Tag: Indian Business Law Notes

Management Notes

Terms of Copyright

indiafreenotesby indiafreenotes0

Copyright term is the length of time copyright subsists in a work before it passes into the public domain.

The general rule is that copyright lasts for 60 years. In the case of original literary, dramatic, musical and artistic works the 60-year period is counted from the year following the death of the author. In the case of cinematograph films, sound recordings, photographs, posthumous publications, anonymous and pseudonymous publications, works of government and works of international organisations, the 60-year period is counted from the date of publication.

Implications

Copyright term and the public domain

The extension of copyright term imposes tangible restrictions on the public domain. For instance, scholar Neil Netanel argued that Copyright Term Extension Act 1998 prevented the entering of works central to cultural heritage of the US into the public domain. He argued, culturally important dissemination, recasting, or incorporation into new expression is prevented due “to the copyright holder’s veto”. As examples he gave the adaption of the plot from novels such as The Great Gatsby and Peter Pan, the refashion of characters like Mickey Mouse, or the use of Tin Pan Alley songs like “Let’s Do It (Let’s Fall in Love)” for documentaries about the Great Depression.

Copyright term and orphan works

For the millions of older copyrighted works of less enduring popularity, it is difficult, or impossible, to trace the copyright ownership and determine who holds the particular rights that would have to be licensed for the use of the work. The problem of such orphan works stems from the extension of copyright term and the lack of requirement for the copyright owner to renew or register their copyright. In order to tackle this perceived problem some jurisdictions have revised their copyright laws to allow use of orphaned works, after diligent searches.

Length of copyright

Copyright subsists for a variety of lengths in different jurisdictions. The length of the term can depend on several factors, including the type of work (e.g. musical composition or novel), whether the work has been published or not, and whether the work was created by an individual or a corporation. In most of the world, the default length of copyright is the life of the author plus either 50 or 70 years. In the United States, the term for most existing works is a fixed number of years after the date of creation or publication. In most countries (for example, the United States and the United Kingdom) copyright expires at the end of the calendar year in question.

The length and requirements for copyright duration are subject to change by legislation, and since the early 20th century there have been a number of adjustments made in various countries, which can make determining the copyright duration in a given country difficult. For example, the United States used to require copyrights to be renewed after 28 years to stay in force, and formerly required a copyright notice upon first publication to gain coverage. In Italy and France, there were post-wartime extensions that could increase the term by approximately six years in Italy and up to about 14 in France. Many countries have extended the length of their copyright terms (sometimes retroactively). International treaties, like the Berne Convention, establish minimum terms for copyrights, but these only apply to the signatory countries, and individual countries may grant longer terms than those set out in a treaty.

Management Notes

Trade Secrets, Geographical Indications

indiafreenotesby indiafreenotes0

Trade Secrets

Trade secrets are a type of intellectual property that comprise formulas, practices, processes, designs, instruments, patterns, or compilations of information that have inherent economic value because they are not generally known or readily ascertainable by others, and which the owner takes reasonable measures to keep secret. In some jurisdictions, such secrets are referred to as confidential information.

Trade secrets are the secrets of a business. They are proprietary systems, formulas, strategies, or other information that is confidential and is not meant for unauthorized commercial use by others. This is a critical form of protection that can help businesses to gain a competitive advantage.

Although intellectual property rights protection may seem to provide a minimum amount of protection, when they are utilized wisely, they can maximize the benefit and value of a creation and enable world-changing technology to be developed, protected, and monetized.

A trade secret is information that

  • Is Not Generally Known to The Public
  • Confers Economic Benefit on Its Holder Because the Information Is Not Publicly Known
  • Where the Holder Makes Reasonable Efforts to Maintain Its Secrecy.

Protection of undisclosed information (trade secrets) is dealt with under Article 39 of TRIPS. Companies and individuals can prevent information from being disclosed without their consent if;

  • It is not known or readily accessible to people within the circles that usually deal with the information in question.
  • Has commercial value being secret and has been made subject to steps, by the person lawfully in control of the data, to keep it protected.

Types of trade secrets

  • The ingredients used in the product:

For example, soft drinks manufacturer Coca-Cola keeps its ingredients a closely-guarded secret and the recipe is accessible only to a select few.

  • Way of manufacturing:

A company may get a competitive edge just by finding a new way of making things. These may include types of manufacturing equipment, processes or systems. For example, computer chip maker Intel came up with ‘Copy Exactly!’ to ensure consistent quality of products regardless of where it was manufactured.

  • Way of selling and distribution:

Companies often devise unique methods of selling and distributing products, which may give them an extra edge. A fitting example would be food brand Kellogg’s coming up with a data-sharing strategy with retailers to reduce unsold inventory.

  • Advertising strategies:

The success of any product or service also depends on the way of advertising. Firms will always want to keep their ad strategies protected. Most firms take necessary precautions to prevent inadvertent disclosure of trade secrets. This is because if a trade secret is disclosed, it is no longer possible to protect information, particularly, in the age of social media. This is why most companies, while recruiting an agency to create an advertisement for business, will be required to keep a watch on who has access to the company’s confidential business.

Geographical Indications

A geographical indication (GI) is a name or sign used on products which corresponds to a specific geographical location or origin (e.g., a town, region, or country). The use of a geographical indication, as an indication of the product’s source, acts as a certification that the product possesses certain qualities, is made according to traditional methods, or enjoys a good reputation due to its geographical origin.

Appellation d’origine contrôlée (‘Appellation of origin’) is a sub-type of geographical indication where quality, method, and reputation of a product originate from a strictly defined area specified in its intellectual property right registration.

Legal effect

Geographical Indications protection is granted through the TRIPS Agreement. Protection afforded to geographical indications by law is arguably twofold:

  • On one hand it is granted through sui generis law (public law), for example in the European Union. In other words, GI protection should apply through ex officio protection, where authorities may support and get involved in the making of GI collective dimensions together with their corresponding GI regulatory council, where ongoing discourse with the government is implied for effective inspection and quality control.
  • On the other hand, it is granted through common law (private law). In other words, it is similar to the protection afforded to trademarks, as it can be registered through collective trademarks and also through certification marks, for example in the United States of America.

