In this article, Dipti Khatri pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses RBI guidelines for business structuring of a bank.

The definition of “banking” as per Section 5(b) of The Banking Regulation Act,1949 includes “ accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise”.

At the first instance, it is important to note that RBI is the main body which issues guidelines relating to banking company. Also, as per Section 22 of Banking Regulation Act, 1949 for carrying out a banking business it is required to hold a license issued in that behalf by the Reserve Bank of India. Hence, a business activity of a banking company should be in consonance with the guidelines issued by RBI.

Guidelines issued by RBI relating to banking Companies

1. Guidelines for licensing of payment banks

• Registration, licensing and regulations – The payment banks are to be registered as public limited company under Companies Act, 2013 and also Section 22 of the Banking Regulations, 1949 is required to be followed. Further, guidelines which are issued by FEMA, 1999 and other relevant statutes are required to be followed from time to time. Also, the payment bank will be given scheduled bank status once it operation commences.
• Objectives- The objective is to provide financial benefit to the unorganized sector, migrant labour force, and small businesses by providing small saving accounts.
• Eligible promoters- Payments banks may be set up by Non-Banking Financial Companies (NBFC’s), Pre- paid payment insurance (PPI), other public sector entities. Also, a promoter group can set up commercial bank as payment bank to the extent permitted under Section 19(2) of the Banking Regulation Act, 1949. However, the requirement is that the promoter group as defined in the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009 should be ‘fit and proper’ in order to be eligible to promote payment banks.
• Scope of activities – The payment bank will be set up as differentiated banks and will be eligible for acceptance of demand deposits, issuance of ATM’s / Debit cards, business correspondents (BCs), and act as a channel for RTGS/ NEFT/ IMPS.
• Deployment of funds- The payment bank will not be eligible to undertake lending activities. Also, the payment bank will participate in payment and settlement system.
• Capital requirement- The capital market will not be exposed to operational risk. However, they will be exposed to credit and market risks. Therefore, as a backstop measure, the payments bank should have a leverage ratio of not less than 3 per cent, i.e., its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves).
• Promoters’ contribution- Promoters of the payment bank are required to hold a minimum limit of 40% of paid up equity capital for the first five years from the commencement of the business.
• Foreign shareholding- Foreign Shareholding would be according to the FDI policy as stated by the Private Bank and as amended from time to time.
• Voting rights and transfer/acquisition of shares – 10% capping is done in the private sector banks. However, according to Section 12B of the Act, it can be raised.
• Prudential norms- of RBI are not applicable to payment banks.
• Business plan- The payment bank will be required to put forward their business plan to address the objectives of payment bank. Also, the business plan related to technological solutions, ATMs, BCs are required to be dealt in detail.
• Corporate governance- It should have majority of Independent directors. Also, they are required to follow the corporate governance norms set up by RBI.
• Procedure for application – Application should be set in accordance with Rule 11 of the Banking Regulations Act, 1949.
• Procedures for RBI decisions- The RBI will give its decisions after looking into ‘fit and proper criteria’. Also, the eligibility of the directors and its members will be considered. Also, the name of the applicants and other major documents are to be placed on the RBI website.

2. Guidelines for licensing of small finance banks

• Eligible promoters: Non-banking Financial Companies (NBFCs), Local Area Bank (LABs), Micro Finance Institutions(MFIs), Resident individuals with 10 years of experience in banking and finance.
• Foreign shareholding- to be 74% for private sector bank, Individual NRI restricted to 10%.
• Promoter’s Contribution- Initial contribution is required to be 40% from the date of commencement of the business. Net worth if reached beyond Rs. 500 crore than listing is mandatory within 3 years of reaching the net worth.
• Minimum Capital Requirement- The minimum requirement would be paid up equity capital of at least Rs. 100 crore.
• Corporate Governance and Structure- The Small finance bank is required to have majority of independent directors to fulfil the corporate governance norms. Further, the ‘fit and proper criteria’ is required to be fulfilled by the applicants. Also, it is mandatory to mention “small finance banks” to differentiate it from other banking companies.
• Scope of activities- Its activities will include acceptance of deposits, distribution of mutual fund, pension products etc.
• Branch geography expansion- Initial five years would require the approval of RBI. However, after that RBI may liberalize the approval policy.
• Prudential Norms- Prudential norms will be same as that applicable to the Commercial banks. Also, CRR and SLR policy will remain the same. The maximum loan and investment limit will extend as per the direction given by RBI.
• Business plan- The business plan will be required to be submitted for approval from RBI. The business plan is required to include bank’s expansion and other business policies.
• Other conditions- The small finance bank will have to go through the scrutiny of RBI’s banking ombudsman scheme, 2006. Further, it will also have grievance cell to handle the complaints.
• Additional conditions for NBFC/ MFI/ LAB- Small banking finance Companies are precluded from creating floating charges. Also, on creation of small banking finance company NBFC will cease to exist.

3. Master Circular

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) – The guideline has been issued under Section 35A of The Banking Regulation Act, 1949.The master circular will be applicable to the scheduled commercial banks excluding the regional banks. Also, it has been issued under Section 42(1) of the RBI Act, 1934 for monetary stability.

The salient feature of the above circular includes:

• CRR is required to be maintained at 4% of a bank’s total of demand and time liability.
• There are demand liabilities which are to be paid on demand.
• Time liabilities- will also have to be paid on demand.
• Other Demand and Time Liabilities (ODTL) includes interest accrued on deposits, bills payable, unpaid dividends. The balance outstanding in the blocked account pertaining to more than 5 years in inter branch adjustment will also be included in ODTL. Accrued interest is also to be calculated on each reporting fortnight so that bank’s liability in this regard is fairly reflected in total NDTL of the same fortnightly return.

4. Master Circular Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances

The guideline are made in consonance with “The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002”. The guideline is applicable to: – Non-performing assets which include (a) Sub-standard assets (b) Doubtful assets (c) Loss Assets. The Act also recognizes the sale of non- performing assets for the realization of dues from the borrower or the guarantor under the provision of the Act 2002.

5. Draft Guidelines for ‘on tap’ licensing of Universal Banks in the Private Sector”

This draft guidelines were published on 5^th May 2016. It includes NBFC’s that are ‘controlled by residents’ and have a successful track record for at “least 10 years. It also includes individuals/ professionals who have 10 years of experience in the banking sector. Fit and proper criteria include promoter group having a sound record of at least 10 years. With respect to corporate structure the Non- operative financial holding Company (NOHFC) is not mandatory for individual promoters or standalone which do not have group entities. Also, promoter can own not less than 51% of the total paid up equity capital of the NOHFC. Also, they are permitted to undertake specialized activities with the prior approval of Reserve Bank.

Procedure for Application

• The application can be submitted to the Reserve Bank of India at any point of time as the licensing window will be open on-tap.
• The Reserve Bank will set up the applications to be referred to the Standing External Advisory Committee (SEAC).
• The Committee is required to submit the recommendations to the Reserve Bank of India.
• The decision to issue in principal approval is required to be taken by the Reserve Bank.
• The validity of the approval will be 18 months from the date of grant of in- principal approval and thereafter lapse automatically. Also, The Reserve’s Bank of India decision is to be considered as final.
• In order to ensure transparency, name of applicants for grant of in principal approval will be placed on Reserve’s bank website automatically.

References

1. Reserve Bank of India- Guidelines for licensing of payment banks https://rbi.org.in/scripts/bs_viewcontent.aspx?Id=2900 (last visited 21^st December, 2016).
2. Reserve Bank of India, RBI decides to grant “in-principle” approval for banking licences https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=30931 (last visited 21^st December, 2016).
3. Reserve Bank of India, “Draft Guidelines for ‘on tap’ licensing of Universal Banks in the Private Sector” https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=36898 (last visited 22^nd December, 2016).
4. Delloite RBI guidelines for License of Small Finance Banks https://www2.deloitte.com/content/dam/Deloitte/in/Documents/financial-services/in-fs-deloitte-pov-on-small-finance-bank-license-guidelines.pdf(last visited 22^nd December, 2016).
5. Reserve Bank of India Master Circular No. DBOD.No.BP.BC.9/21.04.048/2014-15 dated July 1, 2014 https://rbidocs.rbi.org.in/rdocs/notification/PDFs/101MC16B68A0EDCA9434CBC239741F5267329.PDF (last visited 22^nd December, 2016).

In this article, Ramanuj Mukherjee, Co-Founder & CEO at iPleaders discusses how to become a banking lawyer and what are the opportunities.

Indian banking sector survived many global disturbances. It is now under unprecedented stress due to recovery problems, low demand for loans and capitalization issues. Still, it is one of the fastest growing and highly critical sector of the economy. In recent past, RBI received many accolades for being a good and effective regulator though things are not quite the same right now. However, banking stands out as a major employer in the country as a source of well paid white collar jobs. Especially for lawyers, it is a top sector and very attractive for lawyers even when it is not doing well. When banks do well they need many lawyers, when they do badly even more lawyers are required! In fact lawyers make more money when banks are not doing well, assets are distressed and clients default on payments. It is a truly recession proof sector as far as lawyers are concerned.

