Legislation Section

The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002

(Act No. 55 of 2002)

Statement of Objects and Reasons

The Negotiable Instruments Act, 1881 was amended by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 wherein a new Chapter XVII was incorporated for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque. These provisions were incorporated with a view to encouraging the culture of use of cheques and enhancing the credibility of the instrument. The existing provisions in the Negotiable Instruments Act, namely sections 138 to 142 in Chapter XVII have been found deficient in dealing with dishonour of cheques. Not only the punishment provided in the Act has proved to be inadequate, the procedure prescribed for the Courts to deal with such matters has been found to be cumbersome. The courts are unable to dispose of such cases expeditiously in a time bound manner in view of the procedure contained in the Act.

2. A large number of cases are reported to be pending under sections 138 to 142 of the Negotiable Instruments Act, 1881 in various courts in the country. Keeping in view the large number of complaints under the said Act pending in various courts, a Working Group was constituted to review section 138 of the Negotiable Instruments Act, 1881 and make recommendations as to what changes were needed to effectively achieve the purpose of that section.

3. The recommendations of the Working Group along with other representations from various institutions and organisations were examined by the Government in consultation with the Reserve Bank of India and other legal experts, it has been decided to bring out, inter alia, the following amendments in the Negotiable Instruments Act, 1881, namely:--

(i) increasing the punishment as prescribed under the Act from one year to two years;

(ii) increasing the period for issue of notice by the payee to the drawer from 15 days to 30 days;

(iii) to provide discretion to the court to waive the period of one month, which has been prescribed for taking cognizance of the case under the Act;

(iv) to prescribe procedure for dispensing with preliminary evidence of the complainant;

(v) to prescribe procedure for servicing of summons by the Court through speed post or empanelled private couriers;

(vi) to provide for summary trial of the cases under the Act with a view to speeding up disposal of cases; and

(vii) make the offences under the Act compundable.

4. The amendments in the Act are expected to result in early disposal of cases relating to dishonour of cheques by the Courts and are also aimed at enhancing punishment for offenders.

5. The Bill seeks to achieve the above objects.

* * *

An Act further to amend the Negotiable Instruments Act, 1881, the Bankers' Books Evidence Act, 1891 and the Information Technology Act, 2000.

Be it enacted by Parliament in the Fifty-third Year of the Republic of India as follows:--

CHAPTER I

Preliminary

1. Short title and commencement.--

(1) This Act may be called the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002.

(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act.

CHAPTER II

Amendments to the Negotiate Instruments Act, 1881

Substitution of new section for section 6.--

2. For section 6 of the Negotiable Instruments Act, 1881 (hereinafter referred to as the principal Act), the following section shall be substituted, namely:--

'6. "Cheque".-- A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

Explanation 1.--For the purposes of this section, the expressions--

(a) "a cheque in the electronic form" means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system;

(b) "a truncated cheque" means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.

Explanation II.--For the purposes of this section, the expression "clearing house" means the clearing house managed by the Reserve Bank of India or a clearing house recognised as such by the Reserve Bank of India.'.

3. Amendment of section 64.--

Section 64 of the principal Act shall be renumbered as sub-section (1) thereof, and after sub-section (1) as sore-numbered, the following sub-section shall be inserted, namely:--

"(2) Notwithstanding anything contained in section 6, where an electronic image of a truncated cheque is presented for payment, the drawee bank is entitled to demand any further information regarding the truncated cheque from the bank holding the truncated cheque in case of any reasonable suspicion about the genuineness of the apparent tenor of instrument, and if the suspicion is that of any fraud, forgery, tampering or destruction of the instrument, it is entitled to further demand the presentment of the truncated cheque itself for verification:

Provided that the truncated cheque so demanded by the drawee bank shall be retained by it, if the payment is made accordingly.",

4. Amendment of section 81.--

Section 81 of the principal Act shall be renumbered as sub-section (1) thereof, and after sub-section (1) as on re-numbered, the following sub-sections shall be inserted, namely:--

"(2) Where the cheque is an electronic image of a truncated cheque, even after the payment the banker who received the payment shall be entitled to retain the truncated cheque.

(3) A certificate issued on the foot of the printout of the electronic image of a truncated cheque by the banker who paid the instrument, shall be prima facie proof of such payment.".

5. Amendment of section 89.--

Section 89 of the principal Act shall be renumbered as sub-section (1) thereof, and after sub-section (1) as so re-numbered, the following sub-sections shall be inserted, namely:--

"(2) Where the cheque is an electronic image of a truncated cheque, any difference in apparent tenor of such electronic image and the truncated cheque shall be a material alteration and it shall be the duty of the bank or the clearing house, as the case may be, to ensure the exactness of the apparent tenor of electronic image of the truncated cheque while truncating and transmitting the image.

(3) Any bank or a clearing house which receives a transmitted electronic image of a truncated cheque, shall verify from the party who transmitted the image to it, that the image so transmitted to it and received by it, is exactly the same.".

6. Amendment of section 131.--

In section 131 of the principal Act, Explanation shall be re-numbered as Explanation 1 thereof, and after Explanation I as so re-numbered, the following Explanation shall be inserted, namely:--

"Explanation II.--It shall be the duty of the banker who receives payment based on an electronic image of a truncated cheque held with him, to verify the prima facie genuineness of the cheque to be truncated and any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care.".

7. Amendment of section 138.--

In section 138 of the principal Act,--

(a) for the words "a term which may be extended to one year", the words "a term which may be extended to two years" shall be substituted;

(b) in the proviso, in clause (ft), for the words "within fifteen days", the words "within thirty days" shall be substituted.

8. Amendment of section 141.--

In section 141 of the principal Act, in sub-section (1), after the proviso, the following proviso shall be inserted, namely:--

"Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for-prosecution under this Chapter.".

9. Amendment of section 142.--

In section 142 of the principal Act, after clause (b), the following proviso shall be inserted, namely:-

"Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period.".

10. Insertion of new sections after section 142.--

After section 142 of the principal Act, the following sections shall be inserted, namely:--

"143. Power of Court to try cases summarily.--

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), all offences under this Chapter shall be tried by a Judicial Magistrate of the first class or by a Metropolitan Magistrate and the provisions of sections 262 to 265 (both inclusive) of the said Code shall, as far as may be, apply to such trials:

Provided that in the case of any conviction in a summary trial under this section, it shall be lawful for the Magistrate to pass a sentence of imprisonment for a term not exceeding one year and an amount of fine exceeding five thousand rupees:

Provided further that when at the commencement of, or in the course of, a summary trial under this section, it appears to the Magistrate that the nature of the case is such that a sentence of imprisonment for a term exceeding one year may have to be passed or that it is, for any other reason, undesirable to try the case summarily, the Magistrate shall after hearing the parties, record an order to that effect and thereafter recall any witness who may have been examined and proceed to hear or rehear the case in the manner provided by the said Code.

(2) The trial of a case under this section shall, so far as practicable, consistently with the interests of justice, be continued from day to day until its conclusion, unless the Court finds the adjournment of the trial beyond the following day to be necessary for reasons to be recorded in writing.

(3) Every trial under this section shall be conducted as expeditiously as possible and an endeavour shall be made to conclude the trial within six months from the date of filing of the complaint.

144. Mode of service of summons.--

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), and for the purposes of this Chapter, a Magistrate issuing a summons to an accused or a witness may direct a copy of summons to be served at the place where such accused or witness ordinarily resides or carries on business or personally works for gain, by speed post or by such courier services as are approved by 8 Court of Session.

(2) Where an acknowledgment purporting to be signed by the accused or the witness or an endorsement purported to be made by any person authorised by the postal department or the courier services that the accused or the witness refused to take delivery of summons has been received, the Court issuing the summons may declare that the summons has been duly sewed.

145. Evidence on affidavit.--

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the evidence of the complainant may be given by him on affidavit and may, subject to all just exceptions be read in evidence in any enquiry, trial or other proceeding under the said Code.

(2) The Court may, if it thinks fit, and shall, on the application of the prosecution or the accused, summon and examine any person giving evidence on affidavit as to the facts contained therein.

146. Bank's slip prima facie evidence for certain facts.--

The Court shall, in respect of every proceeding under this Chapter, on production of bank's slip or memo having thereon the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is disproved.

147. Offences to be compoundable.--

Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be compoundable.".

CHAPTER III

AMENDMENTS TO THE BANKERS’ BOOKS EVIDENCE ACT, 1891

11. Amendment of section 2.--

In section 2 of the Bankers' Books Evidence Act, 1891 (18 of 1891),--

(a) for clause (3), the following clause shall be substituted, namely:--

'(3) "bankers' books" include ledgers, day-books, cash-books, account-books and all other records used in the ordinary business of the bank, whether these records are kept in written form or stored in a micro film, magnetic tape or in any other form of mechanical or electronic data retrieval mechanism, either onsite or at any offsite location including a back-up or disaster recovery site of both;';

(b) in clause (5), after sub-clause (6), the following sub-clause shall be inserted, namely:--

"(c) a printout of any entry in the books of a bank stored in a micro film, magnetic tape or in any other form of mechanical or electronic data retrieval mechanism obtained by a mechanical or other process which in itself ensures the accuracy of such printout as a copy of such entry and such printout contains the certificate in accordance with the provisions of section 2 A.".