The geographical origin of a product can create value to producers by:

  • communicating to consumers the product’s characteristics, which derive from the climate, soil and other natural conditions in its particular area
  • promoting the conservation of local traditional production process
  • protecting and adding value to the cultural identity of local communities.

The consumer-benefit purpose of the protection rights granted to the beneficiaries (generally speaking the GI producers), has similarities to but also differences from the trademark rights:

  • While GIs denote a geographical origin of a good, trademarks denote a commercial origin of an enterprise.
  • While comparable goods are registered with GIs, similar goods and services are registered with trademarks.
  • While a GI is a name associated by tradition with a delineated area, a trademark is a badge of origin for goods and services.
  • While a GI is a collective entitlement of public-private partnership, a trademark refers entirely to private rights. With GIs, the beneficiaries are always a community from which usually, regardless of who is indicated in the register as applicant, they have the right to use. Trademarks distinguish goods and services between different undertakings; thus, it is more individual (except collective trademarks which are still more private).
  • While the particular quality denoted by a GI is essentially related to a geographical area, although the human factor may also play a part (collectively), with trademarks, even if there is any link to quality, it is essentially because of the producer and provider (individually).
  • While GIs are an already existing expression and are used by existing producers or traders, a trademark is usually a new word or logo chosen arbitrarily.
  • While GIs are usually only for products, trademarks are for products and services.
  • While GIs cannot become numerous by definition, with trademarks there is no limit to the number that might be registered or used.
  • While GIs may not normally qualify as trademarks because they are either descriptive or misleading and distinguish products from one region from those of another, trademarks normally do not constitute a geographical name as there is no essential link with the geographical origin of goods.
  • While GIs protect names designating the origin of goods, trademarks collective and certification marks where a GI sui generis system exists protect signs or indications.
  • While with GIs there is no conceptual uniform approach of protection (public law and private law / sui generis law and common law), the trademark concepts of protection are practically the same in all countries of the world (i.e., basic global understanding of the Madrid System). In other words, with GIs there is no international global consensus for protection other than TRIPS.
  • While with GIs the administrative action is through public law, the enforcement by the interested parties of trademarks is through private law.
  • While GIs lack a truly global registration system, trademarks global registration system is through the Madrid Agreement and Protocol.
  • While GIs are very attractive for developing countries rich in traditional knowledge, the new world, e.g., Australia, with a different industry development model they are more prone to benefit from trademarks. In the new world, GI names from abroad arrive through immigrants and colonisation, leading to generic names deriving from the GIs from the old world.
Management Notes

Insolvency and Bankruptcy Code 2016

indiafreenotesby indiafreenotes0

The Insolvency and Bankruptcy Code (IBC), 2016 is a comprehensive law introduced in India to address issues of insolvency and bankruptcy in a time-bound and efficient manner. Prior to the IBC, India lacked a uniform legal framework to address corporate insolvency, leading to delayed and often ineffective resolutions. The IBC aims to provide a structured process for resolving corporate insolvency, improving the ease of doing business, and enhancing the credit culture in India.

Background and Objectives:

The Insolvency and Bankruptcy Code (IBC) was enacted in 2016 to consolidate and amend the existing laws relating to insolvency and bankruptcy. It aims to:

  • Provide a time-bound process for resolving insolvency of individuals and businesses.
  • Improve the overall business environment by addressing issues such as non-performing assets (NPAs) and corporate debt.
  • Promote entrepreneurship by offering a clean slate to viable businesses that face insolvency.
  • Protect the interests of creditors and other stakeholders while providing an opportunity for companies in distress to restructure.

The IBC combines various laws and procedures related to insolvency and bankruptcy into one comprehensive code. It also introduces mechanisms for resolving insolvency both for individuals and corporate entities, ensuring transparency, accountability, and fairness in the process.

Features of the Insolvency and Bankruptcy Code, 2016:

  1. Insolvency Resolution Process: The IBC sets out a clear, standardized process for insolvency resolution. It is divided into three primary parts:
    • Corporate Insolvency Resolution Process (CIRP): A process for resolving insolvency of companies and limited liability partnerships (LLPs). The process is initiated by creditors, who can file a petition with the National Company Law Tribunal (NCLT).
    • Individual Insolvency Resolution Process (IIRP): For individuals and partnership firms, the IBC provides a process to address insolvency situations.
    • Liquidation: In cases where a resolution plan fails, the company may undergo liquidation, where its assets are sold to settle outstanding debts.
  2. Time-Bound Process: The IBC mandates that the insolvency process be completed within 180 days (extendable by another 90 days). This is to ensure that resolution or liquidation occurs without unnecessary delays. The time-bound nature of the process is crucial in preserving the value of distressed assets and ensuring a quicker recovery for creditors.
  3. Resolution Professional: During the insolvency resolution process, an external expert known as a “Resolution Professional” is appointed. The Resolution Professional manages the affairs of the company and works with creditors and other stakeholders to come up with a resolution plan that maximizes the recovery value of the company. The professional is responsible for overseeing the process and ensuring that the interests of all parties are protected.
  4. Committee of Creditors (CoC): The IBC establishes a Committee of Creditors, composed of financial creditors, which has the power to approve or reject resolution plans. The CoC plays a central role in the insolvency process, and their decision is binding on the debtor company. The committee also oversees the role of the Resolution Professional.
  5. Insolvency and Bankruptcy Board of India (IBBI): The IBBI is the regulatory authority responsible for overseeing the functioning of the insolvency and bankruptcy framework. It is tasked with laying down the regulations and ensuring that professionals involved in the process, including Resolution Professionals and Insolvency Professionals, adhere to the standards set by the law.
  6. Creditor’s Hierarchy and Recovery Process: The IBC provides a clear hierarchy of creditors during the resolution process. Secured creditors (such as banks) are given priority, followed by unsecured creditors. Shareholders, however, are the last in line when it comes to recovery. This ensures that creditors’ interests are prioritized in the distribution of proceeds from asset sales.
  7. Adjudicating Authorities: The National Company Law Tribunal (NCLT) and the Debt Recovery Tribunal (DRT) are the primary adjudicating authorities under the IBC. The NCLT resolves disputes related to the corporate insolvency process, while the DRT is responsible for individual insolvency matters. Appeals can be filed with the National Company Law Appellate Tribunal (NCLAT) and the Appellate Tribunal for Debt Recovery.
  8. Cross-Border Insolvency: The IBC allows for cooperation between Indian courts and foreign courts in cases involving cross-border insolvencies. This ensures that assets held by an Indian company abroad or foreign creditors can participate in the insolvency proceedings. This provision helps multinational companies and foreign creditors resolve insolvency issues efficiently.

