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201 | On and from June 1, 2016, the erstwhile Company Law Board (“CLB”) constituted under the Companies Act, 1956, was dissolved and the NCLT and NCLAT were constituted in its place under the Companies Act, 2013 (which replaced the Companies Act, 1956).The purpose of the NCLT and NCLAT is to avoid multiplicity of litigation before various forums (such as High Courts, the erstwhile Company Law Board (“CLB”), Board for Industrial & Financial Reconstruction (“BIFR”), Appellate Authority for Industrial & Financial Reconstruction (“AAIFR”), and instead to consolidate all corporate jurisdiction into one forum. So for instance, all matters relating to schemes of compromise, arrangement, amalgamation and r e c o n s t r u c t io n , in s o l v e n c y a n d bankruptcy proceedings, shareholders disputes relating to oppression, mismanagement etc., are now heard by the NCLT, with appeals being heard by the NCLAT (instead of a High Court).The jurisdiction of the NCLT / NCLAT is exclusive and the Companies Act, 2013 mandates that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matterwhich the said Tribunals are empowered to determine. The NCLT thus also reduces the burden of District Courts and High Courts which have huge backlogs and frees up judges to hear other matters. |
202 | On and from June 1, 2016, the erstwhile Company Law Board (“CLB”) constituted under the Companies Act, 1956, was dissolved and the NCLT and NCLAT were constituted in its place under the Companies Act, 2013 (which replaced the Companies Act, 1956).The purpose of the NCLT and NCLAT is to avoid multiplicity of litigation before various forums (such as High Courts, the erstwhile Company Law Board (“CLB”), Board for Industrial & Financial Reconstruction (“BIFR”), Appellate Authority for Industrial & Financial Reconstruction (“AAIFR”), and instead to consolidate all corporate jurisdiction into one forum. So for instance, all matters relating to schemes of compromise, arrangement, amalgamation and r e c o n s t r u c t io n , in s o l v e n c y a n d bankruptcy proceedings, shareholders disputes relating to oppression, mismanagement etc., are now heard by the NCLT, with appeals being heard by the NCLAT (instead of a High Court).The jurisdiction of the NCLT / NCLAT is exclusive and the Companies Act, 2013 mandates that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matterwhich the said Tribunals are empowered to determine. The NCLT thus also reduces the burden of District Courts and High Courts which have huge backlogs and frees up judges to hear other matters.The NCLT has its Principal Bench in New Delhi and 15 other Benches across India.17 The NCLAT has its Principal Bench in New Delhi and one other Bench in Chennai. |
203 | The purpose of the NCLT and NCLAT is to avoid multiplicity of litigation before various forums (such as High Courts, the erstwhile Company Law Board (“CLB”), Board for Industrial & Financial Reconstruction (“BIFR”), Appellate Authority for Industrial & Financial Reconstruction (“AAIFR”), and instead to consolidate all corporate jurisdiction into one forum. So for instance, all matters relating to schemes of compromise, arrangement, amalgamation and r e c o n s t r u c t io n , in s o l v e n c y a n d bankruptcy proceedings, shareholders disputes relating to oppression, mismanagement etc., are now heard by the NCLT, with appeals being heard by the NCLAT (instead of a High Court).The jurisdiction of the NCLT / NCLAT is exclusive and the Companies Act, 2013 mandates that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matterwhich the said Tribunals are empowered to determine. The NCLT thus also reduces the burden of District Courts and High Courts which have huge backlogs and frees up judges to hear other matters.The NCLT has its Principal Bench in New Delhi and 15 other Benches across India.17 The NCLAT has its Principal Bench in New Delhi and one other Bench in Chennai.All proceedings pending before the BIFR and the AAIFR, constituted under the Sick Industrial Companies (Special Provisions) Act, 1985 (which was also repealed in 2016)), stand abated, although the concerned company in respect of which such proceeding stands abated, has the liberty of initiating fresh proceedings before the NCLT under the Insolvency and Bankruptcy Code, 2016. |
204 | The jurisdiction of the NCLT / NCLAT is exclusive and the Companies Act, 2013 mandates that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matterwhich the said Tribunals are empowered to determine. The NCLT thus also reduces the burden of District Courts and High Courts which have huge backlogs and frees up judges to hear other matters.The NCLT has its Principal Bench in New Delhi and 15 other Benches across India.17 The NCLAT has its Principal Bench in New Delhi and one other Bench in Chennai.All proceedings pending before the BIFR and the AAIFR, constituted under the Sick Industrial Companies (Special Provisions) Act, 1985 (which was also repealed in 2016)), stand abated, although the concerned company in respect of which such proceeding stands abated, has the liberty of initiating fresh proceedings before the NCLT under the Insolvency and Bankruptcy Code, 2016.Orders of the NCLT are appealable to the NCLAT. Additionally, the NCLAT also hears appeals against orders passed by the Insolvency and Bankruptcy Board of India, the Competition Commission of India and the National Financial Reporting Authority. An order from the NCLAT can be appealed to the Supreme Court if it is in respect of a question of law. |
205 | which the said Tribunals are empowered to determine. The NCLT thus also reduces the burden of District Courts and High Courts which have huge backlogs and frees up judges to hear other matters.The NCLT has its Principal Bench in New Delhi and 15 other Benches across India.17 The NCLAT has its Principal Bench in New Delhi and one other Bench in Chennai.All proceedings pending before the BIFR and the AAIFR, constituted under the Sick Industrial Companies (Special Provisions) Act, 1985 (which was also repealed in 2016)), stand abated, although the concerned company in respect of which such proceeding stands abated, has the liberty of initiating fresh proceedings before the NCLT under the Insolvency and Bankruptcy Code, 2016.Orders of the NCLT are appealable to the NCLAT. Additionally, the NCLAT also hears appeals against orders passed by the Insolvency and Bankruptcy Board of India, the Competition Commission of India and the National Financial Reporting Authority. An order from the NCLAT can be appealed to the Supreme Court if it is in respect of a question of law. |
206 | The NCLT has its Principal Bench in New Delhi and 15 other Benches across India.17 The NCLAT has its Principal Bench in New Delhi and one other Bench in Chennai.All proceedings pending before the BIFR and the AAIFR, constituted under the Sick Industrial Companies (Special Provisions) Act, 1985 (which was also repealed in 2016)), stand abated, although the concerned company in respect of which such proceeding stands abated, has the liberty of initiating fresh proceedings before the NCLT under the Insolvency and Bankruptcy Code, 2016.Orders of the NCLT are appealable to the NCLAT. Additionally, the NCLAT also hears appeals against orders passed by the Insolvency and Bankruptcy Board of India, the Competition Commission of India and the National Financial Reporting Authority. An order from the NCLAT can be appealed to the Supreme Court if it is in respect of a question of law. |
207 | 17 As of April 2023, 16 Benches of NCLT, have been set up: two at New Delhi (being the Principal bench and the New Delhi Bench) and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, Jaipur, Kochi, Cuttack, Amaravati, Indore and Mumbai.44.Proceedings under the Insolvency and Bankruptcy Code, 2016 (“IBC”)IBC was enacted with a view to c o n s o l id a t e t h e r e g im e f o r r e - organization and insolvency resolution of corporate persons, partnership firms and individuals18 in a time bound manner (180 days extendable to 270 days, although practically most cases take much longer), reduce stressed assets and enhance credit availability in the market. |
208 | Proceedings under the Insolvency and Bankruptcy Code, 2016 (“IBC”)IBC was enacted with a view to c o n s o l id a t e t h e r e g im e f o r r e - organization and insolvency resolution of corporate persons, partnership firms and individuals18 in a time bound manner (180 days extendable to 270 days, although practically most cases take much longer), reduce stressed assets and enhance credit availability in the market.The NCLT has exclusive jurisdiction over all proceedings arising under the IBC, such as applications for insolvency / liquidation, schemes for reconstruction, amalgamation and revival plans for financially distressed companies etc. Any ‘financial creditor’, ‘operational creditor’ or ‘corporate debtor’ is entitled to initiate the Corporate Insolvency Resolution Process (“CIRP”). The IBC also provides for voluntary liquidation by a corporate entity.Under the Companies Act, 2013 a comp any may b e wound up and liquidated by the NCLT, if: |
209 | IBC was enacted with a view to c o n s o l id a t e t h e r e g im e f o r r e - organization and insolvency resolution of corporate persons, partnership firms and individuals18 in a time bound manner (180 days extendable to 270 days, although practically most cases take much longer), reduce stressed assets and enhance credit availability in the market.The NCLT has exclusive jurisdiction over all proceedings arising under the IBC, such as applications for insolvency / liquidation, schemes for reconstruction, amalgamation and revival plans for financially distressed companies etc. Any ‘financial creditor’, ‘operational creditor’ or ‘corporate debtor’ is entitled to initiate the Corporate Insolvency Resolution Process (“CIRP”). The IBC also provides for voluntary liquidation by a corporate entity.Under the Companies Act, 2013 a comp any may b e wound up and liquidated by the NCLT, if:the company has passed a special resolution that it should be wound up by the Tribunal, i.e. a voluntary liquidation; |
210 | IBC was enacted with a view to c o n s o l id a t e t h e r e g im e f o r r e - organization and insolvency resolution of corporate persons, partnership firms and individuals18 in a time bound manner (180 days extendable to 270 days, although practically most cases take much longer), reduce stressed assets and enhance credit availability in the market.The NCLT has exclusive jurisdiction over all proceedings arising under the IBC, such as applications for insolvency / liquidation, schemes for reconstruction, amalgamation and revival plans for financially distressed companies etc. Any ‘financial creditor’, ‘operational creditor’ or ‘corporate debtor’ is entitled to initiate the Corporate Insolvency Resolution Process (“CIRP”). The IBC also provides for voluntary liquidation by a corporate entity.Under the Companies Act, 2013 a comp any may b e wound up and liquidated by the NCLT, if:the company has passed a special resolution that it should be wound up by the Tribunal, i.e. a voluntary liquidation;the company has acted against the interests of the sovereignty and integrity of India, public order, decency or morality; |
211 | The NCLT has exclusive jurisdiction over all proceedings arising under the IBC, such as applications for insolvency / liquidation, schemes for reconstruction, amalgamation and revival plans for financially distressed companies etc. Any ‘financial creditor’, ‘operational creditor’ or ‘corporate debtor’ is entitled to initiate the Corporate Insolvency Resolution Process (“CIRP”). The IBC also provides for voluntary liquidation by a corporate entity.Under the Companies Act, 2013 a comp any may b e wound up and liquidated by the NCLT, if:the company has passed a special resolution that it should be wound up by the Tribunal, i.e. a voluntary liquidation;the company has acted against the interests of the sovereignty and integrity of India, public order, decency or morality;if the NCLT believes that it is just and equitable that the company should be wound up; |
212 | Under the Companies Act, 2013 a comp any may b e wound up and liquidated by the NCLT, if:the company has passed a special resolution that it should be wound up by the Tribunal, i.e. a voluntary liquidation;the company has acted against the interests of the sovereignty and integrity of India, public order, decency or morality;if the NCLT believes that it is just and equitable that the company should be wound up;the affairs of the company have been conducted in a fraudulent manner; or, the company was for med for fraudulent and unlawful purpose or the persons concerned in its formation or management have been guilty of fraud, misfeasance or misconduct in connection therewith; orif the company has made a default in filing with the Registrar of Companies its financial statements or annual returns for immediately preceding 5 consecutive financial years. |
