PREVENTION OF OPERATION AND MISMANAGEMENTOPPRESSIONOppression is the exercise of authority or power in a burdensome, cruel, or unjust manner.[1] It can also be defined as an act or instance of oppressing, the state of being oppressed, and the feeling of being heavily burdened, mentally or physically, by troubles, adverse conditions, and anxiety.

The Supreme Court in Daleant Carrington Investment (P) Ltd. v. P.K. Prathapan[2], held that increase of share capital of a company for the sole purpose of gaining control of the company, where the majority shareholder is reduced to minority , would amount to oppression. The director holds a fiduciary position and could not on his own issue shares to himself. In such cases the oppressor would not be given an opportunity to buy put the oppressed.

Circumstances Which Amount To OppressionLooking at the judicial pronouncements a few acts which amount to oppression are listed below:Attempt to force new and more risky objects upon an unwilling minority may in circumstances amount to oppression. This can be best illustrated with the case of Hindustan Coop Insurance Society Ltd, Re.[11]Here, a life insurance business of a company was acquired by Life Insurance Corporation in1956 on payment of compensation. Directors, who had majority voting powers, refused to distribute this amount among share holders. Rather, they passed a special resolution changing the objects of the company and use compensation money for new objects. This was held to be an oppression. Here the majority forced the minority shareholders to invest money in different kind of business against their will.[12]An attempt to deprive a member of his ordinary membership rights is oppression, as in the case of Mohan Lal Chandumall v. Punjab Co. Ltd[13]. In the instant case, a public company doing forward contract business amended its articles of association under statutory directions, so as to deprive its non-trading members their right to vote, to call meetings, to elect directors and receive dividends. Court held that the company in doing so trampled upon valuable rights of such members by unjust exercise of its authority and power, and this amounted to oppression within Section 377.Suppressing notices of meetings to some of the members amounts to oppression. Casual omission may not be oppression, but systematic elimination of notices to some of the members is serious deprivation of their most important right.[14]Continuous refusal by company to register shares with an ulterior motive of retaining control over the affairs of the company. Though the refusal once by the company may not be oppressive, but a continuous refusal by the company to register the shares with an ulterior motive of retaining the control over the affairs of the company where CLB will have to grant relief under Sec 397.- Kumar Exporters (P) Ltd v. Naini Oxygen and Acetylene Gas Ltd.Failure to distribute the amount of compensation received on nationalization of business of company among members, where requires to be distributed. Hindustan Co-op Insurance Society Ltd, In re[15]- Here, the insurance business of the company was nationalized and compensation was received. The directors did not call any AGM. After three years the board resolved to call a GM and pass a resolution to continue the company and carry on other businesses authorized by memorandum with compensation money received. Sec 39 of the Life Insurance Act envisaged distribution of compensation to shareholders and dissolution of the company. The court held that the resolution and persistent conduct of the respondent in the affairs of the company shows that they never intended to distribute the compensation money amongst the shareholders, who were entitled thereto. This conduct was held to be oppressive to the company and the applicants minority shareholding company.Other instances of oppression may include- issue of further shares benefiting a section of the shareholders; registration of transfers in violation of articles; irregularity in allotment and transfer of shares; denial of inspection of books to shareholder etc.There is nothing to limit equity shareholdings only. Applicants may be partly or wholly preference share holders too. Any member or members having obtained the consent in writing of requisite number of members may apply. Right to apply is not confined to oppressed minority alone even oppressed majority can apply.

Prevention of oppressionSection 397(1) of the Companies Act provides that any member of a company who complains that the affair of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members may apply to the Tribunal for an order thus to protect his /her statutory rights.

Sub-section (2) of Section 397 lays down the circumstances under which the tribunal may grant relief under Section 397, if it is of opinion that :-

(a)the companys affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members ; and

(b) to wind up the company would be unfairly and prejudicial to such member or members , but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound.

The tribunal with the view to end the matters complained of, may make such order as it thinks fit.

Who can applySection 397 of the Companies Act states the members of a company shall have the right to apply under Section 397 or 398 of the Companies Act. According to Section 399 where the company is with the share capital, the application must be signed by at least 100 members of the company or by one tenth of the total number of its members, whichever is less, or by any member, or members holding one-tenth of the issued share capital of the company. Where the company is without share capital, the application has to be signed by one-fifth of the total number of its members. A single member cannot present a petition under section 397 of the Companies Act. The legal representative of a deceased member whose name is again on the register of members is entitled to petition under Section 397 and 398 of the Companies Act.[3]Under Section 399(4) of the Companies Act, the Central Government if the circumstances exist authorizes any member or members of the company to apply to the tribunal and the requirement cited above, may be waived. The consent of the requisite no. of members is required at the time of filing the application and if some of the members withdraw their consent, it would in no way make any effect in the application. The other members can very well continue with the proceedings.Conditions for Granting ReliefsTo obtain relief under section 397 the following conditions should be satisfied:-1. There must be oppression- The Punjab and HaryanaHigh Courtin Mohan Lal Chandmall v. Punjab Co. Ltd[4] has held that an attempt to deprive a member of his ordinary membership rights amounts to oppression. Imposing of more new and risky objects upon unwilling minority shareholders may in some circumstances amount to oppression.[5]However, minor acts of mismanagement cannot be regarded as oppression. The Court will not allow that the remedy under Section 397 becomes a vexatious source of litigation.[6] But an unreasonable refusal to accept a transfer of shares held as sufficient ground to pass an order under Section 397 of the Companies Act, 1956.[7]Thus to constitute oppression there must be unfair abuse of the powers and impairments of the confidence on the part of the majority of shareholders.