CHAPTER IV

AMENDMENTS TO THE INFORMATION TECHNOLOGY ACT, 2000

12. Amendment of section 1.--

In the Information Technology Act, 2000 (21 of 2000) (hereinafter referred to as the principal Act), in section 1, in sub-section (4), for clause (a), the following clause shall be substituted, namely:--

"(a) a negotiable instrument (other than a cheque) as defined in section 13 of the Negotiable Instruments Act, 1881 (26 of 1881);".

13. Insertion of new section 81A.--

After section 81 of the principal Act, the following section shall be inserted, namely:---

'81 A. Application of the Act to electronic cheque and truncated cheque.--

(1) The provisions of this Act, for the time being in force, shall apply to, or in relation to, electronic cheques and the truncated cheques subject to such modifications and amendments as may be necessary for carrying out the purposes of the Negotiable Instruments Act, 1881 (26 of 1881) by the Central Government, in consultation with the Reserve Bank of India, by notification in the Official Gazette.

(2) Every notification made by the Central Government under sub-section (1) shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of me session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the notification or both Houses agree that the notification should not be made, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that notification.

Explanation.--For the purposes of this Act, the expressions "electronic cheque" and "truncated cheque" shall have the same meaning as assigned to them in section 6 of the Negotiable Instruments Act, 1881.'.

The Legal Services Authorities (Amendment) Act, 2002

(ACT NO. 37 OF 2002*

An Act further to amend the Legal Services Authorities Act, 1987

Be it enacted by Parliament in the Fifty-third Year of the Republic of India as follows :

1. Short title. — This Act may be called the Legal Services Authorities (Amendment) Act, 2002.

2. Amendment of Section 11A.— In the Legal Services Authorities Act, 1987 (hereinafter referred to as the principal Act), in section 11A, in sub-sec. (2), clause (a), for the words "senior Civil Judge", the words "senior-most Judicial Officer" shall be substituted.

3. Amendment of section 22.— In section 22 of the principal Act, for the words "Lok Adalat", wherever they occur, the words "Lok Adalat or Permanent Lok Adalat" shall be substituted.

4. Insertion of new Chapter VIA.— After Chapter VI of the principal Act, the following Chapter shall be inserted, namely :

CHAPTER VIA

PRE-LITAGATION CONCILIATION AND SETTLEMENT

22A. Definitions.— In this Chapter and for the purposes of sections 22 and 23, unless the. context otherwise requires, —

(a) "Permanent Lok Adalat" means a Permanent lok Adalat established under sub-section (1) of section 22B;

(b) "public utility service" means any —

(i) transport service for the carriage of passengers or goods by air, road or water; or

(ii) postal, telegraph or telephone service; or

(iii) supply of power, light or water to the public by any establishment; or

(iv) system of public conservancy or sanitation; or

(v) service in hospital or dispensary; or

(vi) insurance service.

and includes any service which the Central Government or the State Government, as the case may be, may, in the public interest, by notification, declare to be a public utility service for the purposes of this Chapter.

22B. Establishment of Permanent Lok Adalats.—(1) Notwithstanding anything contained in section 19, every State Authority shall, by notification, establish Permanent Lok Adalats at such places and for exercising such jurisdiction in respect of one or more public utility services and for such areas as may be specified in the notification.

(2) Every Permanent Lok Adalat established for an area notified under sub-section (1) shall consit of

(a) a person who is, or has been, a district Judge or additional district Judge or has held judicial office higher in rank than that of a district Judge, shall be the Chairman of the Permanent Lok Adalat; and

(b) two other persons having adequate experience in public utility service to be nominated by the Central Government or, as the case may be, the state Government on the recommendation of the Central Authority or, as the case may be, the State Authority; appointed by the Central Authority or, as the case may be, the State Authority, establishing such Permanent Lok Adalat and the other terms and conditions of the appointment of the Chairman and other persons referred to in clause (b) shall be such as may be prescribed by the Central Government.

22C. Cognizance of cases by Permanent Lok Adalat. — (1) Any party to a dispute may, before the dispute is brought before any Court, make an application to the Permanent Lok Adalat for the settlement of dispute :

Provided that the permanent Lok Adalat shall not have jurisdiction in respect of any matter relating to an offence not compoundable under any law :

Provided further that the permanent Lok Adalat shall also not have jurisdiction in the matter where the value of the property in dispute exceeds ten lakh rupees :

Provided also that the Central Government, may, by notification, increase the limit of ten lakh rupees specified in the second proviso in consultation with the Central Authority.

(2) After an application is made under subsection (1) to the Permanent Lok Adalat, no party to that application shall invoke jurisdiction of any court in the same dispute.

(3) Where an application is made to a Permanent Lok Adalat under sub-section (1), it—

(a) shall direct each party to the application to file before it a written statement, stating therein the facts and nature of dispute under the application, points or issues in such dispute and grounds relied in support of, or in opposition to, such points or issues, as the case may be, and such party may supplement such statements with any document and other evidence which such party deems appropriate in proof of such facts and grounds and shall send a copy of such statement together with a copy of such document and other evidence, if any, to each of the parties to the application;

(b) may require any party to the application to file additional statement before it at any stage of the conciliation proceedings;

(c) shall communicate any document or statement received by it from any party to the application to the other party, to enable such other party to present reply thereto.

(4) When statement, additional statement and reply, if any, have been filed under sub-section (3), to the satisfaction of the Permanent Lok Adalat, it shall conduct conciliation proceedings between the parties to the application to such manner as it thinks appropriate taking into account the circumstances of the dispute.

(5) The Permanent Lok Adalat shall, during conduct of conciliation proceedings under subsection (4), assist the parties in their attempt to reach an amicable settlement of the dispute in an independent and impartial manner.

(6) It shall be duty of every party to the application to cooperate in good faith with the Permanent Lok Adalat in conciliation of the dispute relating to the application and to comply with the direction of the Permanent Lok Adalat in conciliation of the dispute relating to the application and to comply with the direction of the Permanent Lok Adalat to produce evidence and other related documents before it.

(7) When a Permanent Lok Adalat, in the aforesaid conciliation proceedings, is of opinion that there exist elements of settlement in such proceedings which may be acceptable to the parties, it may formulate the terms of a possible settlement of the dispute and give to the parties concerned for their observations and in case the parties reach at an agreement on the settlement of the dispute, they shall sign the settlement agreement and the Permanent Lok Adalat shall pass an award in terms thereof and furnish a copy of the same to each of the parties concerned.

(8) Where the parties fail to reach at an agreement under sub-section (7), the Permanent Lok Adalat shall, if the dispute does not relate to any offence, decide the dispute.

22D. Procedure of Permanent Lok Adalat. — The Permanent Lok Adalat shall, while conducting conciliation proceedings or deciding a dispute on merit under this Act, be guided by the principles of natural justice, objectivity, fair play, equity and other principles of justice, and shall not be bound by the Code of Civil Procedure, 1908 and the Indian Evidence Act, 1872

22E. Award of Permanent Lok Adalat to be final.— (1) Every award of the permanent Lok Adalat under this Act made either on merit or in terms of a settlement agreement shall be final and blinding on all the parties thereto and on persons claiming under them.

(2) Every award of the Permanent Lok Adalat under this Act made either on merit or in terms of a settlement agreement shall be final and binding on all the parties thereto and on persons claiming under them.

(2) Every award of the Permanent Lok Adalat under this Act shall be deemed to be a decree of a civil Court.

(3) The award made by the Permanent lok Adalat under this Act shall be by a majority of the persons constituting the Permanent Lok Adalat.

(4) Every award made by the Permanent Lok Adalat under this Act shall be final and shall not be called in question any original suit, application or execution proceeding.

(5) The Permanent Lok Adalat may transmit any award made by it to a civil Court having local jurisdiction and such civil Court shall execute the order as if it were a decree made by that Court.

5. Amendment of Section 23.— In Section 23 of the principal Act, for the words "members of the Lok Adalats", the words "members of the Lok Adalats or the persons constituting Permanent Lok Adalats" shall be substituted.

6. Amendment of Section 27.— In section 27 of the principal Act, in sub-section (2), after clause (1), the following clause shall be inserted, namely :—

"(1a) the other terms and conditions of appointment of the Chairman and other persons under sub-section (2) of section 22B".

Consumer Protection (Amendment) Act, 2002

[62 of 2002]

PREAMBLE

An Act further to amend the Consumer Protection Act, 1986.