213 | 18 As of April 2023, the provisions for insolvency resolution of individuals and partnership firms have only been notified qua personal guarantors of corporate debtors (and not for other individuals and partnership firms).45..A financial default of at least INR 10 million can trigger the CIRP.19 Upon an application for CIRP being admitted by the NCLT, all other legal proceedings are automatically stayed by a moratorium period of 180 days, extendable by a further 90 days. The declaration of moratorium on the company prohibits any institution or continuation of l itigation against the concerned company, mandates maintenance of status quo of the assets by the company including prohibition on any transferring, encumbering, alienating or disposing of such assets and requires the creditors to refrain from enforcing any security interest against the corporate debtor. |
214 | A financial default of at least INR 10 million can trigger the CIRP.19 Upon an application for CIRP being admitted by the NCLT, all other legal proceedings are automatically stayed by a moratorium period of 180 days, extendable by a further 90 days. The declaration of moratorium on the company prohibits any institution or continuation of l itigation against the concerned company, mandates maintenance of status quo of the assets by the company including prohibition on any transferring, encumbering, alienating or disposing of such assets and requires the creditors to refrain from enforcing any security interest against the corporate debtor.During the statutory moratorium period, an Interim Resolution Professional (and t h e r e a f t e r a f i n a l R e s o l u t i o n Professional), is appointed and a Creditors Committee ( comprising f i n a n c i a l c r e d i t o r s , s e c u r e d o r unsecured), is constituted to decide (with at least 66% majority) on a revival plan, if revival is possible, of the corporate debtor. The Resolution Professional manages the affairs of the corporate debtor and operates its business as a going concern under the broad directions of the Creditors’ Committee. Operational creditors do not possess the right to participate in the resolution process and the decision of the Creditors’ Committee is binding on them. Once approved by the NCLT, the plan is binding on all stakeholders; the corporate debtor, its |
215 | A financial default of at least INR 10 million can trigger the CIRP.19 Upon an application for CIRP being admitted by the NCLT, all other legal proceedings are automatically stayed by a moratorium period of 180 days, extendable by a further 90 days. The declaration of moratorium on the company prohibits any institution or continuation of l itigation against the concerned company, mandates maintenance of status quo of the assets by the company including prohibition on any transferring, encumbering, alienating or disposing of such assets and requires the creditors to refrain from enforcing any security interest against the corporate debtor.During the statutory moratorium period, an Interim Resolution Professional (and t h e r e a f t e r a f i n a l R e s o l u t i o n Professional), is appointed and a Creditors Committee ( comprising f i n a n c i a l c r e d i t o r s , s e c u r e d o r unsecured), is constituted to decide (with at least 66% majority) on a revival plan, if revival is possible, of the corporate debtor. The Resolution Professional manages the affairs of the corporate debtor and operates its business as a going concern under the broad directions of the Creditors’ Committee. Operational creditors do not possess the right to participate in the resolution process and the decision of the Creditors’ Committee is binding on them. Once approved by the NCLT, the plan is binding on all stakeholders; the corporate debtor, itsemployees, shareholders, members, guarantors and creditors. The NCLT is vested with the discretion to finally approve or reject the resolution plan. |
216 | A financial default of at least INR 10 million can trigger the CIRP.19 Upon an application for CIRP being admitted by the NCLT, all other legal proceedings are automatically stayed by a moratorium period of 180 days, extendable by a further 90 days. The declaration of moratorium on the company prohibits any institution or continuation of l itigation against the concerned company, mandates maintenance of status quo of the assets by the company including prohibition on any transferring, encumbering, alienating or disposing of such assets and requires the creditors to refrain from enforcing any security interest against the corporate debtor.During the statutory moratorium period, an Interim Resolution Professional (and t h e r e a f t e r a f i n a l R e s o l u t i o n Professional), is appointed and a Creditors Committee ( comprising f i n a n c i a l c r e d i t o r s , s e c u r e d o r unsecured), is constituted to decide (with at least 66% majority) on a revival plan, if revival is possible, of the corporate debtor. The Resolution Professional manages the affairs of the corporate debtor and operates its business as a going concern under the broad directions of the Creditors’ Committee. Operational creditors do not possess the right to participate in the resolution process and the decision of the Creditors’ Committee is binding on them. Once approved by the NCLT, the plan is binding on all stakeholders; the corporate debtor, itsemployees, shareholders, members, guarantors and creditors. The NCLT is vested with the discretion to finally approve or reject the resolution plan.Alternatively, if during the insolvency resolution process, the resolution professional informs the NCLT that the Committee of Creditors has not been able to agree on a resolution plan or has decided to liquidate the corporate debtor/ concerned company, the NCLT may then pass an order for such liquidation. |
217 | A financial default of at least INR 10 million can trigger the CIRP.19 Upon an application for CIRP being admitted by the NCLT, all other legal proceedings are automatically stayed by a moratorium period of 180 days, extendable by a further 90 days. The declaration of moratorium on the company prohibits any institution or continuation of l itigation against the concerned company, mandates maintenance of status quo of the assets by the company including prohibition on any transferring, encumbering, alienating or disposing of such assets and requires the creditors to refrain from enforcing any security interest against the corporate debtor.During the statutory moratorium period, an Interim Resolution Professional (and t h e r e a f t e r a f i n a l R e s o l u t i o n Professional), is appointed and a Creditors Committee ( comprising f i n a n c i a l c r e d i t o r s , s e c u r e d o r unsecured), is constituted to decide (with at least 66% majority) on a revival plan, if revival is possible, of the corporate debtor. The Resolution Professional manages the affairs of the corporate debtor and operates its business as a going concern under the broad directions of the Creditors’ Committee. Operational creditors do not possess the right to participate in the resolution process and the decision of the Creditors’ Committee is binding on them. Once approved by the NCLT, the plan is binding on all stakeholders; the corporate debtor, itsemployees, shareholders, members, guarantors and creditors. The NCLT is vested with the discretion to finally approve or reject the resolution plan.Alternatively, if during the insolvency resolution process, the resolution professional informs the NCLT that the Committee of Creditors has not been able to agree on a resolution plan or has decided to liquidate the corporate debtor/ concerned company, the NCLT may then pass an order for such liquidation.Secured creditors have the right to either, relinquish their security interest and receive proceeds from the sale of assets by the liquidator, or to realize their security interest independently, although it may approach the NCLT to facilitate the realization of the security interest if required. |
218 | During the statutory moratorium period, an Interim Resolution Professional (and t h e r e a f t e r a f i n a l R e s o l u t i o n Professional), is appointed and a Creditors Committee ( comprising f i n a n c i a l c r e d i t o r s , s e c u r e d o r unsecured), is constituted to decide (with at least 66% majority) on a revival plan, if revival is possible, of the corporate debtor. The Resolution Professional manages the affairs of the corporate debtor and operates its business as a going concern under the broad directions of the Creditors’ Committee. Operational creditors do not possess the right to participate in the resolution process and the decision of the Creditors’ Committee is binding on them. Once approved by the NCLT, the plan is binding on all stakeholders; the corporate debtor, itsemployees, shareholders, members, guarantors and creditors. The NCLT is vested with the discretion to finally approve or reject the resolution plan.Alternatively, if during the insolvency resolution process, the resolution professional informs the NCLT that the Committee of Creditors has not been able to agree on a resolution plan or has decided to liquidate the corporate debtor/ concerned company, the NCLT may then pass an order for such liquidation.Secured creditors have the right to either, relinquish their security interest and receive proceeds from the sale of assets by the liquidator, or to realize their security interest independently, although it may approach the NCLT to facilitate the realization of the security interest if required.The entire liquidation process should be completed within 1 year. After the assets of the corporate debtor have been completely liquidated, the liquidator makes an application to the NCLT for the dissolution of the corporate debtor and the NCLT passes an order declaring that the corporate debtor stands dissolved from the date of such order. |
219 | employees, shareholders, members, guarantors and creditors. The NCLT is vested with the discretion to finally approve or reject the resolution plan.Alternatively, if during the insolvency resolution process, the resolution professional informs the NCLT that the Committee of Creditors has not been able to agree on a resolution plan or has decided to liquidate the corporate debtor/ concerned company, the NCLT may then pass an order for such liquidation.Secured creditors have the right to either, relinquish their security interest and receive proceeds from the sale of assets by the liquidator, or to realize their security interest independently, although it may approach the NCLT to facilitate the realization of the security interest if required.The entire liquidation process should be completed within 1 year. After the assets of the corporate debtor have been completely liquidated, the liquidator makes an application to the NCLT for the dissolution of the corporate debtor and the NCLT passes an order declaring that the corporate debtor stands dissolved from the date of such order.The IBC further provides that the proceeds from the assets in the liquidation trust shall be distributed in the following order of priority: a) first, the insolvency resolution process costs and |
220 | Alternatively, if during the insolvency resolution process, the resolution professional informs the NCLT that the Committee of Creditors has not been able to agree on a resolution plan or has decided to liquidate the corporate debtor/ concerned company, the NCLT may then pass an order for such liquidation.Secured creditors have the right to either, relinquish their security interest and receive proceeds from the sale of assets by the liquidator, or to realize their security interest independently, although it may approach the NCLT to facilitate the realization of the security interest if required.The entire liquidation process should be completed within 1 year. After the assets of the corporate debtor have been completely liquidated, the liquidator makes an application to the NCLT for the dissolution of the corporate debtor and the NCLT passes an order declaring that the corporate debtor stands dissolved from the date of such order.The IBC further provides that the proceeds from the assets in the liquidation trust shall be distributed in the following order of priority: a) first, the insolvency resolution process costs and |
221 | Secured creditors have the right to either, relinquish their security interest and receive proceeds from the sale of assets by the liquidator, or to realize their security interest independently, although it may approach the NCLT to facilitate the realization of the security interest if required.The entire liquidation process should be completed within 1 year. After the assets of the corporate debtor have been completely liquidated, the liquidator makes an application to the NCLT for the dissolution of the corporate debtor and the NCLT passes an order declaring that the corporate debtor stands dissolved from the date of such order.The IBC further provides that the proceeds from the assets in the liquidation trust shall be distributed in the following order of priority: a) first, the insolvency resolution process costs and |