2. Facts must justify winding up- It is well settled that the remedy of winding up is an extreme remedy. No relief of winding up can be granted on the ground that the directors of the company have misappropriated the companys fund, as such act of the directors does not fall in the category of oppression or mismanagement.[8]To obtain remedy under Section 397 of the Companies Act, the petitioner must show the existence of facts which would justify the winding up order on just and equitable ground.

3. The oppression must be continued in nature It is settled position that a single act of oppression or mismanagement is sufficient to invoke Section 397 or 398 of the Companies Act. No relief under either of the section can be granted if the act complained of is a solitary action of the majority. Hence, an isolated action of oppression is not sufficient to obtain relief under Section 397 or 398 of the Act. Thus to prove oppression continuation of the past acts relating to the present acts is the relevant factor , otherwise a single act of oppression is not capable to yield relief.

4. The petitioners must show fairness in their conduct-It is settled legal principle that the person who seeks remedy must come with clean hands. The members complaining must show fairness in their conduct. For ex-Mere declaration of low dividend which does not affect the value of the shares of the petitioner ,was neither oppression nor mismanagement in the eyes of law.[9]5. Oppression and mismanagement should be specifically pleaded- It is settled law that , in case of oppression a member has to specifically plead on five facts:-a) what is the alleged act of oppression ;b) who committed the act of oppression;c) how it is oppressive;d) whether it is in the affairs of the company;e) and whether the company is a party to the commission of the act of oppression.[10]MISMANAGEMENTThe present Company Act does provide the definition of the expression mismanagement. When the affairs of the company are being conducted in a manner prejudicial to the interest of the company or its members or against the public interest, it amounts to mismanagement.

Instances Of MismanagementA very clear illustration of mismanagement under Section 398 appears in Rajahmundary Electric Corporation v. Nageshwara Rao[19]. Here, a petition was brought against a company by certain shareholders on the ground of mismanagement by directors. Court found that vice-chairman grossly mismanaged the affairs of the company and had drawn considerable amounts for his personal purposes, the shareholders outside the group of chairman were powerless to set matters right. This was held to be sufficient evidence of mismanagement. The court accordingly appointed two administrators for management of company for period of 6 months vesting in them all the powers of the directorate.Where the managing directors of the Company continued in office after expiry of their terms, without a meeting being held to re-appoint them prior to making fresh application to Central Government under Sec 269, the continuation of office under these conditions was held to be mismanagement.- Sishu Ranjan v. Bholanath Paper House[20]Where bank account was operated by unauthorized person. Kuldip Singh Dhillon v. Paragon Utility Financers Ltd. In this case, a certified copy of a resolution had been sent to the bank authorizing certain persons to operate the account. No such resolution was found recorded in the minutes book; rather the resolutions passed on the particular date and recorded in the minutes book; rather the resolutions passed on the particular date and recorded in the minutes book were different.Sale of assets at low price and without compliance with the Act- One of the estates of a tea and rubber plantation company was sold by the direction at a low price to another tea plantation company without complying with the requirements of sec 293(1) which demands approval by shareholders and without giving adequate under Sec 173 and relevant information, giving delivery of possession before general body meeting and accepting consideration in instalment. It was held that all these acts constituted mismanagement of affairs and sale was set aside. The Board of directors and the purchasers were held liable for the companys losses and were required to submit an account of the income of the estate from the date of delivery of possession to the date of its actual return to the company- Malayalam Plantations Ltd., Re[21]Violation of statutory provisions and those of articles- Transferring shares without first offering them to the existing members in accordance with their rights under the articles, holding meetings without sending notice to members; issue of shares for consideration other than cash not represented by corresponding assets and burdening the company with additional rental by shifting the companys office- Akbarali Kalveri v. Konkan Chemicals Ltd.[22]Other instances include Gross neglect of interest of the company by sale of its only assets and total inattention thereafter to the affairs of the company[23]; Violation of conditions of companys memorandum etc.The famous Satyam fiasco is a very good example of mismanagement of funds of the company and fraudulent accounting, where the Chairman of Satyam Computer Services- Ramalinga Raju in his letter to the Board of Directors confessed to Indias biggest corporate fraud worth Rs 7,000 crore on the company.[24]Effect of Arbitration Clause[25]- Provisions in the Articles of Association of a company for reference of disputes between Company and director, or between directors or between members cannot oust the jurisdiction of the Court to try petition by member for winding up or petition against oppression and mismanagement.Partnership- The Supreme Court has laid down that a relief cannot be granted under S 397 and 398 on the analogy of principles applicable partnership and the application of this has to be confined to rare cases for invoking the jurisdiction under S.433 for ordering winding up of small private company.[26]Banking- A banking company can be wound up only under Part III of Banking Regulation Act and not under the just and equitable clause in Sec 433(f). Consequently no application is maintainable under sec 397 in respect of banking company.

PREVENTION OF MISMANAGEMENTSection 398(1) of the Companies act provides that any members of a company who complain:-that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or a material change has taken place in the management or control of the company, whether by an alteration in its Board of directors, or manager or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; may apply to theCompany LawBoard for an order of relief provided such members have a right so to apply as given below.