Advantages of the Insolvency and Bankruptcy Code:

  • Faster Resolution:

IBC ensures quicker resolution of insolvency cases compared to earlier methods. With a fixed timeline, the process helps to minimize delays.

  • Improved Credit Market:

IBC has led to a cleaner and more transparent credit market by providing a legal framework that ensures quicker recovery of debts and reducing defaults.

  • Higher Recovery Rate:

Creditors can expect a higher recovery rate compared to the earlier approach, where a significant portion of their debt went unpaid due to prolonged legal battles.

  • Reduction in Non-Performing Assets (NPAs):

The introduction of IBC has contributed to the reduction of NPAs in the banking sector, improving the financial health of banks and financial institutions.

  • Promotes Entrepreneurship:

By offering a mechanism for revival, the IBC allows businesses to restructure their operations rather than be forced into liquidation. This encourages entrepreneurship and reduces the fear of failure.

Management Notes

Removal of Name of the Company from Registrar of Companies

indiafreenotesby indiafreenotes0

Removal by the registrar

The Companies Registrar can strike-off or remove a company name if he or she has a reasonable cause to think of:

  • An organization fails to start its business within a year of its incorporation
  • The memorandum subscribers have not reimbursed the subscription within 180-days from the company’s incorporation and a declaration regarding that effect has not been filed
  • An organization has not yet been carrying on any operation or business for a time period of about two years immediately prior to the financial years without making an application for the getting the status of a dormant company

Removal Notice

The notice issued for removal would be officially published in the Gazette for the knowledge of general public. During the expiry of time given in the notice, the Company Registrar will remove the organization name from MCA database followed by publishing a notice in the Official Gazette. Once the notice gets published in the Gazette officially, the company will stand dissolved. Even though the company will be dissolved as above mentioned, the tribunal would still have power for winding up an organization whose name was removed from the companies register.

Restriction on Removal application

An application for striking-off the company’s name would not be made in the preceding three months if the company has:

  • Altered its name or even moved its registered office address from one state to another in India
  • Made a disposal of the value of property or rights being held by it for gain disposal at the time of actual course of trading or even carrying on the business
  • Make an application to tribunal for getting approval of an arrangement or compromise without the matter to be concluded
  • Organization has been wound up under the Chapter XX of Companies Act, 2013 in case voluntarily or even by the Tribunal

Removal of company’s name from MCA database on the suo-moto basis

Removal of company’s name from the register of companies on suo-moto basis is possible where the Registrar has reason to believe that:

(a) the company has failed in commencing its business within the first year of its incorporation; or

(b) the company isn’t carrying on any operation or business for a period of 2 immediately preceding FY (financial years) and has applied within that period for acquiring the dormant company status under section 455,

The registrar shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty days from the date of the notice.”

The Registrar may remove the company’s name from the companies register in terms of the Act of Section 248:

Provided that the following categories of the organization should not be striking-off from the company’s register under the rule 4, namely:

  • Listed companies
  • Companies, which have been delisted because of non-compliance of listing agreement or listing regulations or other statutory laws
  • Companies, where investigation or inspection has been ordered and carried out or actions, which were completed yet prosecutions arising out of such investigation or inspection pending in the court
  • Vanishing companies
  • Companies whose compounding application is pending before the competent authority to compound the offenses being committed by the organization or its officers in default
  • Companies against that any prosecution of an offense is found to be pending in any court
  • Companies where notifications under Companies Act 1956, section 234 or section 207 or section 206 of the act is issued by the inspector or registrar. A Pending report under section 208 is submitted or even following the instructions regarding any prosecution emerging out of such scrutiny or inquiry if any.
  • Companies that have accepted deposits from public that are outstanding
  • Companies registered under Section 25 of the Old Companies Act, or Section 8 of the Companies Act 2013.
  • Companies having charges that are pending for the satisfaction

Voluntary application by company for striking off the name from the register of roc

Who can make application : Any company( other than Section 8 company (non-profit organization) may as per section 248(2) of the Act , may voluntarily make an application for striking off the name of the Company from the Register of companies maintained by ROC, after extinguishing all its liabilities , by obtaining approval of 75%  members in terms of paid up share capital or consent by way of special resolution on any of the ground that it has not started or commenced its business or it is not carrying on business or operation for a period of two immediately preceding financial years and not made any application for obtaining the status of the company as a dormant company.

A Company which is regulated under a special Act is required to obtain approval of the regulatory body constituted or established under that Act.

Undertakings by Directors and Discharge of Liabilities

 Before passing an order for dissolution, RoC shall satisfy himself that sufficient provision has been made for the payment or discharge of all its liabilities within a reasonable time and has obtained necessary undertakings from the Managing Director, Director or other person in charge of the management of the Company.

The Liability of every Director, manager or other officer and of every member of the Company shall continue even after the Company is dissolved and it may be enforced.

The assets of the Company shall be made available for the payment or discharge of all its liabilities and obligations even after the order removing the name of the Company from the register of Companies.

Objections or suggestions: ROC shall intimate to the authorities having jurisdiction over the Company for seeking objections within 30 days from the date of issue of the letter of intimation to:

a) Income tax authorities

b) Central exercise authority

c) Service tax authority

If no Objection is received from the aforesaid authorities within 30 days, then it shall be presumed that they have no objections to the striking off.

Dissolution of Company: If ROC has not received any objection, then after the expiry of the period specified in the notice shall strike off the name of the Company and publish a notice in form STK-7 in official Gazette, upon such publication Company shall stand dissolve and same shall also be placed on the official website of MCA.