222 | 19 The minimum pecuniary threshold for initiating CIRP under IBC has been increased from INR 0.1 million to INR 10 million vide Notification no. S.O. 1205(E) dated March 24, 2020.46.liquidation costs in full; (b) second, workmen’s dues for the period of twenty four months preceding the liquidation commencement date and debts owed to a secured creditor if such creditor has relinquished its security interest, on a pari passu basis; (c) third, wages and any unpaid dues owed to employees other than workmen for the period of twelve m o n t h s b e f o r e t h e l i q u i d a t i o n commencement date; (d) fourth, financial debts owed to unsecured creditors; |
223 | liquidation costs in full; (b) second, workmen’s dues for the period of twenty four months preceding the liquidation commencement date and debts owed to a secured creditor if such creditor has relinquished its security interest, on a pari passu basis; (c) third, wages and any unpaid dues owed to employees other than workmen for the period of twelve m o n t h s b e f o r e t h e l i q u i d a t i o n commencement date; (d) fourth, financial debts owed to unsecured creditors;(e) fifth, any amounts owed to the state government and the central government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Funds of a State, if any, in respect of the whole or part of the period of two years preceding the liquidation commencement date and debts owed to a secured creditor for any u n p a i d a m o u n t s f o l l o w i n g t h e enforcement of security interest, on a |
224 | liquidation costs in full; (b) second, workmen’s dues for the period of twenty four months preceding the liquidation commencement date and debts owed to a secured creditor if such creditor has relinquished its security interest, on a pari passu basis; (c) third, wages and any unpaid dues owed to employees other than workmen for the period of twelve m o n t h s b e f o r e t h e l i q u i d a t i o n commencement date; (d) fourth, financial debts owed to unsecured creditors;(e) fifth, any amounts owed to the state government and the central government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Funds of a State, if any, in respect of the whole or part of the period of two years preceding the liquidation commencement date and debts owed to a secured creditor for any u n p a i d a m o u n t s f o l l o w i n g t h e enforcement of security interest, on apari passu basis; (f) sixth, any remaining debts and dues (including debts and dues of operational creditors); (g) seventh, any preference shareholders; and (h) eighth, equity shareholders or partners, as the case may be. |
225 | liquidation costs in full; (b) second, workmen’s dues for the period of twenty four months preceding the liquidation commencement date and debts owed to a secured creditor if such creditor has relinquished its security interest, on a pari passu basis; (c) third, wages and any unpaid dues owed to employees other than workmen for the period of twelve m o n t h s b e f o r e t h e l i q u i d a t i o n commencement date; (d) fourth, financial debts owed to unsecured creditors;(e) fifth, any amounts owed to the state government and the central government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Funds of a State, if any, in respect of the whole or part of the period of two years preceding the liquidation commencement date and debts owed to a secured creditor for any u n p a i d a m o u n t s f o l l o w i n g t h e enforcement of security interest, on apari passu basis; (f) sixth, any remaining debts and dues (including debts and dues of operational creditors); (g) seventh, any preference shareholders; and (h) eighth, equity shareholders or partners, as the case may be.Voluntary liquidation is also available to a corporate person if it is a ‘going concern’ and has no debt / is able to show that it can repay its debt in full from the proceeds of the assets sold in voluntary liquidation. The prior approval of two- thirds of its members and two-thirds (in value), of its creditors is also required. As is the case with the regular liquidation procedure, the liquidator is to make an application to the NCLT in the place where the affairs of the corporate person have been completely wound up and the NCLT will pass an order stating that the corporate debtor shall stand dissolved from the date of such order. |
226 | liquidation costs in full; (b) second, workmen’s dues for the period of twenty four months preceding the liquidation commencement date and debts owed to a secured creditor if such creditor has relinquished its security interest, on a pari passu basis; (c) third, wages and any unpaid dues owed to employees other than workmen for the period of twelve m o n t h s b e f o r e t h e l i q u i d a t i o n commencement date; (d) fourth, financial debts owed to unsecured creditors;(e) fifth, any amounts owed to the state government and the central government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Funds of a State, if any, in respect of the whole or part of the period of two years preceding the liquidation commencement date and debts owed to a secured creditor for any u n p a i d a m o u n t s f o l l o w i n g t h e enforcement of security interest, on apari passu basis; (f) sixth, any remaining debts and dues (including debts and dues of operational creditors); (g) seventh, any preference shareholders; and (h) eighth, equity shareholders or partners, as the case may be.Voluntary liquidation is also available to a corporate person if it is a ‘going concern’ and has no debt / is able to show that it can repay its debt in full from the proceeds of the assets sold in voluntary liquidation. The prior approval of two- thirds of its members and two-thirds (in value), of its creditors is also required. As is the case with the regular liquidation procedure, the liquidator is to make an application to the NCLT in the place where the affairs of the corporate person have been completely wound up and the NCLT will pass an order stating that the corporate debtor shall stand dissolved from the date of such order. |
227 | (e) fifth, any amounts owed to the state government and the central government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Funds of a State, if any, in respect of the whole or part of the period of two years preceding the liquidation commencement date and debts owed to a secured creditor for any u n p a i d a m o u n t s f o l l o w i n g t h e enforcement of security interest, on apari passu basis; (f) sixth, any remaining debts and dues (including debts and dues of operational creditors); (g) seventh, any preference shareholders; and (h) eighth, equity shareholders or partners, as the case may be.Voluntary liquidation is also available to a corporate person if it is a ‘going concern’ and has no debt / is able to show that it can repay its debt in full from the proceeds of the assets sold in voluntary liquidation. The prior approval of two- thirds of its members and two-thirds (in value), of its creditors is also required. As is the case with the regular liquidation procedure, the liquidator is to make an application to the NCLT in the place where the affairs of the corporate person have been completely wound up and the NCLT will pass an order stating that the corporate debtor shall stand dissolved from the date of such order. |
228 | pari passu basis; (f) sixth, any remaining debts and dues (including debts and dues of operational creditors); (g) seventh, any preference shareholders; and (h) eighth, equity shareholders or partners, as the case may be.Voluntary liquidation is also available to a corporate person if it is a ‘going concern’ and has no debt / is able to show that it can repay its debt in full from the proceeds of the assets sold in voluntary liquidation. The prior approval of two- thirds of its members and two-thirds (in value), of its creditors is also required. As is the case with the regular liquidation procedure, the liquidator is to make an application to the NCLT in the place where the affairs of the corporate person have been completely wound up and the NCLT will pass an order stating that the corporate debtor shall stand dissolved from the date of such order.47..Debt Recovery Tribunal (“DRT”) and Debt Recovery Appellate Tribunal (“DRAT”)Recovery actions by Banks and Financial Institutions |
229 | Debt Recovery Tribunal (“DRT”) and Debt Recovery Appellate Tribunal (“DRAT”)Recovery actions by Banks and Financial InstitutionsThe DRT and DRAT have been constituted under the provisions of t h e R e c o v e r y o f D e b t s a n d Bankruptcy Act, 1993(“RDB Act”), for establishment of Tribunals for ex peditious adj udication and recovery of debts due to Banks and Financial Institutions and for matters connected therewith. There are 39 DRT's and 5 DRAT's functioning in India. |
230 | Debt Recovery Tribunal (“DRT”) and Debt Recovery Appellate Tribunal (“DRAT”)Recovery actions by Banks and Financial InstitutionsThe DRT and DRAT have been constituted under the provisions of t h e R e c o v e r y o f D e b t s a n d Bankruptcy Act, 1993(“RDB Act”), for establishment of Tribunals for ex peditious adj udication and recovery of debts due to Banks and Financial Institutions and for matters connected therewith. There are 39 DRT's and 5 DRAT's functioning in India.The DRT has exclusive jurisdiction (to the exclusion of all other courts), to decide cases filed by banks and financial institutions for recovery of debts exceeding INR 2 million. (If the claim is less than INR 2 million, it would have to be filed before a regular c iv i l c o u r t ) . O n a s u c c e s s fu l application the DRT issues a recovery certificate in favour of the applicant bank / financial institution, pursuant to which the debt may be recovered through various measures such as attachment and sale of moveable or immoveable properties, arrest of the debtor, detention to prison and appointment of receiver. |
231 | Recovery actions by Banks and Financial InstitutionsThe DRT and DRAT have been constituted under the provisions of t h e R e c o v e r y o f D e b t s a n d Bankruptcy Act, 1993(“RDB Act”), for establishment of Tribunals for ex peditious adj udication and recovery of debts due to Banks and Financial Institutions and for matters connected therewith. There are 39 DRT's and 5 DRAT's functioning in India.The DRT has exclusive jurisdiction (to the exclusion of all other courts), to decide cases filed by banks and financial institutions for recovery of debts exceeding INR 2 million. (If the claim is less than INR 2 million, it would have to be filed before a regular c iv i l c o u r t ) . O n a s u c c e s s fu l application the DRT issues a recovery certificate in favour of the applicant bank / financial institution, pursuant to which the debt may be recovered through various measures such as attachment and sale of moveable or immoveable properties, arrest of the debtor, detention to prison and appointment of receiver.Appeals against orders of the DRT may be filed before the DRAT. Orders of the DRAT and/or the DRT cannot be challenged before a civil court. |
232 | Recovery actions by Banks and Financial InstitutionsThe DRT and DRAT have been constituted under the provisions of t h e R e c o v e r y o f D e b t s a n d Bankruptcy Act, 1993(“RDB Act”), for establishment of Tribunals for ex peditious adj udication and recovery of debts due to Banks and Financial Institutions and for matters connected therewith. There are 39 DRT's and 5 DRAT's functioning in India.The DRT has exclusive jurisdiction (to the exclusion of all other courts), to decide cases filed by banks and financial institutions for recovery of debts exceeding INR 2 million. (If the claim is less than INR 2 million, it would have to be filed before a regular c iv i l c o u r t ) . O n a s u c c e s s fu l application the DRT issues a recovery certificate in favour of the applicant bank / financial institution, pursuant to which the debt may be recovered through various measures such as attachment and sale of moveable or immoveable properties, arrest of the debtor, detention to prison and appointment of receiver.Appeals against orders of the DRT may be filed before the DRAT. Orders of the DRAT and/or the DRT cannot be challenged before a civil court.However, this prohibition does not exclude the writ jurisdiction of a High Court or the ability to apply to the Supreme Court for special leave to appeal against any order. |
233 | The DRT and DRAT have been constituted under the provisions of t h e R e c o v e r y o f D e b t s a n d Bankruptcy Act, 1993(“RDB Act”), for establishment of Tribunals for ex peditious adj udication and recovery of debts due to Banks and Financial Institutions and for matters connected therewith. There are 39 DRT's and 5 DRAT's functioning in India.The DRT has exclusive jurisdiction (to the exclusion of all other courts), to decide cases filed by banks and financial institutions for recovery of debts exceeding INR 2 million. (If the claim is less than INR 2 million, it would have to be filed before a regular c iv i l c o u r t ) . O n a s u c c e s s fu l application the DRT issues a recovery certificate in favour of the applicant bank / financial institution, pursuant to which the debt may be recovered through various measures such as attachment and sale of moveable or immoveable properties, arrest of the debtor, detention to prison and appointment of receiver.Appeals against orders of the DRT may be filed before the DRAT. Orders of the DRAT and/or the DRT cannot be challenged before a civil court.However, this prohibition does not exclude the writ jurisdiction of a High Court or the ability to apply to the Supreme Court for special leave to appeal against any order.Jurisdiction under the Securitisation and Reconstruction of Financial A s s e t s a n d E n f o r c e m e n t o f Securities Interest Act, 2002 (the “SARFAESI Act”) |
