventory.
General Procedure for a Typical Purchase • • Processing department/Central office issues Purchase Requisition (P.R.), Traveling Requisition (T.R.) or Bill of Materials (B.M.). • • Procurement Department checks to see if the material is in stock (inventory at godowns, cold storage as the case may be). • • Procurement Department finds the potential right sources, negotiates, determines the right price, selects the suppliers and then issues the Purchase Order (P.O.). • • Vendor acknowledges the order and signs agreement/contract. • • Follow up action on order. • • Vendor ships material to place as agreed upon. • • Receiving Department (at factory or godown or any other places), checks material against packing slip and P.O., and issues Receiving Report (R.R.). • • Store/godown in-charge stores materials carefully and systematically. • • Inspection Department inspects material for quality and quantity and issues Inspection Report (I.R.). • • Purchase Department closes order. • • Supplier issues invoice in multiple copies. • • Accounts Department issues invoice against P.O., R.R., and I.R. and issues payment voucher and/or cheque. • • Audit Department audits the entire transaction and submits the • report to the top management.
Supply Chain (SC) • Supply chain is a network of suppliers of raw materials, processing facilities and distribution channels to deliver the furnished product to customers efficiently. Stages / Components of SC • The basic stages / components in a supply chain can be classified as: • a) Supplier’s / Vendors / Sub-Contractors • b) Processing plants / facilities • c) Distribution / sale channels of finished products to customers.
• The Major Objectives of SCM are • a) To reduce the overall cost of the finished product sold to the customer • b) To reduce the overall delivery time – from customer order to delivery of goods • c) To minimize losses at every stage of the supply chain • d) To achieve higher customer satisfaction through quality, variety, cost and time. • e) Value addition at each stage to be enhanced by constant effort. • f) Ensuring profitability and growth of all the partners involved through proper integration, collaboration and profit & risk sharing.
Key Issues in SCM • Strategic Level: Decisions with more than one year time span.
• • • • • • • • a. The number, location and capacity of manufacturing plants / warehouse . b. Strategic Partnerships – With suppliers, Transporters, Distributors Retailers. c. Flow of materials through the logistic networks. d. Supply contracts e. Distribution Strategies – Own / outsource, Centralised / DeCentralised. f. Product Design – Features, size, capacity, technology needed, cost. g. Customer value – Utility, cost, uniqueness / pride, service. h. IT and Decision Support Systems. Flow of money / finance through the chain – system of payments / Receipts policies.
• Tactical Level:
• • • • • • • Decisions from 3 months to one year time span: (without details) a. Production: Which items / how much value / when to produce. b. Purchasing: Procurement of raw materials / Components / External Services c. Transportation: Type, frequency, cost, time location of moving materials. d. Inventory Policies: When / how much / at what rate to purchase & store. e. Customer-Calls Frequency: Contacting customers to receive orders and payments. f. Cash Flow Review: Payment / Receipt / Credit
• Operational Level:
• • • • • • Day-to-Day Descisions: The information contained in the daily/weekly production – planning sheets with full details. a. Scheduling: When and what item to produce–time period for starting each product. b. Lead Time: How much time is needed for the specific quantity to produce. c. Routing: Where / on which machines / facilities- to produce. d. Loading: Moving the materials physically through the various production stages.
• Why SCM is so Vital for Organization Today? • Some of the major reasons for popularity of SCM practice are • a) Competition and saturation of markets in developed countries, need for new markets. • b) Globalization practices being politically accepted by most of the nations. • c) Higher expectations and affordability of products by customers • d) Growth of transportation and manufacturing facilities within and across countries. • e) Shortened Product-life cycles and faster introduction of new products . • f) Cheaper labour availability in backward regions of a country as well as in Developing / Under-developed nations. • g) Availability of cheaper sources of raw materials across the country/world not earlier tapped. • h) Progress of Information Technology to provide cheap hardware, software and communication system. Many software vendors now develop software for SCM which enhances the existing ERP systems to SCM as add-ons.
Logistics • A) Inbound Logistics • The purchase department decides the suppliers or vendors for different bought-out materials / parts and places orders on them with broad details of quantity and delivery period for each item. • B) Processing Logistics • In large factories, the conversion / processing of raw materials into finished products takes place at a number of stages in different manufacturing / assembling / testing units, spread over large areas / long distances. The logistics function in this is to plan, coordinate and move the work in process across the various departments smoothly. • C) Outgoing Logistics • Once a product is finished by the processing plant the entire operations of packaging, moving to central warehousing, planning of transport modes / routes to deliver the items in suitable consignments to customers / retailers through regional warehouses, coordinating all the partners (factories, distributors, wholesalers, retailers), tracing and tracking the items movement avoiding bottle-necks
Block-III Commodity and Future Marketing
Commodities: • A commodity is anything for which there is demand, but which is supplied without qualitative differentiation across a given market
Characteristics of Commodities • • They are essential things that are produced and consumed in large quantities. • • Physical goods that have a value attached to them and hence can be called asset classes. • • They are often used as inputs in the production of other goods or services. • • The prices are determined as a function of their market as a whole. • • There is little differentiation between commodity coming from one producer and the same commodity from another producer. • • Generally they do not have brands, if branded they are called as products • • Include physical substances, such as food, grains, and metals, which are interchangeable with another product of the same type, and which investors buy or sell.
