UNIT III

3. JOINT VENTURE IN INDIA

INTRODUCTION;

. With the liberalization of the Indian economy, the number of joint ventures
(JVs) and foreign collaborations (FCs) has increased significantly over the last
fifteen years. Recognizing the potential in the Indian economy and the
opportunities available to foreign companies and investors to collaborate with
Indian entities, it is crucial to understand the various issues involved in JV/FC
agreements from the perspective of the provisions of the Companies Act, 1956.

What is Joint Venture?

A joint venture in India is a strategic alliance where two or more parties agree to
pool their resources for a specific task, such as a new project or any other
business activity. In a JV, each participant is responsible for profits, losses, and
costs associated with it.

Joint Ventures can be created with an organisation in the same industry or with
an organisation in a different industry, but after combining the two, they will get
a competitive edge over other market players. In general, a Joint Venture is
formed when two or more firms join together to form synergy and obtain a
mutual competitive advantage. It can be a private, public, or even a foreign
corporation. Firms enter into a joint venture for business expansion,
development of new products or moving into a new market, especially in the
case of another country.

Benefits of Joint Venture

1. Establishing Entry into New Markets and Distribution

Networks: When one company forms a joint venture with another, it
opens up a wide market with the potential to expand and flourish.

For example, when a firm from the United States of America forms a joint
venture with another company from India, the company from the United
States has access to enormous Indian markets with different variants of
paying capacity and diversification of choice.
At the same time, the Indian firm has the benefit of being able to reach markets
in the United States that are widely separated and have a high-paying capacity
where the product’s quality is not compromised.

2. Access to Technology: Technology is an alluring reason for companies to

form joint ventures. Advanced technology combined with one organisation to
generate higher quality products saves a significant amount of time, energy, and
resources, as there is no need to develop its own technology. Superior quality
products are also produced which adds to the efficiency and effectiveness of the
organisation by reducing the cost of production.

3. Economies of scale: Joint Venture helps companies with limited capacity to

scale up. One organization’s strength can be utilized by another. This provides
both firms with a competitive advantage in terms of generating economies of
scalability.

4. Innovation: Joint ventures provide an additional advantage in terms of

technologically upgrading products and services. Marketing may be done
through a variety of innovative platforms, and technological advancements help
in the production of high-quality products at a low cost. International
corporations can develop new concepts and technologies to decrease costs and
produce higher-quality products.

5. Low Production Costs: When two or more firms join hands, the primary
goal is to deliver products at the lowest possible cost. And this is possible when
manufacturing costs are decreased or service costs are controlled. A real joint
venture simply aims to provide the best products and services to its customers.

6. Established Brand Name: The Joint Venture can be given its very own
brand name. This contributes to the brand’s distinct appearance and recognition.
When two companies form a joint venture, the goodwill of one firm that is
already established in the market can be used by another to gain an advantage
over other market competitors. For example, A large European brand entering
into a joint venture with an Indian firm will provide a synergistic benefit
because the brand is already well-known throughout the world.

Types of joint ventures

There are 4 most important types of joint venture that are practised by the
companies:
 1. Project-based joint venture- This is a type of JV, where the parties
come together with a motive to accomplish a particular task.

2. Vertical Joint Venture– This is a type of JV, where the parties are at
different level of the same product and decided to come together in a JV

3. Horizontal Joint Venture– This is a type of JV, where the parties are
competitors and decide to come together.

4. Functional-based Joint Venture– This is a type of JV, where the parties

come together in order of getting a mutual benefit by the synergy of the
two parties.

Types of Joint Venture In India

There are two types of Joint Venture:

1. Contractual Joint Venture (CJV):

A contractual joint venture does not result in the formation of a new jointly-
owned business. There is only an agreement to cooperate and work together.
The parties do not share ownership of the company, but they do have some
influence over it. They exercise some elements of control in the joint venture. A
franchisee relationship is a common example of a contractual joint venture.

The following are key elements in such a relationship:

a. Two or more parties share a common objective to run a business.

b. Each party contributes something to the venture or brings some input.

c. Both parties have some control over the business venture.

d. The relationship is not a transaction-to-transaction relationship but is of

longer duration.

2. Equity-based Joint Venture (EJV):

An equity joint venture agreement is one in which a separate business entity,

jointly owned by two or more parties, is formed with the parties’ agreement.
The essential operating factor in such a scenario is joint ownership by two or
more parties. The kind of business entity might vary in the form of corporation,
partnership firm, trusts, limited liability partnership businesses, venture capital
funds, etc.
The following are key elements in such a relationship:

a. There is an agreement to form a new entity or for one of the parties to join
into ownership of an existing entity.

b. Shared ownership by the parties is involved.

c. Management is shared jointly.

d. Capital investment and other financing arrangements responsibilities are

shared by both parties.

e. Profits and losses are shared according to the agreement.