Here are 5 reasons why banking has very high demand for well qualified lawyers

1. It is a very technical and highly regulated sector that requires highly specialized legal expertise. Regulations are frequently changed and practices are constantly evolving.
2. Any major lending transactions require lawyers, both on the side of the lender and borrower, creating one of the largest markets for transactional lawyers (also called corporate lawyer in common parlance)
3. Banking and finance is a highly innovative sector, constantly introducing new products and services into the market. Lawyers are required to vet and tweak these innovative products before they hit the market. These innovations almost always bring new sets of legal, regulatory and taxation challenges which often have to be settled through litigation and creation of precedence over time in which lawyers play a critical role.
4. A good legal team that can protect the return on loans given out by the bank provides a huge competitive advantage to the bank. It is a question of survival for the bank. During recessions, or when the bank is under stress due to many defaults, the lawyers are the busiest. Hence, banks do not try to cut cost on lawyers as compared to, say, a manufacturing company, for which legal is not as critical a function. Apart from banks, Non Banking Financial Companies (NBFCs) are also highly dependant on lawyers for the same reasons. If lending increases (which happens when the economy booms), more lawyers are needed to do due diligence on collaterals and businesses, apart from running the transactions themselves.
5. Frauds, cyber-attacks and crimes related to banking has been on the rise, and banks have been facing claims regarding the same in large volumes. Consumer disputes involving banks are also very high in number. All of these make it necessary for banks and NBFCs to engage armies of lawyers.

Banking practice involves some of the largest and complex transactions, requiring exhaustive knowledge of the Indian finance market and the ever evolving regulatory framework. Cross-border transactions are also frequent and requires international expertise.

Basic role of Baking Lawyer

The most lucrative and major work in banking practice is negotiating loan agreements, which is comparable to negotiating investment or acquisition agreements, except that banking team deals not with equity but debt.

• Ensuring compliance with rules and regulations of the regulator that is., RBI.
• Framing legal documents needed for the various processes followed by banks
• Acts as the legal representative of the bank for the filing of suits and cases against borrowers, fraudsters etc. and defend the bank against legal actions
• Acts as legal counsel for the bank whenever any legal opinion is regarding any procedural lapse or operational flaw

However, note that a banking lawyer as practicing in a large law firm does not do all these things. They mostly help clients (banks and their borrowers) to negotiate loan agreements, and sometimes to enforce those agreements.

Some important services rendered by banking lawyers

• Restructuring a business
• Restructuring loans
• Handling relationship between multiple lenders
• Drafting or negotiating loan agreements
• Vetting legal documents
• Settling Recovery issues
• Global Commercial Issues (ADR/ GDR etc)
• Dispute Resolution
• Fund Development
• Preparing pleadings and drafts
• Replying to queries and complaints
• Review and preparation of policies
• Research on RBI policies and statutory provisions,
• Ensuring legal compliance,
• Advising on leveraged financing
• Handling Bankruptcy litigation
• Handling deferred payment issues
• Settlement of NPA (Non-performing assets)
• Managing issues regarding Securitizations and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act)
• Settling cases relating to Negotiable Instruments Act
• Appear before Debt Recovery Tribunal

What are the 5 most critical skills required by banking lawyers?

• Financial acumen – banking lawyers must have high level of understanding of complex accounting, ability to analyze balance sheets, judge asset quality and many other complex banking concepts. They don’t only have to know a lot of technical things and apply in day to day work, they must also constantly update themselves with the latest regulatory developments. A mastery of numbers is an asset here and if you are not good with numbers, it will be a definite handicap.
• Drafting skills – ability to understand convoluted situations, predict risks and rewards and ability to draft them into a contract is a critical skill for banking lawyers.
• Negotiation skills – top banking lawyers are almost without any exception amazing negotiators.
• Ability to deliver under high pressure – banking lawyers work with highly demanding clients under short deadlines and with massive stakes. It is not everybody’s cup of tea to work in such environments.
• Eye for details – imagine reading thousands of pages without missing the minute details that you need to vet and based on which fortunes can be made or lost. That is the job of banking lawyers. They can’t miss even the tiniest detail. Those who cannot master above average patience and have keen eye for details cannot survive as a lawyer in the banking industry.

How much do banking lawyers get paid?

Through a survey conducted in 2014 by the Legal Search firm Vahura following observations were made about :

In 2017, you can expect that these number have gone up by about 10-15%.

If you work as a banking lawyer in a large or tier 2 law firm, you could earn much more. Our internal research revealed the following numbers:

The figures given in the table above is based on information provided by lawyers working for tier 1 and tier 2 firms in India. We have taken the lowest and highest salaries disclosed to us to indicate the range as given in the table.

A lawyer who was an Associate Counsel at ICICI Bank till 2016, and requested anonymity for legal reasons, confirmed that the above figures are more or less correct based on his understanding of the market. When he joined ICICI in the year 2010, his starting package was 8 lakhs and now it has increased to 10-12 lakhs per annum. This is another major trend that cannot be missed. The packages that the banks, law firms and financial services firms are offering to new recruits have been steadily increasing despite global economic turbulence and poor performance in banking sector at home. It is matter of imagination how fast it may grow once the sector recovers and economy picks up more pace as expected in India.

Job Opportunities

When a person hears the word “Banking Lawyer”, the first image that comes to the mind is that of a lawyer working at a bank. But that’s only a myth. I had the opportunity to speak with a graduate of National Law Institute University, Bhopal who is currently working at Citibank as an Associate Counsel. During our conversation she revealed that lawyers who have banking law as their area of expertise can score jobs at banks as well as investment firms, micro-financing firms and various leading global financial services firm providing investment banking, securities, wealth management and investment management services. She also said that a person’s command over various acts and laws like SARFAESI, Negotiable Instruments Act, Indian Contracts Act, Specific Relief Act, etc. have the upper hand during job interviews.

Some of the notable recruiters of banking lawyers

Indian banks – ICICI, HDFC, YES Bank, SBI, PNB are some of the major recruiters of lawyers and almost all of them have established massive legal teams over the years.

Foreign banks –  Citigroup, Standard Chartered, ING, Bank of America, Barclays and every other foreign bank with presence in India have been hiring Indian counsels. These are attractive especially for those wanting to develop a niche in cross-border transactions.

Investment banks – Morgan Stanley, Goldman Sachs, JP Morgan, Credit Suisse and dozens of others – they all require capable banking lawyers.

NBFCs –  Aditya Birla Finance Ltd., LIC Housing Finance Ltd., Bajaj Finserv., Indiabulls Housing Finance Ltd., and thousands of other NBFCs hire thousands of lawyers every year.

Large law firms – AZB & Partners, CAM, SAM, JSA, Khaitan, Trilegal, Luthra & Luthra, NDA – there is no large law firm, or a tier 2 law firm that does not have a large banking team and a respectable list of banking clients. Over time, banking has delivered major growth for these firms and have become bread and butter work though margins have taken a nosedive over time as banks took away more and more work from them by increasing the number and variety of expertise in in-house legal teams. However, good expertise in banking work is an amazing asset if you want to work in a large law firm.

Tier 2 law firms and boutique banking law firms – Banking work is indispensable for those who want to create a full service law firm. There are many boutique law firms that do only banking work. Some of the most reputed in this category are Phoenix Legal, DSK Legal, JurisCorp, Bharucha & Partners.

Fintech companies – This is the age of fintech. Some of India’s fastest growing companies come from this sector. Good examples will be PayTM, PayU, Mobikwik, Paypal, Ezetap, LendingKart, CCAvenue, Chillr, Capital Float etc. who are increasingly needing to hire lawyers or foot bigger bills with law firms.

Banking BPOs – Many foreign banks have been opening captive BPOs to handle their routine legal work and relocating such jobs in India. These are fairly well paid jobs but require lower skill levels. Good examples will be UBS, Danske, Bank of America, ING and Deutsche Bank. We can expect a large number of such jobs to be created over time as political situation over outsourcing in the USA and Europe stabilizes.

According to top job websites like Naukri.com and Indeed.co.in, as of now there are more than 800 jobs for banking lawyers, waiting for suitable and eligible candidates. Moreover, the number of non-performing assets (NPA) has increased marginally post demonetisation and now the total amount of gross non-performing assets 614,872 crores in rupees. Therefore, the workload on the banks has increased exponentially too and consequently the number of jobs for lawyers with the knowledge of banking law has increased too.

Is it wise to opt for a career in Banking Law?

Banking law is an evergreen career. For an industrious and talented lawyer, sky is the limit. It is a very good time to learn the ropes at this point, as demand is expected to skyrocket in years to come. Leading global banks like Bank of America and Citigroup, firms and enterprises like Goldman Sachs and Federal National Mortgage Association, and even startups like CCAvenue and Paypal had lawyers as their CEOs. This shows how well established this career option has become for lawyers who know their way around in banking law sector.

Our verdict: Go for it if you have an eye for details and have some knack for numbers.