• How are commodities different from other assets? • • Commodities are bulky in nature • • They are perishable – especially agro products • • Commodities are physical assets - have added storage costs • • They are goods, which have logistics problem as they are bulky and as their production and consumption centers are far apart • • They have wide variations in quality and hence certain grades are taken as standards
Market Players and Motives • Buyers • Sellers • Stockiests • Trade facilitators / brokers
1. • • • 2. • 3. • • 4. • •
Buyer • A person who buys commodities or products • Buyers are classified as consumer / industrial buyer • The buying behaviour varies with time, place etc., Seller • A person who has goods to offer for willing buyers to buy. Stockiest • A trader who buys goods at lower levels and stores it for some time and sells when prices improve. • They take advantage of the price variation Brokers • Intermediaries who operate between buyers and sellers • They facilitate trade and take some part of the price margin
Motives of Market Participants • The market participants have different kinds of motives to meet physical requirement. The different kinds of motives are listed below • Investment motive: to get profit from investment in firm • Speculative motive: profit from price movement over time • Arbitrage motive: change in prices in two market at same time
Forward and Backward Linkages in Markets 1. Backward linkage • a. Contract Farming: contract with farmers for growing crop • b. Corporate Farming: direct ownership or leasing in of farmland by business organizations 2. Forward linkage • Forward linkage means the dealings with retail chains and processors. The most essential things in forward linkages are • • Quantity and consistency in supply, • • Competitive pricing of the produce, • • Market knowledge, and • • Farmers’ ability to build their associations, which are very much required.
Challenges for Commodities Markets
• • Encourage the retail companies to evolve sourcing models and meanwhile proactively prepare farmer group to establish linkage with retailers. • • Necessary infrastructure in order to provide, multi commodity service, preserving quality, enhancing agri produce shelf life etc • • Improved market access for farmers both in the national and overseas markets • • Increase bargaining power of farmers by building their own associations • • Introduce de-intermediation process into the current marketing system • • Forward linkage of farmers and backward linkage of retail chain etc.
Regulation of Commodity Markets 1. India • a. APMC • b. State Marketing Board • c. Forward Markets Commission (FMC) 2. International • a) WTO • b) United Nations Conference on Trade and Development (UNCTAD)
• APMC (Agricultural Produce Marketing Committee) Act • The Act provides improved regulation in marketing of agricultural produce, development of an efficient marketing system, promotion of agri-processing and agricultural export and the establishment and proper administration of markets for agricultural produce in the States. • State Agricultural Marketing Board • The Board acts as a liaison(link) agency between the Market Committees and the Government for all round development of agricultural marketing in the State. The State Agricultural Marketing Board has been made specifically responsible for setting up of a separate marketing extension cell in the Board to provide market-led extension services to farmers. • Forward Markets Commission • It is a regulatory authority for all Commodity Derivatives Exchanges in India, which is overseen by the Ministry of Consumer Affairs and Public Distribution, Government of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act, 1952.
• United Nations Conference on Trade and Development (UNCTAD) • The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body, UNCTAD is the principal organ of the United Nations General Assembly dealing with trade, investment and development issues. • World Trade Organization (WTO) • WTO is the only international body dealing with the rules of trade between nations. The main functions of WTO can be described in very simple terms. These are • • To oversee implementation and administering of WTO agreements • • To provide a forum for negotiations • • To provide a dispute settlement mechanism and • • Expand the production of and trade in goods and services.
Recent Innovation in Commodities Markets
1. Safal Market • This was the initiative by NDDB, which came into existence in April 2003 with setting up of a fullfledged trading platform for Fruits and Vegetables at Bangalore. It has been formed to establish an alternative market set-up that operates parallel to mandis to stimulate production, raise quality standards, reduce losses etc.
• Reasons for NDDB’s debut into the Fruit &Veg sector could be
• • Dominated by small farmers, who were unable to effectively bargain in the Mandis and get remunerative prices • • APMC Act emphasizes on regulation and restrictions on marketing activity which create a situation which is disadvantageous to growers • • Mandi operations were poorly designed - inefficient & lack transparency
• E-Choupal is an initiative of ITC Limited (a large diversified group in India) to link directly with rural farmers for the procurement of agricultural/aquaculture produce like soya, coffee, and prawns. • E-Choupal was started to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of numerous intermediaries.
• Metro Cash & Carry • Cash and Carry is a new initiative in wholesaling in which services of credit and delivery are replaced with discounts. Metro’s Cash & Carry’s business model brings together small, medium and large-sized producers, farmers, agricultural cooperatives and manufacturers, with the dispersed community of hotels, restaurants, caterers, traders, retailers and small to medium business enterprises, under one roof. • They buy directly from producers and manufacturers and sell to business customers at wholesale centers. • This way, they shorten the supply chain and thereby eliminate the high costs associated with a fragmented supply chain.