The Characteristics of a Joint Venture Company

 To form a Joint Venture, the contribution of two or more
parties/companies is required.

 The parties sign an agreement to accomplish a particular project or

venture as they contribute capital mutually.

 There is no particular name for a Joint Venture business as they are

shared by two or more companies.

 The type of Joint Venture agreement is temporary and ends when the
project is completed, and the desired goal is reached.

 There is a predetermined ratio for sharing profits and losses in Joint

Venture companies, and it is shared equally if no such ratio is present or
decided upon.

 The parties or the co-venturers can work for the shared company and
continue working for their own company, too, unless it is specifically
mentioned in an agreement that the parties will have to act only for the
Joint Venture for a specified period.

 The parties can hire a business lawyer to help mitigate any issues
regarding the process and commencement of a Joint Venture form of
business.
Legal Framework Under the Companies Act, 1956

Formation Process:

1. Selection of Partner:

o Identifying a suitable partner with complementary strengths and

resources.

2. Due Diligence:

o Conducting thorough background checks and financial evaluations

of the potential partner.

3. Negotiation:

o Discussing terms and conditions, including objectives,

responsibilities, profit-sharing, and exit strategies.

4. Drafting Agreements:

o Preparing Memorandum of Understanding (MoU), Joint Venture

Agreement, and Articles of Association for incorporated JVs.

 Section 2(28): Defines the Articles of Association.

5. Regulatory Approvals:

o Obtaining necessary approvals from regulatory bodies like the

Reserve Bank of India (RBI), Securities and Exchange Board of
India (SEBI), and sector-specific regulators.

 Section 24: Powers of the SEBI.

 Section 49: Regulations on dividends.

6. Registration:

o For incorporated JVs, registering the new company with the

Registrar of Companies.

 Section 33: Requirements for registering a new company.

Key Clauses in JV Agreements:

1. Capital Contribution:

o Specifies the amount and form of capital each partner will

contribute.

 Section 87: Regulations on the issuance of shares and

debentures.

2. Management Structure:

o Details the composition of the board, decision-making processes,

and management responsibilities.

 Section 252: Appointment and qualifications of directors.

3. Profit and Loss Sharing:

o Outlines how profits and losses will be distributed among the

partners.

4. Exit Strategy:

o Provides mechanisms for partners to exit the JV, including buyout

options and conditions for termination.

 Section 77A: Regulations on buy-back of shares.

5. Dispute Resolution:

o Specifies methods for resolving disputes, such as arbitration or

mediation.

 Section 397-398: Provisions for addressing oppression and

mismanagement.

Some other laws which are regulating the Joint Venture business are:

 Competition Act, 2002

 Foreign Trade Act, 1992
 Industrial Procedure Policy for Foreign Investment Contract Act
 Foreign Exchange Management Act
 SEBI Guidelines and Regulations, 1999
 Reserve Bank of India (RBI) Guidelines & Circulars
Conclusion

Joint ventures and foreign collaborations in India offer significant opportunities

for growth, innovation, and market expansion. However, they require careful
planning, clear agreements, and a thorough understanding of regulatory
frameworks to be successful. By leveraging the strengths of each partner and
effectively managing the associated risks, JVs and FCs can be powerful tools
for achieving strategic business objective.

Foreign Collaboration:
INTRODUCTION

Developing countries like India have been using import of technology through
foreign collaboration as a strategy to bridge the technological gaps in the
country, to expedite economic development

Foreign collaboration refers to the partnership between an Indian entity and a

foreign company to achieve mutual business objectives. This can involve a
variety of arrangements, including joint ventures, technical collaboration,
marketing collaboration, and financial collaboration. Foreign collaboration has
played a significant role in India's economic development, particularly after the
liberalization of the economy in the early 1990s.

Definition of Foreign Collaboration

In general, the definition of foreign collaboration can be stated as follows.

“Foreign collaboration is an alliance incorporated to carry on the agreed

task collectively with the participation (role) of resident and non-resident
entities.”

Alliance is a union or association formed for mutual benefit of parties.

In finance, the definition of foreign collaboration can be specified as

follows.

“Foreign collaboration includes ongoing business activities of sharing

information related to financing, technology, engineering, management
consultancy, logistics, marketing, etc., which are generally, offered by a non-
resident (foreign) entity to a resident (domestic or native) entity in exchange of
cheap skilled and semi-skilled labour, inexpensive high-quality raw-materials,
low cost hi-tech infrastructure facilities, strategic (favourable) geographic
location, and so on, with an approval (permission) from a governmental
authority like the ministry of finance of a resident country.”