Application or forms pending before central government: Any application for striking off or Form FTE filed with RoC prior to the commencement of these rules is pending or not disposed of, such application shall be disposed in accordance with the rules made under the Companies Act, 1956.

Publication of Notice: The Notice under sub-section (1) and (2) of section 248 shall be published in Form STK-5 or 5A (Notification dated 12th April, 2017) (in case notice for strike off received from ROC) and Form STK-6 (Voluntary strike off) which shall be:

a) Placed on official website of MCA.

b) Published in official Gazette.

c) Published in English language in a leading English Newspaper and in vernacular language in a leading vernacular language newspaper, having wide circulation in the State where the Registered Office of the Company is situated.

 In case of voluntary winding up an application for striking off shall also be placed on the website of the Company till the Disposal of such application.

Management Notes

Definition and Types of Goods of Sales of Goods Act, 1930

indiafreenotesby indiafreenotes1

‘Goods’ is defined as per Section 2(7) of the ‘Act’ as. “Every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.”

“Every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale will be considered goods”

As you can see, shares and stocks are also defined as goods by the Act. The term actionable claims mean those claims which are eligible to be enforced or initiated by a suit or legal action. This means that those claims where an action such as recovery by auction, suit, refunds etc. could be initiated to recover or realize the claim.

We say that goods are in a deliverable state when their condition is such that the buyer would, under the contract, be bound to take delivery of these goods. Goods may be further understood in the following subtypes:

Existing Goods

The goods that are referred to in the contract of sale are termed as existing goods if they are present (in existence) at the time of the contract. In sec 6 of the Act, the existing goods are those goods which are in the legal possession or are owned by the seller at the time of the formulation of the contract of sale. The existing goods are further of the following types:

A) Specific Goods

According to the sec 2(14) of the Act, these are those goods that are “identified and agreed upon” when the contract of sale is formed. For example, you want to sell your mobile phone online. You put an advertisement with its picture and information. A buyer agrees to the sale and a contract is formed. The mobile, in this case, is specific good.

B) Ascertained Goods:

This is a type not defined by the law but by the judicial interpretation. This term is used for specific goods which have been selected from a larger set of goods.

C) Unascertained Goods:

These are the goods that have not been specifically identified but have rather been left to be selected from a larger group. For example, from your 500 apples, you decide to sell 200 apples but you don’t specify which ones you want to sell. A seller will have the liberty to choose any 200 apples from the lot. These are thus the unascertained goods.

Future Goods

In sec 2(6) of the Act, future goods have been defined as the goods that will either be manufactured or produced or acquired by the seller at the time the contract of sale is made. The contract for the sale of future goods will never have the actual sale in it, it will always be an agreement to sell.

For example, you have an apple orchard with apples in it. You agree to sell 1000 apples to a buyer after the apples ripe. This is a sale that has to occur in the future but the goods have been identified already and the agreement made. Such goods are known as future goods.

Contingent Goods

Contingent goods are actually a subtype of future goods in the sense that in contingent goods the actual sale is to be done in the future. These goods are part of a sale contract that has some contingency clause in it. For example, if you sell your apples from your orchard when the trees are yet to produce apples, the apples are a contingent good. This sale is dependent on the condition that the trees are able to produce apples, which may not happen.

Delivery

The delivery of goods signifies the voluntary transfer of possession from one person to another. The objective or the end result of any such process which results in the goods coming into the possession of the buyer is a delivery process. The delivery could occur even when the goods are transferred to a person other than the buyer but who is authorized to hold the goods on behalf of the buyer.

There are various forms of delivery as follows:

  • Actual Delivery: If the goods are physically given into the possession of the buyer, the delivery is an actual delivery.
  • Constructive delivery: The transfer of goods can be done even when the transfer is affected without a change in the possession or custody of the goods. For example, a case of the delivery by attornment or acknowledgment will be a constructive delivery. If you pick up a parcel on behalf of your friend and agree to hold on to it for him, it is a constructive delivery.
  • Symbolic delivery: This kind of delivery involves the delivery of a thing in token of a transfer of some other thing. For example, the key of the godowns with the goods in it, when handed over to the buyer will constitute a symbolic delivery.

The Document of Title to Goods

From the Sec 2(4) of the act, we can say that this “includes the bill of lading, dock-warrant, warehouse keeper’s certificate, railway receipt, multimodal transport document, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods or authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.”

  • Mercantile Agent [Section 2(9)]

Mercantile agent is someone who has authority in the customary course of business, either to sell or consign goods under the contract on behalf of the one or both of the parties. Examples include auctioneers, brokers, factors etc.

  • Property [Section 2(11)]

In the Act, property means ‘ownership’ or the general property i.e. all ownership right of the goods. A sale constitutes the transfer of ownership of goods by the seller to the buyer or an agreement of the same.

  • Insolvent [Section 2(8)]

The Act defines an insolvent person as someone who ceases to pay his debts in the ordinary course of business or cannot pay his debts as they become due, whether he has committed an act of insolvency or not.

  • Price [Section 2(10)]

In the Act, the price is defined as the money consideration for a sale of goods.

  • Quality of Goods

In Sec 2(12) of the Act, the quality of goods is referred to as their state or condition.

Management Notes

Person, Goods, Service

indiafreenotesby indiafreenotes1

Person or Consumer

Buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who ‘hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purposes.

(i) One who buys or agrees to buy any goods for a consideration which has been paid or promised or partly paid and partly promised or under any system of deferred payment

(ii) It includes any user of such goods other than the person who actually buys goods and such use is made with the approval of the purchaser.

EXCEPTION: A person is not a consumer if he purchases goods for commercial or resale purposes. However, the word “commercial” does not include use by consumer of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self-employment.

For the purpose of “services”, a “consumer” means a person belonging to the following categories:

(i) One who hires or avails of any service or services for a consideration which has been paid or promised or partly paid and partly promised or under any system of deferred payment

(ii) It includes any beneficiary of such service other than the one who actually hires or avails of the service for consideration and such services are availed with the approval of such person.