Derivative Derivative is a product whose value is derived from the value of one or more underlying variables or assets in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. Types of Derivative market • Commodity derivatives markets: Commodity derivatives markets trade contracts for which the underlying asset is a commodity. It can be an agricultural commodity like wheat, soybeans, rapeseed, cotton, etc or precious metals like gold, silver, etc. • Financial derivatives markets: Financial derivatives markets trade contracts that have a financial asset or variable as the underlying. The main types of derivatives are futures, forwards, options, and swaps.
• a. Futures: A futures contract is an agreement between two parties to buy or sell the underlying asset at a future date at a future price. Futures contracts differ from forward contracts in the sense that they are standardized and exchange traded. • b. Options: There are two types of options - calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. • c. Warrants: Options generally have lives of up to one year, the majority of options traded on options exchanges having a maximum maturity of nine months. Longer dated options are called warrants and are generally traded over the counter. • d. Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts.
• Forward contracts • A forward contract is an agreement to buy or sell an asset on a specified date for a specified price. • Futures contract • A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. • But unlike forward contracts, the futures contracts are standardized and exchange traded(auction system is used to come on optimum price). • To facilitate liquidity in the futures contracts, the exchange specifies certain standard features of the contract. It is a standardized contract with standard underlying instrument, a standard quantity and quality of the underlying instrument that can be delivered, (or which can be used for reference purposes in settlement) and a standard timing of such settlement. • A futures contract may be offset prior to maturity by entering into an equal and opposite transaction.
Commodity Exchanges and Futures Trading: A commodity exchange is an association or a company or any other body corporate that is organizing futures trading in commodities. Objectives of Commodity Exchange: • To create a platform for the market participants. • To bring professionalism and transparency into commodity trading. • To inculcate best international practices like demodularization, technology platforms, low cost solutions and information dissemination without noise etc. into the trade. • To provide nation wide reach and consistent offering. • To bring together the entities that the market can trust.
Exchange membership • Membership of exchanges is open to any person, association of persons, partnerships, cooperative societies, companies etc. that fulfills the eligibility criteria set by the exchange. • a. Trading cum Clearing Member - An individual or corporate can be admitted by the Commodity Exchange as a Trading-Cum-Clearing Member (TCM) conferring upon them a right to trade and clear through the clearing house of the Commodity Exchange. Moreover, the member may be allowed to make deals for themselves (proprietary positions) besides trading on behalf of registered approved / authorized users and to clear/ settle them. • b. Professional Clearing Member (PCM) - Any Financial Institution or Bank, which is registered as PCM is conferred the right only to clear and settle trades through the clearinghouse of the exchange. They may clear and settle trades of such members of the exchange who choose to do so through that PCM.
Participants in the futures trading Hedgers Speculators Arbitragers
Commodity Exchanges at National level • a. National Commodities Derivatives Exchange (NCDEX)
• NCDEX is a nation-level, technology driven de-mutualized on-line commodity exchange with an independent Board of Directors and professionals. It is a professionally managed by ICICI Bank, LIC, NABARD and (NSE). NCDEX is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956.
• b. Multi Commodity Exchange (MCX)
• MCX an independent and de- mutulised multi commodity exchange established on November 2003. It has permanent recognition from Government of India for facilitating online trading, clearing and settlement operations for commodity futures markets across the country. Key shareholders of MCX include Financial Technologies (I) Ltd., SBI & associates, Fidelity International, NSE and NABARD.
• c. National Multi Commodity Exchange (NMCE)
• National Multi Commodity Exchange of India Limited (NMCEIL) is the first de-mutualized, Electronic Multi-Commodity Exchange in India. On 25th July, 2001, it was granted approval by the Government to organize trading in the edible oil complex. It has operationalized from November 26, 2002. It is being supported by Central Warehousing Corporation Ltd., Gujarat State Agricultural Marketing Board and Neptune Overseas Limited. It got its recognition in October 2002.
Global Commodities Exchanges a. Chicago Board of Trade(CBOT) b. New York Board of Trade (NYBOT) c. Chicago Mercantile Exchange (CME) d. Chicago Mercantile Exchange (CME) e. London Metal Exchange (LME) f. New York Mercantile Exchange (NYMEX) g. Tokyo Commodity Exchange (TOCOM) h. Dubai Gold & Commodity Exchange (DGCX) i. Dubai Mercantile Exchange (DME)
Exchange Transactions Trading: Electronic form a. How to invest/trade in commodities exchange a.1 Client code: through broker a.2. Depositing initial margin: 5-6 % a.3 Trading process: The client has to place his trade with broker through NCDEX/MCX terminals. The trade placed at brokers terminal is submitted to the exchange terminal. When any order enters the trading system, it is an active order. It tries to find a match on the other side of the book. If it finds a match, a trade is generated. From the exchange terminal the trade confirmation is sent to the broker and broker in turn gives the trade confirmation to the client. • a.4 Pay-in / Pay-out: Daily exchanges calculate the difference of the entry value and closing price of the particular date. If the difference is positive the exchanges credit that particular amount into the client account. In case the difference is negative, the exchanges deduct that particular amount from the credit account. • 2. Clearing: National Securities Clearing Corporation Limited (NSCCL) • 3. Settlement: The responsibility of settlement is on a trading cum clearing member for all trades done on his own account and his client’s trades
• Price Risk The rate of price volatility in agricultural produce would create uncertainty and risks, which could hamper the performance of the agricultural sector and negatively impact the income and welfare of the farmers. • Besides, it will have a negative impact on overall economic growth, income distribution and poverty alleviation.