Meaning of Foreign Collaboration

Following important points convey the meaning of foreign collaboration:

1. Foreign collaboration is a mutual co-operation between one or more

resident and non-resident entities. In other words, for example, an
alliance (a union or an association) between an abroad based company
and a domestic company forms a foreign collaboration.
2. It is a strategic alliance between one or more resident and non-resident
entities.
3. Only two or more resident (native) entities cannot make a foreign
collaboration possible. For its formation and as per above definitions, it is
mandatory that one or more non-resident (foreign) entities must always
collaborate with one or more resident (domestic) entities.
4. Before starting a foreign collaboration, both entities, for example, a
resident and non-resident company must always seek approval
(permission) from the governmental authority of the domestic country.
5. During an ongoing process of seeking permission, the collaborating
entities prepare a preliminary agreement.
6. According to this preliminary agreement, for example, the non-resident
company agrees to provide finance, technology, machinery, know-how,
management consultancy, technical experts, and so on. On the other hand,
resident company promises to supply cheap labour, low-cost and quality
raw-materials, ample land for setting factories, etc.
7. After obtaining the necessary permission, individual representative of a
resident and non-resident entity sign this preliminary agreement.
Signature acts as a written acceptance to each other's expectations, terms
and conditions. After signatures are exchanged, a contract is executed,
and foreign collaboration gets established. Contract is a legally
enforceable agreement. All contracts are agreements, but all agreements
need not necessarily be a contract.
8. After establishing foreign collaboration, resident and non-resident entity
start business together in the domestic country.
9. Collaborating entities share their profits as per the profit-sharing ratio
mentioned in their executed contract.
10.The tenure (term) of the foreign collaboration is specified in the written
contract.

Examples of Foreign Collaboration

 1. ICICI Lombard GIC (General Insurance Company) Limited is a
financial foreign collaboration between ICICI Bank Ltd., India and
Fairfax Financial Holdings Ltd., Canada.
2. ING Vysya Bank Ltd. is a financial foreign collaboration formed
between ING Group from Netherlands and Vysya Bank from India.
3. Tata DOCOMO is a technical foreign collaboration between Tata
Teleservices from India and NTT Docomo, Inc. from Japan.
4. Sikkim Manipal University (SMU) from India runs some academic
programs through an educational foreign collaboration with abroad
universities like Liverpool School of Tropical Medicine from UK,
Loma Linda and Louisiana State Universities from USA, Kuopio
University from Finland, and University of Adelaide from Australia.

Objectives of Foreign Collaboration

1. Improve the financial growth of the collaborating entities.

2. Occupy a major market share for the collaborating entities.

3. Reduce the higher operating cost of a non-resident entity.

4. Make an optimum and effective use of resources available in the resident

entity's country.

5. Generate employment in the resident entity's country.

Types of Foreign Collaboration

1. Joint Ventures

A joint venture (JV) is a business arrangement where two or more parties agree
to pool their resources for a specific task, which can be a new project or any
other business activity.

Key Features:

 Shared ownership and control.

 Shared risks and rewards.

 Contribution of resources by both parties.

Examples:
  Maruti Suzuki: A JV between Maruti Udyog Ltd. and Suzuki Motor
Corporation of Japan.

 Tata Starbucks: A JV between Tata Global Beverages and Starbucks

Coffee Company.

2. Technical Collaboration

Technical collaboration involves the transfer of technology, know-how, or

technical expertise from a foreign company to an Indian company. This can
include licensing agreements, patents, and trademarks.

Key Features:

 Transfer of technology and expertise.

 Often involves training of Indian personnel.

 Licensing fees or royalties are typically paid to the foreign company.

Examples:

 Bajaj Auto and Kawasaki Heavy Industries: Technical collaboration for

manufacturing motorcycles.

 Hero Honda (now Hero MotoCorp): Collaboration for technology and

expertise in motorcycle production.

3. Marketing Collaboration

Marketing collaboration involves foreign companies partnering with Indian

firms to market and distribute products in India. This helps foreign companies
leverage the local expertise and distribution networks of Indian firms.

Key Features:

 Joint marketing and distribution efforts.

 Shared market intelligence and customer insights.

 Often involves co-branding or co-promotional activities.

Examples:

 Hindustan Unilever Limited (HUL): Collaboration with various global

brands for marketing consumer goods.
  PepsiCo and Tata Global Beverages: Joint marketing efforts for beverage
products.

4. Financial Collaboration

Financial collaboration includes investments by foreign entities in Indian

companies, either through equity participation, debt financing, or other financial
instruments.

Key Features:

 Foreign direct investment (FDI) or portfolio investment.

 Capital infusion for business expansion and growth.

 Strategic financial partnerships.

Examples:

 Walmart's investment in Flipkart: Financial collaboration to gain a

foothold in the Indian e-commerce market.

 Foreign institutional investors (FIIs) investing in Indian stock markets.

Regulatory Framework

Foreign collaborations in India are governed by various regulations and

policies, including:

 Foreign Exchange Management Act (FEMA), 1999: Governs foreign

exchange transactions and facilitates external trade and payments.