234 | The DRT has exclusive jurisdiction (to the exclusion of all other courts), to decide cases filed by banks and financial institutions for recovery of debts exceeding INR 2 million. (If the claim is less than INR 2 million, it would have to be filed before a regular c iv i l c o u r t ) . O n a s u c c e s s fu l application the DRT issues a recovery certificate in favour of the applicant bank / financial institution, pursuant to which the debt may be recovered through various measures such as attachment and sale of moveable or immoveable properties, arrest of the debtor, detention to prison and appointment of receiver.Appeals against orders of the DRT may be filed before the DRAT. Orders of the DRAT and/or the DRT cannot be challenged before a civil court.However, this prohibition does not exclude the writ jurisdiction of a High Court or the ability to apply to the Supreme Court for special leave to appeal against any order.Jurisdiction under the Securitisation and Reconstruction of Financial A s s e t s a n d E n f o r c e m e n t o f Securities Interest Act, 2002 (the “SARFAESI Act”)The DRT also has jurisdiction in relation to applications filed by or against a defaulting borrower / mortgagor / guarantor in relation to actions of a Secured Creditor (such as Banks / Financial Institutions) initiated under the SARFAESI Act, for enforcement of security interest (i.e. security including mortgage or charge on immovable properties given for due repayment of a loan). |
235 | Appeals against orders of the DRT may be filed before the DRAT. Orders of the DRAT and/or the DRT cannot be challenged before a civil court.However, this prohibition does not exclude the writ jurisdiction of a High Court or the ability to apply to the Supreme Court for special leave to appeal against any order.Jurisdiction under the Securitisation and Reconstruction of Financial A s s e t s a n d E n f o r c e m e n t o f Securities Interest Act, 2002 (the “SARFAESI Act”)The DRT also has jurisdiction in relation to applications filed by or against a defaulting borrower / mortgagor / guarantor in relation to actions of a Secured Creditor (such as Banks / Financial Institutions) initiated under the SARFAESI Act, for enforcement of security interest (i.e. security including mortgage or charge on immovable properties given for due repayment of a loan).The SARFESI Act is unique in that it empowers banks and other financial institutions to issue demand notices to d e f a u l t in g b o r r o w e r s a n d guarantors calling upon them to discharge their dues in full within 60 days from the date of the notice. If the borrower does not comply and fails to repay the loan, Banks / Financial I nstitutions c an w i thout any intervention of Court / Tribunal, resort to either of the following three courses of action: |
236 | However, this prohibition does not exclude the writ jurisdiction of a High Court or the ability to apply to the Supreme Court for special leave to appeal against any order.Jurisdiction under the Securitisation and Reconstruction of Financial A s s e t s a n d E n f o r c e m e n t o f Securities Interest Act, 2002 (the “SARFAESI Act”)The DRT also has jurisdiction in relation to applications filed by or against a defaulting borrower / mortgagor / guarantor in relation to actions of a Secured Creditor (such as Banks / Financial Institutions) initiated under the SARFAESI Act, for enforcement of security interest (i.e. security including mortgage or charge on immovable properties given for due repayment of a loan).The SARFESI Act is unique in that it empowers banks and other financial institutions to issue demand notices to d e f a u l t in g b o r r o w e r s a n d guarantors calling upon them to discharge their dues in full within 60 days from the date of the notice. If the borrower does not comply and fails to repay the loan, Banks / Financial I nstitutions c an w i thout any intervention of Court / Tribunal, resort to either of the following three courses of action: |
237 | Jurisdiction under the Securitisation and Reconstruction of Financial A s s e t s a n d E n f o r c e m e n t o f Securities Interest Act, 2002 (the “SARFAESI Act”)The DRT also has jurisdiction in relation to applications filed by or against a defaulting borrower / mortgagor / guarantor in relation to actions of a Secured Creditor (such as Banks / Financial Institutions) initiated under the SARFAESI Act, for enforcement of security interest (i.e. security including mortgage or charge on immovable properties given for due repayment of a loan).The SARFESI Act is unique in that it empowers banks and other financial institutions to issue demand notices to d e f a u l t in g b o r r o w e r s a n d guarantors calling upon them to discharge their dues in full within 60 days from the date of the notice. If the borrower does not comply and fails to repay the loan, Banks / Financial I nstitutions c an w i thout any intervention of Court / Tribunal, resort to either of the following three courses of action: |
238 | The DRT also has jurisdiction in relation to applications filed by or against a defaulting borrower / mortgagor / guarantor in relation to actions of a Secured Creditor (such as Banks / Financial Institutions) initiated under the SARFAESI Act, for enforcement of security interest (i.e. security including mortgage or charge on immovable properties given for due repayment of a loan).The SARFESI Act is unique in that it empowers banks and other financial institutions to issue demand notices to d e f a u l t in g b o r r o w e r s a n d guarantors calling upon them to discharge their dues in full within 60 days from the date of the notice. If the borrower does not comply and fails to repay the loan, Banks / Financial I nstitutions c an w i thout any intervention of Court / Tribunal, resort to either of the following three courses of action:48.take possession of the security;ta k e ov e r th e m a n a g e m e n t / administration of the security asset; and |
239 | take possession of the security;ta k e ov e r th e m a n a g e m e n t / administration of the security asset; andput the property for lease, sale, or appoint a person to manage the asset concerned.The SARFAESI Act also provides for sale of a debtor’s financial assets byBanks / Financial Institutions, to Asset Reconstruction Companies (“ARCs”). The Act provides for the establishment of ARCs which are regulated by the Reserve Bank of India (the “RBI”), India’s banking regulator, with a mandate to securitize the acquired financial assets.Securities & Exchange Board of India (“SEBI”), and Securities Appellate Tribunal (“SAT”)SEBI was set up to protect interests of investors in securities and to promote the development of and regulate the securities market. It regulates the business in stock exchanges, any other se c u r i t ie s m a r ke ts a n d m a tte rs c o n n e c t e d t h e r e w i t h i n c l u d i n g registration of entities, promotion, regulation etc. of intermediaries |
240 | Securities & Exchange Board of India (“SEBI”), and Securities Appellate Tribunal (“SAT”)SEBI was set up to protect interests of investors in securities and to promote the development of and regulate the securities market. It regulates the business in stock exchanges, any other se c u r i t ie s m a r ke ts a n d m a tte rs c o n n e c t e d t h e r e w i t h i n c l u d i n g registration of entities, promotion, regulation etc. of intermediariesassociated with securities in any manner, exercising power under the Securities Contracts (Regulation) Act, 1956, as may be delegated to it by the Central Government etc. It has 3 functions rolled into one body: (i) quasi-legislative - it issues regulations in its legislative capacity, (ii) quasi-executive - it conducts investigation and enforcement action,49.. |
241 | and (iii) quasi-judicial - it passes rulings and orders, and can inter alia, restrict a person from accessing the securities market and suspend trading of any security in a recognized stock exchange.All orders passed by SEBI may be appealed before the SAT. The orders of SATare appealable before the Supreme Court.SEBI and SAT have exclusive jurisdiction and no civil court may entertain any proceeding in respect of a matter that is within their jurisdiction.Competition Commission of India (“CCI”)The CCI was constituted under the Competition Act, 2002, to inter alia, monitor and regulate anti-competitive agreements, abuse of dominant positions and merger control.The CCI is empowered to hear complaints and pass orders prohibiting any agreement that it considers anti- competitive, or an abuse of a dominant position. All mergers / amalgamations w h ic h sa t isfy c e r ta in th r e sh o ld provisions under the Act, are mandatorily to be notified to the CCI, which has the |
242 | The CCI was constituted under the Competition Act, 2002, to inter alia, monitor and regulate anti-competitive agreements, abuse of dominant positions and merger control.The CCI is empowered to hear complaints and pass orders prohibiting any agreement that it considers anti- competitive, or an abuse of a dominant position. All mergers / amalgamations w h ic h sa t isfy c e r ta in th r e sh o ld provisions under the Act, are mandatorily to be notified to the CCI, which has thepower to modify the terms thereof, should it find that the transaction will have an appreciable adverse effect on competition in India. It may also impose a penalty on the offending party.In 2017 the Government abolished the Competition Law Appellate Tribunal (COMPAT) in response to criticism in relation to the multiplicity of tribunals and shifted all appeals from the CCI to the NCLAT instead. An appeal may be filed against an order of the NCLAT before the Supreme Court.50. |
243 | Telecom Regulatory Authority of India (“TRAI”) and Telecom Disputes Settlement and Appellate Tribunal (“TDSAT”)TRAI was constituted to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government. TRAI is empowered to issue directions, orders and regulations covering a wide range of subjects including tariff, interconnection and quality of service. TRAI is also vested with the power to issue directions to Service Providers.Appeals from orders of the TRAI lie before the TDSAT. The TDSAT also adjudicates disputes between a licensor and a licensee, between two or more serviceproviders, between a service provider and a group of consumers. |
244 | TRAI was constituted to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government. TRAI is empowered to issue directions, orders and regulations covering a wide range of subjects including tariff, interconnection and quality of service. TRAI is also vested with the power to issue directions to Service Providers.Appeals from orders of the TRAI lie before the TDSAT. The TDSAT also adjudicates disputes between a licensor and a licensee, between two or more serviceproviders, between a service provider and a group of consumers.The TDSAT exercises jurisdiction over telecom, broadcasting, information technology and airport tariff matters, under the TRAI Act, 1997, the Information Technology Act, 2000 and the Airport Economic Regulatory Authority of India Act, 2008. TDSAT exercises original as well as appellate jurisdiction in regard to telecom, broadcasting information technology and airport tariff matters. In regard to cyber matters the TDSAT exercises only the appellate jurisdiction. |
245 | TRAI was constituted to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government. TRAI is empowered to issue directions, orders and regulations covering a wide range of subjects including tariff, interconnection and quality of service. TRAI is also vested with the power to issue directions to Service Providers.Appeals from orders of the TRAI lie before the TDSAT. The TDSAT also adjudicates disputes between a licensor and a licensee, between two or more serviceproviders, between a service provider and a group of consumers.The TDSAT exercises jurisdiction over telecom, broadcasting, information technology and airport tariff matters, under the TRAI Act, 1997, the Information Technology Act, 2000 and the Airport Economic Regulatory Authority of India Act, 2008. TDSAT exercises original as well as appellate jurisdiction in regard to telecom, broadcasting information technology and airport tariff matters. In regard to cyber matters the TDSAT exercises only the appellate jurisdiction. |
246 | Appeals from orders of the TRAI lie before the TDSAT. The TDSAT also adjudicates disputes between a licensor and a licensee, between two or more serviceproviders, between a service provider and a group of consumers.The TDSAT exercises jurisdiction over telecom, broadcasting, information technology and airport tariff matters, under the TRAI Act, 1997, the Information Technology Act, 2000 and the Airport Economic Regulatory Authority of India Act, 2008. TDSAT exercises original as well as appellate jurisdiction in regard to telecom, broadcasting information technology and airport tariff matters. In regard to cyber matters the TDSAT exercises only the appellate jurisdiction.Real Estate Regulatory Authority (“RERA”) |