Causes of Price Risks a. Production Risks b. Financial or Credit Risk c. Institutional Risks: Govt decision/policies d. Market linked Risks: supply-demand, lack of market info Methods of Tackling Price Risks a. Handling price risks b. Self-insurance c. Crop storage d. Diversification e. Taking credit f. Contract farming g. Crop Insurance h. Hedging in futures
Evaluation of Methods for their Efficiency and Limitation
Hedging • • Taking a position in the futures market that is opposite to a position in the physical market • • Reduces or limits risks associated with unpredictable changes in price • • The objective behind this mechanism is to offset a loss in one market with a gain in another • • A temporary substitution of futures market transaction for a planned cash market transaction • Goals of Hedging • 1. Reducing the underlying volatility of your cash flows. • 2. Minimizing the probability of large losses.
Types of Hedging 1. Short Hedge • A Short hedge is a hedge that requires a short position in futures contracts. It is appropriate when the hedger already owns the asset, or is likely to own the asset and expects to sell it at some time in the future. For example, a short hedge could be used by a cotton farmer who expects the cotton crop to be ready for sale in the next two months. 2. Long Hedge • Hedges that involve taking a long position in a futures contract are known as long hedges. Long hedge strategy is used by dealers, consumers, fabricators, traders and processors etc, who have taken or will be taking an exposure in the physical market. 3. Cross hedging: • Cross hedging is the process of hedging a cash commodity in the futures market of a different, but related, commodity
Hedge Ratio • Hedge ratio is the ratio of the size of position taken in the futures contracts to the size of the exposure in the underlying asset. • = Correl Coeff bet SP & FP SD of FP X SD of SP /
Warehouse: • A warehouse is a location with adequate facilities where volume shipment are received from a production center, broken down, reassembled into combinations representing a particular order or orders, and shipped to the customer’s location or locations.
Functions of Warehouses • Receive the Material • Store the Material properly • Mixing/Repacking of material • Deliver the material to right place • Keep the records perfectly in discipline • Arranging transport • Arranging Finance • Price Stabilization and Market Intelligence
Classification of Warehouses 1. On the basis of Type of Commodities Stored • a. General Warehouses • b. Special Commodity Warehouses • c. Refrigerated Warehouses/Cold Storages 2. On the basis of Ownership • a. Private warehouses • b. Public warehouses • c. Bonded warehouses
Warehouse Receipt • A warehouse receipt is simply a document stating the ownership of a commodity. It is a warrant issued by the warehouse to the person depositing the goods/produce in the warehouse stating the following: • a) Specified quantity, quality and grade of produce stored • b) Warehouse location, storage fee etc. • c) Date of Issue • d) Approximate value of the produce indicating the present price Different banks have different guidelines for providing loans against the stored produce.
Hypothecation/Pledge of stocks • This system is prevalent mostly for the small private warehouses where the entire warehouse is occupied with material belonging to a single entity. The material deposited in the warehouse is pledged /Hypothecated as security.
Collateral Management: It may be defined as a third-party commitment accepted by the collateral (guarantee) taker to secure an obligation of the collateral provider. In the context of warehouse based financing, the obligation is the amount lent and the collateral is the goods stored.
• Thus collateral management deals with the following • 1. Storage and Preservation • 2. Testing and Certification • 3. Market Intelligence for Price Risk Management • 4. Price Risk Hedging: minimise risk • 5. Developing Market Linkages • 6. Insurance • 7. Stock Documentation and Information repository
Issues related to Warehouse Receipts: Negotiability 1. Preconditions for Viability of a Fully Negotiable Warehouse Receipt System 2. Warehouse Receipts must be functionally equivalent to stored commodities 3. Warehouse Receipts must be freely transferable by delivery and endorsement 4. Existence of Reliable warehouse certification, guaranteeing basic physical and financial standards 5. The integrity of the system must be assured through performance guarantees.
Warehousing (Development and Regulation) Bill, 2005 which has been passed in the Parliament in early 2007 • 1. Context • 2. Features • 3. Negotiable Warehouse Receipts • 4. The Role of Warehousemen • 5. Regulatory Structure • 6. Penalties for Offences • 7. Advantages of Negotiable Warehouse Receipts
Dematerialization of Warehouse Receipts and Linkage of Warehousing With Futures Trading
Block-IV Business Laws and Ethics
Business Ethics: • Business Ethics is a form of applied ethics that examines ethical principles and moral or ethical problems that arise in a business environment
The Three R’s of Business Ethics: • i. Respect - for other people, the organization and the social environment we live and work in. This is similar to the concept of ‘team building’. Even a genius can succeed only if he has a team to support his accomplishments. • ii. Responsibility - is the Second ‘R’ of the business ethics. You have a responsibility to your customers, your co-workers, your organization and yourself. Being responsible entails providing highquality goods and services on time, sharing the workload and meeting your deadlines. • iii. Results - The third ‘R’ of business ethics is results.