Example of services includes: banking, insurance, transport, processing, housing construction, supply of electrical energy, entertainment, board or lodging etc.

Services as per sec 2(1)(o) of Consumer Protection Act, and MRTP Act means and includes banking, financing, insurance, transport, processing, supply of electric energy, board or lodging or both, entertainment, amusement or purveying of news or other information. Exclusion- those rendered free of charge or personal services.

Goods

For the purpose of “goods”, a consumer means a person belonging to the following categories:

(i) One who buys or agrees to buy any goods for a consideration which has been paid or promised or partly paid and partly promised or under any system of deferred payment

(ii) It includes any user of such goods other than the person who actually buys goods and such use is made with the approval of the purchaser.

Services

“2(l)(o) ‘Service‘ means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, board or loding or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service“.

Characteristics of Services:

(i) Two party process:

there has to be a service provider and service recipient.

(ii) It has to be intangible and invisible, i.e., it cannot be seen or touched.

University of Mumbai BMS Notes

Payment of Wages Act 1936

indiafreenotesby indiafreenotes0

The Payment of Wages Act, 1936 regulates payment of wages to employees (direct and indirect). The act is intended to be a remedy against unauthorized deductions made by employer and/or unjustified delay in payment of wages. The main objective for the introduction of the Payment of Wages Act, 1936, is to avoid unnecessary delay in the payment of wages and to prevent unauthorized deductions from the wages.

Purpose of the Act

The main objective of the Act is to avoid unnecessary delay in the payment of wages and to prevent unauthorized deductions from the wages. Every person employed in any factory, upon any railway or through sub-contractor in a railway and a person employed in an industrial or other establishment. The State Government may by notification extend the provisions to any class of persons employed in any establishment or class of establishment. The benefit of the Act prescribes for the regular and timely payment of wages (on or before 7th day or 10th day of after wage period is greater than 1000 workers) and Preventing unauthorized deductions being made from wages and arbitrary fines.

Section 2 of the Payment of Wages Act, 1936 offers the definition of wages and many other important terms as follows:

Appropriate Government

According to section 2(i) of the Act, Appropriate Government means:

  • The Central Government in relation to railways, air transport service, mines, and oilfields
  • The State Government in relation to all other cases

Employed Person

According to section 2(ia) of the Act, an employed person also includes the legal representative of the deceased employed person.

Employer

According to section 2(ib) of the Act, an employer also includes the legal representative of the deceased employer.

Factory

According to section 2(ic) of the Act, a factory means a factory which the clause (m) of Section 2 of the Factories Act, 1948 (63 of 1948) defines. Further, it includes any place to which the provisions of the Act have been applied under sub-section (1) of Section 85 thereof.

Industrial or Other Establishment

According to section 2(ii) of the Act, an Industrial or Other Establishment means any:

  • A motor transport service or tramway service which carries passengers or goods or both by road for hire or reward;
  • Air transport service other than that belonging to or exclusively employed in the military, naval, or air forces of the Union or the Civil Aviation Department of the Government of India.
  • Jetty or dock wharf
  • A mechanically propelled inland vessel
  • Mine, quarry, or oil-field
  • Plantation
  • Workshop or any other establishment which produces or manufactures articles or adapts them for their use, transport, or sale.
  • An establishment which carries on any work relating to the construction, development, or maintenance of buildings, roads, bridges or canals. Also, establishments having operations connected with navigation, irrigation, or supply of water, or generation, transmission, and distribution of electricity.
  • The Central or State Government might include any other establishment or class of establishments for the protection of the employees under the Act.

Mine

According to section 2(ii)(a) of the Act, a Mine has the meaning that clause (j) of sub-section (1) of Section 2 of the Mines Act, 1952 (35 of 1952) assigns to it.

Plantation

According to section 2(iii) of the Act, a Plantation means ‘Plantation’ defined under clause (f) of Section 2 of the Plantations Labour Act, 1951 (69 of 1951).

Prescribed

According to section 2(iv) of the Act, prescribed means prescribed by the rules made under this Act.

Railway Administration

According to section 2(v) of the Act, Railway Administration has the meaning that clause (32) of Section 2 of the Indian Railways Act, 1889 assigns to it.

Wages

According to section 2(vi) of the Act, wages mean all remunerations expressed in terms of money or are capable of being so expressed.

These are either by way of salary allowances or otherwise. Further, the remunerations are payable to the person employed on the fulfillment of the terms of employment, express or implied. These remunerations include:

Inclusions in Wages

  • Any amount which is payable under any award or settlement between the parties or an order of the court.
  • Amounts that the employee is entitled to with respect to working overtime or on holidays or any leave period.
  • Any additional remuneration as per the terms of employment – bonus, incentive, etc.
  • The sum of money that the employee must receive due to the termination of his employment. Further, this sum is either payable under law or contract or instrument which specifies the payment of such a sum. Also, this may or may not include deductions. It also does not specify the time within which the firm needs to make the payment.
  • Any sum to which the employee is entitled under any scheme that is framed under any law in force. However, it does not include:
  1. Any bonus which does not form a part of the remuneration payable under the terms of employment. Or, a bonus which is not payable under any award or settlement between parties or an order of a court.
  2. The value of any house accommodation or the supply of water, light, medical attendance or any service which is excluded from the computation of wages under an order of the Government.
  3. The employer’s contribution to any pension or provident fund and also the interest accrued thereon.
  4. Any traveling allowance or traveling concessions
  5. Any sum that the employee receives to defray special expenses due to the nature of his employment
  6. Gratuity was payable on the termination of employment in cases other than those specified in sub-clause (d).

Salary statics

Wages are averaging less than Rs. 6500.00 per month only are covered or protected by the Act by the amendment in 2005 by {Section 1(6)}.Wages means contractual wages and not overtime wages. They are not to be taken into account for deciding the applicability of the Act in the context of section 1(6) of the Act. Wages must be paid in current coin or currency notes or in both and not in kind. It is, however, permissible for an employer to pay wages by cheque of by crediting them in the bank account if so authorized in writing by an employed person.