247 | Real Estate Regulatory Authority (“RERA”)The Real Estate ( Regulation and Development) Act, 2016 (“RERA Act”) was enacted in order to set up a RERA in every State for regulating the real estate sector and to provide consumers/home buyers a specific tribunal for adjudication of property disputes. The RERA Act casts obligations upon real estate agents, promoters of projects and regulates the registration and conduct of real estate projects. Appeals from orders of RERA may be filed before Real Estate Appellate Tribunal (“REAT”). Presently, only a few states in India have established permanent REATs.51..Tax TribunalsA hierarchy of tribunals commencing from the Assessing OÆcer to the Commissioner Appeals and finally the Income Tax Appellate Tribunal (“ITAT”) has been set up under the Income Tax Act, 1961 to adjudicate income tax related disputes. Appeals from ITAT lie to the High Court. |
248 | Tax TribunalsA hierarchy of tribunals commencing from the Assessing OÆcer to the Commissioner Appeals and finally the Income Tax Appellate Tribunal (“ITAT”) has been set up under the Income Tax Act, 1961 to adjudicate income tax related disputes. Appeals from ITAT lie to the High Court.Separately, the Customs Excise and Service Tax Appellate Tribunal (“CESTAT”) adjudicate appeals from decision of Revenue Authorities under the Customs Act, 1962, Central Excise Act, 1944, Finance Act 1994 and the Customs Tariff Act, 1975.A Goods and Services Tax Appellate Tribunal is also intended to be set up asan appellate body over decisions of the a s s e s s m e n t a u t h o r i t ie s o n t h e applicability and assessment of Goods and Services Tax (GST) on a tax payer.Consumer Dispute Forums/Commissions |
249 | Consumer Dispute Forums/CommissionsUnder the Consumer Protection Act, 2019, a quasi-judicial machinery has been set up at the district, state and central levels, to provide a speedy and simple redressal of consumer disputes and complaints against goods or service providers, in relation to goods and services purchased by consumers. Depending on the value of the goods, or services and compensation claimed, a complaint may be filed before t h e D i s t r i c t C o m m i s s io n , S t a t e Commission, or National Commission which has pecuniary and territorialjurisdiction on these fora, and is an additional remedy available to the consumer. As such, it is open to a consumer / complainant to file a regular civil suit in a civil court in respect of the cause of action.jurisdiction over the matter.20 Thisstatute does not confer exclusive20 Under the Consumer Protection Act, the District Consumer Dispute Redressal Commission is empowered to hear complaints where |
250 | jurisdiction over the matter.20 Thisstatute does not confer exclusive20 Under the Consumer Protection Act, the District Consumer Dispute Redressal Commission is empowered to hear complaints wherethe value of the goods or services paid as consideration does not exceed INR 10 million. The State Consumer Dispute Redressal Commission is empowered to hear complaints where the value of the goods or services paid as consideration exceeds INR 10 million but does not exceed INR 100 million. The National Consumer Dispute Redressal Commission is empowered to hear complaints where the value of the goods or services paid as consideration exceeds INR 100 million.52.10 Central Electricity Regulatory Commission and Appellate Tribunal for Electricity |
251 | 10 Central Electricity Regulatory Commission and Appellate Tribunal for ElectricityThe Central Electricity Regulatory Commission (“CERC”) was set up to inter alia determine tariffs for electricity, adjudicate disputes involving generating companies or transmission licensees in relation to imposition of tariffs, quality, quantity and access to services for providing electricity. The Electricity Act, 2003 also constitutes state regulatory commissions and joint commissions to decentralize the working of the CERC.The Appellate Tribunal for Electricity (“APTEL”) has the jurisdiction to look into appeals from the CERC, State Regulatory Commissions, the Adjudicating Authority and Joint commissions constituted under the Electricity Act, 2003. It is conferred with original jurisdiction to hear petitions and issue directions to any appropriate commission for performance of its statutory functions.11 Labour Courts & Industrial Tribunals |
252 | 11 Labour Courts & Industrial TribunalsLabour Courts and Industrial Tribunals are set up under the provisions of the Industrial Disputes Act, 1947. Conciliation OÆcers are charged with the duty of mediating in and promoting the settlement of industrial disputes.Labour Courts adjudicate industrial disputes concerning issues such as those related to standing orders, discharge, ordismissal of workers, illegality, or otherwise of strikes and lockouts etc. Industrial Tribunals deal with collective disputes such as wages, hours of work, leave, retrenchment, closure etc. (although, if the number of workmen are likely to be affected is 100 or less, a Labour Court may adjudicate these matters).53..12 National Green Tribunal (“NGT”)The NGT was established under the National Green Tribunal Act, 2010 to deal with cases relating to environmental protection, conservation of forests, safeguarding natural resources, and |
253 | 12 National Green Tribunal (“NGT”)The NGT was established under the National Green Tribunal Act, 2010 to deal with cases relating to environmental protection, conservation of forests, safeguarding natural resources, andmatters connected therewith. The NGT has benches in various cities, with the principal bench in Delhi. Appeal from orders of the NGT lie with the Supreme Court.54.End Notes / Important Terms.58 .59..60.61..62.63..64.65..66.67..68.69..70.71..Notes72.Notes73.ContributorsShaneen ParikhPartner (Head – International Arbitration)Namita ShettyPartnerMohit PrabhuPrincipal AssociateAkhil MaheshPrincipal AssociatePurav ShahPrincipal AssociateTushar KarkariaAssociate74Block A-1512, 15th Floor, Navratna Corporate Park, Ambli Bopal Road, Bodakdev, Ahmedabad 380 058, India,T +91 79 3503 999975. |
254 | A GUIDE ON LAWS APPLICABLE TOINDIAN FINANCIAL MARKETSCommittee on Financial Markets & Investors' ProtectionThe Institute of Chartered Accountants of India(Set up by an Act of Parliament)© THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIAAll rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic mechanical, photocopying, recording, or otherwise, without prior permission, in writing, from the publisher.Edition : February, 2014Website : www.icai.org, www.financialmarket.icai.orgPrice : Rs. 225/-ISBN : 978-81-8441-691-6Published by: Committee on Financial Markets & Investors’ Protection ICAI Bhawan, A-29, Sector-62,Administrative Wing, (8th Floor), Noida-201309 Telephone : +91-120-3045945E-Mail-id : [email protected] by: Perfact Impression Pvt. Ltd.2, Prem Nagar Market, Tyagraj Nagar, New Delhi - 110003Foreword“Money is like manure. You have to spread it around or it smells.”- J. Paul Getty |
255 | “Money is like manure. You have to spread it around or it smells.”- J. Paul GettyIndia is one of the largest emerging markets in the world with enormous potential for growth in the coming years. The financial market is also expanding and attracting ever-increasing number of domestic and foreign investors. Efficient transfer of resources from those having idle resources to others who have a pressing need for them is achieved through financial markets.The functioning of financial markets is regulated by several legislations that include Acts, Rules, Regulations, Guidelines, Circulars, etc. Understanding the legislations governing the financial markets in India will give the reader a fair idea of how the financial markets in India are regulated. |
256 | - J. Paul GettyIndia is one of the largest emerging markets in the world with enormous potential for growth in the coming years. The financial market is also expanding and attracting ever-increasing number of domestic and foreign investors. Efficient transfer of resources from those having idle resources to others who have a pressing need for them is achieved through financial markets.The functioning of financial markets is regulated by several legislations that include Acts, Rules, Regulations, Guidelines, Circulars, etc. Understanding the legislations governing the financial markets in India will give the reader a fair idea of how the financial markets in India are regulated.I am glad that the Committee on Financial markets and Investors’ Protection of the Institute of Chartered Accountants of India is bringing out ‘A Guide on Laws applicable to Indian Financial Markets’. It covers the various legislations governing the financial markets in India. It aims to provide substantive and useful information to both a professional and common man. |
257 | India is one of the largest emerging markets in the world with enormous potential for growth in the coming years. The financial market is also expanding and attracting ever-increasing number of domestic and foreign investors. Efficient transfer of resources from those having idle resources to others who have a pressing need for them is achieved through financial markets.The functioning of financial markets is regulated by several legislations that include Acts, Rules, Regulations, Guidelines, Circulars, etc. Understanding the legislations governing the financial markets in India will give the reader a fair idea of how the financial markets in India are regulated.I am glad that the Committee on Financial markets and Investors’ Protection of the Institute of Chartered Accountants of India is bringing out ‘A Guide on Laws applicable to Indian Financial Markets’. It covers the various legislations governing the financial markets in India. It aims to provide substantive and useful information to both a professional and common man.I take this opportunity to congratulate CA. Rajkumar S.Adukia, Chairman and the entire team of Committee on Financial Markets and Investors’ Protection for their initiatives and endeavours. |
258 | India is one of the largest emerging markets in the world with enormous potential for growth in the coming years. The financial market is also expanding and attracting ever-increasing number of domestic and foreign investors. Efficient transfer of resources from those having idle resources to others who have a pressing need for them is achieved through financial markets.The functioning of financial markets is regulated by several legislations that include Acts, Rules, Regulations, Guidelines, Circulars, etc. Understanding the legislations governing the financial markets in India will give the reader a fair idea of how the financial markets in India are regulated.I am glad that the Committee on Financial markets and Investors’ Protection of the Institute of Chartered Accountants of India is bringing out ‘A Guide on Laws applicable to Indian Financial Markets’. It covers the various legislations governing the financial markets in India. It aims to provide substantive and useful information to both a professional and common man.I take this opportunity to congratulate CA. Rajkumar S.Adukia, Chairman and the entire team of Committee on Financial Markets and Investors’ Protection for their initiatives and endeavours.CA. Subodh K. Agrawal |
259 | The functioning of financial markets is regulated by several legislations that include Acts, Rules, Regulations, Guidelines, Circulars, etc. Understanding the legislations governing the financial markets in India will give the reader a fair idea of how the financial markets in India are regulated.I am glad that the Committee on Financial markets and Investors’ Protection of the Institute of Chartered Accountants of India is bringing out ‘A Guide on Laws applicable to Indian Financial Markets’. It covers the various legislations governing the financial markets in India. It aims to provide substantive and useful information to both a professional and common man.I take this opportunity to congratulate CA. Rajkumar S.Adukia, Chairman and the entire team of Committee on Financial Markets and Investors’ Protection for their initiatives and endeavours.CA. Subodh K. AgrawalPresident The Institute of Chartered Accountants of IndiaPreface |
260 | Preface"Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this."- Dave Ramsey |
261 | "Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this."- Dave RamseyNormally, a business enterprise needs finance for two purposes - for buying capital equipment and fixed assets, such as machinery, tools and implements, power plant, construction of factory building and workshops, etc.; which are referred to as long-term capital requirements, and for buying raw materials, holding the stock of finished goods, for payment of wages, etc., which are referred to as short-term capital requirements. Thus, an industrial house has to borrow short-term funds as well as long-term funds. The money- market caters to the short-term needs only. The long-term capital needs are satisfied by the capital market. Thus the combination of both money market and capital market forms the financial market. The financial market covers the instruments and institutions which provide finance for short and long period. |