If you are interested in a career in corporate law or banking law, definitely consider doing this business law course through which are creating extraordinary business lawyers in India. We will systematically teach you skills like business structuring, drafting, negotiation, government contracts, corporate governance etc. which will give you a massive advantage if you want to become a banking lawyer. Our course is designed to give you a massive leg up, and has a history of terrific success for our students. You can check out some of the stories here.

In this article, Dhruv Alagh pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses How to start a private trust in India.

A relationship that is created by an individual, in which more than one person holds an individual’s property to use and protect it for the benefit of others. An individual can control the distribution of their property during their lives or after their deaths through the use of a trust.

What is a Trust?

Basically, a trust is an instrument used for safeguarding the beneficiaries especially when beneficiaries are minor and not capable enough to protect their interest.

• The person who creates the trust is known as the settlor and The person who holds the property for another’s benefit is the trustee and in all, The person who is benefited by the trust is the beneficiary.

A legal entity is created by the settler through which a second party ie. the trustee holds the right to manage the trustor’s assets for a benefit of the third party ie. the beneficiary.

Salient features of Private Trust In India

• Private trusts are created and governed by the provisions of the Indian Trusts Act, 1882. Though charitable trusts are beyond this Act. The whole of India comes under this Act except the states who’s State Government has specifically amended this Act.
• A private trust, that is created under and governed by the Indian Trusts Act,1882 manages assigned trust property for private or religious purpose. Privileges and tax benefits that are enjoyed by the public trusts or NGOs are not enjoyable by these private trusts.

How to create a Trust?

A person who is a major, not legally insane, insolvent, or minor can be a settlor and create a trust.

However with the permission of court a minor can also create a trust.

For creating a trust one must:

• Clearly, specify the property of the trust
• The purpose of the trust
• The beneficiaries of the trust
• Methods of Creation

• Declaration of Trusts
• Trust Transfers
• Powers of Appointment
• Contracts
• Statute
  

Role of the trustee

A trustee is said to be the person to whom a settler transfers his/her property.

• Anybody can become a trustee but if he/she has to manage the properties of the trust then he must be eligible to enter into contracts.
• A minor, insolvent or an insane person cannot be trustee.
• One can always say no or reject his/her trusteeship
• A person assumes all the rights, liabilities and duties of a trustee once he/she accepts the trusteeship voluntarily and according to reasonable terms.

Role of a beneficiary

• Every person who is capable of holding property such as a human being, corporation, or a company and even a state can be made beneficiary of a private trust.
• Even an unborn person can also be made a beneficiary of a trust.
• However, a beneficiary is not bound by the wants of the person creating the trust. This way a proposed beneficiary can ask for his/her own interest under the trust by either making a denial to the trustee or by claiming inconsistent or irregularity with the trust.

Under Indian Trust Act, a settlor can create a trust with his or her own personal property and can officially appoint one or more trustees and lay down the terms and conditions benefiting the identified beneficiary or beneficiaries including one’s spouse, own child, relative or any other individual or group of individuals.
Private trust or family trust does not come under Public Charitable Trusts and hence are not allowed to enjoy the privileges entitled by a trust with a charitable purpose.

What can be treated as a trust property

Movable or immovable property both can come under the trust property.

• Trust consisting of immovable property transfers the property to the trustee through a written and registered document.
• In case of the trust consisting movable property only the delivery of the property to the trustee is enough and there is no need of the written document.

Documents Required

• Detail of all members or trustees of the trust with their address and PAN no.
• Certified true copies of the Institution’s Registration Certificate
• Certified true copies of Laws & by-laws of the Institute
• Copy of income tax registration certificate.
• Audited Balance Sheet and Income & Expenditure account with Audit Report of last 3 years
• The original copy of Trust Deed evidencing the creation of the Trust.

There are various types of trusts which are created containing various kind of purposes.

Example: A trust can be created for the financial benefit of the person who is creating the trust, or for a surviving spouse or minor children, or for a charitable purpose.

Major types of trusts are

• Living: This type of trust is created by the settler while he or she is alive.In other words, it is an alternative for a will.
• Testamentary: This type of trust is created through a will when the settler dies.
• Revocable: Trust that can be easily modified or terminated by the settler after its creation.  It does not protect assets, as they can be withdrawn from this kind of trust. Here, assets are not considered to be given away so, these are taxed at the hands of the settler at the slab rate. In this kind of trust settler can become the beneficiary.
• Irrevocable non-discretionary: Trust that cannot be modified or terminated by the settler after its creation. Here assets cannot be withdrawn. The settler has to control the trust norms completely. Settler decides which beneficiary should receive which asset, and in what proportion. In this trust settler can be the beneficiary and after him/her, his/her child/children can become the beneficiary. If the settler in this type of trust is the primary beneficiary, he/she is taxed at slab rate.
• Irrevocable discretionary: Here, the settler lets the trustees decide which beneficiary should get which asset and in what proportion. The settler only decides the beneficiaries. In this case, the beneficiaries can save on income tax from the assets.

Though law permits the variety of trust, trust arrangements that attempt to escape and avoid creditors or lawful responsibilities are declared invalid by the courts.

Advantages of Private Trust In India

• Has simple process of registration.
• Has simpler record-keeping regulations.
• Quite a low possibility of interference by the regulator.

TAXATION OF A PRIVATE TRUST

• A private trust is an effective estate planning tool. In case you have a special child, an estate to protect, or a business to transfer to the next generation, A formation of private trust in such situations sought many issues. Although the creation of a private trust needs a lot of consideration. Just like the most important element that is taxation needs to be addressed.
• The primary reason of taxation being so important is that the income of a private trust is taxed differently in different structures of a trust and any type of ineffectual, unavailing planning in or by the trust can lead to maximization of taxation for the particular entity.

The four distinct elements in a Private Trust are

• An intention of the settler to create the trust.
• a subject matter
• a trustee
• a beneficiary.

Unless all these elements are present, a court cannot enforce an arrangement as a trust.

In this article, Cheshta Jetly pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the difference between Articles of Association under old and new Companies Act.

Any company so incorporated has to follow certain procedures for registration and incorporation.

Section 7 of the Companies Act, 2013 state that the first and foremost decision to be taken, is to decide the name and the Registrar will let them know if there is an availability of the same.After receiving the consent for the name, certain documents^[1] must be submitted to the Registrar.

The first most important document is the Memorandum of Association (MoA), filed with the Registrar at the time of the formation of the company.

Memorandum, as described under article 2(56) of the Companies Act 2013 as;

 “memorandum” means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act”;^[2]

It is a document, which lays down the powers and objects of the company, the scope of its operations, and the activities, beyond which its can’t go. It is, therefore, rightly called the ‘Charter of the Company’.

The articles of association (AoA) or the articles, is the second most important document that has to be filed with the Registrar, at the time of the registration of the company.

Articles contain the rules and regulations framed by the company for its own governance: the rules, regulations and the bye-laws for the internal management of the company are laid down in the articles.

The legal definition of articles under section 2(5) of the act, states the following:

“articles” means the articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act”^[3]

Thus, one can safely conclude, that

• ‘The Articles are subordinate to and controlled by the Memorandum and the Memorandum lays down the objects and the powers of the company and the articles lay down the modes in which the internal matters of the company are to be carried out by its members.
• All rules and regulations framed must not be in contravention with the powers so granted by the Memorandum’^[4]
• In case, there is a conflict between the memorandum and the article, the the memorandum will prevail unless the memorandum is silent or ambiguous on a particular issue, then the articles can be referred to.^[5]
• Nothing in both, the Articles and the Memorandum must be in contravention with the provisions of the Companies Act.

Importance of the Articles of Association

Since, the articles play a very important role in the management of the company, some of the important function it performs are:

1. Payment of underwriting commission with regard to issue of shares and debentures (Section 40)
2. To accept calls in advance from shareholders (Section 50)
3. Payment of dividend proportionate to paid-up amount on shares (Section 51)
4. Issue and Redemption of preference shares (Section 55)
5. Power of limited company to alter its share capital (Section 61)

• Increase Share capital (Sec 61(1)(a))
• To consolidate and divide its share capital into larger amounts than existing shares (Sec 61(1)(b))
• Convert its fully paid up share capital to stock and reconvert that stock into fully paid up shares (Sec 61(1)(c))
• Sub-divide its shares into shares of smaller amount than fixed by the memorandum (Sec 61(1)(d))

6. Issue share warrants to bearers
7. Alter the memorandum by special resolution so as to render the liability of its director unlimited.
8. Have an official seal outside India

Table of Comparison between the sections of Companies Act 1956 & Companies Act 2013 regarding the Default articles of association.^[6]

Changes Brought in by the Companies Act, 2013 with respect to the Articles of Association:^[7]

1. The approval of the Tribunal is required by the alteration which has the effect of converting a public company into a private company.

Whereas, in the previous act (1956), the approval of the Central Government has to be taken.

2. Every alteration, along with the printed copy of the altered articles is required to be filed with the registrar within 15 days of the passing of the special resolution as against one month required under section 31 of the earlier Companies Act, 1956.