Summary of the provisions of the Act

The provisions of the Act regarding the imposition of fines on the employed person are as follows such as, The employer must exhibit on his premises a list of acts or omissions for which fines can be imposed, Before imposing a fine on an employed person he must be given an opportunity of showing cause against the fine, The amount of fine must not exceed 3 percent of the wages, A fine cannot be imposed on an employed person who is under the age of 15 years, A fine cannot be recovered by installments or after 90 days from the day of the act or omission for which it is imposed, The moneys realized from fines must be applied to purposes beneficial to employed persons.

Subsection 8(3), 10(1-A) & Rule 15} deals with Any person desiring to impose a fine on an employed person or to make a deduction for damage or loss shall explain personally or in writing to the said person the act or omission, or damage or loss in respect of which the fine or deduction is proposed to be imposed, and the amount of fine or deduction, which it is proposed to impose, and shall hear his explanation in the presence of at least one other person, or obtain it in writing.

The Payment wages act is a regulation drawn up to protect the employee’s rights from being infringed by the employer. The employee should be paid on time and should not be harassed against anything during the employment. It has however given a lot of protections to employees and will continue to do so in the future as well.

Responsibility for payment of wages [Section 3].

Every employer shall be responsible for the payment to persons employed by him of all wages required to be paid.

  • In the case of the factory, manager of that factory shall be liable to pay the wages to employees employed by him.
  • In the case of industrial or other establishments, persons responsibility of supervision shall be liable for the payment of the wage to employees employed by him.
  • In the case of railways, a person nominated by the railway administration for specified area shall be liable for the payment of the wage to the employees.
  • In the case of contractor, a person designated by such contractor who is directly under his charge shall be liable for the payment of the wage to the employees. If he fails to pay wages to employees, person who employed the employees shall be liable for the payment of the wages.

Deductions which may be made from wages

At the time of payment of the wage to employees, employer should make deductions according to this act only. Employer should not make deductions as he like. Every amount paid by the employee to his employer is called as deductions.

The following are not called as the deduction

  • Stoppage of the increment of employee.
  • Stoppage of the promotion of the employee.
  • Stoppage of the incentive lack of performance by employee.
  • Demotion of the employee
  • Suspension of the employee

The above said actions taken by the employer should have good and sufficient cause.

Management Notes

Difference between Salary and Wages

indiafreenotesby indiafreenotes0

Salary

Salary is a fixed regular payment, typically paid on a monthly basis, for the performance of work or services. Unlike wages, which are often calculated on an hourly or weekly basis, salaries provide employees with a consistent and predetermined amount of compensation, regardless of the number of hours worked.

Components:

  1. Base Salary:

The core, fixed amount of money paid to an employee on a regular basis, forming the foundation of the overall salary. Reflects the employee’s role, responsibilities, and experience.

  1. Bonuses:

Additional monetary rewards provided to employees, often based on performance, company profits, or specific achievements. Motivates employees and aligns their efforts with organizational goals.

  1. Allowances:

Supplementary payments intended to cover specific expenses or costs related to the job, such as housing, transportation, or meals. Addresses the financial impact of job-related requirements.

  1. Benefits:

Non-monetary compensation, including healthcare, retirement plans, and other perks, provided to enhance employees’ overall well-being. Contributes to employee satisfaction and work-life balance.

  1. Overtime Pay:

Additional compensation for hours worked beyond the standard workweek, often calculated at a higher rate than the regular hourly pay. Compensates employees for extra effort and time invested in work.

  1. Performance–Based Incentives:

Variable payments linked to individual or team performance, encouraging employees to achieve specific goals or targets. Aligns compensation with results and fosters a performance-driven culture.

  1. Profit Sharing:

Sharing company profits with employees, providing them with a stake in the organization’s financial success. Aligns the interests of employees with the overall success of the business.

  1. Commissions:

Payments based on sales or revenue generated by an employee, common in roles with direct sales responsibilities. Rewards employees for their contribution to revenue generation.

  1. Retirement Benefits:

Contributions made by the employer to retirement plans, such as 401(k) or pension schemes. Supports employees in building financial security for their post-work years.

  • Stock Options:

The right to purchase company stock at a predetermined price, offering employees a share in the company’s ownership. Aligns employees’ interests with the company’s long-term success.

  • Education and Training Support:

Financial assistance provided by the employer for the education and skill development of employees. Promotes continuous learning and professional growth.

  • Health and Wellness Programs:

Initiatives and benefits aimed at promoting employees’ physical and mental well-being. Enhances employee health, productivity, and job satisfaction.

  • Vacation and Leave Benefits:

Paid time off from work, including vacation days, holidays, and other types of leave. Supports work-life balance and employee well-being.

  • Severance Pay:

Compensation provided to employees upon termination of employment, often based on factors like length of service. Offers financial support during transitions and provides a safety net for employees.

  • Other Perquisites (Perks):

Additional benefits or privileges provided to employees, such as company cars, memberships, or flexible work arrangements. Enhances the overall employment experience and contributes to employee satisfaction.

Wages

Wages refer to the compensation paid to an employee for the hours worked or services rendered, often calculated on an hourly, daily, or weekly basis. Unlike salaries, which provide a fixed amount irrespective of hours worked, wages are directly tied to the time spent on the job.

Components:

  1. Hourly Rate:

The amount paid for each hour worked by an employee. Forms the basic unit for calculating wages based on time.

  1. Overtime Pay:

Additional compensation provided for hours worked beyond the standard workweek or regular working hours. Compensates employees for extra effort and time beyond the standard working hours.

  1. Piece-Rate Pay:

Compensation based on the number of units produced or tasks completed. Directly links pay to productivity and output.

  1. Commission:

A percentage of sales or revenue earned by an employee, common in sales roles. Rewards employees based on their contribution to generating business.

  1. Tips and Gratuities:

Additional payments received by employees, often in service industries, as a form of appreciation from customers. Augments income and is often based on customer satisfaction.

  1. Holiday Pay:

Compensation for hours worked on recognized holidays. Encourages employees to work during holiday periods and compensates for the disruption to personal time.