 Reserve Bank of India (RBI): Regulates foreign investments and

ensures compliance with FEMA.

 Department for Promotion of Industry and Internal Trade (DPIIT):

Formulates and monitors FDI policy.

 Securities and Exchange Board of India (SEBI): Regulates capital

markets and foreign portfolio investments.

Conclusion

Foreign collaboration has been instrumental in transforming India's economic

landscape by bringing in technology, capital, and expertise. It has enabled
Indian companies to enhance their capabilities and compete globally. However,
successful foreign collaboration requires careful planning, clear agreements, and
a thorough understanding of the regulatory environment.

By addressing the challenges and leveraging the benefits, Indian companies can
effectively harness the potential of foreign collaborations for sustained growth
and development.

Difference between Joint Venture and Foreign Collaboration

Joint Venture Foreign Collaboration

The term “joint

venture” refers to a The general phrase
certain type of “collaboration” refers to the
business venture in joining together of two or more
which two or more entities for mutual benefit.
parties collaborate.

A Joint Venture
enables one party to
It denotes the collaboration of two
enter another nation
parties toward a shared
with ease and to utilise
commercial goal.
the local partner’s
resources.

Joint ventures are The best example of collaboration

defined by shared in the world is in trade, where
control, in which no two nations work together to
one party has generate goods that would not
complete authority otherwise be available to their
 over the company. population.

There are 2 types of

There are 4 types of Foreign
Joint Venture that are
Collaboration that are Technical,
Equity Joint Venture
Marketing, Financial and
and Contractual Joint
Consultancy Collaboration.
Venture.

Transnational and Multinational Corporations

INTRODUCTION

A Trans-National Corporation (TNC) or Multi-National Corporation MNC is a

business that is based or registered in one country but has outlets/ affiliates or
does business in other countries.

Globalisation is one of the major reasons for the growth in TNCs. A number of
businesses in order to grow and develop have had to take on a global or
international perspective. In addition, TNCs have also caused further
globalisation – a two way process.

Many TNCs are based in more economically developed countries such as the
UK and USA, with Foreign Direct Investment coming from similar countries.
However, an increasing number of TNCs are based in LDCs, for example
India’s Tata or China’s Alibaba.

There are a number of reasons why a TNC might want to set up in a country.

These include: cheap labour, cheap raw materials, good transportation links, a
business friendly government (ones which adopt policies which encourage
business develop and growth such as low rates of corporation tax), exploitable
property rights and so on.
DIFFERENCE BETWEEN TRANSNATIONAL AND
MULTINATIONAL
'Multinational Corporations' is used synonymous with the term TNCs. There is,
however, according to some, a difference between MNCs and TNCs. According
to them, MNCs produce commodities/products for domestic consumption of
the countries in which they operate. TNCs, on the other hand, produce
products/commodities to meet the markets of third countries.

‘Multinational’ as the name suggests, the business operates in at least one

country other than its home country. Such corporations have assets and
facilities in more than two countries. However, these companies have a central
office from which global management is controlled or coordinated. Hence, the
decision-making power of the central office affects all the subsidiaries globally.

A Transnational Corporation is defined as an organisation that owns

productive assets in different countries, and has common strategy formulation
and implementation across border. It is engaged in international production
under the common governance of its headquarters. Factors of production move
among units located in different countries.

These systems increasingly cover a variety of activities ranging from research

and development to manufacturing to service functions. TNCs are also
increasingly established through mergers between existing firms from different
countries or the acquisition of existing firms in the countries by firms from
other countries

UNCTAD'S DRAFT MODEL ON TRANSNATIONAL CORPORATIONS

The United Nations Conference on Trade and Development (UNCTAD)3 is an

organ of the United Nations that deals with the effects of trade and investment
in developing nations. In the year 1983, UNCTAD issued a draft model relating
to ‘transnational corporations’. These are the vital provisions of the draft:

Transnational corporations are enterprises that operate in two or more countries,

comprising various entities that may differ in legal form and fields of activity.
These corporations function under a unified system of decision-making,
allowing for coherent policies and a common strategy directed by one or more
decision-making centers. The entities within these corporations are
interconnected through ownership or other means, enabling significant
influence over each other’s activities. These entities can be publicly, privately,
or mixed-owned.

. DEFINITION AND EXTENT OF THE DRAFT

. Article 1 of the draft model defines transnational corporations as enterprises

that operate in two or more countries. These corporations consist of various
entities, such as subsidiaries, branches, or affiliates, that are interconnected
through ownership or other mechanisms. The draft model emphasizes the need
for coherent policies and a common strategy that guides the operations of these
entities, ensuring that one or more decision-making centers exercise significant
influence over the activities of the others.