If, on any such application, theCompany LawBoard is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.

Right to Complain mismanagement-1. The following members of a company shall have the right to apply as above:-a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares;b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members.

2. Where any share or shares are held by two or more persons jointly, they shall be counted only as one number.

3. Where any members of a company, are entitled to make an application, any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them.

4. The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorize any member or members of the company to apply to theCompany LawBoard, notwithstanding that the above requirements for application are not fulfilled.

5.The Central Government may, before authorizing any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any costs which the Court dealing with the application may order such member or members to pay to any other person or persons who are parties to the application.

6. If the managing director or any other director, or the manager, of a company or any other person, who has not been impleaded as a respondent to any application applies to be added as a respondent thereto, theCompany LawBoard may, if it is satisfied that there is sufficient cause for doing so, direct that he may be added as a respondent accordingly.

Notice to be given to Central Government of applicationTheCompany LawBoard must give notice of every application made to it as above to the Central government, and shall take into consideration the representations, if any, made to it by that Government before passing a final order.

Right of Central Government to applyThe Central Government may itself apply to the Company law Board for an order, or because an application to be made to theCompany LawBoard for such an order by any person authorized be it in this behalf.

Powers of TribunalUnder Section 402 of the Companies Act ,1956 the powers of the Tribunal under Sections 397 and 398 are very wide .These are :-1. the regulation of the conduct of the company's affairs in future;

2. the purchase of the shares or interests of any members of the company by other members thereof or by the company;

3. in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital;4.the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand, and any of the following persons, on the other namely:-a) the managing director;b) any other director;c) the manager;

Upon such terms and conditions as may, in the opinion of theCompany LawBoard, be just and equitable in all the circumstances of the case ;the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned; the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference. Any other matter for which in the opinion of theCompany LawBoard it is just and equitable that provision should be made.

Effect of alteration of memorandum or articles of company by order:Where an order makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not have power, except to the extent, if any permitted in the order, to make without the leave of theCompany LawBoard, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles. The alterations made by the order shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act.A certified copy of every order altering or giving leave to alter, a company's memorandum or articles, must within thirty days after the making thereof, be filed by the company with the Registrar who shall registrar the same.If default is made in complying with the above provisions, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees.

Consequences of termination or modification of certain agreements:Where an order terminates, sets aside or modifies an agreement:-the order shall not give rise to any claim whatever against the company by any person for damages or for compensation for loss of office or in any respect, either in pursuance of the agreement or otherwise; no managing or other director or manager whose agreement is so terminated or set aside, shall for a period of five years from the date of the order terminating the agreement, without the leave of theCompany LawBoard, be appointed, or act, as the managing or other director or manager of the company. Any person who knowingly acts as a managing or other director or manager of a company in contravention of the above provision, every director of the company, who is knowingly a party to such contravention shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to five thousand rupees, or with both. TheCompany LawBoard will not grant leave for appointment as managing director or director or manager of the company unless notice of the intention to apply for leave has been served on the Central Government and that Government has been given an opportunity of being heard in the matter.

Powers of Central Government to prevent oppression or mismanagement:The Central Government may appoint such number of persons as theCompany LawBoard may, by order in writing, specify as being necessary to effectively safeguard the interests of the Company or its shareholders or public interests, to act as directors thereof for such period not exceeding 3 years on any one occasion[11] as it deems fit if theCompany LawBoard:-

On a reference being made to it by the Central Government ; or on an application of not less than one hundred members of the company or of members of the company holding not less than one-tenth of the total voting power therein, is satisfied, after such inquiry as it deems fit to make, that it is necessary to make the appointment or appointments in order to prevent the affairs of the company being conducted either in a manner which is oppressive to any members of the company or in a manner which is prejudicial to the interests of the company or to public interest.

However, in lieu of passing order as aforesaid, theCompany LawBoard may, if the company has not availed itself of the option given to it of proportional representation to minority shareholders on the Board of the company, direct the company to amend its articles in the manner provided section 265 and make fresh appointments of directors in pursuance of the articles as so amended within such time as may be specified in that behalf by theCompany LawBoard.

In case the Central Government passes such an order it may, if thinks fit, direct that until new directors are appointed in pursuance of the order aforesaid, not more than two members of the company specified by the Company law Board shall hold office as additional directors of the company. The Central Government shall appoint such additional directors on such directions.

The person appointed as a director by the Central Government in accordance with the above provisions, need not hold any qualification shares or need to retire by rotation. However, his office as director may be terminated at any time by the Central Government and another person appointed in his place. No change in the constitution of the Board of Directors can take place after an additional director is appointed by the Central Government in accordance with these provisions unless approved by theCompany LawBoard. The Central Government in such cases may also issue such directions to the company as it may consider necessary or appropriate in regard to its affairs.

Power of the Tribunals to prevent change in Board of Directors :Where a complaint is made to theCompany LawBoard by the managing director or any other director or the manager of a company that, as a result of a change which has taken place or is likely to take place in ownership or any shares held in the company, a change in the Board of directors is likely to take place which (if allowed) would affect prejudicially the affairs of the company, theCompany LawBoard may, if satisfied, after such inquiry as it thinks fit to make that it is just and proper to do so, by order direct that no resolution passed or that may be passed or no action taken or may be taken to effect a change in the Board of directors after the date of the complaint shall have effect unless confirmed by theCompany LawBoard.