  1. Shift Differentials:

Additional pay for working shifts that fall outside regular daytime hours. Compensates for inconveniences associated with non-standard working hours.

  1. Bonuses (Variable):

Additional payments beyond regular wages, often tied to performance, project completion, or other achievements. Acts as an incentive and recognition for exceptional contributions.

  1. Piecework Bonuses:

Additional payments for meeting or exceeding production targets in piecework arrangements.  Motivates employees to achieve or surpass production goals.

  • Travel Allowances:

Compensation for work-related travel expenses, such as mileage or transportation costs. Addresses additional costs incurred while traveling for work.

  • Uniform or Tool Allowances:

Payments provided to cover the cost of uniforms, tools, or equipment required for the job. Supports employees in meeting job-specific requirements.

  • Incentive Pay:

Additional compensation tied to achieving specific targets, often related to productivity or efficiency. Encourages employees to meet or exceed performance expectations.

  • Danger Pay:

Additional compensation for employees working in hazardous conditions or environments. Recognizes the risks associated with certain jobs.

  • Call-out Pay:

Compensation for employees called in to work outside their regular schedule, often applicable to on-call positions. Compensates for the inconvenience of being available on short notice.

  • Benefits (Limited):

Some wage-related benefits, such as health insurance or retirement contributions, may be provided, but to a lesser extent compared to salary packages. Enhances the overall compensation package, albeit on a more limited scale compared to salaried positions.

Difference between Salary and Wages

Basis of Comparison

 Salary

Wages
Payment Frequency Monthly Hourly or Weekly
Consistency Fixed, stable Variable, fluctuates
Calculation Basis Annual rate / 12 Hourly rate x Hours worked
Overtime Compensation Typically included Paid separately
Employment Level Often for salaried employees Common for hourly workers
Work Hours Impact Irrelevant to pay Directly affects earnings
Benefits Often includes benefits Limited or no benefits
Professional Positions Common for white-collar jobs Common for blue-collar jobs
Skill-Based Reflects skills and qualifications Often skill-independent
Administrative Work Common for managerial roles Common for administrative roles
Unionization Less common for unionized jobs Common in unionized settings
Job Complexity Reflects job responsibilities May not directly reflect complexity
Job Stability Generally perceived as stable Can be influenced by job market
Performance Impact Less direct impact on pay Directly impacts pay through hours
Perception in Society Often associated with higher status May not carry the same status

Management Notes

Basis for Compensation Fixation

indiafreenotesby indiafreenotes2

Compensation refers to compensating any damage, loss or mental harassments, wages or salaries as reward for physical and/or mental efforts to perform any agreed task or job. But the concept of equity in remunerating any work or task has forced us to perceive wages and salaries as compensation, because people work efficiently only when they are paid according to their worth or feel satisfied with the remunerations. Besides basic salaries or wages, companies are forced to view the benefits and services to justify the positional and esteem needs of employees and to provide adequate cushion for inflations. Though the cost of human resources is estimated at between 2% to 20% of the operating cost (depending upon the type of industry), to retain the employees or to avoid job-hopping, some of the industries are even forced to adopt varying scales and benefits.

Compensation is the reward that the employees receive in return for the work performed and services rendered by them to the organization. Compensation includes monetary payments like bonuses, profit sharing, overtime pay, recognition rewards and sales commission, etc., as well as non­monetary perks like a company-paid car, company-paid housing and stock opportunities and so on.

Apart from the basic financial pay the employees receive paid vacations, sick leave, holidays and medical insurance, maternity leave, free travel facility, retirement benefits, etc., and these are called benefits.

The Fixation or determination of compensation involves considering various factors and elements to arrive at a fair and competitive remuneration package for employees. The basis for compensation fixation may vary across industries, organizations, and job roles. The Combination of these factors, tailored to the specific needs and priorities of the organization, forms the basis for the fixation of compensation. Organizations often develop a comprehensive compensation strategy that integrates these elements to attract, retain, and motivate a talented and satisfied workforce.

  • Market Conditions:

Aligning compensation with prevailing market rates for similar positions in the industry or geographic location. Ensures competitiveness in attracting and retaining talent.

  • Job Evaluation:

Systematically assessing the relative value of different jobs within the organization based on factors like skills, responsibilities, and complexity. Establishes internal equity and aids in determining appropriate compensation levels.

  • Industry Standards:

Considering compensation benchmarks and practices established within a specific industry. Helps organizations stay competitive and in line with industry norms.

  • Organization’s Financial Health:

Evaluating the financial capacity of the organization to sustain and afford the proposed compensation structure. Ensures that compensation is aligned with the organization’s financial resources.

  • Employee Performance:

Linking compensation to individual or team performance, often through performance appraisals and merit-based systems. Rewards and motivates high-performing employees, fostering a performance-driven culture.

  • Cost of Living:

Adjusting compensation based on the cost of living in a particular region or country. Accounts for variations in living expenses and ensures fair compensation.

  • Skill and Experience:

Recognizing the level of skills and experience possessed by an employee. Differentiates between entry-level and experienced employees, reflecting their contributions.

  • Legal Compliance:

Ensuring compliance with local, state, and national labor laws and regulations related to minimum wage, overtime, and other compensation standards. Mitigates legal risks and ensures ethical employment practices.

  • Union Agreements:

Adhering to terms negotiated and agreed upon in collective bargaining agreements with labor unions. Reflects the terms and conditions established through negotiations with employee representatives.

  • Market Positioning:

Positioning the organization’s compensation strategy relative to competitors in the talent market. Influences the organization’s attractiveness to potential employees and helps in talent acquisition.

  • Employee Benefits:

Including non-monetary benefits, such as health insurance, retirement plans, and other perks, in the overall compensation package. Enhances the total rewards offered to employees, contributing to their overall well-being.

  • Job Complexity and Risk:

Recognizing the complexity and level of risk associated with specific job roles. Reflects the nature of the job and the skills required, influencing compensation levels.

  • Retention and Succession Planning:

Considering the organization’s long-term talent strategy, including the retention of key employees and planning for future leadership needs. Aligns compensation with strategic workforce planning goals.

