The Hindu Business Line : Grooming in law for wannabe secretaries

THE economic, labour and industrial laws paper of the ICSI (Intermediate) examination (new syllabus) is wide in its sweep. Besides laws relating to pollution control, consumers protection and intellectual property rights, the course content comprises important pieces of economic legislation such as the MRTP Act, the Industries Act, the Foreign Exchange Management Act and the Foreign Contribution (Regulation) Act. There is a compulsory component of 25 marks on labour and industrial laws.

The syllabus is vast, equivalent to two papers virtually. The candidates are expected to have sound knowledge of the enactments contained therein. Practical problems are set based on decided case law incorporated in the study material and reported in the Student Chartered Secretary. The candidates must be well-prepared, lest they end up not making the grade and wasting six precious months.

Here are the model answers to the June 2003 examination:

Short notes

RESTRICTIONS on the acceptance of foreign hospitality under the Foreign Contribution (Regulation) Act, 1976: Section 9 of the Foreign Contribution (Regulation) Act, 1976 prohibits acceptance of foreign hospitality by member of a Legislature, office-bearer of a political party, judge, government servant or employee of a corporation while visiting any country or territory outside India without prior approval of the Central Govt. Contravention is punishable under Section 23(2) with imprisonment which may extend to three years or with fine or with both.

Trade practice: Section 2(u) of the MRTP Act provides that trade practice means any practice relating to the carrying on of any trade and includes i) anything done by any person which controls or affects the price charged by, or the method of trading of, any trader or any class of traders; ii) a single or isolated action of any person in relation to any trade.

Powers of the MRTP Commission to punish for contempt under the MRTP Act, 1969: The MRTP Commission has been vested with wide powers to ensure compliance of its orders. Section 13 B of the Act confers powers on the Commission to punish for contempt. Refer study material.

Environmental clearances for setting up an industrial project under the Industries (Development and Regulation) Act, 1951: Entrepreneurs are required to obtain statutory clearances relating to pollution control and environment for the setting up of an industrial project. A notification issued under the Environment Protection Act, 1986 lists 29 projects in respect of which environmental clearances need to be obtained. These include petro-chemical complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilisers, dyes, paper, and so on.

Some exemptions are, however, granted if investment is less than Rs 50 crore or where items are reserved for the small-scale sector and investment is less than Rs 1 crore.

Case discussion

RAJEEV suffered a loss of Rs 10,000 on account of an unfair trade practice indulged by Bigie Ltd. He instituted proceedings under the MRTP Act, 1969 and the MRTP Commission granted the compensation prayed for. The company wants to prefer an appeal against the MRTP Commission's order. Advise the company as to how it should proceed.

Section 55 provides that any person aggrieved by any decision or order of the MRTP Commission may prefer an appeal to the Supreme Court within 60 days of the date of the order on one or more grounds mentioned in Section 100 of the Code of Civil Procedure 908. However, no appeal can be made against pecuniary compensation awarded by the MRTP Commission.

ii) A shoe manufacturer is offering its products to its customers at price less than its cost of production.

The practice of selling products below the cost of production so as to eliminate a competitor or competition is called predatory pricing and amounts to restrictive trade practice under Section 33 (1) (j) of the Act.

iii) A pharmaceutical company producing certain healthcare products also markets anti-typhoid capsules manufactured by another company under its own brand name. It maintains that the manufacture by the other company was strictly in accordance with the technical knowhow and quality control laid down by it.

No, it does not amount to an unfair trade practice. In DGIR vs Glaxo Labs, where Glaxo marketed cephalexin capsules manufactured by another company but in accordance with technical knowhow and quality control standards laid down by Glaxo, it was held not to be an unfair trade practice.

iv) Help Line, a voluntary organisation providing succour to the destitute, has been offered a grant of $5,000 by a trust in the US. What are the circumstances under which the Central Government can prohibit Help Line from receiving the said contribution? Is the Government required to serve a show-cause notice before issuing the order?

Help Line can be prohibited by the Centre under Section 10 of the Act if it is satisfied that the receipt of foreign contribution is likely to affect prejudicially i) the sovereignty and integrity of India, or ii) the public interest; or iii) freedom or fairness of election to any Legislature; iv) friendly relations with any foreign state; v) harmony between religions, social, linguistic or regional groups, castes or communities.

However, it has been held in Association of Voluntary Agencies for Rural Development vs. Union of India that any order under Section 10 is required to be passed on objective material and facts disclosed by the organisation.

v) Ramesh, a person resident outside India, has sold shares in India and is interested in repatriating the sale proceeds.

Ramesh can repatriate the sale proceeds of the shares provided the security has been sold on a recognised stock exchange in India through a stock broker at the ruling market price as determined on the floor of the exchange or the RBI's approval has been obtained in other cases and remittance of the sale proceeds thereof and no objection or tax clearance certificate has been obtained from the income-tax authorities.

vi) Suresh, a person resident in India, wants to acquire immovable property outside India.

Suresh may acquire immovable property outside India by way of gift or inheritance from a person who was resident outside India or who is a national of a foreign state or such property was acquired by him on or before July 8, 1947, and continued to be held by him with the permission of the RBI. Suresh may acquire immovable property outside India by way of purchase out of foreign exchange held in foreign currency accounts.

vii) Mega Ltd has contravened the provisions of the Foreign Exchange Management Act, 1999. The company secretary has been held liable for the contravention. Refer to Section 42 of the Foreign Exchange Management Act, 1999.

viii) Rama Ltd, a company incorporated in India, is required to issue shares on rights basis to Dharmendra, a person resident outside India.

Rama Ltd may issue shares on rights basis provided i) the offer does not result in increase in the percentage of foreign equity already approved or permissible under the foreign direct investment scheme; ii) existing shares or debentures against which shares or debentures are issued by the company on right basis were acquired and are held by the person resident outside India in accordance with the FEMA regulations; and iii) the offer on right basis to the persons resident outside India is at a price which is not lower than that at which the offer is made to resident shareholders.

ix) Jamil and Co., a partnership firm, registered under the Indian Partnership Act, 1932 and engaged in rendering professional services, is interested in making investment in a foreign partnership concern engaged in similar professional services.

Jamil & Co can make investment in foreign concerns engaged in similar activities by way of remittance from India and or capitalisation of fees or other entitlements due to it from such foreign concerns.

Such investment should not exceed $1 million or its equivalent in one financial year and also such Indian firm should be a member of a professional body.

(To be concluded)

(Suggested answers to the June 2003 ICSI (Intermediate) paper on economic, labour and industrial laws.)

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