Conclusion

The Companies Act, with respect to Articles has not seen too many changes. The sections have been compressed or rearranged in the new act, which has been time and again, vide the MCA notifications.

References

^[1] ‘printed, and computer printing by laser is acceptable, however, no xerox copies will be sufficient’

Selvarajan And Company vs Registrar Of Companies, Madras, 1987 62 CompCas 220 Mad

^[2]http://www.advocatekhoj.com/library/bareacts/companies2013/2.php?Title=Companies%20Act,%202013&STitle=Definitions.

^[3]http://www.advocatekhoj.com/library/bareacts/companies2013/2.php?Title=Companies%20Act,%202013&STitle=Definitions.

^[4] Ashbury Railway Carriage & Iron Company Ltd. v Riche (1875) LR 7 HL 653

^[5] In re Ducan Gilmore & Co. Ltd., (1952) 2 All ER 871

^[6] Companies Act 1956 (Bare Act) and the Companies Act 2013 (Bare Act)

^[7] Companies Act 1956 (Bare Act) and the Companies Act 2013 (Bare Act)

In this article, Brinda Dubey pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, gives structuring advice to an Indian Entrepreneur who wants to expand to Africa.

Expanding one’s business is a desirable object for diversification of its commercial activities beyond national borders to venture into new markets. Logistics, place of Manufacture, marketing and governing policies, financial flows of such entities can be done by construing the entire world as a single market for optimum profitability.Selection of the most appropriate markets is one of the primary, most important initial steps to be taken by an entrepreneur.

Some common modes from which an entrepreneur can choose are Exporting,Licensing and Franchising Management,Contracting,Turnkey Contracts (are common in international business in the supply,erection and commissioning of plants like in the case of oil refineries, steel mills, agreement by the seller to supply a buyer with a facility fully equipped and ready to be operated by the buyer’s personnel, who will be trained by the seller), fully Owned Manufacturing Facilities, Assembly Operations, Joint ventures, Mergers and acquisitions, strategic alliance and counter trade and buying out an existing concern to name a few. It is always open to the entrepreneur to test the international waters through any of these modes before firmly establishing a foothold in the market by establishing a business.

The next important decision is ascertaining the business structure. For deciding upon a business structure your financial position currently and the type of business structure in which on which one is operating assumes great significance.

The type of business structures prevalent in India

• Sole proprietorship
• Partnership
• Public or Private Company
• One Person Company
• Limited Liability Partnership

In addition to these the type of businesses, structures prevalent in Africa are –

• Business Trust
• Personal Liability Company

when one is setting up their business, one of the first decisions they’ll have to make is what kind of legal entity to register. Structure of my business should be keeping mind the potential regulatory issues, tax issues, intellectual property issues that might come up at the same time being mindful about the exit strategy if need be.Tax issues are instrumental in determining the framework of a country’s overseas operations aside from being crucial in the management of the capital and product pricing along with currency control, Understanding how to repatriate money generated overseas.Each business entity has its own pros and cons, in-depth knowledge of all structures is vital and hence is discussed in detail.

Sole proprietorship

Is when a single owner operating and owning the enterprise.It is simple to set up and manage and generally not requiring legal registration. If an entrepreneur plans on working alone, he can start trading in his own name immediately and this type of business structure has appealing tax aspects as one is taxed according to personal income tax rates.However, one runs the risk of their personal assets being seized for a debt or a claim and in this structure hence incurs personal liability. Financial institutions are also often reluctant and vary to advance loans or any financial help. Also, the needs of the business might evolve requiring a much more elaborate structure.

Partnership

A partnership is defined as a relation between two or more persons who have agreed to share the profits of a business carried on by them or any of them acting for all.If a business will be owned and operated by several individuals, an entity can take a look at structuring your business as a partnership., the partners manage the company and assume responsibility for the partnership’s debts and other obligations. In addition, each general partner can act on behalf of the partnership, take out loans and make business decisions that will affect and be binding on all the partners.Establishing Partnerships is a more expensive affair than sole proprietorships as it is more in along the lines of a company in terms of legal compliances and accountability but the personal liability of the partners subsists even if  the Partnership has been sequestrated and all assets sold, a creditor can claim against the personal assets of the individual partners.Even if the partnership firm is a more inexpensive and easier way to set up, this kind of structure whether viable or not depends on the needs of the business.

Types of Partnership in Africa

General/ordinary Partnership: partners liable jointly and severable for the debts of a Partnership.

Anonymous (sleeping) Partnerships: the anonymous partner is not known to the public and liable to the partners for the pro rata share.

Commanditarian Partnership: the partner commandite is purely a financial participant with a restricted liability-similar to a shareholder in a company. He shares in the profits and losses, but his liability is restricted to his specific contribution or an agreed amount (En commandite partnership, similar to limited liability partnership)

Private Company

Mostly for foreign investors a private company is the most suitable option as includes the least amount of annual compliances. The directors do not need not be African residents or nationals. Even though it is Compulsory to register and complex and expensive if a business venture with a potentially high annual turnover and consists of shareholders, a Private Company may be the best option. A private company is seen as a separate juristic person with its own legal identity in the eyes of law which serves as its biggest advantage.Shareholders can not be held personally liable for any debt the company might incur during the course of doing business, or should the business fail.

Business trust

A business trust is defined as a trust where the trustee uses the trust assets to do business for profit in order to benefit the trust beneficiary or to further the aims of the trust. It might just be beneficial to conduct one’s business in this framework as trust protects your assets against personal creditors because the assets of the trust belong to the trust alone. This means that creditors can not claim against your personal assets.The cost of administering a trust is also lesser as less legal requirements have to comply with as opposed to a company, a trust is not required to appoint an auditor, disclose financial statements, pay annual fees to the Registrar, and so on it is even cheaper and easier to dissolve. Taxes are also less complicated.

Personal Liability Company

Advantageous for persons such as attorneys, doctors and accountants, being statutorily prohibited from enjoying limited liability, often incorporate a personal liability company to manage their affairs.As an entrepreneur, the scope is lesser.

Essentials to be kept in mind

Strategy to be employed is radically different due to non-discountable differences in the business environment such as the political environment,nature of the government,legal system,cultural differences (Factors such as language, religion, customs, traditions and beliefs, tastes and preferences, social stratification, social institutions come under this ambit) and most importantly the economic environment including but not limited to nature and level of development of the economy, economic resources, size of the economy, economic systems and economic policies, economic conditions,trends in various economic indicators like national income, per capita income, foreign trade, inflation rate, industry production, etc.

Legislative Provisions governing such expansion in India

In India economic reforms has opened up important avenues for promoting global business by Indian entrepreneurs. The most important legislation is the Foreign Exchange Management Act (FEMA) which has changed the entire perspective on foreign exchange particularly those relating to investment abroad.

In order to make their investments abroad.Indian entities need funds to meet their various capital requirements; to make equity participation in overseas ventures as well as to acquire foreign companies or businesses. Under the Foreign Exchange Management Act (FEMA) and the various notifications issued by the Reserve Bank of India therein, the investments in overseas JVs/WOSs may be funded out of one or more of the following sources:- withdrawal of foreign exchange from an authorized dealer; capitalization of exports and other dues; external commercial borrowings and foreign currency convertible bonds raised abroad as well as through American Depository Receipts (ADRs) and Global Depository Receipts (GDRs).

Safeguard against expansion

Indian entrepreneurs while investing abroad face various commercial and political risks. To ensure safe and successful overseas expansion plans it would be expendient for them to obtain a comprehensive insurance cover against all such risks the same can be obtained from Export Credit Guarantee Corporation of India Limited (ECGC).

Moreover ‘the Arbitration and Conciliation Act, 1996‘ provides a statutory provision for settlement of all commercial disputes of an enterprise without having recourse to the court of law. In India, the relief against the problem of double taxation faced by an entrepreneur while expanding his/her business abroad has also been provided through schemes of bilateral and unilateral relief in the same.

Conclusion

Obtaining the requisites permits, getting the business registered in Africa with its developing economies,investor-friendly policies, vast amount of resources spells out lucrative business opportunities for entrepreneurs looking to supplement their businesses.Countries like Rwanda and Mauritius with its business friendly regulations on getting credit, strengthening minority investor protections,changing labour legislation, easier enforcement of contracts, credit facilities and ease, simpler tax payment, registration of property, can be approached for establishment as well as expansion as they offer huge benefits due to their business attracting regulations with view and subject to the factors as spelt out above in addition to others  to orient and guide such businesses.

References

1. https://www.entrepreneur.com/article/38822
2. http://www.esupportkpo.com/images/Learning%20Pages%20-%20Articles%20-%20Types%20of%20Business%20Structures%20in%20India.pdf
3. http://www.archive.india.gov.in/business/doing_business/oversea_opp.php
4. http://mg.co.za/article/2010-05-17-the-best-structure-for-your-business
5. http://southafrica.smetoolkit.org/sa/en

In this article, B Shiva Ram Sharma  pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Step by step guide to setting up a co-operative society.