Any such order shall have effect notwithstanding anything to the contrary contained in any other provision of this Act or in the memorandum or articles of the company, or in any agreement with, or any resolution passed in general meeting by, or by the Board of directors or, the company. TheCompany LawBoard shall have power when any such complaint is received by it, to make an interim order to the effect set out above, before making or completing the inquiry aforesaid. Nothing contained above shall apply to a private company, unless it is a subsidiary of a public company.[12]

Powers of Inspectors[S.240]:Where an inspector investigating the affairs of the company thinks it necessary to investigate the affairs of another company in the same management or group , he is empowered to do so. However as mentioned in section 239(2), he has to obtain prior approval of the Central Government for that purpose.[13] Section 240 has been amended by the Amendment of 2000 .Sub-section (1) was substituted. The new sub-section provides that it shall be the duty of all officers and other employees and agents of the company and those of any other body corporate whose affairs are being investigated under Section 239:

a) to preserve and to produce to an inspector or any other person authorized by him in this behalf with the previous approval of the Central Government, all books and papers of or relating to the other body corporate, which are in their custody or power; and

b) otherwise to give to the inspector, all assistance in connection with the investigation which they are reasonable able to give.

For facilitating the task of the inspector it is the duty of all officers in charge of the management of the company to produce to the inspector all books and papers of the company which are in the custody and power and to give to the inspector all assistance in connection with the investigation which they are reasonably able to give.[14]The inspector may examine on oath any such person and for this purpose require his personal attendance.[15]If a person required to appear or to produce books, makes a default that is a punishable offence.[16]Where an inspector finds a person, whom he has no power to examine on oath, ought to be so examined the inspector may do so with the previous approval of the Central Government. Notes of any such examination are to be taken in writing and signed by the person examined and may be used in evidence against him [17].A refusal to answer any question is also punishable.

ConclusionOppression and mismanagement are part and parcel of business. During the course of business, oppression of small/minority shareholders takes place by the majority shareholders who are in control of the company. Similarly, mismanagement of business is not uncommon. When we talk of mismanagement we mean mismanagement of resources. Mismanagement could mean siphoning of funds, causing losses due to rash decision, not maintaining proper records, not calling requisite meetings. Finer version of mismanagement could arise where the management does not act/react to a business situation leading to downfall of business.

The concept of oppression and mismanagement is more relevant or common to family owned concerns. The reasons are very obvious. Family owned concerns are owned by family members who over time develop vested interest in business vested interest in their own heirs being the most common - thereby leading to oppression of other family members. Here typically, the controlling member of the family appropriates the family holdings by means of either a fresh issue or fraudulent transfers in his favor or reconstitutes the board in such a manner as to alienate the other family members. The result is the other family members get oppressed.

Secondly, the family owned concerns are not professional managed and their system of functioning is usually personal. They lack probity and fair play. They generally do business in a manner where they begin to benefit personally to the exclusion of other members. This leads to oppression of other family members/mismanagement of companies.

In order to check all these discrepancies the need was felt to have any measure to prevent the Oppression and mismanagement and thus under Chapter 6th of Part 6th of Companies Act , 1956 provides for the judicial as well as administrative remedies to check Oppression and mismanagement. It is a powerful tool which provides such power that even a singer member can approachCompany LawBoard if any of his right has been infringed or in order to prevent the Oppression and mismanagement in the company.

PROCEDURE POWERS AND FUNCTIONS OF THE SECURITIES APPELLATE TRIBUNAL UNDER SEBI ACT 1992.The legal reforms began with the enactment of the SEBI Act, 1992, which established SEBI with statutory responsibilities to (i) protect the interest of investors in securities, (ii) promote the development of the securities market, and (iii) regulate the securities market. This was followed by repeal of the Capital Issues (Control) Act, 1947 in 1992 which paved way for market determined allocation of resources. Then followed the Securities Laws (Amendment) Act in 1995, which extended SEBIs jurisdiction over corporates in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. It empowered SEBI to appoint adjudicating officers to adjudicate wide range of violations and impose monetary penalties and provided for establishment of Securities Appellate Tribunals (SATs) to hear appeals against the orders of the adjudicating officers. Then followed the Depositories Act in 1996 to provide for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security. It made securities of public limited companies freely transferable subject to certain exceptions; dematerialised the securities in the depository mode; and provided for maintenance of ownership records in a book entry form. The Depositories Related Laws (Amendment) Act, 1997 amended various legislations to facilitate dematerialization of securities. The Securities Laws (Amendment) Act, 1999 was enacted to provide a legal framework for trading of derivatives of securities and units of CIS. The Securities Laws (Second Amendment) Act, 1999 was enacted to empower SAT to deal with appeals against orders of SEBI under the Depositories Act and the SEBI Act, and against refusal of stock exchanges to list securities under the SCRA. The next intervention is the SEBI (Amendment) Act, 2002 which enhanced powers of SEBI substantially in respect of inspection, investigation and enforcement.Constitution : The Act established a Board, called Securities and Exchange Board of India (SEBI), to protect the interests of investors in securities and to promote the development of and to regulate the securities market. It prescribed that the Board would consist of a Chairman, one member each from amongst the officials of the finance ministry, the law ministry and the RBI and two other members. In order to avoid conflict of interest, it was provided that a member shall be removed from office if he is appointed as a director of a company. Functions : In addition to its general responsibility, it was assigned the following specific responsibilities:(a)regulating the business in stock exchanges and any other securities markets,(b)registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustee of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio mangers, investment advisors and such other intermediaries,(c)registering and regulating working of CIS, including mutual funds,(d)promoting and regulating self regulatory organizations (SROs),(e)prohibiting fraudulent and unfair trade practices relating to securities market,(f)promoting investor education and training of intermediaries,(g)prohibiting insider trading in securities,(h)regulating substantial acquisition of shares and takeover of companies, (i)calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, intermediaries and SROs, (j)performing such functions and exercising such powers under the SCRA as may be delegated by the Central Government, (This was done in the interest of integrated regulation. Then all the powers under the SCRA were exercisable by Central Government. Until SEBI stabilizes, it was considered desirable that important powers are not transferred from Central Government, but delegated to SEBI.) (k)levying fees or other charges for carrying the above purposes, (l)conducting research for the above purposes and(m)performing such other functions as may be prescribed.The Board was empowered to delegate any of its powers and functions under the Act (except powers to make regulations) to any member, officer of the Board or any other person. Securities Appellate Tribunal