Be it enacted by Parliament in the Fifty-third Year of the Republic of India as follows:--

1. Short Title and Commencement.

(1) This Act may be called the Consumer Protection (Amendment) Act, 2002.

(2) It shall come into force on such dale as the Central Government may, by notification in the Official Gazette, appoint.*

2. Amendment of section 2.

In the Consumer Protection Act, 1986 (68 of 1986) (hereinafter referred to as the principal Act), in Section 2, in Sub-section (1),--

(a) in Clause (b), after Sub-clause (iv), the following sub-clause shall be inserted, namely:--

"(v) in case of death of a consumer, his legal heir or representative;";

(b) in Clause (c),--

(i) in Sub-clause (i) for the words "any trader", the words "any trader or service provider" shall be substituted;

(ii) for Sub-clauses (iv) and (v), the following sub-clauses shall be substituted, namely;--

"(iv) a trader or the service provider, as the case may be, has charged for the goods or for the services mentioned in the complaint, a price in excess of the price--

(a) fixed by or under any law for the time being in force;

(b) displayed on the goods or any package containing such goods;

(c) displayed on the price list exhibited by him by or under any law for the time being in force;

(d) agreed between the parties;

(v) goods which will be hazardous to life and safety when used are being offered for sale to the public,-

(A) in contravention of any standards relating to safety of such goods as required to be complied with, by or under any law for the time being in force;

(B) if the trader could have known with due diligence that the goods so offered are unsafe to the public;

(vi) services which are hazardous or likely to be hazardous to life and safety of the public when used, are being offered by the service provider which such person could have known with due diligence to be injurious to life and safety;";

(c) in Clause (d),--

(i) in Sub-clause (ii), the following words shall be inserted at the end, namely:--

"but does not include a person who avails of such services for any commercial purpose";

(ii) for the Explanation, 'the following Explanation shall be substituted, namely:--

'Explanation.-- For the purposes of this clause, "commercial purpose" does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment;';

(d) for Clause (j), the following clause shall be substituted, namely:--

'(j) "manufacturer" means a person who--

(i) makes or manufactures any goods or part thereof; or

(ii) does not make or manufacture any goods but assembles parts thereof made or manufactured by others; or

(iii) puts or causes to be put his own mark on any goods made or manufactured by any other manufacturer;';

(e) for Clause (nn), the following clauses shall be substituted, namely:--

'(nn) "regulation" means the regulations made by the National Commission under this Act;';

(nnn) "restrictive trade practice" means a trade practice which tends to bring about manipulation of price or its conditions of delivery or to affect flow of supplies in the market relating to goods or services in such a manner as to impose on the consumers unjustified costs or restrictions and shall include--

(a) delay beyond the period agreed to by a trader in supply of such goods or in providing the services which has led or is likely to lead to rise in the price;

(b) any trade practice which requires a consumer to buy, hire or avail of any goods or, as the case may be, services as condition precedent to buying, hiring or availing of other goods or services;';

(f) in Clause (o), for the words "users and includes the provision of, the words "users and includes, but not limited to, the provision of " shall be substituted;

(g) after Clause (o), the following clause shall be inserted, namely:--

'(oo) "spurious goods and services" mean such goods and services which are claimed to be genuine but they are actually not so;';

(h) in Clause (r),--

(i) after Sub-clause (3), the following sub-clause shall be inserted, namely:--

"(3A) withholding from the participants of any scheme offering gifts, prizes or other items free of charge, on its closure the information about final results of the scheme.

Explanation.--For the purposes of this sub-clause, the participants of a scheme shall be deemed to have been informed of the final results of the scheme where such results are within a reasonable time published, prominently in the same newspapers in which the scheme was originally advertised;.";

(ii) after Sub-clause (5), the following sub-clause shall be inserted, namely:--

"(6) manufacture of spurious goods or offering such goods for sale or adopting deceptive practices in the provision of services.".

3. Amendment of section 4.

In section 4 of the principal Act, in Sub-section (1), for the words "The Central Government may", the words "The Central Government shall" shall be substituted.

4. Amendment of section 7.

In Section 7 of the principal Act, in Sub-section (1),--

(a) in the opening portion, for the words "The State Government may", the words "The State Government shall" shall be substituted;

(b) after Clause (b), the following clause shall be inserted, namely:--

"(c) such number of other official or non-official members, not exceeding ten, as may be nominated by the Central Government".

5. Insertion of new sections 8A and 8B.

After Section 8 of the principal Act, the following sections shall be inserted, namely:--

"8A. The District Consumer Protection Council.-

- (1) The State Government shall establish for every district, by notification, a council to be known as the District Consumer Protection Council with effect from such date as it may specify in such notification.

(2) The District Consumer Protection Council (hereinafter referred to as the District Council) shall consist of the following numbers, namely:-

(a) The Collector of the district (by whatever name called), who shall be its Chairman; and

(b) such number of other official and non-official members representing such interests as may be prescribed by the State Government

(3) The District Council shall meet as and when necessary but not less than two meetings shall be held every year.

(4) The District Council shall meet as such time and place within the district as the Chairman may think fit and shall observe such procedure in regard to the transaction of its business as may be prescribed by the State Government.

8B. Objects of the District Council.-- The objects of every District Council shall be to promote and protect within the district the rights of the consumers laid down in clauses (a) to (f) of section 6.".

6. Amendment of section 10.

In Section 10 of the principal Act,--

(a) in Sub-section (1), for Clause (b), the following clause shall be substituted, namely:--

"(b) two other members, one of whom shall be a woman, who shall have the following qualifications, namely:--

(i) be not less than thirty-five years of age,

(ii) possesss a bachelor's degree from a recognised universily,

(iii) be persons of ability, integrity and standing, and have adequate knowledge and experience of at least ten years in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration:

Provided that a persons shall be disqualifed for appointment as member if he--

(a) has been convicted and sentenced to imprisonment for an offence which, in the opinion of the State Government, involves moral turpitude; or

(b) is an undischarged insolvent; or

(c) is of unsound mind and stands so declared by a competent court; or

(d) has been removed or dismissed from the service of the Government or a body corporate owned or controlled by the Government; or

(e) has, in the opinion of the State Government, such financial or other interest as is likely to affect prejudicially the discharge by him of his functions as a member; or

(f) has such other disqualifications as may be prescribed by the State Government;";

(b) in Sub-section (1A), the following proviso shall be inserted, namely:--

"Provided that where the President of the Stale Commission is, by reason of absence or otherwise, unable to act as Chairman of the Selection Committee, the Stale Government may refer the matter to the Chief Justice of the High Court for nominating a sitting Judge of that High Court to act as Chairman.";

(c) for Sub-section (2), the following sub-section shall be substituted, namely:--

"(2) Every member of the District Forum shall hold office for a term of five years or up to the age of sixty-five years, whichever is earlier:

Provided that a member shall be eligible for reappointment for another term of live years or up to the age of sixty-five years, whichever is earlier, subject to the condition that he fullils the qualifications and other conditions for appointment mentioned in Clause (b) of Sub-section (1) and such re-appointment is also made on the basis of the recommendation of the Selection Committee;

Provided further that a member may resign his office in writing under his hand addressed to the State Government and on such resignation being accepted, his office shall become vacant and may be tilled by appointment of a person possessing any of the qualifications mentioned in Sub-section (i) in relation to the category of the member who is required to be appointed under the provisions of Sub-section (1A) in place of the person who has resigned:

Provided also that a person appointed as the President or as a member, before the commencement of the Consumer Protection (Amendment) Act. 2002, shall continue to hold such office as President or member, as the case may be, till the completion of his term.";

(d) in Sub-section (3) , the following proviso shall be inserted, namely:--

"Provided that the appointment of a member on whole-lime basis shall be made by the State Government on the recommendation of the President of the State Commission taking into consideration such factors as may be prescribed including the work load of the District Forum.".

7. Amendment of Section 11.

In Section 11 of the principal Act, in Sub-section (1), for the words "does not exceed rupees five lakhs", the words "does not exceed rupees twenty lakhs" shall be substituted.

8. Substitution of new Section for Section 12.

For Section 12 of the principal Act, the following section shall be substituted, namely:--

12. Manner in which complaint shall be made.--(1) A complaint in relation to any goods sold or delivered or agreed to be sold or delivered or any service provided or agreed to be provided may be filed with a District Forum by--

(a) the consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service provided or agreed to be provided;

(b) any recognised consumer association whether the consumer to whom the goods sold or delivered or agreed to be sold or delivered or service provided or agreed to be provided is a member of such association or not;

(c) one or more consumers, where there are numerous consumers having the same interest, with the permission of the District Forum, on behalf of or for the benefit of all consumers so interested; or

(d) the Central or the State Government, as the case may be, either in its individual capacity or as a representative of interests of consumers in general.