262 | "Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this."- Dave RamseyNormally, a business enterprise needs finance for two purposes - for buying capital equipment and fixed assets, such as machinery, tools and implements, power plant, construction of factory building and workshops, etc.; which are referred to as long-term capital requirements, and for buying raw materials, holding the stock of finished goods, for payment of wages, etc., which are referred to as short-term capital requirements. Thus, an industrial house has to borrow short-term funds as well as long-term funds. The money- market caters to the short-term needs only. The long-term capital needs are satisfied by the capital market. Thus the combination of both money market and capital market forms the financial market. The financial market covers the instruments and institutions which provide finance for short and long period.Financial markets provide channels for allocation of savings to investment. It provides a variety of assets to savers as well as various forms in which the investors can raise funds and thereby combine the acts of saving and investment. The savers and investors are constrained not by their individual abilities, but by the economy’s ability, to invest and save respectively. Thus, the financial markets contribute to economic development to the extent that the latter depends on the rates of savings and investment. |
263 | - Dave RamseyNormally, a business enterprise needs finance for two purposes - for buying capital equipment and fixed assets, such as machinery, tools and implements, power plant, construction of factory building and workshops, etc.; which are referred to as long-term capital requirements, and for buying raw materials, holding the stock of finished goods, for payment of wages, etc., which are referred to as short-term capital requirements. Thus, an industrial house has to borrow short-term funds as well as long-term funds. The money- market caters to the short-term needs only. The long-term capital needs are satisfied by the capital market. Thus the combination of both money market and capital market forms the financial market. The financial market covers the instruments and institutions which provide finance for short and long period.Financial markets provide channels for allocation of savings to investment. It provides a variety of assets to savers as well as various forms in which the investors can raise funds and thereby combine the acts of saving and investment. The savers and investors are constrained not by their individual abilities, but by the economy’s ability, to invest and save respectively. Thus, the financial markets contribute to economic development to the extent that the latter depends on the rates of savings and investment.It has been argued that strong legal systems foster development of sophisticated financial markets and intermediaries, which enhances the economy’s ability to manage risk and eventually lead to economic growth. The financial system of India which includes banking, capital, insurance, securities, foreign exchange etc. is characterized by several legislations for regulation and enforcement. Just like the developments and changes in financial markets are |
264 | Normally, a business enterprise needs finance for two purposes - for buying capital equipment and fixed assets, such as machinery, tools and implements, power plant, construction of factory building and workshops, etc.; which are referred to as long-term capital requirements, and for buying raw materials, holding the stock of finished goods, for payment of wages, etc., which are referred to as short-term capital requirements. Thus, an industrial house has to borrow short-term funds as well as long-term funds. The money- market caters to the short-term needs only. The long-term capital needs are satisfied by the capital market. Thus the combination of both money market and capital market forms the financial market. The financial market covers the instruments and institutions which provide finance for short and long period.Financial markets provide channels for allocation of savings to investment. It provides a variety of assets to savers as well as various forms in which the investors can raise funds and thereby combine the acts of saving and investment. The savers and investors are constrained not by their individual abilities, but by the economy’s ability, to invest and save respectively. Thus, the financial markets contribute to economic development to the extent that the latter depends on the rates of savings and investment.It has been argued that strong legal systems foster development of sophisticated financial markets and intermediaries, which enhances the economy’s ability to manage risk and eventually lead to economic growth. The financial system of India which includes banking, capital, insurance, securities, foreign exchange etc. is characterized by several legislations for regulation and enforcement. Just like the developments and changes in financial markets are |
265 | Normally, a business enterprise needs finance for two purposes - for buying capital equipment and fixed assets, such as machinery, tools and implements, power plant, construction of factory building and workshops, etc.; which are referred to as long-term capital requirements, and for buying raw materials, holding the stock of finished goods, for payment of wages, etc., which are referred to as short-term capital requirements. Thus, an industrial house has to borrow short-term funds as well as long-term funds. The money- market caters to the short-term needs only. The long-term capital needs are satisfied by the capital market. Thus the combination of both money market and capital market forms the financial market. The financial market covers the instruments and institutions which provide finance for short and long period.Financial markets provide channels for allocation of savings to investment. It provides a variety of assets to savers as well as various forms in which the investors can raise funds and thereby combine the acts of saving and investment. The savers and investors are constrained not by their individual abilities, but by the economy’s ability, to invest and save respectively. Thus, the financial markets contribute to economic development to the extent that the latter depends on the rates of savings and investment.It has been argued that strong legal systems foster development of sophisticated financial markets and intermediaries, which enhances the economy’s ability to manage risk and eventually lead to economic growth. The financial system of India which includes banking, capital, insurance, securities, foreign exchange etc. is characterized by several legislations for regulation and enforcement. Just like the developments and changes in financial markets areclosely monitored, the regular changes in the financial laws of our country also need to be followed. This book gives a broad view of the legislations regulating the financial markets in India. |
266 | Financial markets provide channels for allocation of savings to investment. It provides a variety of assets to savers as well as various forms in which the investors can raise funds and thereby combine the acts of saving and investment. The savers and investors are constrained not by their individual abilities, but by the economy’s ability, to invest and save respectively. Thus, the financial markets contribute to economic development to the extent that the latter depends on the rates of savings and investment.It has been argued that strong legal systems foster development of sophisticated financial markets and intermediaries, which enhances the economy’s ability to manage risk and eventually lead to economic growth. The financial system of India which includes banking, capital, insurance, securities, foreign exchange etc. is characterized by several legislations for regulation and enforcement. Just like the developments and changes in financial markets areclosely monitored, the regular changes in the financial laws of our country also need to be followed. This book gives a broad view of the legislations regulating the financial markets in India.I sincerely appreciate the efforts put in by Adv. Y. Rashmi Vinod in preparing the publication. |
267 | It has been argued that strong legal systems foster development of sophisticated financial markets and intermediaries, which enhances the economy’s ability to manage risk and eventually lead to economic growth. The financial system of India which includes banking, capital, insurance, securities, foreign exchange etc. is characterized by several legislations for regulation and enforcement. Just like the developments and changes in financial markets areclosely monitored, the regular changes in the financial laws of our country also need to be followed. This book gives a broad view of the legislations regulating the financial markets in India.I sincerely appreciate the efforts put in by Adv. Y. Rashmi Vinod in preparing the publication.I would like to thank CA. Jay Ajit Chhaira, Vice-Chairman, CFMIP and all members of the CFMIP committee, CA Pankaj Inderchand Jain, CA Sanjeev Maheswari, CA S Santhana Krishnan, CA Anuj Goyal, CA Naveen N.D. Gupta, CA Sharad Kabra, Shri Sidharth K. Birla, Shri Sunil Kanoria, CA Vikas Jain, CA Murmuria Bijay, CA. Shyam Lal Agarwal who have extended their support and encouragement in all committee activities. |
268 | closely monitored, the regular changes in the financial laws of our country also need to be followed. This book gives a broad view of the legislations regulating the financial markets in India.I sincerely appreciate the efforts put in by Adv. Y. Rashmi Vinod in preparing the publication.I would like to thank CA. Jay Ajit Chhaira, Vice-Chairman, CFMIP and all members of the CFMIP committee, CA Pankaj Inderchand Jain, CA Sanjeev Maheswari, CA S Santhana Krishnan, CA Anuj Goyal, CA Naveen N.D. Gupta, CA Sharad Kabra, Shri Sidharth K. Birla, Shri Sunil Kanoria, CA Vikas Jain, CA Murmuria Bijay, CA. Shyam Lal Agarwal who have extended their support and encouragement in all committee activities.I would also like to thank all the persons who contributed towards finalizing this publication.I firmly believe that the publication will be helpful to all concerned.Date: 7th February, 2014CA. Rajkumar S. AdukiaPlace: New DelhiChairmanCommittee for Financial Market and Investors’ Protection of ICAI |
269 | Date: 7th February, 2014CA. Rajkumar S. AdukiaPlace: New DelhiChairmanCommittee for Financial Market and Investors’ Protection of ICAIAGUIDEONLAWSAPPLICABLETOINDIAN FINANCIAL MARKETSIndexINTRODUCTIONFinancial system is basically a set of complex and closely interconnected financial institutions, markets, instruments, services, practices, and transactions. It is crucial to the system in a modern economy. They channel household savings to the corporate sector and allocate investment funds among firms; they allow inter temporal smoothing of consumption by households and expenditures by firms; and they enable households and firms to share risks. These functions are common to the financial systems of most developed economies.The financial system in India comprises of financial institutions, financial markets, financial instruments and services.What is a financial market? |
270 | What is a financial market?Financial market is a broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial market is typically defined by having transparent pricing, basic regulations on trading, costs and fees and market forces determining the prices of securities that trade.A market is a location where buyers and sellers come into contact to exchange goods or services. Markets can exist in various forms depending on various factors.The financial markets permit both business and government to raise the needed funds by selling securities. Simultaneously, investors with excess funds are able to invest and earn a return, enhancing their welfare. Financial markets are absolutely vital for the proper functioning of capitalistic economies, because they serve to channel funds from savers to borrowers.Financial markets facilitate:The raising of capital (in the capital markets) |
271 | The financial markets permit both business and government to raise the needed funds by selling securities. Simultaneously, investors with excess funds are able to invest and earn a return, enhancing their welfare. Financial markets are absolutely vital for the proper functioning of capitalistic economies, because they serve to channel funds from savers to borrowers.Financial markets facilitate:The raising of capital (in the capital markets)The transfer of risk (in the derivatives markets)Price discoveryGlobal transactions with integration of financial marketsThe transfer of liquidity (in the money markets)International trade (in the currency markets)and are used to match those who want capital to those who haveit.Basic functions of financial marketsFinancial markets serve six basic functions. These functions are briefly listed below: |