ESTABLISHMENT, POWERS AND FUNCTIONS OF ADJUDICATING AUTHORITY AND THE APPELLATE TRIBUNAL UNDER FOREIGN EXCHANGE MANAGEMENT ACT (FEMA) 1999.IntroductionThe Foreign Exchange Management Act, 1999 (FEMA) replaces the Foreign Exchange Regulation Act (FERA). FERA was introduced in 1974 to consolidate and amend the then existing law relating to foreign exchange. FERA was amended in 1993 to bring about certain changes, as a result of introduction of economic reforms and liberalization of Indian Economy. But it was soon realized that FERA had by and large outlived its utility in the changed economic scenario and therefore replaced by FEMA in 1999.MeaningFEMA was introduced by the Finance Minister in Lok Sabha on August 4, 1998. The Bill aims to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market India. It was adopted by the parliament in 1999 and is known as the Foreign Exchange Management Act, 1999. This Act extends to the whole of India and shall also apply to all branches, offices and agencies outside India owned or by a person resident in India.Objectives and Reasons for enactment of FEMAFEMA was enacted to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India (Preamble). The statement of objects and reasons set the tone of the enactment of new legislation:i.The Foreign Exchange Regulation Act, 1973, was reviewed in 1993 and several amendments were enacted as part of the ongoing process of economic liberalization relating to foreign investments and foreign trade for closer interaction with the world economy. At that stage, the central government decided that the further exchange of the Foreign Exchange Regulation Act would be undertaken in the light of subsequent developments and experience in relation to foreign trade and investment. It was subsequently felt that a better course would be to repeal the existing Foreign Exchange Regulation Act and enact a new legislation. A task force constituted for the purpose submitted its report in 1994 recommending substantial changes in the existing Act.ii.Significant developments have been taking place since 1993 such as substantial increase in foreign exchange reserves, growth in foreign trade, rationalization of tariffs, current account convertibility, liberalization of Indian investments abroad, increased access to external borrowings by Indian corporate and participation of Foreign investors in the stock markets.Accordingly, a bill to repeal and replace Foreign Exchange Regulation Act, 1973 was introduced Lok Sabha on 04.08.1998. On reference to the standing committee modifications and suggestions were submitted by the standing committee in its report. After incorporating modifications and suggestions of the standing committee, the central government decided to introduce the new law, the Foreign Exchange Management Bill and repeal the Foreign Exchange Regulation Act, 1973Salient Features of FEMAFEMA extends to whole ofIndia. It shall also apply to all branches, offices and agencies outsideIndia, owned or controlled by a person resident inIndiaand also to any contravention there under committed outsideIndiaby any person to whom the Act applies. Therefore joint ventures or wholly owned subsidiaries, though outsideIndia, but controlled fromIndiaare intended to be covered by the Act. The new Act is meant to be user friendly with the object to facilitate external trade and payments for promoting the orderly development of foreign exchange inIndia.Under the new law, the emphasis for determining the residential status is on the actual period of stay inIndia, whereas under FEMA, the emphasis was on the intention of the person. Under the new law, it is not necessary that the person should be continuously and physically present inIndia. It will be sufficient the total of stay inIndiais 182 days or more during the year.The central government may from time to time give general or special directions to the Reserve Bank and Reserve Bank shall comply with such directions. The central government may by notification make rules to carry out the provisions of the Act. The Reserve Bank may by notification make regulation to carry out the provisions of the Act and rules there under. Every rule and regulation made under the Act shall as soon as after it is made, be laid before each house of parliament. If any difficulty arises in giving effect ti the provisions of the Act, the central government may by order, do anything not inconsistent with the provisions if the Act for the purpose of removing the difficulty.Suspension of operation of FEMAIf the central government is satisfied that circumstances have arisen rendering it necessary that any permission granted or restriction imposed by the Act should cease to be granted or imposed or if it considers necessary in public interest, the central government may by notification, suspend or relax to such extent either indefinitely or for such period as notified, the operation of all or any of the provisions of the Act.Bar of legal proceedingsNo suit, prosecution or other legal proceedings shall lie against the central government or the Reserve Bank or any officer of the government or of the Reserve Bank or any person exercising any power or discharging any functions or performing any duties under the Act for anything done in good faith or extended to be done under the Act or rule, regulation, notification, direction or order made there under.Repeal, Savings and Cognizance of offencesWith the enactment of FEMA, FERA stands repealed and appellate board constituted under FERA shall stand dissolved. No court and adjudicating officer shall take cognizance or notice of an offence or any contravention under FEMA after the expiry of two years period from 1.6.2000. However, while FERA was in force all offences committed under FERA shall continue to be governed by FERA as if FERA had not been repealed. Any appeal preferred to the Appellate Board under FERA but not disposed off before the commencement of FEMA shall stand transferred and shall be disposed off by the Appellate Tribunal constituted under FEMA. FEMA is for regulation and management of foreign exchange through authorized person and provides for penalty for contravention of the provisions. The object is for promoting orderly development and maintenance of foreign exchange market in India.