  • Employee Value Proposition (EVP):

Evaluating the overall value proposition offered to employees beyond monetary compensation, including career development opportunities, work-life balance, and organizational culture. Considers factors that contribute to employee satisfaction and engagement.

  • Global Considerations:

Adapting compensation practices to account for variations in economic conditions, cultural norms, and legal requirements in different countries for multinational organizations. Ensures consistency and compliance across diverse geographic locations.

Management Notes

Effect of Various Labour Laws on Wages

indiafreenotesby indiafreenotes0

Labour laws play a pivotal role in shaping the employment landscape and influencing wage structures within a country. These laws are designed to regulate the relationship between employers and employees, ensuring fair treatment, safe working conditions, and just compensation. The impact of labour laws on wages is multifaceted, encompassing aspects such as minimum wage regulations, overtime pay, equal pay for equal work, and various other provisions aimed at protecting workers’ rights. Labour laws wield substantial influence over wage structures, seeking to establish a balance between the interests of employers and the rights of workers. While these laws are crafted with the intention of promoting fairness, equity, and worker protection, their impact is subject to various challenges. Striking the right balance between regulation and flexibility, addressing regional disparities, and adapting to evolving workforce dynamics are ongoing challenges for policymakers and businesses alike. Nevertheless, a well-crafted and effectively enforced legal framework is essential for fostering a work environment where wages are just, working conditions are safe, and the rights of workers are upheld.

Minimum Wage Regulations:

Intended Benefits:

  • Fair Compensation:

Minimum wage laws are enacted to ensure that workers receive a baseline level of compensation deemed necessary for a decent standard of living. This promotes economic justice by preventing the exploitation of vulnerable workers.

  • Poverty Alleviation:

Setting a minimum wage helps lift workers out of poverty, providing them with the means to cover essential living expenses. This has broader societal implications, contributing to poverty reduction.

Challenges:

  • Impact on Small Businesses:

Critics argue that higher minimum wages can impose financial burdens on small businesses, potentially leading to job cuts or increased prices for goods and services.

  • Regional Disparities:

Minimum wage regulations may not adequately account for regional variations in living costs, creating challenges in finding a one-size-fits-all solution that addresses the diverse economic landscapes within a country.

Equal Pay for Equal Work:

Intended Benefits:

  • Gender Pay Equity:

Labour laws promoting equal pay for equal work aim to eliminate gender-based wage disparities. This contributes to gender equality in the workplace, fostering a fair and inclusive environment.

  • Fair Treatment:

The principle of equal pay extends to all forms of discrimination, ensuring that employees are not subjected to wage disparities based on race, ethnicity, or other protected characteristics.

Challenges:

  • Data Accuracy and Transparency:

Implementing equal pay measures requires accurate and transparent data on employees’ roles, responsibilities, and compensation. Some organizations may face challenges in collecting and disclosing this information.

  • Subjectivity in Job Evaluation:

Determining what constitutes “equal work” can be subjective, and variations in job roles may complicate efforts to ensure equal pay. Standardizing job evaluation methodologies is a complex task.

Overtime Pay and Working Hours:

Intended Benefits:

  • Fair Compensation for Extra Effort:

Overtime pay regulations are intended to compensate employees for working beyond standard hours. This ensures that employees are fairly rewarded for their additional efforts.

  • Limiting Exploitative Practices:

Labour laws prescribing limits on working hours and overtime seek to prevent exploitative practices and promote a healthy work-life balance. This contributes to employee well-being and job satisfaction.

Challenges:

  • Operational Constraints:

Industries with fluctuating workloads may face challenges in accommodating strict working hour regulations. Flexibility in working hours may be crucial for certain sectors.

  • Compliance Monitoring:

Ensuring compliance with overtime regulations requires effective monitoring mechanisms, which can be resource-intensive for regulatory authorities.

Collective Bargaining and Trade Union Laws:

Intended Benefits:

  • Negotiating Power for Workers:

Collective bargaining laws empower workers to negotiate wages and working conditions collectively. This enhances their bargaining power, leading to more equitable agreements with employers.

  • Labour Market Stability:

By providing a structured framework for negotiations, collective bargaining laws contribute to labour market stability, reducing the likelihood of widespread strikes or industrial unrest.

Challenges:

  • Power Imbalances:

In situations where there is a significant power imbalance between employers and workers, collective bargaining may be challenging. This is particularly relevant in industries with limited unionization.

  • Potential for Disruption:

While collective bargaining aims for mutually beneficial agreements, disputes can arise, leading to work stoppages and disruptions that impact both workers and employers.

Social Security and Benefits:

Intended Benefits:

  • Worker Well-being:

Labour laws pertaining to social security and benefits, such as healthcare, retirement plans, and disability insurance, aim to enhance the overall well-being of workers.

  • Attracting and Retaining Talent:

Competitive benefit packages can attract skilled workers and contribute to employee retention. Labour laws often prescribe minimum standards for these benefits.

Challenges:

  • Financial Strain on Employers:

Mandating certain benefits can place a financial burden on employers, especially smaller businesses. Striking a balance between worker welfare and business viability is crucial.

  • Changing Workforce Dynamics:

The rise of the gig economy and non-traditional employment arrangements poses challenges in adapting social security and benefit regulations to accommodate diverse work structures.

Child Labour and Forced Labour Laws:

Intended Benefits:

  • Protecting Vulnerable Populations:

Laws prohibiting child labour and forced labour are designed to protect vulnerable populations from exploitation. These regulations prioritize the well-being of children and individuals subjected to coercion.

  • Ethical Business Practices:

Compliance with child labour and forced labour laws is integral to promoting ethical business practices. Organizations adhering to these regulations contribute to global efforts against human rights abuses.

Challenges:

  • Enforcement and Monitoring:

Effectively enforcing laws against child labour and forced labour requires robust monitoring systems, especially in industries where such practices may be prevalent.

  • Global Supply Chain Complexity:

Addressing child labour and forced labour becomes complex in global supply chains, where products may pass through multiple jurisdictions with varying regulations and enforcement capacities.

error: Content is protected !!