Distinction between discretionary or nondiscretionary Discretionary : compromise / lead to corruption, loss Non-discretionary: stick up to one side Widespread Norms • • Criminal offences and illegal trade such as dealing in narcotics • • Land Laws and Regulations • • Physical and Verbal abuse of employees to be shunned • • Public and employee safety • • Transparency and truthfulness of records and statements • • Human slavery and captivity in any form
Ethical practices in Organizations 1. Legal framework 2. Rules and Procedures 3. Principles 4. Sense of Right and Wrong 5. Trust and Commitment 6. Role Model 7. Check before you act
Code of Conduct for Business Executives • • Do not criticize your subordinates behind their back. • • Do not favor an employee because he belongs to the same caste, creed, religion, region, province or state as yours. • • Do not use office stationery, office vehicle, telephones, and fax machine etc., for personal purpose. • • It is improper to talk in a language which others do not understand in order to hide something. • • It is unethical to commit something and not honor it. • • It is unethical to tease some of your colleagues for their personal shortcomings, physique or religion. • • It is unethical to disrespect a woman employee. • • Senior executives should not use company’s money for their gain. • • Company executives must not indulge in character assassination of other colleagues by sending anonymous complaints. • • They should not discuss or divulge information about the company and confidential information to competitors.
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• Spying on the activities of employees and getting feedback from attendants, recording telephone calls and installing cameras in the workplace are unethical and erode trust between the CEO and other company executives. • The hide and seek game of keeping personal secret files relating to mistakes committed by the executives, juniors and other staff members and intimidating them is highly unprincipled. • It is unethical to give false information to the employer or other government agencies. • Senior executives should not take advantage of juniors for doing their personal work. • Meeting with leaders of the unionized work force must be open and transparent. • There must be clear prohibition and ethical code against sexual harassment.
• Key Words in Ethics Management • I. Greed(voracity) should be curbed. • II. Speed should be avoided as it may cut corners in procedures. • III. Laziness should be shunned(avoid). It can be interpreted as taking the easy path of least effort and resistance. • IV. Haziness(not clear) results from not thinking one’s actions through. It should be avoided.
Moral Code of Conduct for Today’s Manager • • There are no short cuts - cutting corners is no efficiency. • • Perfect your job efficiency. • • Applaud and recognize junior’s efforts, contributions and ethical behavior. • • Share your knowledge, no more hiding. • • Go the extra mile! • • Try to understand others view point. • • No one likes sermons(lectures), be open in ethical discussions. • • Focus on serving before selling. • • Learn from past mistakes. • • No more ‘Chalta hai’ attitude. • • We need to voice our concerns. • • Stakeholders are more important than shareholders. • • Learn the rules before you drive.
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• There is no foolproof system. • Total quality organizations are ethical. • As a leader, you need to talk ethics habitually. • Eliminate barriers. • Deliberate and solve the probable dilemmas. • Have ethical mentors for employees. • Use ethics as a tangible matter of performance. • Include ethics in your performance feedback. • Reward ethical behavior and celebrate integrity. • Pick your partners carefully. • Keep your eyes and ears open. • Take immediate action. • Never compromise, deal with others on sound principles.
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Indian Contract Act, 1872 Sale of Goods Act, 1930 Indian Partnership Act, 1932 Companies Act, 1956 Negotiable Instrument Act, 1881 The Essential Commodities Act, 1955
The Contract Act, 1872 • In the present commercial world we find commercial transactions taking place every second. These include trading in goods, supply of material, service contracts etc. On account of volume of contract being done daily, it was proposed to make an enactment which shall bind parties to the agreement and to necessitate a smooth flow of commercial transactions.
• Contract: As per section 2(h) of the Act, contract is any agreement between parties, which is enforceable under law. • Agreement: Every promise or set of the promises forming considerations to each other is an agreement. • Capacity of Parties to Contract • All the persons to the agreement must be competent enough to enter into the contract in order to form a valid contract. • As per section 11 of the Act, every person is competent to contract provided: • • He is not minor • • He is not a person with an unsound mind • • He is not disqualified from entering into contract by any law which is in force and to which he is subject.
• Free Consent for contract Two or more persons are said to be in consent when they agree upon the same thing and in the same sense. • Quasi Contract(indirect) It is a relationship between two parties not by virtue of mutual agreement between them, which gives advantage to one party over the other and creates obligation on the first party to transfer such benefits to the other.