(2) Every complaint filed under Sub-section (1) shall be accompanied with such amount of fee and payable in such manner as may be prescribed.

(3) On receipt of a complaint made under Subsection (1), the District Forum may, by order, allow the complaint to be proceeded with or rejected:

Provided that a complaint shall not be rejected under this sub-section unless an opportunity of being heard has been given to the complainant:

Provided further that the admissibility of the complaint shall ordinarily be decided within twenty-one days from the dale on which the complaint was received

(4) Where a complaint is allowed to be proceeded with under Sub-section (3), the District Forum may proceed with the complaint in the manner provided under this Act:

Provided that where a complaint has been admitted by the District Forum, it shall not be transferred to any other court or tribunal or any authority set up by or under any other law for the time being in force.

Explanation.-- For purposes of this section, "recognised consumer association" means any voluntary consumer association registered under the Companies Act, 1956 (1 of 1956) or any other law for the time being in force.'.

9. Amendment of section 13.

In Section 13 of the principal Act,--

(a) in the marginal heading, for the words "Procedure on receipt of complaint.", the words "Procedure on admission of complaint." shall be substituted;

(b) in Sub-section (1),--

(i) in the opening portion, for the words "on receipt of a complaint", the words "on admission of a complaint" shall be substituted;

(ii) for Clause (a), the following clause shall be substitued, namely:--

"(a) refer a copy of the admitted complaint, within twenty-one days from the date of its admission to the opposite party mentioned in the complaint directing him to give his version of the case within a period of thirty days or such extended period not exceeding fifteen days as may be granted by the District Forum;";

(c) in Sub-section (2),--

(i) in the opening portion, for the words "complaint received", the words "complaints admitted" shall be substituted;

(ii) in Clause (b) , in Sub-clause (ii) , for the words "on the basis of evidence", the words "ex parte on the basis of evidence" shall be substituted;

(iii) after Clause (b), the following clause shall be inserted, namely:--

"(c) where the complainant fails to appear on the date of hearing before the District Forum, the District Forum may either dismiss the complaint for default or decide it on merits.";

(d) after Sub-section (3) the following sub-sections shall be inserted, namely:--

"(3A) Every complaint shall be heard as expeditiously as possible and endeavour shall be made to decide the complaint within a period of three months from the date of receipt of notice by opposite party where the complaint does not require analysis or testing of commodities and within five months if it requires analysis or testing of commodities:

Provided that no adjournment shall be ordinarily granted by the District Forum unless sufficient cause is shown and the reasons for grant of adjournment have been recorded in writing by the Forum:

Provided further that the District Forum shall make such orders as to the costs occasioned by the adjournment as may be provided in the regulations made under this Act.

Provided also that in the event of a complaint being disposed of after the period so specified, the District Forum shall record in writing, the reasons for the same at the time of disposing of the said complaint.

(3B) Where during the pendency of any proceeding before the District Forum, it appears to it necessary, it may pass such interim order as is just and proper in the facts and circumstances of the case.";

(e) after Sub-section (6), the following sub-section shall be inserted, namely:--

"(7) In the event of death of a complainant who is a consumer or of the opposite party against whom the complaint has been filed, the provisions of Order XXII of the First Scheduled to the Code of Civil Procedure, 1908 (5 of 1908) shall apply subject to the modification that every reference therein to the plaintiff and the defendant shall be construed as reference to a complainant or the opposite party, as the case may be.".

10. Amendment of section 14.

In Section 14 of the principal Act, --

(a) in Sub-section (1),--

(i) in Clause (d), the following proviso shall be inserted, namely:--

"Provided that the District Forum shall have the power to grant punitive damages in such circumstances as it deems fit;";

(ii) in Clause (e) for the words "remove the defects", the words "remove the defects in goods" shall be substituted;

(iii) after Clause (h), the following clauses shall be inserted, namely:--

"(ha) to cease manufacture of hazardous goods and to desist from offering services which are hazardous in nature;

(hb) to pay such sum as may be determined by il if it is of the opinion that loss or injury has been suffered by a large number of consumers who are not identifiable conveniently:

Provided that the minimum amount of sum so payable shall not be less than five per cent, of the value of such defective goods sold or service provided, as the case may be, to such consumers:

Provided further that the amount so obtained shall be credited in favour of such person and utilized in such manner as may be prescribed;

(hc) to issue corrective advertisement to neutralize the effect of misleading advertisement at the cost of the opposite party responsible for issuing such misleading advertisement;";

(b) in Sub-section (2), for the proviso, the following proviso shall be substituted, namely:--

"Provided that where a member, for any reason, is unable to conduct a proceeding till it is completed, the President and the other member shall continue the proceeding from the stage at which it was last heard by the previous member.".

11. Amendment of section 15.

In Section 15 of the principal Act, after the first proviso, the following proviso shall be inserted, namely:--

"Provided further that no appeal by a person, who is required to pay any amount in terms of an order of the District Forum, shall be entertained by the State Commission unless the appellant has deposited in the prescribed manner fifty per cent, of that amount or twenty-five thousand rupees, whichever is less:".

12. Amendment of section 16.

In Section 16 of the principal Act,--

(a) in Sub-section (1), for Clause (b) and the proviso thereunder, the following clause shall be substituted, namely:--

"(b) not less than two, and not more than such number of members, as may be prescribed, and one of who shall be a woman, who shall have the following qualifications, namely:--

(i) be not less than thirty-five years of age;

(ii) possess a bachelor's degree from a recognised university; and

(iii) be persons of ability, integrity and standing, and have adequate knowledge and experience of at least ten years in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration:

Provided that not more than fifty per cent of the members shall be from amongst persons having a judicial background.

Explanation.-- For the purposes of this clause, the expression "persons having judicial background" shall mean persons having knowledge and experience for at least a period of ten years as a presiding officer at the district level court or any tribunal at equivalent level:

Provided further that a person shall be disqualified for appointment as a member if he--

(a) has been convicted and sentenced to imprisonment for an offence which, in the opinion of the State Government, involves moral turpitude; or

(b) is an undischarged insolvent; or

(c) is of unsound mind and stands so declared by a competent court; or

(d) has been removed or dismissed from the service of the Government of a body corporate owned or controlled by the Government; or

(e) has, in the opinion of the State Government, such financial or other interest, as is likely to affect prejudicially the discharge by him of his functions as a member; or

(f) has such other disqualifications as may be prescribed by the State Government.";

(b) after Sub-section (1), the following sub-sections shall be inserted, namely:--

"(1A) Every appointment under Sub-section (7), shall he made by the State Government on the recommendation of a Selection Committee consisting of the following members, namely:--

(i) President of the State Commission....... Chairman;

(ii) Secretary of the Law Department of the State.......Member;

(iii) Secretary incharge of the Department dealing with Consumer Affairs in the State ....... Member:

Provided that where the President of the State Commission is, by reason of absence or otherwise, unable to act as Chairman of the Selection Committee, the State Government may refer the matter to the Chief Justice of the High Court for nominating a sitting Judge of that High Court to act as Chairman.

(1B) (i) The jurisdiction, powers and authority of the State Commission may he exercised by Benches thereof.

(ii) A Bench may he constituted by the President with one or more members as the President may deem fit.

(iii) If the members of a Bench differ in opinion on any point, the points shall he decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and make a reference to the President who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more or the other members and such point or points shall be decided according to the opinion of the majority of the members who have heard the case, including those who first heard it.";

(c) in Sub-section (2), the following proviso shall be inserted, namely:--

"Provided that the appointment of a member on whole-time basis shall be made by the State Government on the recommendation of the President of the State Commission taking into consideration such factors as may be prescribed including the work load of the State Commission.";

(d) for Sub-sections (3) and (4), the following subsections shall be substituted, namely:--

"(3) Every member of the State Commission shall hold office for a term of five years or up to the age of sixty-seven years, whichever is earlier:

Provided that a member shall be eligible for reappointment for another term of five years or up to the age of sixty-seven years, whichever is earlier, subject to the condition that he fulfills the qualifications and other conditions for appointment mentioned in Clause (b) of Sub-section (1) and such reappointment is made on the basis of the recommendation of the Selection Committee:

Provided further that a person appointed as a President of the State Commission shall also be eligible for re-appointment in the manner provided in Clause (a) of Sub-section (1) of this section:

Provided also that a member may resign his office in writing under his hand addressed to the State Government and on such resignation being accepted, his office shall become vacant and may be filled by appointment of a person possessing any of the qualifications mentioned in Sub-section (1) in relation to the category of the member who is required to be appointed under the provisions of Sub-section (1A) in place of the person who has resigned.

(4) Notwithstanding anything contained in Subsection (3), a person appointed as the President or as a member, before the commencement of the Consumer Protection (Amendment) Act, 2002, shall continue to hold such office as President or member, as the case may be, till the completion of his term.".