Introduction

To form or setup a co-operative society one has to follow certain set rules or guidelines which have to be followed in sequential order which will be dealt in the latter part of this paper, but firstly it is important to ascertain the nature and importance or advantages of forming a society in present scenario over other business structures.

The co-operative movement started because to protect the interests of weaker sections of society. The primary or main objective of this movement is ‘how to protect economically weaker sections of society’ from the middlemen who gain illegally by eating away the major chunk of the profits. In all forms of business structures whether be it is a sole trade, partnership or joint stock company, the primary motive is to increase profits.

The laws governing the societies are “THE co-operative societies act, 1912[1]” which is a central Act formed by the Union with the liberty to the concerned states to form their State Act governing the societies to suit their local conditions but the condition being that it should not be in derogation to the central Act. Many states have enacted their own co-operative society Act and rules there under but more or less the requirements to be met by persons who want to form the society remains the same.

Promotion of its object, self-help and mutual aid are the fundamental principles of co-operation. The objectives of commercial organization and co-operative organizations are fundamentally different. In a commercial organization, earning and maximizing the profits can be the sole motive but whereas in a co-operative organization profit cannot or should not be the sole motive. It should almost in all circumstances conduct itself in a business like a manner in attaining its objectives efficiently.

Laws Applicable to Co-Operative Society

The Cooperative Societies Act, 1912 expanded the sphere of cooperation between its members and provided for supervision by central organization. A cooperative society, which has its object the promotion of the economic interests of its members in accordance with the co-operative principles may be registered with limited or unlimited liability by filing application to the registering authority with requisite documents to be submitted by them

A Co-operative Society has to conduct itself  as  per the following listed below:

1. Co-operative Societies Act under which the same is registered whether it be under state Act or Cental Act.
2. Co-operative Societies rules made there under whether it be central or state rules
3. Bye-laws approved by the registrar at the time of registration and amendments made from time to time and approved by the registrar, these bye-laws have to be formed by the concerned members themselves and present it to the registration authority for its approval.
4. Notification and Orders by the concerned Government

The following steps have to be followed while forming a Co-operative society, they are

Step 1: Ten Individuals together who are desirous of forming a Society

To form a society, law mandates that 10 members minimum must show intention to be part of the society having same aim and objective to be achieved through the society for their mutual benefit and thereby be desirous to be part of it.

Step 2: Provisional Committee to select Chief Promoter

Once a group of individuals have a desire to form a society the next step should be there must be a provisional committee of which everyone is part of and all of them should by mutual consent or by majority whichever their prefer must choose a person who will be a chief promoter of the society which is going to be formed by them.

Step 3: A Name for the Society has to be selected

Thereafter once a chief promoter is selected by set of individuals among them, they have to select a name for the co-operative society which they wish to form

Step 4: Application has to be made to the Registration Authority

Once the name of the society is selected by the members then they have to make a application to the registration authority stating that they have a intention to form a society and the name of the society has to be given to the authority for its approval and registering authority has to confirm that name is in conformity with laws and issue a confirmation certificate to the members. Then when the members get their name approval from the authority it is valid for 3 months from the date of approval.

Step 5: entrance fees and share capital

Thereafter once name approval comes from the concerned authority, the entrance fee and the share capital must be collected from the concerned prospective members to meet the statutory requirements under law and it can be prescribed by the members themselves or society act mandates certain fees to be paid by them.

Step 6: Bank Account

Thereafter once the prescribed fee and share capital is collect from the prospective members, then as per the directions of the registering authority promoter has to open a bank account in the name of the society and deposit the said fees and share capital in that account and a certificate has to be obtained from the bank to that effect

Step 7: Application for registration

Once the bank formalities are completed then the promoter has to apply for the society formation to the registration authority and it has to be accompanied with set of documents, they are

 Form No. A in quadruplicate signed by 90% of the promoter members
1. List of promoter members
2. Bank Certificate
3.  Detailed explanation of working of the society.
4.  Four copies of proposed bye-laws of the society.
5. Proof of payment of registration charges.
6. other documents such as affidavits, indemnity bonds, any documents specified by the Registrar also have to be submitted.

All these documents have to be submitted at the time of applying for registration of the society to the registering authority and the authority after it is satisfied with the documents submitted to it has to apply its mind to whether or not to register the said society.

Step 8: Registrar has to acknowledge

After the submission of the said documents has mentioned in step 7, the registrar of that municipal ward has to enter the particulars in the book called the “register of Application” which is generally specified in form B and give it a serial number to the application. Thereafter the registrar has to issue a receipt to that effect and give it to prospective members to know the status of the application when it is pending.

Then the registrar after perusal of the records submitted to him/her has to make a decision whether has to issue a certificate of registration or not and if there are any discrepancies noticed then he/she has to inform the members of the same and get it rectified if any.

Step 9: Registration

Last step is that the registering authority after being satisfied with the documents meeting the legal requirements will notify the registration of the society in the official gazette mentioned by the state or central government and should issue the registration certificate of the society and give it to the members of the society.

Conclusion

In India, Co-operative Societies were regarded as ideal instruments to motivate the people to come together and help themselves in the process of eliminating the unscrupulous middlemen making a huge profit at the expense of the society.

The main guiding factor if an individual or group of individuals want to form a society must be whether all the concerned members have common goal to achieve or not, it is important factor because only when they share common desire or intention then only society is desirable otherwise the whole purpose of forming a society will be defeated.

Societies like any other business structure come with certain advantages and disadvantages, they are:

Advantages

• Cooperative stores supply quality goods unlike other shops wherein adulterated foods maybe given to its consumers and thus saved them from adulteration and other malpractices.
• As consumers or members of the society are the owners and managers of such stores, genuine requirements of the majority of consumers can be met. In other words, goods required by a majority of the customers or members of the society are always dealt by such stores.
• Cooperative societies are an important form of democratic business enterprise because ownership is not vested in one person completely so as a result, no single group can secure control over the organisation.

Disadvantages

• It only caters to the needs of small and medium-income groups so when there are large group with higher economic interest then it is preferable to choose another business model.
• There is much dependence on the honesty, integrity and loyalty of members and workers and once there are trust issues between the members it is hard to transact business thereafter.
• It is limited to certain objectives hence profits are minimal.
• Management of society usually rests in the hands of people with less managerial experience due to which society will suffer and many do not invest in hiring professionals to handle the society due to lack of funds or interest so henceforth growth of the society maybe put to stake by its own members.

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:  

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

References

[1] https://indiankanoon.org/doc/108006076/

In this article, Prateeksha Gupta discusses the effect of an increase in Foreign Direct Investment in the Insurance sector.

Let us start by understanding what Foreign Direct Investment exactly is.

Foreign Direct Investment would be a direct investment by any corporation in a commercial venture in another country.  It is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring businesses assets in other countries, such as ownership or controlling interest in a foreign company.

Foreign Direct Investment does not mean portfolio investment in which equities of the other company are being purchased, instead, it means the taking of effective control or at least substantial influence over the decision making of a foreign business.
Thus, FDI is the process whereby residents of one country acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country.
Broadly, foreign direct investment includes “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans”.

Now let us understand what Insurance is.

Insurance is an equitable transfer of risk of a loss , from one entity to another in exchange for payment. It is a form of risk management which primarily was used to hedge against the risk of an uncertain and contingent loss.

FOREIGN DIRECT INVESTMENT IN INDIA

Insurance in India is a growing and flourishing industry with both international and national players competing and growing at rapid rate together with Banking and Real Estate, it constitutes 12.9% of Gross Domestic Product (GDP) in India.

Insurance sector was liberalized in 2001. Even after the liberalization of the insurance sector, the public sector insurance companies have continued to dominate the insurance market. They were enjoying 90% of market share. FDI in Insurance sector would increase the penetration of insurance in India. FDI can meet India’s long term capital requirements o fund the buildings and infrastructures.

Aside from being a basic driver of monetary development, foreign direct investment (FDI) is a noteworthy wellspring of non-obligation budgetary asset for the financial advancement of India. Remote organizations put resources into India to exploit generally bring down wages, extraordinary speculation benefits, for example, charge exclusions, and so on.
The government administration has taken numerous activities as of late, for example, unwinding FDI standards crosswise over parts, for example, protection, PSU oil refineries, telecom, control trades, and stock trades, among others.

According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments India received during April – September 2016 rose 30 per cent year-on-year to US$ 21.6 billion, indicating that government’s effort to improve ease of doing business and relaxation in FDI norms is yielding results.

During April – September 2016, India received the maximum FDI equity inflows from Mauritius (US$ 5.85 billion), followed by Singapore (US$ 4.68 billion), Japan (US$ 2.79 billion), (US$ 1.62 billion), and USA (US$ 1.44 billion).