Adjudicating Authority(Sec. 16)Appointment.For the purpose of adjudication, the Central Government may appoint officers of the Central Government as the Adjudicating Authorities. The appointment shall be made by an order published in the official Gazette, for holding an enquiry in the manner prescribed after giving the person alleged to have committed contravention, against whom a complaint has been made (referred to as the said person) a reasonable opportunity of being heard for the purpose of imposing any penalty, if levied, it may direct the said person to furnish a bond or guarantee for such amount [Sec. 16(1)]Jurisdiction. The Central Government shall, while appointing the Adjudicating Authorities, also specify in the order published in the official Gazette their respective jurisdiction [Sec. 16(2)].Procedure of inquiry.The Adjudicating Authority shall hold an enquiry only upon a complaint in writing made by an officer authorized by a general or special order by the Central Government [Sec. 16(3)]. The said person may appear either or person or take the assistance of a legal practitioner or a chartered accountant of his choice for presenting his case before the Adjudicating Authority [Sec. 16(4)]Powers of Adjudicating Authority. The Adjudicating Authority shall have the same powers a civil court which are conferred on the Appellate tribunal under sec. 28(2) and-a)All proceedings before I shall be deemed to be judicial proceedings within the meanings of secs. 193 and 228 of the Indian Penal Code, 1860;b)Shall be deemed to be a civil court for the purposes of Secs. 345 and 346 of the code of Criminal Procedure, 1973.Appeal to Special Director (Appeals)(Sec. 17)Appointment.The central government shall, by notification, appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities. It should also specify in the said notification the matter and places in relation to which the Director (Appeals) may exercise jurisdiction [Sec. 17(1)].Appeal.Any person aggrieved by an order made by the Adjudicating Authority (being an Assistant Director of Enforcement or a Deputy Director of Enforcement) mayprefer an appeal to the special Director (Appeals) [Sec. 17(2)]. The appeal shall be filed within 45 days from the date on which the copy of the order made by the Adjudicating Authority is received [Sec. 17(3)].On receipt of an appeal, the Special Director (Appeals) may pass such order thereon as h thinks fit confirming, modifying or setting aside the order appealed against. But before he passes any such order he shall give the parties to the appeal an opportunity of being heard [Sec. 17 (4)]. The opportunity of being heard is an offshoot of the requirement of compliance of the principles of natural justice.Again, the order refusing the permission must be supported by valid reasons. If the order of refusal does not give any reason or contains reasons which are not valid or the reasons have no rational nexus to the object, or the reasons are colored by policy or expediency, the applicant will be entitled for the judicial relief [ Appejay Pvt. Ltd. V. Union of India,(1979) 49 Comp. Cas. 602 (call.)].Copy of the order to be sent to the parties and the Adjudicating Authority. The Special Director (Appeals) shall send a copy of every order made by him to the parties to appeal and to the concerned Adjudicating Authority [Sec. 17(5)].Establishment of Appellate Tribunal(Sec. 18)The Central Government shall, by notification, establish an Appellate Tribunal to be known as the Appellate Tribunal for the Foreign Exchange to hear appeals against the orders of the adjudicating authorities and the Special Director (Appeals) under this Act.Appeal to Appellate Tribunal(Sec. 19)The Central Government or any person aggrieved by an order made by an Adjudicating Authority or the Special Director (Appeals) may prefer an appeal to the Appellate Tribunal. The person appealing against the order of the Adjudicating Authority or the Special Director (Appeals) levying any penalty, shall while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government. Where in any particular case, the Appellate tribunal is of a opinion that the deposit of such penalty would cause undue hardship to such person, it may dispense with such deposit [Sec. 19(1)].Appeal to b filed within 45 days. Every appeal under Sec. 19(1) shall be filed within a period of 45 days from the date on which a copy of the order made by the Adjudicating Authority or the Special Director (Appeals) is received by the aggrieved person or by the Central Government. However, the Appellate Tribunal may entertain an appeal after the expiry of the said period of 45 days if it is satisfied that there was sufficient cause for not filing it within that period [Sec. 19(2)].Orders by the Appellate Tribunal. On receipt of an appeal under Sec. 19(1), the Appellate Tribunal may, after giving the parties to the appeal an opportunities of being heard, pass such orders thereon as it think fit, confirming, modifying and setting aside the order appealed against [Sec. 19(3)]. It shall send a copy of every order made by it to the parties to the appeal and to the concerned Adjudicating Authority or the Special Director (Appeals) [Sec.19 (4)].Expeditious Disposal of Appeal. The appeal filed before the Appellate Tribunal under Sec. 19 (1) shall be dealt with by it as expeditiously as possible and endeavor shall be made by it to dispose of the appeal finally within 180 days from the date of receipt of the appeal. Where the appeal could not be disposed of within the period of 180 days, the Appellate Tribunal shall record its reasons in writing for not disposing of the appeal within the said period [Sec. 19 (5)].Requisition of records of the proceedings.The Appellate Tribunal may, for the purpose of the examining the legality, propriety or corrections of any order made by the Adjudicating Authority under Sec. 16, call for the records of such proceedings and make such order in the case as it thinks fit. The record may be called for by the Appellate Tribunal on its own motion or otherwise [Sec. 19(6)].Composition of Appellate Tribunal(Sec. 20)Composition.The Appellate Tribunal shall consist of a Chairperson and such number of Members as the Central Government may deem fit [Sec. 20(1)].Jurisdiction.a)The jurisdiction of the Appellate Tribunal may be exercised by Benches thereof.b)A Bench may be constituted by the Chairperson with one or more Members as the chairperson may deem fit.c)The benches of the Appellate Tribunal shall ordinarily sit at New Delhi. These may also sit at such other places as the Central Government may, in consultation with the chairperson, notify.d)The Central Government shall notify the areas in relation to which each bench of the appellate tribunal may exercise jurisdiction [Sec. 20(2)].Transfer of the Members.The Chairperson may transfer a Member from one Bench to another Bench [Sec. 20(3)].