13. Amendment of section 17.

Section 17 of the principal Act shall be renumbered as Sub-section (1) and in Sub-section (1) as so renumbered,--

(a) in Clause (a), in Sub-clause (i), for the words "exceeds rupees five lakhs but does not exceed rupees twenty lakhs", the words "exceeds rupees twenty lakhs but does not exceed rupees one crore" shall be substituted;

(b) after Sub-section (1) as so renumbered, the following sub-section shall be inserted, namely:-

"(2) A complaint shall be instituted in a State Commission within the limits of whose jurisdiction,-

(a) the opposite party or each of the opposite parties, where there are more than one, at the time of the institution of the complaint, actually and voluntarily resides or carries on business or has a branch office or personally works for gain; or

(b) any of the opposite parties, where there are more than one, at the time of the institution of the complaint, actually and voluntarily resides, or carries on business or has a branch office or personally works for gain, provided that in such case either the permission of the State Commission is given or the opposite parties who do not reside or carry on business or have a branch office or personally work for gain, as the case may be, acquiesce in such institution; or

(c) the cause of action, wholly or in part, arises.".

14. Insertion of new sections 17A and 17B.

After Section 17 of the principal Act, the following sections shall be inserted, namely:--

"17A. Transfer of cases.-- On the application of the complainant or of its own motion, the State Commission may, at any stage of the proceeding, transfer any complaint pending before the District Forum to another District Forum within the State in the interest of justice so requires.

17B. Circuit Benches.-- The State Commission shall ordinarily function in the State Capital but may perform its functions at such other place as the State Government may, in consultation with the State Commission, notify in the Official Gazette, from time to time.".

15. Omission of section 18A.

Section 18A of the principal Act, shall be omitted.

16. Amendment of section 19.

In Section 19 of the principal Act, after the first proviso, the following proviso shall be inserted, namely:--

"Provided further that no appeal by a person, who is required to pay any amount in terms of an order of the State Commission, shall be entertained by the National Commission unless the appellant has deposited in the prescribed manner fifty per cent, of the amount or rupees thirty-five thousand, whichever is less.".

17. Insertion of new section 19A.

After Section 19 of the principal Act, the following section shall be inserted, namely:--

"19A. Hearing of appeal.-- An appeal filed before the State Commission or the National Commission shall be heard as expeditiously as possible and an endeavour shall be made to finally dispose of the appeal within a period of ninety days from the date of its admission:

Provided that no adjournment shall be ordinarily granted by the State Commission or the National Commission, as the case may be, unless sufficient cause is shown and the reasons for grant of adjournment have been recorded in writing by such Commission:

Provided further that the State Commission or the National Commission, as the case may be, shall make such orders as to the costs occasioned by the adjournment as may be provided in the regulations made under this Act.".

Provided also that in the event of an appeal being disposed of after the period so specified, the State Commission or, the National Commission, as the case may be, shall record in writing the reasons for the same at the time of disposing of the said appeal."

18. Amendment of section 20.

In section 20 of the principal Act, -

(a) in Sub-section (1), for clause (b) and the proviso, the following clause shall be substituted, namely:--

'(b) not less than four, and not more than such number of members, as may be prescribed, and one of whom shall be a woman, who shall have the following qualifications, namely:--

(i) be not less than thirty-five years of age;

(ii) possess a bachelor's degree from a recognised university; and

(iii) be persons of ability, integrity and standing and have adequate knowledge and experience of at least ten years In dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration:

Provided that not more than fifty per cent of the members shall be from amongst the persons having a judicial background.

Explanation.--For the purposes of this clause, the expression "persons having judicial background" shall mean persons having knowledge and experience for at least a period of ten years as a presiding officer at the district level court or any tribunal at equivalent level:

Provided further that a person shall be disqualified for appointment if he-

(a) has been convicted and sentenced to imprisonment for an offence which, in the opinion of the Central Government, involves moral turpitude; or

(b) is an undischarged insolvent; or

(c) is of unsound mind and stands so declared by a competent court; or

(d) has been removed or dismissed front the service of the Government or a body corporate owned or controlled by the Government; or

(e) has in the opinion of the Central Government such financial or other interest as is likely to affect prejudicially the discharge by him of his functions as a member; or

(f) has such other disqualifications as may be prescribed by the Central Government:

Provided also that every appointment under this clause shall be made by the Central Government on the recommendation of a selection committee consisting of the following, namely:--

(a)	a person who is a Judge of the Supreme Court, to be nominated by the Chief Justice of India
		– Chairman;
(b)	the Secretary in the Department of Legal Affairs in the Government of India
		– Member;
(c)	Secretary of the Department dealing with consumer affairs in the Government of India
		– Member;

(b) after Sub-section (i), the following sub-section shall be inserted, namely:--

"(1A) (i) The jurisdiction, powers and authority of the National Commission may be exercised by Benches thereof.

(ii) A Bench may be constituted by the President with one or more members as the President may deem fit.

(iii) If the Members of a Bench differ in opinion on any point, the points shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and make a reference to the President who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more or the other Members and such point or points shall be decided according to the opinion of the majority of the Members who have heard the case, including those who first heard it.";

(c) for Sub-sections (3) and (4), the following subsections shall be substituted, namely:--

"(3) Every member of the National Commission shall hold office for a term of five years or up to the age of seventy years, whichever is earlier:

Provided that a member shall be eligible for reappointment for another term of five years or up to the age of seventy years, whichever is earlier, subject to the condition that he fulfils the qualifications and other conditions for appointment mentioned in Clause (b) of Sub-section (1) and such re-appointment is made on the basis of the recommendation of the Selection Committee:

Provided further that a person appointed as a President of the National Commission shall also be eligible for re-appointment in the manner provided in Clause (a) of Sub-section (1):

Provided also that a member may resign his office in writing under his hand addressed to the Central Government and on such resignation being accepted, his office shall become vacant and may be filled by appointment of a person possessing any of the qualifications mentioned in Sub-section (1) in relation to the category of the member who is required to be appointed under the provisions of Sub-section (1A) in place of the person who has resigned.

(4) Notwithstanding anything contained in Subsection (3), a person appointed as a President or as a member before the commencement of the Consumer Protection (Amendment) Act, 2002 shall continue to hold such office as President or member, as the case may be, till the completion of his term.".

19. Amendment of section 21.

In Section 21 of the principal Act, in Clause (a), in Sub-clause (i), for the words "rupees twenty lakhs", the words "rupees one crore" shall be substituted.

20. Substitution of new sections for section 22.

For Section 22 of the principal Act, the following sections shall be substituted, namely:--

"22. Power and procedure applicable to the National Commission.-- (1) The provisions of sections 12, 13 and 14 and the rules made thereunder for the disposal of complaints by the District Forum shall, with such modifications as may be considered necessary by the Commission, be applicable to the disposal of disputes by the National Commission.

(2) Without prejudice to the provisions contained in Sub-section (1), the National Commission shall have the power to review any order made by it, when there is an error apparent on the face of record.

22A. Power to set aside ex parte orders.-- Where an order is passed by the National Commission ex parte against the apposite party or a complainant, as the case may be, the aggrieved party may apply to the Commission to set aside the said order in the interest of justice.

22B. Transfer of cases.-- On the application of the complainant or of its own motion, the National Commission may, at any stage of the proceeding, in the interest of justice, transfer any complaint pending before the District Forum of one State to a District Forum of another State or before one State Commission to another State Commission.

22C. Circuit Benches.-- The National Commission shall ordinarily function at New Delhi and , perform its functions at such other place as the Central Government may, in consultation with the National Commission, notify in the Official Gazette, from time to time.

22D. Vacancy in the office of the President.--When the office of President of a District Forum, State Commission, or of the National Commission, as the case may be, is vacant or a person occupying such office is, by reason of absence or otherwise, unable to perform the duties of his office, these shall be performed by the senior-most member of the District Forum, the State Commission or of the National Commission, as the case may be:

Provided that where a retired Judge of a High Court is a Member of the National Commission, such member or where the number of such members is more than one, the senior-most person among such members, shall preside over the National Commission in the absence of President of that Commission.".

21. Amendment of Section 23.

In Section 23 of the principal Act, after the first proviso, the following proviso shall be inserted, namely:--

"Provided further that no appeal by a person who is required to pay any amount in terms of an order of the National Commission shall be entertained by the Supreme Court unless that person has deposited in the prescribed manner fifty per cent, of that amount or rupees fifty thousand, whichever is less :".

22. Substitution of new section for section 25.

For Section 25 of the principal Act, the following section shall be substituted, namely:--

"25. Enforcement of orders of the District Forum, the State Commission or the National commission.-

(1) Where an interim order made under this Act, is not complied with the District Forum or the Stale Commission or the National Commission, as the case may be, may order the property of the person, not complying with such order to be attached.