Impact investments in India is expected to grow at a compound annual growth rate (CAGR) of 20-24 per cent to touch US$ 6-8 billion by 2025, from US$ 1 billion in 2015.1[1]

INSURANCE SECTOR IN INDIA

The insurance industry of India consists of 53 insurance companies of which 24 are in life insurance business and 29 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. Apart from that, among the non-life insurers there are six public sector insurers.[2]

ROLE OF FDI IN INSURANCE SECTOR

The role of Foreign Direct Investment in the present world is noteworthy. It acts as a lifeblood in the growth  of the nations.  The wave of liberalization and globalization sweeping across the world has opened many national markets for the international  business.
Insurance sector has the capability to raise long term capital from the public as it is the only market in which people invest their money for a long period of time, say 30 years. An increase in FDI in insurance sector would indirectly be a boom for the Indian Economy.

INCREASE IN FDI

The Cabinet of Narendra Modi has approved the hike of the Foreign Direct Investment in the insurance sector from 26% to 49%. The Parliament has passed Insurance Laws (Amendment) Bill, 2015. It was first passed in Lok Sabha on 4^th March 2015 and later in Rajya Sabha on 12^th March 2015 which becomes an Act as soon as the President signs it.
The Amendment bill aims to bring improvement and revisions in the existing law relating to insurance business in India. Insurance Regulatory and Development Authority (IRDA) is in favor of an increase in foreign equity capital in insurance joint ventures.  The public sector insurance companies have been continuing to dominate the insurance market of the country.

The stock market has reacted positively to the news and the shares of Reliance Capital and Max India gained more than 4.5% in intra-day trade today. The higher FDI cap will immensely help the insurance sector which is extremely short on investments.[3]

BENEFITS OF INCREASE IN FDI

Listed below are some advantages from the increase of foreign direct investment in insurance sector in India from 26% to 49%.

1. Increased Insurance Penetration

With the number of population in more than 100 crores, India requires Insurance more than some other country. Be that as it may, the insurance penetration in the nation is just around 3 percent of our Gross Domestic Product as for general premiums endorsed every year. This is far less when contrasted with Japan which has a insurance penetration of more than 10 percent. Expanded FDI cutoff will fortify the current organizations and will likewise permit the new players to come in, thereby empowering more individuals to purchase life cover.

2. Level Playing Field

With the expansion in foreign direct investment to 49 percent, the insurance agencies will get the level playing field. So far the state claimed Life Corporation of India controls around 70 percent of the life insurance market.

3. Increased Capital Inflow

Most of the private sector insurance companies have been making considerable losses. The increased FDI limit has brought some much needed relief to these firms as the inflow of more than 10,000 crore is expected in the near term. This could go up to 40,000 crore in the medium to long term, depending on how things pan out.

4. Job Creation

With more cash coming in, the insurance agencies will have the capacity to make more employments to meet their objectives of wandering into under guaranteed advertises through enhanced framework, better operations and more manpower.

5. Favorable to the Pension Sector

If the pension bill is passed in the parliament then the foreign direct investment in the pension funds will also be raised to 49 percent. This is because the Pension Fund Regulatory Development Bill links the FDI limit in the pension sector to the insurance sector.

6. Consumer Friendly

The end recipient of this change will be basic men. With more players in this part, there will undoubtedly be rivalry prompting to aggressive quotes, enhanced administrations and better claim settlement proportion.

7. Benefit to the common man & actuaries being

More options from the foreign company (if the same was not already available with Indian). Also now since the capital is more than earlier, the Insurance company can diversify their sectors of Insurance (like Motor, Mortgage, Health etc). Take more risks than earlier since there is more money & more support. More competition leads to better offers, so better benefits for common man.

8. Effect on Economy

More Foreign capital flows into the Indian Economy. Also this more investment will lead to demand for Indian Rupee in International Money Market (Because one has to invest in Rupee in India), there by decrease in Rupee to Dollar rate of exchange. This to a common man will reduce the cost of Imported goods (since the exchange rate is low 1$=40Rs??). Also the Forex reserves will be maintained. As well the market speculation will also play an important role, leading to Sensex hike & better confidence in Business makers in India.  More business will lead to need risk protection & Insurance.

DISADVANTAGES IN THE INCREASE OF FDI

The following are some of the demerits if the FDI gets increased in the insurance sector:

1. Household organizations might expect to get their businesses being taken over by the foreign organizations.
2. Small scale organizations may fear that they might not be able to compete with the Multi National Companies and may therefore, be forced to vacate the market.
3. Such big foreign and Multi National organizations may not be interested in investing in the wages of the local people of the country. Instead they focus on investing more in the machinery, building, and intellectual property.
4. Government has less control over the working of such organizations as they generally work with completely possessed backup of an abroad organization.
5. Our interest rates are today, as high as 14 percent to 16 percent. How do we compare with the economies of the country which have an interest rate of 4 percent.

OVERVIEW OF INSURANCE SECTOR POST PRIVATISATION IN 2000

CONCLUSION

The Insurance division likewise assumes a crucial part in the financial improvement by giving different valuable administrations like preparing reserve funds, intermediating in back, advancing speculation, balancing out monetary markets and overseeing both the social and monetaryhazard.
Understanding the capability of protection segment in activating the investment funds for the profitable utilize and social wellbeing, Government has made different steps to enhance its quality, reach and fame.

With target to give protection cover to all, the Government last year presented Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJBY) to bring more individuals under the insurance cover.
Going ahead, expanding future, good funds and more prominent work in the private division is relied upon to fuel interest for insurance and pension plans. In like manner, solid development in the car industry throughout the following decade would be a key driver for the engine insurance market.

Post capital raising, the insurance segment is required to see more prominent development among main five insurance market on the planet in the following 10 years.

REFERENCES

[1]  http://www.ibef.org/economy/foreign-direct-investment.aspx

[2] http://www.ibef.org/industry/insurance-sector-india.aspx

[3] http://www.india.com/business/6-benefits-of-increased-foreign-direct-investment-limit-in-insurance-sector-101998/

In this article, Arunava Chakraborty pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Due diligence in India – what every entrepreneur needs to know.

Due diligence refers to the procedure of research and investigation that is done before an acquirement, speculation, business association or bank advance in order to decide the value of the subject matter of the due perseverance or whether there are any significant issues or potential issues. The imminent acquirer/financier should get all the vital data within the predetermined time and ensure that he makes a decent arrangement and not a costly mistake.

Due Diligence has to turn out to be a complicated and complex procedure requiring very special skills on which the majority delicate business decisions are founded. As discussed above due diligence involves a complete investigation into associations and strength of a company. The jurisprudence is strongly related with the concept of Notice. A notice can be definite, productive or imputed.

Section – 3 of the Transfer of Property Act provides that “a person is said to have notice” of a fact when they actually know that fact, or when, but for willful abstention from an inquiry or search they ought to have made, or gross disregard, they would have known it.

Thus the act casts a duty to find whether the fact presented is true or not and it presumes that every prudent man before making speculation in any form of property will find whether an understandable identify to such property exists, or whether any debt or litigation is attached to it or whether it is in any form going to prove not to be a wise decision.

Now in the case of big companies and multinational corporations when one company buys or sell any company or its assets the whole canvass is very big; a lot of people, a lot of documents, lot of money is involved and it is here that need for due diligence arises.

Due Diligence is now finding deserved place in Indian Statutes. Some provisions have been introduced for the manner of due diligence under the SEBI Regulations 1996 and offshore offerings of securities by Indian companies through American or global depository receipts (ADRs/GDRs).

Due Diligence is an obligation to take care. Many Indian statutes dealing with economic matters like S. 24 SCRA, 1956, s.53 MRTP, 1969, S.27 SEBI 1992, S.278B IT Act, 1961 contain a section on offenses committed by companies.

The above section has the following proviso:

“Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.”

It implies a specific standard of care. In the Indian context, there is neither a positive statutory duty on the part of the buyer to exercise due diligence nor a criminal liability for a breakdown to exercise due diligence.

Significance of due diligence

It is the procedure of obtaining adequate reliable information about the business body to help to expose any fact, conditions or set of situation that would have a practical possibility of influencing a business decision or the valuable making of an offer, of a consideration and of a price to complete the transaction.

Due Diligence influence decisions such as-

• Whether to make an investment, whether to choose one business partner or another,
• What revelation should be included in an propose document for issue of securities whether scheduled on a stock exchange or else, whether to lend finance to a borrower for a project,
• Whether a party to an agreement is competent of performing its contractual obligations.

Reasons for conducting due diligence

When trading with an Indian company

1. Verification that the business is what it appears to be
2. Identify potential “deal destroyer” defects in the target and avoid a bad business transaction
3. Track records in paying bills, credit-worthiness and supplier worthiness

When partnering with an Indian company

1. Same as above, but also including:
2. Examination of legal scope for compatibility purposes
3. Gain information that will be useful for valuing assets, defining representations and warranties, and/or negotiating price concessions
4. Verification that the transaction complies with investment or acquisition criteria.

Procedures regarding due diligence

There are two ways of conducting due diligence

1. Presentation of predetermined data by the seller/target company in a ‘data room’.
2. Data provided in response to the acquirer’s questionnaire.

Challenges in conducting due diligence

Due diligence does have hurdles like

1. Insufficiency of basic data; this makes going tough
2. Road-blocks to obtaining or sharing proprietary information; and
3. Confidentiality/secrecy covenants may prevent disclosure of material documents.