BPO (BUSINESS PROCESS OUTSOURCING)What is business process outsourcing (BPO)? BPO is the process of hiring another company to handle business activities for you.

BPO is distinct from information technology (IT) outsourcing, which focuses on hiring a third-party company or service provider to do IT-related activities, such as application management and application development, data center operations, or testing and quality assurance.

In the early days, BPO usually consisted of outsourcing processes such as payroll. Then it grew to include employee benefits management. Now it encompasses a number of functions that are considered "non-core" to the primary business strategy.

Now it is common for organizations to outsource financial and administration (F&A) processes, human resources (HR) functions, call center and customer service activities and accounting and payroll.

These outsourcing deals frequently involve multi-year contracts that can run into hundreds of millions of dollars. Often, the people performing the work internally for the client firm are transferred and become employees for the service provider. Dominant outsourcing service providers in the BPO fields (some of which also dominate the IT outsourcing business) include US companies IBM, Accenture, and Hewitt Associates, as well as European and Asian companies Capgemini, Genpact, TCS, Wipro and Infosys.

Many of these BPO efforts involve offshoring -- hiring a company based in another country -- to do the work. India is a popular location for BPO activities.

Frequently, BPO is also referred to as ITES -- information technology-enabled services. Since most business processes include some form of automation, IT "enables" these services to be performed.Benefits and limitationsHITEC cityHyderabad, India, the hub of information technology companiesThe main advantage of any BPO is the way in which it helps increase a company's flexibility. However, several sources[which?]have different ways in which they perceive organizational flexibility. In early 2000s BPO was all about cost efficiency, which allowed a certain level of flexibility at the time. Due to technological advances and changes in the industry (specifically the move to more service-based rather than product-based contracts), companies who choose to outsource their back-office increasingly look for time flexibility and direct quality control.[6]Business process outsourcing enhances the flexibility of an organization in different ways:Most services provided by BPO vendors are offered on a fee-for-service basis, using business models such as Remote In-Sourcing or similar software development and outsourcing models.[7][8]This can help a company to become more flexible by transforming fixed intovariable costs.[9]A variable cost structure helps a company responding to changes in required capacity and does not require a company to invest in assets, thereby making the company more flexible.[10]Another way in which BPO contributes to a companys flexibility is that a company is able to focus on itscore competencies, without being burdened by the demands of bureaucratic restraints.[11]Key employees are herewith released from performing non-core or administrative processes and can invest more time and energy in building the firms core businesses.[12]The key lies in knowing which of the main value drivers to focus on customer intimacy, product leadership, or operational excellence. Focusing more on one of these drivers may help a company create a competitive edge.[13]A third way in which BPO increases organizational flexibility is by increasing the speed of business processes. Supply chain management with the effective use of supply chain partners and business process outsourcing increases the speed of several business processes, such as the throughput in the case of a manufacturing company.[14]Finally, flexibility is seen as a stage in the organizational life cycle: A company can maintain growth goals while avoiding standard business bottlenecks.[15]BPO therefore allows firms to retain their entrepreneurial speed and agility, which they would otherwise sacrifice in order to become efficient as they expanded. It avoids a premature internal transition from its informal entrepreneurial phase to a more bureaucratic mode of operation.[16]A company may be able to grow at a faster pace as it will be less constrained by large capital expenditures for people or equipment that may take years to amortize, may become outdated or turn out to be a poor match for the company over time.Although the above-mentioned arguments favour the view that BPO increases the flexibility of organizations, management needs to be careful with the implementation of it as there are issues, which work against these advantages. Among problems, which arise in practice are: A failure to meet service levels, unclear contractual issues, changing requirements and unforeseen charges, and a dependence on the BPO which reduces flexibility. Consequently, these challenges need to be considered before a company decides to engage in business process outsourcing.[17]A further issue is that in many cases there is little that differentiates the BPO providers other than size. They often provide similar services, have similar geographic footprints, leverage similar technology stacks, and have similar Quality Improvement approaches.