(2) No attachment made under Sub-section (1) shall remain in force for more than three months at the end of which, if the non-compliance continues, the property attached may be sold and out of the proceeds thereof, the District Forum or the State Commission or the National Commission may award such damages as it thinks fit to the complainant and shall pay the balance, if any, to the party entitled thereto.

(3) Where any amount is due from any person under an order made by a District Forum, State Commission or the National Commission, as the case may be, the person entitled to the amount may make an application to the District Forum, the State Commission or the National Commission, as the case may be, and such District Forum or the State Commission or the National Commission may issue a certificate for the said amount to the Collector of the district (by whatever name called) and the Collector shall proceed to recover the amount in the same manner as arrears of land revenue.".

23. Amendment of section 27.

In Section 27 of the principal Act,--

(a) the proviso shall be omitted;

(b) after the proviso so omitted, the existing Section 27 shall be renumbered as Sub-section (7) and after Sub-section (7) as so renumbered, the following sub-sections shall be inserted, namely:-

"(2) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the District Forum or the State Commission or the National Commission, as the case may be, shall have the power of a Judicial Magistrate of the first class for the trial of offences under this Act, and on such conferment of powers, the District Forum or the State Commission or the National Commission, as the case may be, on whom the powers are so conferred, shall be deemed to be a Judicial Magistrate of the first class for die purpose of the Code of Criminal Procedure, 1973.

(3) All offences under this Act may be tried summarily by the District Forum or the State Commission or the National Commission, as the case may be.".

24. Insertion of section 27A.

After section 27 of the principal Act, the following section shall be inserted, namely :–

"27A. Appeal against order passed under section 27. – (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, an appeal under section 27, both on facts and on law, shall lie from –

(a) the order made by the District Forum to the State Commission;

(b) the order made by the State Commission to the National Commission; and

(c) the order made by the National Commission to the Supreme Court.

(2) Except as aforesaid, no appeal shall lie to any court from any order of a District Forum or a State Commission or the National Commission.

(3) Every appeal under this section shall be preferred within a period of thirty days from the date of an order of a District Forum or a State Commission or, as the case may be, the National Commission :

Provided that the State Commission or the National Commission or the Supreme Court, as the case may be, may entertain an appeal after the expiry of the said period of thirty days, if, it is satisfied that the appellant had sufficient cause for not preferring the appeal within the period of thirty days.".

25. Insertion of new section 28A.

After Section 28 of the principal Act, the following section shall be inserted, namely:--

"28A. Service of notice, etc.-- (1) All notices required by this Act to be served shall be served in the manner hereinafter mentioned in Subsection (2).

(2) The service of notices may be made by delivering or transmitting a copy thereof by registered post acknowledgment due addressed to opposite party against whom complaint is made or to the complainant by speed post or by such courier service as are approved by the District Forum, the State Commission or the National Commission, as the case may be, or by any other means of transmission of documents (including FAX message).

(3) When an acknowledgment or any other receipt purporting to be signed by the opposite party or his agent or by the complainant is received by the District Forum, the Slate Commission or the National Commission, as the case may be, or postal article containing the notice is received back by such District Forum, State Commission or the National Commission, with an endorsement purporting to have been made by a postal employee or by any person authorised by the courier service to the effect that the opposite party or his agent or complainant had refused to take delivery of the postal article containing the notice or had refused to accept the notice by any other means specified in Sub-section (2) when tendered or transmitted to him, the District Forum or the State Commission or the National Commission, as the case may be, shall declare that the notice had been duly served on the opposite party or to the complainant:

Provided that where the notice was properly addressed, pre-paid and duly sent by registered post acknowledgment due, a declaration referred to in this sub-section shall be made notwithstanding the fact that the acknowledgment has been lost or mislaid, or for any other reason, has not been received by the District Forum, the State Commission or the National Commission, as the case may be, within thirty days from the date of issue of notice.

(4) All notices required to be served on an opposite party or to complainant shall be deemed to be sufficiently served, if addressed in the case of the opposite party to the place where business or profession is carried and in case of complainant, the place where such person actually and voluntarily resides.".

26. Amendment of section 29.

In Section 29 of the principal Act, after Subsection (2), the following sub-sections shall be inserted, namely:--

"(3) If any difficulty arises in giving effect to the provisions of the Consumer Protection (Amendment) Act, 2002, the Central Government may, by order, do anything not inconsistent with such provisions for the purpose of removing the difficulty:

Provided that no such order shall be made after the expiry of a period of two years from the commencement of the Consumer Protection (Amendment) Act, 2002.

(4) Every order made under Sub-section (3) shall be laid before each House of Parliament.".

27. Substitution of new section for section 30.

For Section 30 of the principal Act, the following section shall be substituted, namely:--

"30. Power to make rules.-- (1) The Central Government may, by notification, make rules for carrying out the provisions contained in Clause (a) of Sub-section (1) of Section 2, Clause (b) of Sub-section (2) of section 4, Sub-section (2) of section 5, Sub-section (2) of Section 12, Clause (vi) of Sub-section (4) of Section 13, Clause (hb) of Sub-section (1) of Section 14, Section 19, Clause (b) of Sub-section (1) and Sub-section (2) of Section 20, Section 22 and Section 23 of this Act.

(2) The State Government may, by notification, make rules for carrying out the provisions contained in Clause (b) of Sub-section (2) and Sub-section (4) of Section 7, Clause (b) of Subsection (2) and Sub-section (4) of Section 8A, Clause (b) of Sub-section (1) and Sub-section (3) of Section 10, Clause (c) of Sub-section (1) of Section 13, Clause (hb) of Sub-section (1) and Sub-section (3) of Section 14, Section 15 and Clause (b) of Sub-section (7) and sub section (2) of Section 16 of this Act.".

28. Insertion of new section 30A.

After Section 30 of the principal Act, the following section shall be inserted, namely:--

"30A. Power of the National Commission to make regulations.-- (1) The National Commission may, with the previous approval of the Central Government, by notification, make regulations not inconsistent with this Act to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of this Act.

(2) In particular and without prejudice to the generality of the foregoing power, such regulations may make provisions for the cost of adjournment of any proceeding before the District Forum, the State Commission or the National Commission, as the case may be, which a party may be ordered to pay.".

29. Substitution of new section for section 31.

For Section 31 of the principal Act, the following section shall be substituted, namely:--

"31. Rules and regulation to be laid before each house of parliament.-- (1) Every rule and every regulation made under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or regulation or both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation.

(2) Every rule made by a State Government under this Act shall be laid as soon as may be after it is made, before the State Legislature.".

---

*Received the assent of the President on 11-6-2002 and published in Gaz. of India : 12-6-2002, Part II -S.1, Ext.; P. 1 (No. 40)
*The amendment Act has been brought into force w.e.f. 15^th March 2003-04-19

Bibliography & Book Review

Select Bibliography

V. Raghavendra Prasad
Legal Officer

Akhilesh R. Bhargava, "Corporate Financial Reporting and Special Purpose Entities", (2002) 39 SCL 16 (Magazine) - points out the appropriate accounting standards that have been made and brought into force by the regulatory authorities in India as well as Abroad to ensure proper financial reporting by corporates.

Akhilesh R. Bhargava, "The Sarbnes - Oxley Act, 2002", (2002) 40 SCL 40 (Magazine) - highlights important provisions of the Act enacted by the US to overcome the financial misdeeds of giant corporates like Enron and Worldcom in connivance with much respected accounting firms like Arthur Anderson.

Amitave Ganguly, "A Critical Appraisal of Transfer of amounts to Investor Education and Protection Fund under the Companies Act", (2002) 38 SCL 42 (Magazine) - elucidates the provisions of section 205C of Companies Act and critically analyses them to point out certain problems and issues that are likely to arise in implementing them - points out certain ambiguities in the provisions which need a clarification from the Government.

Aparna Tuteja, "Can the matter of Winding Up be a Subject-Matter of Arbitration under the Arbitration and Conciliation Act, 1996", (2002) 40 SCL 100 (Magazine) - discusses the provisions of the Companies Act, 1956 vis-à-vis Arbitration and Conciliation Act, 1996 in respect of the winding up of a Company in the light of the Supreme Court decision in Haryana Telecom Vs Sterlite Industries (India) Ltd. (1999)22 SCL 156 holding that the High Court should decide a petition for winding up of a Company under the Companies Act and not under the Arbitration and Conciliation Act even if there was an agreement between the parties.

Ashok K. Saxena, "Remittance of Assets Outside India Under FEMA", (2002) 39 SCL 101 (Magazine) - elaborately discusses provisions relating to remittance of assets outside India under FEMA in the light of Foreign Exchange Management (Remittance of Assets) Regulations, 2000 issued by the Reserve Bank under the Foreign Exchange Management Act, 1999.