2. Universal Applicability

Article 2 ensures that the draft model is designed for universal applicability,
meaning it can be adopted by all states regardless of their political and
economic systems or levels of development. This inclusive approach ensures
that the guidelines and standards set forth in the model are relevant and
beneficial to a wide range of countries, from developed to developing
economies.

3. Equal Treatment of Corporations

Article 3 states that one of the fundamental principles of the draft model is the
equal treatment of transnational and domestic corporations. The provisions do
not aim to create a distinction between the two but rather introduce a set of good
practices for all enterprises. This ensures that both types of corporations are
subject to the same expectations and regulatory standards, promoting fairness
and consistency in corporate governance.

4. Regulatory Framework

The draft model outlines a comprehensive regulatory framework that includes

various aspects of corporate operations:

 Corporate Governance (Article 4): Guidelines on how TNCs should be

managed and controlled to ensure transparency, accountability, and
ethical behavior.
  Environmental Responsibility (Article 5): Standards for environmental
protection and sustainable development, requiring TNCs to minimize
their environmental impact.

 Labor Standards (Article 6): Provisions to protect workers' rights,

ensure fair wages, and promote safe working conditions.

 Anti-Corruption Measures (Article 7): Mechanisms to prevent and

combat corruption within TNCs and in their dealings with governments
and other entities.

 Taxation and Financial Transparency (Article 8): Requirements for

TNCs to comply with tax laws and maintain financial transparency,
reducing opportunities for tax evasion and illicit financial flows.

5. Host and Home Country Responsibilities

Article 9 outlines the responsibilities of both host and home countries in

regulating TNCs. Host countries are encouraged to implement the model's
provisions to ensure that TNCs operate in a manner that benefits their
economies and societies. Home countries, where the parent companies of TNCs
are based, are also urged to regulate the overseas activities of their corporations
to prevent harmful practices abroad.

6. Regional Cooperation

Article 10 recognizes the importance of regional cooperation, including

provisions that encourage states to work together to regulate TNCs effectively.
This includes sharing information, harmonizing regulations, and collaborating
on enforcement actions to address issues that cross national borders.

7. Dispute Resolution

Article 11 proposes mechanisms for arbitration and mediation to address

disputes involving TNCs. These mechanisms aim to provide fair and efficient
resolution of conflicts between TNCs and states, ensuring that disputes are
handled in a manner that respects the rights and interests of all parties involved.
Conclusion

The UNCTAD draft model on transnational corporations provides a

comprehensive framework for regulating the operations of TNCs. By promoting
universal standards, ensuring equal treatment of all corporations, and outlining
the responsibilities of both host and home countries, the model aims to foster a
fair, transparent, and sustainable global business environment. Its adoption can
help countries harness the benefits of foreign investment while protecting their
economic, social, and environmental interests.

Role of Transnational Organizations in Promoting Foreign Investment in

India

Transnational organizations play a significant role in promoting foreign

investment in India by providing a robust framework that encourages and
facilitates economic cooperation between countries. These organizations,
including the United Nations Conference on Trade and Development
(UNCTAD), the World Bank, and the International Monetary Fund (IMF),
among others, create an enabling environment that attracts foreign investors to
the Indian market.

One of the key contributions of transnational organizations is the establishment

of international standards and guidelines that ensure transparency, stability, and
predictability in the investment climate. By advocating for policies that protect
investor rights, promote fair competition, and enhance regulatory frameworks,
these organizations help to build investor confidence. For instance, UNCTAD's
investment policy reviews provide detailed analyses and recommendations for
improving investment climates in developing countries, including India.

Furthermore, transnational organizations facilitate foreign investment through

financial support and technical assistance. The World Bank and the IMF, for
example, provide funding and expertise to develop infrastructure, improve
governance, and implement economic reforms. These efforts help to create a
more attractive environment for foreign investors by reducing risks and
improving the overall business landscape.

Additionally, these organizations promote foreign investment by fostering

international cooperation and dialogue. Through forums, conferences, and
bilateral meetings, transnational organizations bring together policymakers,
business leaders, and other stakeholders to discuss investment opportunities,
challenges, and best practices. This not only helps to identify new investment
opportunities but also builds networks and partnerships that are essential for
successful foreign investments.

Transnational organizations also play a crucial role in capacity building and

knowledge transfer. By providing training, research, and advisory services, they
help Indian institutions and businesses to enhance their capabilities and adopt
international best practices. This, in turn, makes India a more competitive and
attractive destination for foreign investors.

In conclusion, transnational organizations significantly contribute to promoting

foreign investment in India by establishing international standards, providing
financial and technical assistance, facilitating international cooperation, and
building local capacities. Their efforts help to create a conducive investment
climate that attracts and retains foreign investors, thereby contributing to India's
economic growth and development.