Benefits of professional due diligence

The benefits of a professional due diligence exercise include:

1. Accuracy of warranties and representations;
2. A ‘big picture’ of the vision of the target company and its future earnings;
3. Complete analysis of the target company;
4. Identification of deal-breaking issues and formulating business solutions to resolve them; and
5. Smooth transition of the merger.

How to get the best result from due diligence exercise

To ensure best results there are certain steps that should be taken into consideration:

1. Clearly, define the objective make firm and clear strategies;
2. Form groups of personnel for project management, data management, core due diligence team and support team;
3. Lay down the terms of reference for each group and formulate procedures for a clear allocation of responsibilities;
4. Observe an integrated approach for the due diligence process and rely on technical consultants’ expertise wherever necessary;
5. Use appropriate technology for the collection, analysis, indexing and retrieval of data;
6. Store the data in electronic form which makes it portable, capable of being transferred to and accessed from remote locations, and providing a single point access to the entire transaction team;
7. Never hesitate to ask questions or seek clarifications;
8. Always insist on plant visits – the on-site conditions contain a wealth of information which would be never be available on paper;
9. Due diligence should be continued until after the transaction is completed; and
10. Take media reports in stride, do not value them too much nor ignore them.

In today’s perplexing business and monetary environment that has seen a few organizations, including probably the most trusted names in the business, bargain on uprightness and getting webbed with the net for fudged accounts, with the purpose to redirect cash and avoid even the best examination, it is progressively imperative for entrepreneurs to demand an intensive due diligence before making the last move.

It is basic for a purchaser or speculator to think about the monetary or legitimate soundness of the organization they are wanting to purchase or put resources into. Due diligence is a crucial apparatus, in light of which financial specialists/purchasers gauge the adequacy of corporate administration and decide on merger or securing, in the wake of approving whether the suppositions and affirmations made by the organization are valid and reasonable.

This basic stride is the thing that empowers the entrepreneurs (purchasers or speculators) go out on taking the leap of faith. It is through due diligence that they can check for any obscure issues, which ought to have been conveyed to their notice before and assess the development prospects of the organization. These essential information sources choose whether the venture or procurement will be beneficial or not. In a few cases, where issues are revealed amid the due tirelessness handle, organizations are advised to put them just before any further moves are made by the speculators.

For Investors Due Diligence to be a cakewalk, the business visionaries need self-control in keeping up the records of the venture, for example, everyday operations archives and points of interest. It is constantly great to part the obligations among the Co-authors for recordkeeping and convenient surveys. This not just helps the business person to keep the due diligence result constructive, but also, in addition,  guarantees that they have day by day information on their fingertips.

To entirety up, the main 10 need errands each entrepreneur ought to religiously take after, regardless of the phase and subject of the venture, keeping in mind the end goal to guarantee finish consistence for Investors Due Diligence, are as follows –

1) Do Indexing of all the marked archives and authority records

2) Keep the records at one safe place

3) Label your records with shading codes and time stamping

4) Do standard and successive executive gatherings

5) Review all the pre-chosen agenda one by one and check if the reports are set up properly at one place.

6) Entrepreneurs ought to know the financials and record them

7) Interact with your Legal Advisor/CA or the monetary expert on general interims

8) As early stage Entrepreneurs, you would not be flawless in procedures, but rather be straightforward in your information and stay honest in your data, being transparent.

9) Never ever conceal or fudge your information from your financial specialist, since you believe it’s not worth sharing.

10) Last however not the slightest; never be ‘Impractical’ or ‘Penny Wise Pound Foolish.’

In this article, Aakash Vijay pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Steps for Forming Private Limited Company in India.

Private limited company is one of the common forms of business structure in India. Some of the major private limited companies in India are Reliance Industries Limited, Tata Consultancy Services (TCS), Infosys Technologies Ltd. and Wipro Limited. In a private limited company the shareholders hold all the shares privately. They may manage the company themselves or hire a director to do so on their behalf. Due to the private holding of shares it has the flexibility if a partnership firm as well as limited liability because it is a company.

This article will be covering the procedural requirements; cost and time required for the incorporation of a private limited company which are as follows:

Step 1: DSC (Digital Signature Certificate)

Basically, it is a digital equivalent of a handwritten signature. It is used to digitally sign documents which are on the internet. It is issued by a licensed Certifying Authority (CA) such as Safescrypt, nic, TCS, (n)code Solutions, e-Mudhra.[1] Generally, a CA takes around 2 to 7 working days (or on same day on fulfillment of terms and condition based on eKYC for Aadhaar holders) to issue a DSC. A DSC is valid for 1 or 2 years.[2]

A digital signature certificate of class 2 is required electronic filing of documents with the registrar of companies (ROC), through the website of the Ministry of Corporate Affairs (MCA). Each proposed director needs to have their own digital signature certificate.

The applicant for the proposed company needs has to fill the standard form issued by certifying authority and the following documents are required:

1. A self-attested colour photograph (affixed on the DSC Form)
2. ID Proof (PAN Card Copy is Mandatory) (attested by a Banker, Gazetted officer or Post Master)
3. Address Proof like (recent electricity bill, voter ID card, passport, etc.)[3]

Cost: A DSC of class-2 for an individual from E-mudra costs INR 1500.[4] There will be at least two directors registering for the incorporation of a company, so the total cost will be INR 3000.

Time required: obtaining a DSC requires around three to four days.

Step 2: DIN (Director Identification Number)

The directors of the proposed company must have an allotted DIN.

Director Identification Number (DIN) is a unique identification number given to an existing or a proposed director of the incorporating Company.[5] Its purpose of the din is to keep complete database of the directors of the incorporated companies. Thus, if they try to cheat anyone through the company they will be traceable.[6]

The following procedure should be followed to apply for DIN through e-Form DIR-3:[7]

1. Fill the E Form DIR-3 off line.
2. Attach the photograph and scanned copy of supporting documents which are as follows:

• Proof of Identity (self-attested pan card copy (mandatory), self-attested copy of passport in case of foreign national.
• Proof of Residence, Self Attested (such as voter ID card, recent electricity bill, bank statement etc.)

3. Along with the supporting documents, verification by the applicant for applying for allotment of Director Identification Number (DIN) shall also be attached. This shall contain the name, father’s name, date of birth, present address and text of declaration and physical signature of the applicant.
4. The e Form shall have to be digitally signed and shall be uploaded on MCA21 portal.
5. Upon upload, the applicant needs to pay the fees for DIR-3 e Form electronically
6. Upon upload and successful payment, Provisional DIN shall be generated.

Cost: cost of a DIN per director is around INR 500 and a total of at least 2 directors are required to obtain a DIN.Thus, the total cost of obtaining a DIN is at least around INR 1000. [8]

Time required: obtaining a DIN requires one day.

Step 3: Name registration

The proposed company needs to register a name with the registrar of companies. A name will help you to have a protected trademark of your company.[9]

The applicant for the proposed company is required to submit form INC -1 for name approval on the MCA 21 portal for the approval of name for the company.

You need to provide to the Registrar on the Form INC 1 at least six different names in order of preference. The conditions required to be fulfilled while deciding a name of the proposed company:[10]

1. The name of your company must not resemble or sound the same with the name of another existing company or a LLP.

The name of a company does not become unique in relation to an existing name if:

• Any prefixes or suffixes are added to it, it is the keywords that must be substantially different.
• The spelling of any of the words is changed and it sounds similar.
• Adding the words private, PVT, company, CO. corp., etc.
• any plural version of any of the words is made
• There are changes in type, letter case, spacing or punctuation marks.
• words are joined or separated
• There is use of a different tense or number of the same meaning.
• There is any addition of an internet related designation, such as .com.
• Or other conditions mentioned in the companies Act, 2013 and related provisions.

2. The name of the company should be in consonance with the principle object of the company as set out in the MOA and must be indicative of the financial activity it will involve in.
3. the proposed name must not:

• Include “British India”.
• Imply association or connection with or patronage or any person held in high esteem or important personnel who occupied or are occupying important positions in government.
• Be a vague or abbreviated name like the first letters of the name of the promoters.
• Be identical to a company dissolved as a result of liquidation before 2 years of such dissolution.
• Be identical to a company which is struck off before the 20 years from the publication of such notice.
• Be similar to some LLP.
• Include the word “state”.
• Be a generic name like “India private limited”.

4. If the name includes words like ‘Stock exchange’, ‘mutual fund’, then there must be declaration submitted by the applicant regarding fulfillment of the requirements mandated by the respective regulator such as SEBI.
5. It the name includes ‘Board’, ‘republic’; it requires the approval from the central government.
6. If the proposed name includes name of any foreign company or any city in a foreign country then it shall be allowed only if the applicant produces any proof of significance of business relations with such foreign country. No company can be incorporated using the name of an enemy country.
7. Words suggesting pan-India or international nature of company such as “international”, “India” etc. shall only be allowed if the company meets the authorized capital requirement.
8. The name of the company should not be misguiding or offensive to any section of the people, or which is undesirable in the opinion of the central government.