Ashok K. Saxena, "Safeguards Available to Depositors Under Financial Companies Regulation Bill, 2000", (2002) 39 SCL 128 (Magazine) -describes and discusses provisions of the Bill which gives the Reserve Bank of India wide powers to safeguard the interest of depositors and keep a strict watch over the functioning of NBFCs.

B.M.D.Agrawal, "Review of the Foreigners Act, 1946", AIR 2002 Journal 330 -examines briefly objects of the Act and the need for the review of the Act.

B.S. Madhusudhan, "Managerial Remuneration -Amended Schedule XIII", (2002) 38 SCL 35 (Magazine) - examines in detail the new provisions, noting the numerical limits to be adhered to under various circumstances and also the procedural details to be kept in mind and followed.

Bipul K. Mainali, "Trade Mark - Domain Name Disputes: Need for a Global Authority", (2002) 39 SCL 118 (Magazine) - highlights various problems concerned with providing legal protection for domain names. While acknowledging that an immediate solution thereof is not possible, suggests various approaches and steps that might lead to a solution.

Dr. K.R. Chandratre, "Domain Names and the Law of Trademarks", (2002) 38 SCL 81 (Magazine) - explains the concept and importance of a domain name, and argues that a domain name has to be accorded the same legal recognition and protection as a trademark in commercial business.

Dr. K.R. Chandratre, "Does Board of Directors Functus Officio when a Company is Ordered to be Wound-up ?", (2002) 39 SCL 5 (Magazine) - examines the legal position when a company becomes directorless for whatever reason - further examines the issue whether the Board of Directors of a Company becomes defunct and incapable of carrying on any function of the Company when that company goes into liquidation and a provisional liquidator is appointed by the Court.

Dr. S.K. Tuteja, "Corporate Governance Dissemination of Information", (2002) 38 SCL 75 (Magazine) - discusses items on which corporates are required to make disclosure of information as per the provisions of Companies Act, 1956, the listing agreement between a company and the stock exchange and the SEBI guidelines on the subject.

Dr. V. Balachandran, "Challenges of Global Trade and Intellectual Property Rights", (2002) 40 SCL 30 (Magazine) - examines and discusses some of the problems in the context of global trade and intellectual property rights with special reference to India.

Dr. V. Manickavasagam and K. Mohan, "Shareholders' Activism - A Concomitant of Corporate Governance", (2002) 39 SCL 165 (Magazine) - explains the rationale behind shareholders' activism and briefly sketches out recent trends in this area.

Dr. V. Manickavasagam and K. Mohan, "Insider Trading - Urgent need to give more Powers to SEBI", (2002) 38 SCL 170 (Magazine) - deals with meaning and evil effects of insider trading and suggests remedial measures to reduce evil effects on market including that SEBI should be given more powers to stamp out this evil.

Dr. V. Balachandran and V. Chandrashekaran, "Corporate Social Responsibility and Legal Environment", (2002) 40 SCL 35 (Magazine) -focuses on the need of corporate social responsibility and enactment of laws to ensure that corporates conduct their activities in a manner conducive to the welfare of the society as a whole. Opines that the Government should encourge the corporates to assume a participatory role in schemes of social reforms formulated by the Government by offering suitable incentives to them.

Dr.Chandrika Prasad Sharma, "Judicial Officers and Their Training", AIR 2002 Journal 255 -extensively deals with the subject of court proceedings in lower judiciary and suggests extensive training for the Judicial Officers.

Dr. Satyajit Dhar, "Corporate Financial Reporting and the SEBI", (2002) 39 SCL 9 (Magazine) -discusses the positive role played by the SEBI in monitoring, improving and standardising corporate financial reporting in India.

G.D. Agrawal, "Can a Private Company Accept Inter-corporate Deposits under the Companies Act, 1956 and Relevant Rules and Directions ?", (2002) 40 SCL 94 (Magazine) - examines the question whether a private company can accept inter corporate deposits under the Companies Act 1956 and the relevant rules and directions.

Gurpreet Kaur Vasir, "Advocating a Single Consolidated Legal Regime for all Mutual Funds", (2002) 39 SCL 140 (Magazine) - analyses the concept of single consolidated legal regime for all mutual funds for efficient management and regulation thereof as recommended by the P.K. Kaul Committee set up by the SEBI

Jayant M. Thakur, "The Sarbanes - Oxley Act of USA - Implicaitons for India" (2002) 40 SCL 17 (Magazine) - discusses the highlights of the new legislation enacted in the U.S. to provide for deterrent punishment for financial misdeeds and spells out its implications for the Indian Corporates in general and for Indian Companies listed in the U.S. in particular.

Jayant M. Thakur, "Dictatorial Powers in the New Securitisation Ordinance" (2002) 40 SCL 72 (Magazine) - takes a critical look at the recently issued Ordinance on securitisation, i.e. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 - opines that the Ordinance gives dictatorial powers to lenders to realise the assets pledged as security for the loan by the borrower - feels that the powers given to lenders under the Ordinance are draconian and operate very harshly against the borrower. Critical of the provisions which enable the lender to change or take over the management of the business of the borrower, sell or lease out part of the business of the borrower and to take possession of the secured assets.

Justice P.S.Narayana, "Cyber World - New Challenges", AIR 2002 Journal 275 - examines in brief the new challenges in the context of Cyber World emerging in the wake of introduction of Information Technology Act, 2000.

K. Balasubramanian, "Demat Trading and Transfer of Physical Shares - Some Suggestions" , (2002) 38 SCL 40 (Magazine) - briefly notes that although stock exchanges have adopted the electronic mode for trading in the securities, in private, trading of such securities in the physical form still continues, posing the same old problems, for companies as well as the investors - suggests to remove this anomaly so as to make demat trading of securities universal without exception of private transactions.

K.S. Ravichandran, "Charge on a Fixed Deposit: Case Study", (2002) 39 SCL 161 (Magazine) -examines and discusses several related issues of charge on a fixed deposit under the provisions of Companies Act 1956.

K. S. Ravichandran, "Continuing Offences under Companies Act and the Law of Limitation", (2002) 39 SCL 22 (Magazine) - examines the provisions relating to continuing offences and suggest that Companies Act should define a continuing offence so as to cover in this category, inter alia, offences under Sections 159, 166, 210, 219 and 220.

Kiran Chitale, "Prohibition of Insider Trading - An Overview", (2002) 39 SCL 65 (Magazine) -analyses meaning of insider, dealing insecurities, unpunished price sensitive information, outlines the salient features of the Code of Conduct and the scope of its applicability, the provisions relating to appointment of compliance officer, preserving of price sensitive information, trading and other restrictions, pre-clearance trade and reporting requirements.

L. Venkatesan, "AS-25 - Interim Financial Reporting", (2002) 39 SCL 30 (Magazine) -brings out the salient features of AS-25.

M. Krishnan, "Derecognise Regional Stock Exchange or Law Companies to Delist", (2002) 40 SCL 25 (Magazine) - argues that regional stock exchanges are a dying species and that either they should be derecognised or companies listed on them should be allowed to get their securities delisted therefrom to save themselves from the unnecessary expenses of listing fees and other incidental expenditure.

Mahesh Thakar, "Salient Features of the Securitisation Ordinance", (2002) 40 SCL 123 (Magazine) - briefly analysis of the important provisions of the Ordinance Deals with certain aspects of the issue in the light of the provisions of Companies Act, 1956.

Manisha Agarwal, "Appointment And Remuneration of Managerial Personnel: An Overview", (2002) 39 SCL 106 (Magazine) -discusses various issues arising out of appointment and remuneration of managerial personnel under the Companies Act, 1956.

Mritunjay Kataria and Prashant Kataria, "Ombudsmen for Public Sector Banks: Genesis, Scope and Structure", (2002) 40 SCL 103 (Magazine) - elucidates in detail the concept, meaning and historical development of the Institution of Ombudsmen in the light of Banking Ombudsmen Scheme, 1995 which is applicable to Banking Industry.

N.R. Moorthy, "NPAs Recovery Ordinance Flawed, Needs Fine Tuning", (2002) 39 SCL 183 (Magazine) - critically analyses certain hassles in the Ordinance

N.Suresh, "Anomalies in the Amended CPC., 2002", AIR 2002 Journal 339- critically examines the anomalies in the Amended CPC, 2002.

P. Apser Hussen, "Judicial Intervention in Arbitration", (2002) 40 SCL 1 (Magazine) -elaborately examines the issues in relation to judicial intervention in Arbitration proceedings under the Arbitration and Conciliation Act, 1996 - opines that the said Act still contains some provisions which provide for supervision/ intervention of the Court under certain specified circumstances - proposes certain amendments in the Act with a view to speeding up the Arbitral process and further reducing the scope of judicial intervention therein.

Padmaja Chakravarty, "Stock Brokers, Market Makers and Jobbers: Competing Intermediaries in the Financial Market", (2002) 40 SCL 8 (Magazine) - explains the different roles of three types of intermediaries and brings out their importance in the functioning of the capital market as a place where securities are bought and sold.