Transnational Corporations and Corporate Social Responsibility under the

Companies Act 2013

Transnational Corporations and Corporate Social Responsibility under the

Companies Act 2013

Transnational corporations (TNCs) play a pivotal role in promoting the concept

of Corporate Social Responsibility (CSR), particularly in the context of the
regulatory changes introduced by the Companies Act 2013 in India. The Act,
which came into effect on April 1, 2014, includes specific provisions mandating
CSR activities for certain classes of companies, thereby institutionalizing the
practice of social responsibility in corporate governance.

Key Provisions under the Companies Act 2013

Section 135 of the Companies Act 2013 is the cornerstone of CSR regulation in
India. This section mandates that every company having a net worth of INR 500
crore or more, a turnover of INR 1000 crore or more, or a net profit of INR 5
crore or more during any financial year shall constitute a Corporate Social
Responsibility Committee of the Board. This committee is responsible for
formulating and recommending a CSR policy, indicating the activities to be
undertaken by the company in areas or subjects specified in Schedule VII of the
Act.
CSR Committee and Policy Formulation

The CSR Committee, as per Section 135(3), must consist of three or more
directors, out of which at least one director should be an independent director.
The Committee is tasked with preparing and recommending a detailed CSR
policy to the Board, which includes a list of CSR projects or programs that the
company plans to undertake. The policy should also specify the modalities of
execution and implementation schedules for such projects or programs, along
with monitoring mechanisms.

Allocation of CSR Expenditure

According to Section 135(5), companies are required to spend at least 2% of

their average net profits made during the three immediately preceding financial
years on CSR activities. If the company fails to spend this amount, the Board
must specify the reasons for not spending the amount in its report. This
provision ensures that companies are not only responsible for generating profit
but also for contributing to societal welfare.

Areas of CSR Activities

Schedule VII of the Companies Act 2013 outlines the specific areas where CSR
efforts should be directed. These include eradicating hunger and poverty,
promoting education, enhancing vocational skills, ensuring environmental
sustainability, promoting gender equality, and contributing to national heritage.
TNCs often have extensive resources and expertise, allowing them to undertake
substantial projects in these areas, thereby significantly impacting societal
development.

Reporting and Accountability

Section 135(4) stipulates that the Board’s report should include an annual report
on CSR activities in the prescribed format. This ensures transparency and
accountability, making it mandatory for companies to disclose their CSR
activities and expenditures publicly. This reporting requirement encourages
companies to not only engage in CSR activities but also to document and assess
their impact, fostering a culture of responsibility and ethical business practices.
Impact of TNCs on CSR Practices

Transnational corporations, with their vast resources and global reach, are well-
positioned to influence and implement robust CSR initiatives. By integrating
CSR into their business strategies, TNCs can address social, environmental, and
economic challenges effectively. Their involvement in CSR can lead to
significant positive outcomes such as improved community relations, enhanced
corporate reputation, and sustainable development.

TNCs also bring global best practices and innovations in CSR to India, setting
benchmarks for local companies. Their commitment to CSR often goes beyond
compliance, focusing on long-term sustainable development goals. By
collaborating with local stakeholders, including governments, NGOs, and
communities, TNCs can leverage their expertise and resources to create
impactful and scalable CSR projects.

How Transnational Enterprises Promote Corporate Social Responsibility

(CSR)

Transnational enterprises (TNEs) or transnational corporations (TNCs) play a

crucial role in promoting Corporate Social Responsibility (CSR) across the
globe. Their vast resources, global reach, and significant influence enable them
to implement and advocate for responsible business practices. Here’s how
TNCs promote CSR:

1. Setting Global Standards and Best Practices

Transnational enterprises often set global standards for CSR by adopting and
promoting best practices across their operations. They leverage their extensive
networks and resources to implement comprehensive CSR policies that address
social, environmental, and economic challenges. These standards often serve as
benchmarks for other businesses, encouraging them to follow suit.

2. Integrating CSR into Business Strategy

TNCs integrate CSR into their core business strategies, ensuring that
responsible practices are not just an add-on but a fundamental part of their
operations. This integration includes sustainable supply chain management,
ethical sourcing, reducing carbon footprints, and ensuring fair labor practices.
By aligning their business goals with CSR objectives, TNCs ensure long-term
sustainability and profitability.
3. Investing in Local Communities

TNCs often invest in the communities where they operate, contributing to local
development and welfare. These investments include building infrastructure,
supporting education, healthcare, and promoting economic development. By
addressing the specific needs of local communities, TNCs help improve the
quality of life and create a positive impact.

4. Fostering Partnerships and Collaborations

TNCs frequently collaborate with governments, non-governmental

organizations (NGOs), and other stakeholders to advance CSR initiatives. These
partnerships enhance the effectiveness and reach of CSR projects, leveraging
the expertise and resources of multiple entities to achieve common goals.
Collaborative efforts can address complex issues like poverty, education, and
environmental sustainability more effectively.