Discharge of the Contract A contract can be discharged by any of the following ways: • • By performance of the contract • • By mutual agreement a contract could be put to an end • • By lapse of time provided in the agreement and if agreement is silent then lapse of reasonable time. • • On account of occurrence of any event which makes performance of the contract impossible • • By breach of terms of the contract by one party to the contract. Such breach can be the actual breach or anticipatory breach
Breach of the Contract Consequences of breach of duty under a contract: • • Suit for the cancellation of the contract • • Suit for damages on account of breach of contract by the other party • • Suit for money to the extent of work completed in the agreement • • Suit for the specific performance of the contract • • Suit for injunction from restraining the other person to do or abstain from doing any act.
Contract of Guarantee & Indemnity (Section 124) • Indemnity • A contract by which one party promises to save the other party from the loss caused to him by the conduct of promisor or any other person, is called indemnity. • Guarantee • • A contract of guarantee is a contract to perform the promise or discharge the liability of the third person in case of default. • • In case of contract of guarantee there shall be three parties, a debtor, a creditor and a guarantor. • Contingent Contract • A contingent contract is a contract to do or not to do something in event of occurrence of some uncertain future event.
• Bailment: Bailment is delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished be returned or otherwise disposed of according to the direction of the person delivering them. • Person who delivers goods is called bailor and the person to whom the goods are delivered are called bailee and the contract is called Bailment. • Pledge The bailment of goods for payment of any debt or for the performance of any contract is called pledge.
• Agency • The term agency means the relationship between two persons wherein one person is called the principal and the other is called an agent. The relationship between the two is called the Agency
Sale of Goods Act, 1930 On account of numerous day-to-day commercial transactions involving goods it was sought to have a separate legislation on such transactions
• Contract: A contract for sale of goods is a contract whereby the seller transfers or agrees to transfer property in goods to a buyer for a price. • Goods: Section 2(7): Goods means every kind of movable property other than money and actionable claims, including shares, stock, growing crops and things attached to or forming part of land which are agreed to be severed before sale or under the contract of sale. • Hire-Purchase Contract: Hire purchase contract is a contract wherein one person transfers goods to another for hire charges. There is no transfer of ownership in goods.
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Existing Goods: Existing goods are the goods, which form the subject matter of the contract, which are in physical possession of the person at the time of entering of the contract. Future Goods: Future goods are the goods • Which are not acquired or manufactured by the seller • Which are not in the possession or ownership of the seller • And which, are intended to be acquired by the seller for the contract of sale Contingent Goods: Goods whose acquisition depends upon happening or occurrence of contingency are called contingent goods.
• Condition: A condition is a stipulation to the main purpose of the contract, the breach of which gives the other party to repudiate the contract. • Warranty: A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives the other party the right to claim for damages but is not entitled to claim for repudiation of contract.
• Doctrine of Caveat Emptor (warning) The basic principal behind this doctrine is that, let the buyer be aware. This means that the buyer is responsible for his fault in identifying damages in the goods if such damages can be found easily or are apparent from such goods when the buyer has been given reasonable opportunity to examine goods before its purchase. • Transfer of Property in the Goods Sale of goods shall be complete upon transfer of ownership in the property. With the transfer of ownership, risk also passes from seller to the buyer of goods. • Performance of the Contract A contract of sale of goods apart from transfer of ownership in goods involves delivery of goods by a seller to a buyer. Further the delivery and payment of goods must be according to the terms of the contract of sale of goods.
• Auction Sale • An auction sale is a public sale of goods through the process of open bidding by the prospective buyers of the goods.
Indian Partnership Act, 1932 • Partnership firm is a contract among two or more persons to carry on business in order to derive profits out of business.
• Mutual Agency • A partnership firm, every partner is an agent and principal of himself and of other. This is an important step that determines the existence of a partnership firm.
Characteristics of a Partnership Firm Following are the characteristics of a Partnership Firm • • Partnership firm is a contract between the parties and is required to be registered • • Partnership firm does not have a separate legal existence separate from its partners • • Minimum number of partners is two and maximum number of partners is 10 for a banking firm and 20 in case of any other partnership firm. • • All the partners are jointly and severally liable for all the acts of the partnership firm • • Partnership firm is a mutual agency wherein each partner of the firm is the agent and the principal of himself and of all the other partners of the firm. • • All the partners of the partnership firm are the joint owners of the assets of the partnership firm • • Partnership firm is dissolved on the death or insolvency of any of the partners of the partnership firm.
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Illegal Partnership partnership firm is illegal in the following cases: • If it is engaged in a business which is unlawful • If the maximum number of the partners exceed 10 in case of banking business and 20 in case of any other business and the business is conducted for more than six months without being registered as a company Registration of the Firm Registration of the firm is the procedure wherein details of the firm are recorded in the books of registrar Re-constitution of the Firm A firm is said to be re-constituted on the admission of a new partner, on the retirement of an existing partner or on the expulsion of a partner.