LEGAL OUTSOURCING (LPO)Legal outsourcing, also known aslegal process outsourcing(LPO) refers to the practice of alaw firmorcorporationobtaining legal support services from an outside law firm or legal support services company (LPO provider). When the LPO provider is based in another country, the practice is calledoffshoringand involves the practice ofoutsourcingany activity except those where personal presence or contact is required, e.g. appearances in court and face-to-face negotiations. When the LPO provider is based in the same country, the practice of outsourcing includes agency work and other services requiring a physical presence, such as court appearances.[1]This process is one of the incidents of the larger movement towards outsourcing. The most commonly offered services have been agency work, document review,[2]legal research and writing,[3]drafting of pleadings and briefs,[4]and patent services.[5]This phenomenon has been a part of the legal experience since the 1950s, where it was restricted only to patents.[6]Later, firms began to contract certain services to back door firms. The process of subcontracting part of the legal process to different countries is at a nascent stage, with relatively consistent market growth.[7]Legal process outsourcing has predominantly been to countries that had previously taken advantage of thebusiness process outsourcingwave. LPO providers have established themselves inCanada,[1]India,[8]thePhilippines,[9]theUnited States,Israel,[10]andLatin AmericaOverviewThe concept of legal process outsourcing is based on the division of labour principle, prevalent in law firms, where various time consuming and onerous processes like due diligence are delegated to paralegals, document reviewers or interns.[12]This allows the firm to address the various legal issues that arise on a daily basis while being able to streamline productivity.The process involves a contract, with due consideration, between both firms. The following are the various methods by which the process could be initiated:[13] Direct Contract This is the most straight forward means of establishing contact. The firm needing legal services directly approaches the legal process outsourcing vendor. Managed Outsourcing This is a case where the firm establishes contact with a legal process outsourcing vendor and retains a traditional law firm to coordinate the vendor's activities and to ensure quality control. Required Outsourcing This form of outsourcing occurs when the firm mandates a certain level of outsourcing in the legal process, either to reduce costs or to fulfill statutory requirements. Multi-sourcing This involves segregating the work assigned to LPO providers in order to reduce risk and take advantage of each provider's strengths. This approach is helpful in cases where expertise is required on matters of jurisdiction and merits. Having more than one provider "on deck" also allows a service recipient to obtain more favorable pricing. On the other hand, multi-sourcing can be more complicated than other approaches. Successfully managing multiple, competing providers requires strong and effective governance procedures.[14]ReasonsAmong the leading proponents of this process have been corporate clients concerned with rising legal expenses. The legal departments of corporations began using the services of such providers. Soon these corporations began to pressure their legal representatives to outsource certain legal processes to cut costs.[15]Cost saving is the biggest attraction for the western firms that outsource their legal work. Indias legal services are widely considered affordable, efficient, and above all, skilled. For a legal job outsourced in India, the U.S. firm pays hardly one-fourth or one-fifth of what it has to pay in the U.S. for the same work.[16]AdvantagesMost firms and corporations outsource primarily to save cash, and this is considered the biggest advantage for legal outsourcing. While an attorney in major legal markets such as the US may charge from $150 to $500 per hour when performing rote services, legal process outsourcing firms generally charge a small fraction of that price. It has attracted major corporations to outsource specific work outside their legal departments. Many destinations for outsourcing have benefited from the upsurge in bankruptcies and litigations that have occurred in the wake of theGlobal Financial Crisis.[17][18]As reported in theABA Journal, "[t]he market for outsourced legal work is booming in India. While lawyers there are doing a lot of routine work, they are also handling some interesting legal matters, including work for the makers of movies and television shows."[19]As stated inUSA Today, "'[y]ou could call it "Outsourcing 2.0" or maybe even "3.0." Now firms are increasingly trying to leverage expertise,' says Saikat Chaudhuri, an assistant professor in the business school at the University of Pennsylvania. Legal Outsourcing is 'growing very, very quicklyCriticismsOne of the major concerns with outsourcing is the potential for breaches of client confidentiality. In legal process outsourcing the issue of client confidentiality assumes utmost importance. Theattorneyclient privilegeis a doctrine that says anything conveyed between an attorney and his client shall be treated with utmost confidentiality and is exempted from disclosure even in a court of law. However, when either party discloses confidential information to a third party or the opposite party, the privilege is deemed to be waived. During the early years of legal process outsourcing, many law firms hesitated to outsource their work.[23]Critics and opponents state that, since communication is being sent to a country other than United States, the confidentiality is broken; hence, the attorney client privilege has been waived. However,American Bar Associationclarified this in 2008, clearing the way for the development of legal process outsourcing. Another criticism is that people performing legal work may not be bound to necessary ethical standards.[25]The process of Legal Outsourcing has come in conflict with the Model Code of Conduct issued by the American Bar Association.[26]However, there have been ethics opinions from various local bar associations (New York,[27]San Diego[28]) and recently the American Bar Association[29]that discuss ethical legal outsourcing and how to achieve it.

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