5. Transparency and Accountability

TNCs promote transparency and accountability in their CSR activities through

regular reporting and communication. They publish detailed CSR reports that
outline their initiatives, progress, and impact. These reports are often aligned
with global reporting standards such as the Global Reporting Initiative (GRI)
and the United Nations Global Compact, ensuring credibility and transparency.

6. Promoting Environmental Sustainability

Environmental sustainability is a key focus area for many TNCs. They

implement initiatives aimed at reducing their environmental footprint, such as
reducing greenhouse gas emissions, minimizing waste, conserving water, and
promoting renewable energy. These efforts not only benefit the environment but
also enhance the company’s reputation and compliance with regulatory
standards.

7. Encouraging Ethical Practices

TNCs promote ethical practices within their organization and across their
supply chains. This includes enforcing codes of conduct, ensuring fair labor
practices, preventing child labor, and promoting diversity and inclusion. By
setting high ethical standards, TNCs influence other businesses and suppliers to
adopt similar practices, creating a ripple effect throughout the industry.
8. Innovating for Social Good

TNCs invest in innovation to develop solutions that address social and

environmental challenges. This includes creating products and services that are
sustainable, affordable, and accessible to underserved populations. Innovations
can range from developing green technologies to creating affordable healthcare
solutions, contributing to societal well-being.

9. Employee Engagement and Development

TNCs engage their employees in CSR initiatives, fostering a culture of

responsibility and community involvement. This includes volunteering
programs, employee donations, and initiatives that encourage employees to
contribute their skills and time to social causes. Engaged employees often
become ambassadors of CSR, promoting responsible practices both within and
outside the organization.

Example: CSR under the Companies Act 2013

In India, the Companies Act 2013 mandates certain classes of companies to

undertake CSR activities. Section 135 of the Act requires companies with a
certain threshold of net worth, turnover, or profit to spend at least 2% of their
average net profits on CSR activities. TNCs operating in India adhere to these
regulations, often going beyond compliance to create significant social impact.
Their CSR initiatives in India often focus on areas such as education,
healthcare, rural development, and environmental sustainability, aligned with
the guidelines provided in Schedule VII of the Act.

Conclusion

Transnational enterprises are instrumental in promoting CSR by setting global

standards, integrating CSR into their business strategies, investing in local
communities, fostering partnerships, promoting transparency, encouraging
ethical practices, and innovating for social good. Their efforts contribute to
sustainable development and create a positive impact on society, demonstrating
that responsible business practices can go hand-in-hand with profitability and
growth
Procedure of Security Interest Created in Favor of Secured Creditor under
SARFAESI Act, 2002

The Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest (SARFAESI) Act, 2002, provides a detailed legal framework
for the enforcement of security interests by secured creditors. Here is a
structured note on the procedure involved, along with relevant legal provisions
under the SARFAESI Act, 2002:

1. Notice of Default (Section 13(2))

 Provision: Under Section 13(2) of the SARFAESI Act, when a borrower

defaults on the repayment of a loan or any installment, the secured
creditor can issue a notice to the borrower.

 Procedure: The notice must require the borrower to discharge their

liabilities within 60 days from the date of notice. It should clearly state
the amount due and the intention to enforce the security interest in case of
non-payment.

2. Objection by Borrower (Section 13(3A))

 Provision: Section 13(3A) allows the borrower to raise objections to the

notice within the 60-day period.

 Procedure: The secured creditor must consider the objections or

representations made by the borrower and provide a reasoned reply
within 15 days. If the objections are rejected, the creditor must explain
the reasons for rejection.

3. Enforcement of Security Interest (Section 13(4))

 Provision: Section 13(4) empowers the secured creditor to take

possession of the secured asset if the borrower fails to comply with the
notice.

 Procedure: The secured creditor can take one or more of the following
measures:

o Take possession of the secured assets, including the right to

transfer by way of lease, assignment, or sale for realizing the
secured asset.
 o Take over the management of the secured asset of the borrower,
including the right to transfer.

o Appoint any person to manage the secured asset.

o Require any person who has acquired any of the secured assets
from the borrower and from whom any money is due or may
become due to the borrower, to pay the secured creditor so much of
the money as is sufficient to pay the secured debt.

4. Valuation and Sale of Asset (Section 13(5) and (6))

 Provision: Section 13(5) and 13(6) deal with the valuation and sale of the
seized assets.

 Procedure:

o The secured creditor must ensure the asset is properly valued

before sale.

o They can proceed to sell the asset through public auction or private
treaty to recover the outstanding dues.

o The proceeds from the sale are used to cover the secured debt and
any surplus is returned to the borrower.

5. Application to Chief Metropolitan Magistrate or District Magistrate

(Section 14)

 Provision: Section 14 allows the secured creditor to seek assistance from

the Chief Metropolitan Magistrate or the District Magistrate.