• Dissolution of the Firm • • Dissolution of the firm marks an end to the functioning life of the firm and necessitates return of capital and profits thereon by the firm. • • Dissolution of the firm implies the dissolution of partnership between all partners of the firm. • Settlement of claims on Dissolution of the Firm • Winding up shall involve sale of assets of the firm, assessing losses and settling the claims of the creditors: • 1. Payment of losses: Losses of the firm need to be paid first out of the profits then out of the capital and out of the individual assets of the firm • 2. Application of assets: Any amount received out of the sale of the assets including goodwill needs to be paid
Companies Act, 1956 Company means a group of people with a common goal. With the growing needs in commercial transactions, formation of companies has become mandatory and company law was established to govern the acts of the companies. Now in India, Companies Act, 1956, governs all companies. Unlike partnership, company shall come into existence on registration. • Company A company is an association of many persons who contribute money or money’s worth to a common stock and is employed in some trade or business and who share profits and losses among themselves.
• Features of company • (a) Incorporated entity: A company comes into existence with its registration. • (b) A Company is an artificial person and all the powers of the company are executed by its board of directors as its agents. • (c) Separate legal entity: A company has a separate legal entity separate from its members. It has the power to own a particular property and has power to be liable or borrow money from others. Company has legal entity separate from its promoter.
• Types of company • a. Based on formation of companies • Statutory companies: Corporations created under special laws of legislature are called statutory companies. • Ex: Life insurance Corporation of India & Food Corporation of India. • Registered companies: Companies, which are registered under Company’s Act 1956, or any law pertaining to companies are called registered companies.
• b. On the basis of the permitted number of members • Private limited company: A private limited company having subscribed capital of more than one lakh is a company which by virtue of its articles • Restricts the number of members to 50, not including the employees of the company or the past employees of the company who subscribe for company’s shares while they are in employment of the company • Public limited company: Sec (i) (iv) • A Private company or public limited company means a company which • (i) Is not a private company. • (ii) Has minimum paid up capital of 5 lakhs and above as may be prescribed.
• C. On the basis of liabilities of members of the company • (i) Limited company • Liability limited by share: liability of each shareholder of the company shall be restricted to the unpaid value of shares held by them. • Liability limited by guarantee: Guarantee Company is a company which does not have any share capital and shall run with the guarantee given by members of the company eg: societies, clubs • (ii) Unlimited company: Liability of the member of the company is said to be unlimited if their liability is more than the unpaid value of shares, if any, held by them.
• d. On the basis of ownership of the company • Holding company • A company is said to be holding if such a company possesses control over the other. • Subsidiary company • As per section 4(1), a company shall be deemed to be a subsidiary company of the other if • (i) The other company controls the composition of board of directors. • (ii) Where the other company holds the majority of shareholder rights. • (iii) Where the first mentioned company is subsidiary of a company and such a company is subsidiary of such other company.
• 1. Nonprofit companies (or) Section 25 companies • It is a company, which is not formed to derive profit out of its operations but is formed for promotion of sports or one of an art or of commerce. Such a company does not distribute excess of income generated over expenditure but applies the same for furtherance of its objective. It can be with or without capital. • 2. Government Company • Government company is a company wherein not less than 51% of its paid up share capital is owned by the central government or state government or any other company owned by the central or state government. (Sec. 617) • 3. Foreign companies • Foreign companies means any company incorporated outside India according to the laws of such other country and • (i) Having place of business in India after the commencement of the act. • (ii) Having place of business in India before the commencement of the act and continues to exist even after the commencement of this act.
• Memorandum of the company • Memorandum means a primary document, which determines the strengths and lays the limitations of the company. The following points can determine significance of the same: • (a) It determines the basic features of the company being formed like name, address, capital etc. • (b) It determines the area of the activity of the company and informs the prospective investor. • (c) It lays down the parameters to determine the relationship of the company with the outsiders. • Following are the clauses in the memorandum: • Name, Object, registration, liability, capital , subscrition.
• Doctrine of ultra-virus • As per this doctrine if any act is done by the company which is outside its powers then the company shall not be liable for such a transaction. It is the duty of the supplier, financier or customer to verify whether the company has the right to undertake such business by virtue of memorandum of the company. If the company does not have the power to do such transaction then they cannot proceed against the company for any loss they have incurred on account of such a transaction. • Doctrine of constructive notice • As per the doctrine, outsiders who deal with the company must have the basic knowledge about the memorandum and articles of the company, as they are public documents. • Doctrine of Indoor management • As per this doctrine, an outsider must know about the memorandum and the articles of the company and also know the powers of the company but is not responsible for internal irregularities of the company.
• Prospectus: (sec 2(36)) • Prospectus means any document described or issued as prospectus and includes any notice, circular advertisement or any other document inviting deposits from the public for subscription of any shares or debentures of the company. • Prospectus must be • (a) Any invitation to subscribe for shares, debentures of the company or to raise deposits. • (b) An invitation must be to public.