Cost: Each application of INC-1 Costs around INR 1000.[11]

Time required: The process takes around ten to fifteen days.

Step 4: Drafting and filing of the constitution of the company (define the purpose of the company).

The proposing company needs to have drafted constitutional documents which are MOA and AOA.

A Memorandum of Association (MOA) defines the company’s relationship with shareholders.

The Articles of Association (AOA) is a document that contains the purpose of the company as well as the duties and responsibilities of its members defined and recorded clearly. [12]

The following requirements must be noted regarding filing of E-Form INC-7:[13]

• The applicant needs to file the E-Form INC-7 within sixty days from the date of application of reservation of name in INC-1.
• In case the address of correspondence is same as the address of registered office of the company then the E-Form DIR-12 and E-form INC-22 should be filed together.

Then the company needs to file the form INC-7 for registration of the company along with evidence of payment of stamp duty and signed copy of the moa and AOA.

Cost: The cost of registering a MOA is INR 2000, an AOA is INR 300 and from INC-7 is INR 300.

Step 5: The applicant needs to submit the particulars of the proposed company’s first directors, managers and secretary of the company, i.e., the key managerial personnel of the company with the registrar at the time of incorporation of the company by filing the e-form DIR -12. Submission of the interest of the directors in other corporate body and their consent to act as a director of the company are included in the form.

Cost: The cost for filing DIR-12 is INR 300.

Step 6: Filing of form INC 22.The proposed company shall have a registered office within 15 days of its incorporation and then within 30 days from the date of incorporation the applicant needs to file INC-22 for notifying the situation of registered office.[14]

Cost: The cost for filing the form INC-22 is INR 300. Stamp duty charges for MOA, AOA and Form INC-7 depends on the state of registration. It is usually around INR 700[15]

Time required: The total time required for steps 4, 5 and 6 is ten to fifteen days.

Or INC- 29:

Instead of separately filing different e-Forms an applicant can apply using Form INC-29, an integrated e-Form which deals with incorporation of a new company and /or application for the following purposes,

• Obtaining DIN
• approval often name of the company
• registration of the company along with the memorandum of association and articles of association
• intimation of registered office
• appointment of directors
• PAN and TAN registration
• Employer registration under ESIC Act

The documents required for this form are same as stated (except the PAN and TAN registration and Employer registration under ESIC Act which is not covered in this article) under the individual forms of corresponding purposes.

Cost: The cost of filing the form INC-29 is INR 2000.

Step 5: Finally, Incorporation.

The Registrar of Companies issues a certificate of incorporation and a Corporate Identity Number (CIN) after the examination of all the above documents. After this a private company becomes entitled to run its business.

The total cost of incorporating a company will range from Other than the cost mentioned above will range from INR 9500 to INR 10000 if done without form INC- 29. Additionally, the professional fee of Chartered Accountant will range from INR 5,000 to INR 15,000 which depends on the area and expertise.[16]

References

[1] ICSI- Incorporation of company (August, 2015 edition)

[2] ICSI- Incorporation of company (August, 2015 edition

[3] ICSI- Incorporation of company (August, 2015 edition)

[4] e-mudra website.

[5] ICSI- Incorporation of company (August, 2015 edition)

[6] http://www.startupfreak.com/what-is-director-identification-number-din-how-to-get-din/

[7] ICSI- Incorporation of company (August, 2015 edition)

[8] leagaladda.myonlineca.in

[9]https://blog.ipleaders.in/how-to-name-a-company-in-india-a-simple-guide-on-company-registration-and-trademarking/

[10] DEABL study material and https://www.indiafilings.com/learn/naming-guidelines-per-companies-act-2013/

[11] leagaladda.myonlineca.in

[12] Wikipedia

[13] ICSI Incorporation of company, August,2015 edition

[14] ICSI incorporation of company, August 2015 Edition

[15] leagaladda.myonlineca.in

[16] leagaladda.myonlineca.in

Introduction

Awareness about mediation has always been the key challenge in India. According to a survey conducted by Daksh, more than 54 percent of the people in India are not aware about the existence of mediation We have taken up an initiative to combat this challenge and we need your support for the same.

The first of its kind in India, Indian Mediation Week (http://indianmediationweek.com/) is a pan-India mediation awareness initiative, organized by West Bengal National University of Juridical Sciences (WBNUJS), Kolkata and ODRways with the support of the Ministry of Law and Justice, Government of India, and  Supreme Court Mediation and Conciliation Project Committee (MCPC). The main objective of this initiative is to take the message of mediation to the common man of India.

NATIONAL IMPACT

Indian Mediation Week has partnered with some of the most active and eminent organizations in the field of Mediation such as Federation of Indian Chambers of Commerce and Industry (FICCI), International Centre for Alternative Dispute Resolution (ICADR), Centre for Advanced Mediation Practice, Delhi Dispute Resolution Society, Prerna Foundation, Peace Keeping and Conflict Resolution Team and International Mediations Organization.

Mediation drives, seminars, trainings and various other mediation events are being conducted across various cities in India. Mediation ‘Awareness Drives’ is one of the flagship events of IMW. The students of WBNUJS have conducted such drives in 31 areas across Kolkata, directly engaging with more than 4000 people about mediation and receiving around 105 disputes. The other cities that have undertaken mediation awareness drives currently are Delhi, Chandigarh, Gwalior, Jalandhar, Chennai, Bangalore, Dehradun, Guwahati, Jaipur, Gandhinagar and Mumbai. Spreading awareness amongst a different audience, Army Public School in Bangalore has conducted a Conflict Resolution Program for teenagers, Indian Mediation Organization has set up voting clinics for the Global Pound Conference in Chennai and Delhi. Peace and Conflict Resolution Team (PACT) are conducting Mediation bootcamps in Goa and Delhi. Indian National Bar Association has taken up mediation awareness activities both in Pune and Delhi.  Teach for India has extended support for this cause of access to justice in India and will be conducting mediation awareness drives for the parents whose children are associated with their classes. Network for International Law Students (NILS) will also be conducting mediation awareness drives in the National Capital Region.

Mediation Awareness Drives across India

There is a strong social media campaign being run for mediation on the theme of “Suljhao Magar Pyaar Se” which has seen support from the former law minister Mr. Salman Khurshid and the Hon’ble  Justice Madan Lokur. Mediators from all across India are sending videos to show their support for the cause of mediation.

To give a boost to the private mediation culture, ODRways, an online mediation platform recognized by  Ministry of Law and Justice, Government of India is running a “Make mediation accessible” campaign. It’s an online platform which connects people to mediators within 24 hours of filing a dispute. 60 mediators from 20 cities across India have already registered on the platform.  Mediators can register for free on the platform here. https://odrways.com/domain/register.php

Indian Mediation Week aims to organize mediation awareness activities across the year. They have also collaborated with Indian Institute of Corporate Affairs to nominate an independent Jury for recognizing the contributions of top ten individuals in the field of mediation in India. The top ten individuals will be felicitated by NUJS, as part of the Indian Mediation Week project. This ceremony will tentatively be held in January 2017. (http://www.mediationiica.in/)

INTERNATIONAL SUPPORT

One of the most heartwarming parts of this student run initiative was the support that we have been receiving not only from India but internationally as well. Young Mediators Initiative of International Mediation Institute has extended their support for IMW. The event has also received international recognition from luminaries including Mr. Daniel Erdmann, Founder, World Mediation Organization, ADR-ODR London to Mediators in South Korea, Australia, USA etc.

(Suljhao Magar Pyaar Se)

WHAT’S HAPPENING DURING IMW?

Day 1 – 11^th September

• Opening ceremony
• Workshop conducted by Centre for Advanced Mediation Practice (CAMP) called ‘Advocacy in Mediation’ for students.
• Flash Mob

Day 2 – 12^th September

• Workshop conducted by Centre for Advanced Mediation Practice (CAMP) called ‘Advocacy in Mediation’ for lawyers.
• Football match: Lawyers vs Students

Day 3 – 13^th September

• Mediation Accreditation Training Program by ADR-ODR International (Day 1 of the 40-hour training program)
• Mediation awareness seminar for the Start-up Community of Kolkata.

Day 4 – 14^th September

• Day 2 of the 40-hour training program by ADR-ODR International
• Mediation awareness program for the Calcutta Electrical Traders Association.

Day 5 – 15^th September

• Day 3 of the 40-hour training program by ADR-ODR International.
• Mediation awareness program for the Rotary/ Inner wheel club, Kolkata

Day 6- 16^th September

• Day 4 of the 40-hour training program by ADR-ODR International.
• Street plays across Kolkata for mediation awareness

Day 7 – 17^th September

• Day 5 of the 40-hour training program by ADR-ODR International.
• Closing Ceremony and dinner

CONTACT US

For more details, check out-www.indianmediationweek.com

For any queries feel free to get in touch with us at [email protected]

Pranjal Sinha +91-7337030883 and Akshetha Ashok +91-9620606424.