 Procedure: If the secured creditor faces resistance in taking possession of

the secured asset, they can file an application with the magistrate for
assistance. The magistrate will then pass an order to take possession of
the asset and hand it over to the secured creditor.

6. Appeal to Debt Recovery Tribunal (DRT) (Section 17)

 Provision: Section 17 provides the borrower the right to appeal against

the measures taken under Section 13(4).

 Procedure: The borrower can file an appeal with the DRT within 45 days
from the date of taking possession of the asset. The DRT can examine the
 validity of the actions taken by the secured creditor and pass appropriate
orders.

7. Further Appeal to Debt Recovery Appellate Tribunal (DRAT) (Section

18)

 Provision: Section 18 allows further appeal to the DRAT against the

order of the DRT.

 Procedure: Either party, aggrieved by the order of the DRT, can file an
appeal with the DRAT within 30 days. The DRAT will review the order
of the DRT and pass its judgment.

8. Manner and Effect of Takeover (Section 15)

 Provision: Section 15 outlines the manner and effect of the takeover of

management.

 Procedure: The secured creditor takes over the management of the

business of the borrower and runs the business in the best interest of the
secured creditor. This takeover must be conducted in a manner that does
not disrupt the operations and ensures the preservation of the value of the
business.

Conclusion

The SARFAESI Act, 2002, provides a streamlined and efficient process for
secured creditors to enforce their security interests without the need for lengthy
court procedures. By following the steps outlined above and adhering to the
provisions of the Act, secured creditors can effectively manage and recover
their non-performing assets. This legal framework not only protects the interests
of secured creditors but also ensures fair treatment of borrowers by providing
them with opportunities to object and appeal against enforcement actions.

2. Transcore v. Union of India (2006)

Facts: The case revolved around the applicability of the doctrine of election,
where the debtor argued that once a bank chooses to file a suit under the
Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI), it
cannot simultaneously proceed under the SARFAESI Act.
Issue: Whether banks and financial institutions can simultaneously or
sequentially pursue recovery actions under both the RDDBFI Act and the
SARFAESI Act.

Arguments:

 Petitioners: Claimed that proceeding under both Acts constituted double

jeopardy.

 Respondents: Argued that both Acts provided different remedies and

could be used sequentially.

Decision: The Supreme Court ruled that the SARFAESI Act and the RDDBFI
Act provided complementary remedies. It allowed banks to switch from
proceedings under the RDDBFI Act to the SARFAESI Act if the recovery
process was not yielding results.

3. Standard Chartered Bank v. V. Noble Kumar (2013)

Facts: The borrower challenged the possession notice issued by the bank under
Section 13(4) of the SARFAESI Act, arguing that the notice was issued without
due diligence.

Issue: The validity of the possession notice issued without following the proper
procedure.

Arguments:

 Petitioners: Argued that the bank did not follow the due process before
taking possession.

 Respondents: Claimed that all procedures under the SARFAESI Act

were duly followed.

Decision: The Supreme Court held that banks must follow all prescribed
procedures under the SARFAESI Act meticulously before taking possession of
secured assets. The Court emphasized the importance of issuing a valid notice
under Section 13(2) and the necessity of a fair hearing.

4. United Bank of India v. Satyawati Tondon (2010)

Facts: Satyawati Tondon challenged the auction sale of her property by the
bank under the SARFAESI Act.
Issue: Whether the High Court could interfere with the auction sale process
initiated under the SARFAESI Act.

Arguments:

 Petitioners: Argued that the auction process was not transparent and
violated principles of natural justice.

 Respondents: Maintained that all legal procedures under the SARFAESI

Act were followed.

Decision: The Supreme Court held that the High Court should not interfere with
the proceedings initiated under the SARFAESI Act unless there were glaring
errors or violations of principles of natural justice. The Court emphasized the
need for expeditious recovery of dues to maintain financial discipline.

5. Kanaiyalal Lalchand Sachdev v. State of Maharashtra (2011)

Facts: The borrowers challenged the auction of their properties by banks under
the SARFAESI Act, arguing that the process was arbitrary and lacked
transparency.

Issue: Whether the procedures followed by banks for auctioning properties

under the SARFAESI Act were just and fair.

Arguments:

 Petitioners: Argued that the auction process was not transparent and
denied them a fair opportunity.

 Respondents: Argued that all procedural requirements under the

SARFAESI Act were followed.

Decision: The Supreme Court reaffirmed the validity of the SARFAESI Act and
the procedures followed by banks for auctioning properties. It held that the Act
provided sufficient safeguards to ensure fairness and transparency in the
recovery process.

These landmark cases highlight the judiciary's role in interpreting and enforcing
the provisions of the SARFAESI Act, ensuring a balance between the rights of
secured creditors and the protection of borrowers' interests.