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Different kinds of Capital Allotment of shares Allotment of shares subscribed shall be done by the board of the company in accordance with the listing agreement with any of stock exchanges where the shares of the company are proposed to be listed. Shares of the company Share capital of the company consists of (i) Authorized share capital This is registered share capital of the company issued. (ii) Subscribed share capital It is the share capital issued by the company and subscribed by the general public. (iii) Paid up capital It is the amount of capital paid up by the members of the company. (iv) Reserve capital It is the amount of uncalled capital reserved for liquidation of the company. This is reserved for storage of funds in the hands of the company to pay off its liabilities incase of liquidation of the company.
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Kinds of shares (i) Equity shares Equity shares are shares, which carry voting power with them and equity shareholders are entitled to have dividend only after satisfying claims of creditors, financiers and preference shareholders. (ii) Preference shares Preference shares are the shares, which enjoy preference both in payment of dividends and also in capital pay back during liquidation over equity shareholders of the company. They do not enjoy the voting rights of the company.
• Types of Meeting • i. Statutory General Meeting • Every company upon its formation shall organize within six months a meeting called statutory general meeting. This is required to be organized in order to explain the details of promotion of the company and pass the preliminary contracts and also to elect first directors of the company. • ii. Annual General Meeting • It is conducted only once in every calendar year by the company. Financials of the company are adopted, dividends are declared, and auditors and directors are appointed in the annual general meeting. • iii. Extraordinary Meeting • Any meeting, which is conducted between two annual meetings is called extraordinary meeting. It is organized to transact any business of urgent nature which requires the approval of shareholders and which cannot be postponed to the next annual general meeting. It can be called by the board or by the shareholders of the company.
The Essential Commodities Act, 1955 The Essential Commodities Act, 1955 is an important legislation in the interest of the general public --for the control and regulation of production, sale, supply, distribution of and trade and commerce in certain commodities, --increase supply of those commodities in the market and ensure than those commodities are available at reasonable prices. The object of the enactment is to secure fair and equitable distribution of essential commodities at fair prices to the public and punish hoarding and black marketing in essential commodities.
• Essential Commodity: Sec (2 (a)) – Essential commodity means any of the following: • • Cattle fodder including oil cakes and other concentrates • • Coal including coke and other derivatives • • Component parts and accessories of automobiles • • Cotton and woolen textiles • • Drugs as defined under section 3(b) of Drugs and Cosmetics Act 1940 • • Food stuff including edible oil and oil seeds • • Iron and steel including manufactured products of Iron and steel • • Paper including newsprint, paper board and straw board • • Petroleum and petroleum products • • Raw cotton, whether ginned or unginned and cotton seeds • • Raw jute • • Any other class of commodity, which the Central Government by notified order declares to be an essential commodity Ex: Sugar etc.
Powers of the Central Government Power to control production, supply, and distribution etc. of essential commodities • Central Government shall: (Section 2) • a) Regulate the permits, licenses for the production or manufacture of any essential commodity • b) Bring under cultivation waste or arable land for growing food crops and thereby increase the supply of food crops • c) Control the price at which any essential commodity is purchased and sold • d) Regulate by licenses or permit the storage, transport, supply, distribution, use, consumption of any essential commodity. • e) Prohibit withholding of sale of any essential commodity • f) Require any person holding stock of essential commodity or is engaged in the business of production, trading of essential commodity • g) Regulate or prohibit any class of commercial or financial transaction relating to food stuffs Or cotton textiles, which are in the opinion of government detrimental to public interest.
• Power of the Government to procure Essential Commodity • (Section 3 A) When central government is of the opinion that in order to prevent raising of prices, or to prevent hoarding and black marketing of goods it shall by notification in official gazette order that such goods shall be sold to the government. • (Section 3 B) Price are fixed by govt to the seller who want to sell the commodity to govt • (Section 3 C) Price are fixed by govt to the seller who want to sell the sugar to govt • (Section 3 D) Central government may direct any person, producer, importer, exporter not to deliver, remove sugar even if the same are in bonded godowns of the factory. Further, the central government shall give such directions to any producer, importer, and exporter with regard to production, sale, supply, and export pertaining to sugar.
• Control on the Manufacturing activity by Government (Section4) • If the central government is of the opinion that to maintain adequate supply of essential goods • or the commodity or to maintain price of any essential commodity it may authorize such person or the • class of persons to exercise control over the whole or any part of undertaking where such commodity is manufactured.
Confiscation (Seize) of the Commodity (section 6 A) • Where any essential commodity is seized in accordance with the provisions of the Act such commodity shall be brought before the collector of the district or the presidency town and shall be produced for inspection before him and if the collector is satisfied that contravention(breach) has taken place may order for confiscation. • Issue of show cause notice before confiscation of goods: (Section 6 B) Appeals against the orders (Section 6 C) • Any person who is aggrieved by the order of the confiscation by the collector, can file an appeal against such order within 30 days from the date of order to the judicial authority of the state government.
• Penalties under the Act (Section 7) • If any person has contravened any order passed under section 3 of the Act: he shall be punishable, imprisonment, • Offences by companies: (Section 10) • If the company does any contravention of any order under section 3 of the act then the company and every such person who is in charge of the affairs of the company when such default has taken place shall be liable for such contravention. • Power of the court to publish names(offence company): (Section 10 B)
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