272 | Basic functions of financial marketsFinancial markets serve six basic functions. These functions are briefly listed below:Borrowing and Lending: Financial markets permit the transfer of funds (purchasing power) from one agent to another for either investment or consumption purposes.Price Determination: Financial markets provide vehicles by which prices are set both for newly issued financial assets and for the existing stock of financial assets.Information Aggregation and Coordination: Financial markets act as collectors and aggregators of information about financial asset values and the flow of funds from lenders to borrowers.Risk Sharing: Financial markets allow a transfer of risk from those who undertake investments to those who provide funds for those investments.Liquidity: Financial markets provide the holders of financial assets with a chance to resell or liquidate these assets.Efficiency: Financial markets reduce transaction costs and information costs.Types of financial markets |
273 | Efficiency: Financial markets reduce transaction costs and information costs.Types of financial marketsWithin the financial sector, the term “financial markets” is often used to refer just to the markets that are used to raise finance: for long term finance, the Capital markets; for short term finance, the Money markets. Another common use of the term is as a catchall for all the markets in the financial sector, as per examples in the breakdown below.Capital markets which consist of:Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trad- ing thereof.Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof.Commodity markets, which facilitate the trading of commodities.Money markets, which provide short term debt financing and investment.Derivativesmarkets,whichprovideinstrumentsforthe management of financial risk. |
274 | Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof.Commodity markets, which facilitate the trading of commodities.Money markets, which provide short term debt financing and investment.Derivativesmarkets,whichprovideinstrumentsforthe management of financial risk.Futures markets, which provide standardized forward contracts for trading products at some future date;Insurance markets, which facilitate the redistribution of various risks.Foreign exchange markets, which facilitate the trading of foreign exchange.The Money market refers to the market where borrowers and lenders exchange short term funds to solve their liquidity needs. Money market instruments are generally financial claims that have low default risk, maturities under one year and high marketability. |
275 | Insurance markets, which facilitate the redistribution of various risks.Foreign exchange markets, which facilitate the trading of foreign exchange.The Money market refers to the market where borrowers and lenders exchange short term funds to solve their liquidity needs. Money market instruments are generally financial claims that have low default risk, maturities under one year and high marketability.The Capital market is a market for financial investments that are direct or indirect claims to capital. It is wider than the Securities Market and embraces all forms of lending and borrowing, whether or not evidenced by the creation of a negotiable financial instrument.The Securities Market, however, refers to the markets for those financial instruments/ claims/obligations that are commonly and readily transferable by sale. It is a place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds, |
276 | The Capital market is a market for financial investments that are direct or indirect claims to capital. It is wider than the Securities Market and embraces all forms of lending and borrowing, whether or not evidenced by the creation of a negotiable financial instrument.The Securities Market, however, refers to the markets for those financial instruments/ claims/obligations that are commonly and readily transferable by sale. It is a place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds,debentures etc. Further, it performs an important role of enabling corporate, entrepreneurs to raise resources for their companies and business ventures through public issues. Transfer of resources from those having idle resources (investors) to others who have a need for them (corporates) is most efficiently achieved through the securities market. |
277 | The Securities Market, however, refers to the markets for those financial instruments/ claims/obligations that are commonly and readily transferable by sale. It is a place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds,debentures etc. Further, it performs an important role of enabling corporate, entrepreneurs to raise resources for their companies and business ventures through public issues. Transfer of resources from those having idle resources (investors) to others who have a need for them (corporates) is most efficiently achieved through the securities market.Debt Market - Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender. In the Indian securities markets, the term ‘bond’ is used for debt instruments issued by the Central and State governments and public sector organizations and the term ‘debenture’ is used for instruments issued by private corporate sector. |
278 | debentures etc. Further, it performs an important role of enabling corporate, entrepreneurs to raise resources for their companies and business ventures through public issues. Transfer of resources from those having idle resources (investors) to others who have a need for them (corporates) is most efficiently achieved through the securities market.Debt Market - Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender. In the Indian securities markets, the term ‘bond’ is used for debt instruments issued by the Central and State governments and public sector organizations and the term ‘debenture’ is used for instruments issued by private corporate sector. |
279 | debentures etc. Further, it performs an important role of enabling corporate, entrepreneurs to raise resources for their companies and business ventures through public issues. Transfer of resources from those having idle resources (investors) to others who have a need for them (corporates) is most efficiently achieved through the securities market.Debt Market - Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender. In the Indian securities markets, the term ‘bond’ is used for debt instruments issued by the Central and State governments and public sector organizations and the term ‘debenture’ is used for instruments issued by private corporate sector.The National Stock Exchange of India started its trading operations in June 1994 by enabling the Wholesale Debt Market (WDM) segment of the Exchange. This segment provides a trading platform for a wide range of fixed income securities that includes central government securities, treasury bills (T-bills), state development loans (SDLs), bonds issued by public sector undertakings (PSUs), floating rate bonds (FRBs), zero coupon bonds (ZCBs), index bonds, commercial papers (CPs), certificates of deposit (CDs), corporate debentures, SLR and non-SLR bonds issued by financial institutions (FIs), bonds issued by foreign institutions and units of mutual funds (MFs). |
280 | Debt Market - Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender. In the Indian securities markets, the term ‘bond’ is used for debt instruments issued by the Central and State governments and public sector organizations and the term ‘debenture’ is used for instruments issued by private corporate sector.The National Stock Exchange of India started its trading operations in June 1994 by enabling the Wholesale Debt Market (WDM) segment of the Exchange. This segment provides a trading platform for a wide range of fixed income securities that includes central government securities, treasury bills (T-bills), state development loans (SDLs), bonds issued by public sector undertakings (PSUs), floating rate bonds (FRBs), zero coupon bonds (ZCBs), index bonds, commercial papers (CPs), certificates of deposit (CDs), corporate debentures, SLR and non-SLR bonds issued by financial institutions (FIs), bonds issued by foreign institutions and units of mutual funds (MFs). |
281 | Debt Market - Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender. In the Indian securities markets, the term ‘bond’ is used for debt instruments issued by the Central and State governments and public sector organizations and the term ‘debenture’ is used for instruments issued by private corporate sector.The National Stock Exchange of India started its trading operations in June 1994 by enabling the Wholesale Debt Market (WDM) segment of the Exchange. This segment provides a trading platform for a wide range of fixed income securities that includes central government securities, treasury bills (T-bills), state development loans (SDLs), bonds issued by public sector undertakings (PSUs), floating rate bonds (FRBs), zero coupon bonds (ZCBs), index bonds, commercial papers (CPs), certificates of deposit (CDs), corporate debentures, SLR and non-SLR bonds issued by financial institutions (FIs), bonds issued by foreign institutions and units of mutual funds (MFs).The emergence of the Derivatives market, most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking–in asset prices. As instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. |
282 | The National Stock Exchange of India started its trading operations in June 1994 by enabling the Wholesale Debt Market (WDM) segment of the Exchange. This segment provides a trading platform for a wide range of fixed income securities that includes central government securities, treasury bills (T-bills), state development loans (SDLs), bonds issued by public sector undertakings (PSUs), floating rate bonds (FRBs), zero coupon bonds (ZCBs), index bonds, commercial papers (CPs), certificates of deposit (CDs), corporate debentures, SLR and non-SLR bonds issued by financial institutions (FIs), bonds issued by foreign institutions and units of mutual funds (MFs).The emergence of the Derivatives market, most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking–in asset prices. As instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. |
283 | The National Stock Exchange of India started its trading operations in June 1994 by enabling the Wholesale Debt Market (WDM) segment of the Exchange. This segment provides a trading platform for a wide range of fixed income securities that includes central government securities, treasury bills (T-bills), state development loans (SDLs), bonds issued by public sector undertakings (PSUs), floating rate bonds (FRBs), zero coupon bonds (ZCBs), index bonds, commercial papers (CPs), certificates of deposit (CDs), corporate debentures, SLR and non-SLR bonds issued by financial institutions (FIs), bonds issued by foreign institutions and units of mutual funds (MFs).The emergence of the Derivatives market, most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking–in asset prices. As instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset.A commodity market is a market that trades in primary rather than manufactured products. Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar. Hard commodities are mined, such as (gold, rubber and oil). Investors access about 50 major commodity |
284 | The emergence of the Derivatives market, most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking–in asset prices. As instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset.A commodity market is a market that trades in primary rather than manufactured products. Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar. Hard commodities are mined, such as (gold, rubber and oil). Investors access about 50 major commodity |
285 | The emergence of the Derivatives market, most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking–in asset prices. As instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset.A commodity market is a market that trades in primary rather than manufactured products. Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar. Hard commodities are mined, such as (gold, rubber and oil). Investors access about 50 major commoditymarkets worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered. Futures contracts are the oldest way of investing in commodities. Futures are secured by physical assets. Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management. |
286 | A commodity market is a market that trades in primary rather than manufactured products. Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar. Hard commodities are mined, such as (gold, rubber and oil). Investors access about 50 major commoditymarkets worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered. Futures contracts are the oldest way of investing in commodities. Futures are secured by physical assets. Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management. |
287 | A commodity market is a market that trades in primary rather than manufactured products. Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar. Hard commodities are mined, such as (gold, rubber and oil). Investors access about 50 major commoditymarkets worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered. Futures contracts are the oldest way of investing in commodities. Futures are secured by physical assets. Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management.Mutual funds are investment companies that use the funds from investors to invest in other companies or investment alternatives. Mutual Fund Schemes may be classified on the Basis of its Structure and its Investment Objective. An open-ended mutual fund is the one whose units can be freely sold and repurchased by the investors. Closed- ended mutual funds have a fixed number of units, and a fixed tenure (3, 5, 10, or 15 years), after which their units are redeemed or they are made open-ended. These funds have various objectives: generating steady income by investing in debt instruments, capital appreciation by investing in equities, or both by making an equal allocation of the corpus in debt and equity instruments. Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. |
288 | markets worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered. Futures contracts are the oldest way of investing in commodities. Futures are secured by physical assets. Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management.Mutual funds are investment companies that use the funds from investors to invest in other companies or investment alternatives. Mutual Fund Schemes may be classified on the Basis of its Structure and its Investment Objective. An open-ended mutual fund is the one whose units can be freely sold and repurchased by the investors. Closed- ended mutual funds have a fixed number of units, and a fixed tenure (3, 5, 10, or 15 years), after which their units are redeemed or they are made open-ended. These funds have various objectives: generating steady income by investing in debt instruments, capital appreciation by investing in equities, or both by making an equal allocation of the corpus in debt and equity instruments. Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. |
289 | markets worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered. Futures contracts are the oldest way of investing in commodities. Futures are secured by physical assets. Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management.Mutual funds are investment companies that use the funds from investors to invest in other companies or investment alternatives. Mutual Fund Schemes may be classified on the Basis of its Structure and its Investment Objective. An open-ended mutual fund is the one whose units can be freely sold and repurchased by the investors. Closed- ended mutual funds have a fixed number of units, and a fixed tenure (3, 5, 10, or 15 years), after which their units are redeemed or they are made open-ended. These funds have various objectives: generating steady income by investing in debt instruments, capital appreciation by investing in equities, or both by making an equal allocation of the corpus in debt and equity instruments. Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.Major players in financial markets |
290 | Mutual funds are investment companies that use the funds from investors to invest in other companies or investment alternatives. Mutual Fund Schemes may be classified on the Basis of its Structure and its Investment Objective. An open-ended mutual fund is the one whose units can be freely sold and repurchased by the investors. Closed- ended mutual funds have a fixed number of units, and a fixed tenure (3, 5, 10, or 15 years), after which their units are redeemed or they are made open-ended. These funds have various objectives: generating steady income by investing in debt instruments, capital appreciation by investing in equities, or both by making an equal allocation of the corpus in debt and equity instruments. Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.Major players in financial marketsBrokers |
291 | Major players in financial marketsBrokersA broker is a commissioned agent of a buyer (or seller) who facilitates trade by locating a seller (or buyer) to complete the desired transaction. A broker does not take a position in the assets he or she trades - that is, the broker does not maintain inventories in these assets. The profits of brokers are determined by the commissions they charge to the users of their services (the buyers, the sellers, or both). Examples of brokers include real estate brokers and stock brokers.Dealers |
292 | BrokersA broker is a commissioned agent of a buyer (or seller) who facilitates trade by locating a seller (or buyer) to complete the desired transaction. A broker does not take a position in the assets he or she trades - that is, the broker does not maintain inventories in these assets. The profits of brokers are determined by the commissions they charge to the users of their services (the buyers, the sellers, or both). Examples of brokers include real estate brokers and stock brokers.DealersLike brokers, dealers facilitate trade by matching buyers with sellers of assets; they do not engage in asset transformation. Unlike brokers, however, a dealer can and does “take positions” (i.e., maintain inventories) in the assets he or she trades that permit the dealer to sell out of inventory rather than always having to locate sellers to match every offer to buy. Also, unlike brokers, dealers do not receive sales commissions. Rather, dealers make profits by buying assets at |
293 | DealersLike brokers, dealers facilitate trade by matching buyers with sellers of assets; they do not engage in asset transformation. Unlike brokers, however, a dealer can and does “take positions” (i.e., maintain inventories) in the assets he or she trades that permit the dealer to sell out of inventory rather than always having to locate sellers to match every offer to buy. Also, unlike brokers, dealers do not receive sales commissions. Rather, dealers make profits by buying assets atrelatively low prices and reselling them at relatively high prices (buy low- sell high). Examples of dealers include dealers in government bonds and stock dealers.Investment BanksAn investment bank assists in the initial sale of newly issued securities (i.e., in IPOs = Initial Public Offerings) by engaging in a number of different activities like advice, underwriting, sales assistance etc.Financial Intermediaries |
294 | Investment BanksAn investment bank assists in the initial sale of newly issued securities (i.e., in IPOs = Initial Public Offerings) by engaging in a number of different activities like advice, underwriting, sales assistance etc.Financial IntermediariesUnlike brokers, dealers, and investment banks, financial intermediaries are financial institutions that engage in financial asset transformation. That is, financial intermediaries purchase one kind of financial asset from borrowers - generally some kind of long-term loan contract whose terms are adapted to the specific circumstances of the borrower (e.g., a mortgage) and sell a different kind of financial asset to savers, generally some kind of relatively liquid claim against the financial intermediary (e.g., a deposit account). In addition, unlike brokers and dealers, financial intermediaries typically hold financial assets as part of an investment portfolio rather than as an inventory for resale. Types of financial intermediaries include commercial banks, Life insurance companies, pension funds, finance companies, mutual funds etc. |
295 | An investment bank assists in the initial sale of newly issued securities (i.e., in IPOs = Initial Public Offerings) by engaging in a number of different activities like advice, underwriting, sales assistance etc.Financial IntermediariesUnlike brokers, dealers, and investment banks, financial intermediaries are financial institutions that engage in financial asset transformation. That is, financial intermediaries purchase one kind of financial asset from borrowers - generally some kind of long-term loan contract whose terms are adapted to the specific circumstances of the borrower (e.g., a mortgage) and sell a different kind of financial asset to savers, generally some kind of relatively liquid claim against the financial intermediary (e.g., a deposit account). In addition, unlike brokers and dealers, financial intermediaries typically hold financial assets as part of an investment portfolio rather than as an inventory for resale. Types of financial intermediaries include commercial banks, Life insurance companies, pension funds, finance companies, mutual funds etc. |
296 | Financial IntermediariesUnlike brokers, dealers, and investment banks, financial intermediaries are financial institutions that engage in financial asset transformation. That is, financial intermediaries purchase one kind of financial asset from borrowers - generally some kind of long-term loan contract whose terms are adapted to the specific circumstances of the borrower (e.g., a mortgage) and sell a different kind of financial asset to savers, generally some kind of relatively liquid claim against the financial intermediary (e.g., a deposit account). In addition, unlike brokers and dealers, financial intermediaries typically hold financial assets as part of an investment portfolio rather than as an inventory for resale. Types of financial intermediaries include commercial banks, Life insurance companies, pension funds, finance companies, mutual funds etc.Role and functions of financial market |
297 | Unlike brokers, dealers, and investment banks, financial intermediaries are financial institutions that engage in financial asset transformation. That is, financial intermediaries purchase one kind of financial asset from borrowers - generally some kind of long-term loan contract whose terms are adapted to the specific circumstances of the borrower (e.g., a mortgage) and sell a different kind of financial asset to savers, generally some kind of relatively liquid claim against the financial intermediary (e.g., a deposit account). In addition, unlike brokers and dealers, financial intermediaries typically hold financial assets as part of an investment portfolio rather than as an inventory for resale. Types of financial intermediaries include commercial banks, Life insurance companies, pension funds, finance companies, mutual funds etc.Role and functions of financial marketOne of the important requisite for the accelerated development of an economy is the existence of a dynamic financial market. A financial market helps the economy in the following manner. |
298 | Role and functions of financial marketOne of the important requisite for the accelerated development of an economy is the existence of a dynamic financial market. A financial market helps the economy in the following manner.Saving mobilization: Obtaining funds from the savers or surplus units such as household individuals, business firms, public sector units, central government, state governments etc. is an important role played by financial markets.Investment: Financial markets play a crucial role in arranging to invest funds thus collected in those units which are in need of the same.National Growth: An important role played by financial markets is that, they contribute to a nation’s growth by ensuring unfettered flow of surplus funds to deficit units. Flow of funds for productive purposes is also made possible.Entrepreneurship growth: Financial markets contribute to the development of the entrepreneurial class by making available the necessary financial resources. |
299 | Investment: Financial markets play a crucial role in arranging to invest funds thus collected in those units which are in need of the same.National Growth: An important role played by financial markets is that, they contribute to a nation’s growth by ensuring unfettered flow of surplus funds to deficit units. Flow of funds for productive purposes is also made possible.Entrepreneurship growth: Financial markets contribute to the development of the entrepreneurial class by making available the necessary financial resources.Industrial development: The different components of financial markets help an accelerated growth of industrial and economic development of a country, thus contributing to raising the standard of living and the society of well-being.The functions of financial markets include the following:Transfer of Resources: Financial markets facilitate the transfer of real economic resources from lenders to ultimate borrowers. |
300 | Entrepreneurship growth: Financial markets contribute to the development of the entrepreneurial class by making available the necessary financial resources.Industrial development: The different components of financial markets help an accelerated growth of industrial and economic development of a country, thus contributing to raising the standard of living and the society of well-being.The functions of financial markets include the following:Transfer of Resources: Financial markets facilitate the transfer of real economic resources from lenders to ultimate borrowers.Enhancing income: Financial markets allow lenders to earn interest or dividend on their surplus invisible funds, thus contributing to the enhancement of the individual and the national income.Productive usage: Financial markets allow for the productive use of the funds borrowed.Capital Formation: Financial markets provide a channel through which new savings flow to aid capital formation of a country. |
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