Padmaja Chakravarty, "SEBI and Legal Controls on Stock Brokers - Need for Revision of Guidelines", (2002) 40 SCL 45 (Magazine) -points out the need for a strong legal framework to guide and control the activities of stock brokers.

Prashanth Srinivas, "Inspection, Investigation and other similar Provisions in the Companies Act, 1956", (2002) 39 SCL 174 (Magazine) - discusses provisions of the Companies Act, 1956 relating to inspection of records and books, etc. and investigation into the affairs of the Company by Governmental Authorities.

Rathindranath Bhattacharyya, "Financial Reporting of Companies - How Far These Can be Relied Upon ? ", (2002) 40 SCL 20 (Magazine) - discusses the issue of financial reporting of companies in the Indian context and stresses the need for ensuring fairness, veracity and trustworthiness of corporate financial reporting.

R.N. Bansal, "Making Company Boards more Effective", (2002) 40 SCL 13 (Magazine) -elucidates the role of the Board in the context of the urgent need for good Corporate Governance.

Rajesh Relan, "Derivatives Segment : The Rising Sun of the Stock Market", (2002) 38 SCL 49 (Magazine) - elaborately discusses the meaning, nature and significance of a derivative and difference between forward and future contract, trading in futures, options and concept of `In-the-Money', `At-the-Money' and `Out-of-the-Money' options.

Rajesh Relan, "Stop MNCs from Deserting Stock Market", (2002) 38 SCL 71(Magazine) - discusses and points out that the strategy being adopted by MNCs, resulting in their desertion of stock exchanges, is disadvantageous to Indian shareholders and is not good for economy of the country and that the SEBI should take urgent remedial measures.

Rumer Shah, "E-Commerce Insurance Policy -Issues and Coverage", (2002) 38 SCL 61(Magazine) - briefly analysis the concept of E-Commerce Risk Management and describes various types of risks associated with E-Commerce and their consequences and also gives an overview of the salient features of an E-Commerce Insurance Policy.

S. Venugopalan, "Model Regulations for Management of a Company in Table 'A' of Schedule I of Companies Act, 1956 - A Study", (2002) 39 SCL 149 (Magazine) - discusses the need for incorporation of new regulations in Table 'A' in the wake of certain amendments made in the Act.

S. Venugopalan, "Securitisation Ordinance - An Overview", (2002) 40 SCL 76 (Magazine) - gives a bird's eye view of the provisions of the Ordinance.

S. Venogoplan, "Managerial Appointment and Remuneration under Schedule XIII As Amended Recently", (2002) 38 SCL 23 (Magazine) - explains the term `managerial personnel' and sets out the circumstances under which it is compulsory for a company to appoint managerial personnel and the conditions required to be met for such appointment - also discusses details of the remuneration including perquisites payable to such personnel.

S. Venugopalan, "The Managing Director - His Status, Powers and Duties", (2002) 38 SCL 100 (Magazine) - sets out the status, powers and duties of the managing director of a company as per the provisions of the Companies Act, 1956 alongwith the case law and discusses limitations on powers of Managing Director.

S. Venkataraman, "Company Secretary and Directors' Report", (2002) 39 SCL 170 (Magazine) - examines the question whether Company Secretary has a role to play in respect of Directors' Report to be attached with the balance sheet.

Sai Krishna Bharathan, "Securitisaiton and Reconstruction of Financail Assets and Enforcement of Security Interest (Second) Ordinance, 2002 - Material Issues", (2002) 40 SCL 58 (Magazine) - analyses the main provisions of the Ordinance as well as the Security Interest (Enforcement) Rules, 2002 framed thereunder.

Sanjiv Agarwal, "Segment Reporting - The Indian, US and International Framework", (2002) 38 SCL 174 (Magazine) - explains the concept of segment reporting and briefly outlines the framework of segment reporting as per the accounting standards and norms.

Sheela Rai, "Determination of Injury: A Study of Anti-dumping cases in India", (2002) 39 SCL 75 (Magazine) - gives a brief historical account of anti-dumping legislation at the international level and highlights the contradiction in the anti-dumping policies and free trade based on free and fair competition.

Siddheshwar Mishra, "Section 185 of Indian Contract Act, 1872 - A Redundant Section", AIR 2002 Journal 281 - examines in brief provisions of Section 185 of the Contract Act,1877 and its relevance to the present world.

Sushila Madan, "A Longitudnal Study of Expectations of Indian Companies in E-Commerce", (2002) 39 SCL 155 (Magazine) -focuses the results of a survey of 120 Indian Companies (covering different sectors and Industries ) involved in E-Commerce.

T.K.A Padmanabhan, "Stop Payment of Cheque - Analysis of MEDCHL Judgment", (2002) 38 SCL 33 (Magazine) - examines the issue of `stop payment' under Section 138 of Negotiable Instruments Act, 1881 in the background of several judgments of Supreme Court and tries to bring out the complexities and finer nuances of the present legal position on this issue.

T.K.A. Padmanabhan, "Allotment of Subscription Shares- Can Filing of Return of Allotment be Dispensed with ?", (2002) 39 SCL 97 (Magazine) - examines the provisions of Section 75 of the Companies Act, 1956 which states that whenever a company having a share capital makes any allotment of its shares, it is required to file a return of such allotment with the Registrar of Companies within 30 days of the allotment.

T.N. Pandey, "Fine for Bounced Cheques cannot be less than the Minimum Prescribed", (2002) 39 SCL 54 (Magazine) - examines the issue in the light of provisions contained in Section 138 of the Negotiable Instruments Act 1881 and the judgement of the Karnataka High Court in the case of B. Harikrishna Vs. Macro Links (P) Ltd. (2002) 34 Comp. Cas. 551.

V.L. Iyer, "Significant Changes Likely to be Made in the Companies Act, 1956", (2002) 39 SCL 136 (Magazine) - discusses certain significant changes that are likely to be made in the Companies Act, 1956 under the provisions pertaining to vacation of office of director, rotation of statutory auditors and exemption for companies in small towns from appointment of qualified company secretaries.

V.L. Iyer, "Real Corporate governance", (2002) 40 SCL 52 (Magazine) - discusses certain basic factors which lie at the root of good corporate governance - suggests measures which can turn the dream of good corporate governance into a living reality.

V.Vijay Laxmi, "Copyright or Author's Authority over his Intellectual Creations", AIR 2002 Journal 267 (Magazine) - elucidates and examines the scope of copyright and author’s authority over his intellectual creations in the context of Copyright Act, 1957 which is amended from time to time, including the recent amendment in 1999

Vijay Kumar Gaba, "Objectives and Principles of Securities Regulation", (2002) 38 SCL 89 (Magazine) - examines and discusses the objectives and principles of securities regulation.

Vijay Kumar Gaba, "Role of the Securities Market Regulator", (2002) 38 SCL 109 (Magazine) -briefly explains the three chief models of regulation of the securities market viz. the US, the UK and the continental model, and then goes on to state and discuss the principles on which the role of the regulator should be based - further explains how far these principles apply to the regulatory model adopted by India which is largely based on US Model.

Vinod K. Shah, "E-Cheque is Here", (2002) 39 SCL 36 (Magazine) - explains the concept of an E-Cheque and some technical terms associated with it such as digital signatures, and cheque truncation.

Vinod K. Shah, "Copyright and Some Other Aspects of Software", (2002) 39 SCL 46 (Magazine) - focuses some commercial, legal and other important aspects of software, especially those relating to copyright protection for software developers, protection of consumers against damages suffered by using a particular type of software, protection of a computer against attack by viruses and worms and hackers, etc.

Vinod K Shah, "COPRA - Deficiency in Banking Services", (2002) 40 SCL 86 (Magazine) -exhaustively deals with the scope and provisions of the Banking Ombudsmen Scheme, 2002 framed by the Reserve Bank of India which provides another forum to the banking customers for resolving their grievances.

Vinod K. Shah, "Internet Banking in India", (2002) 39 SCL 60 (Magazine) - analyses scope of services provided under Internet Banking and its importance for the corporate sector and need for maintaining confidentiality and taking appropriate steps to safeguard the interests of customers.

Vinod K. Shah, "Legal Aspects of E-Commerce", (2002) 40 SCL 116 (Magazine) - highlights how E-Commerce works, its various aspects, the laws governing E-Commerce and its limitations.

Vinod K. Shah, "All about Plastic Cards", (2002) 38 SCL 85 (Magazine) - elucidates nature and function of various types of plactic cards such as credit card, debit card, ATM Card, etc.

There is an old and somewhat foolish saying that "Hard cases make bad law," and therefore the law must be left as it is. It would be equally true to say, "Bad law makes hard cases", and therefore the law must be amended. The real truth lies somewhere between. Mere freaks of fortune should not be made an excuse for weakening a law which is sound. But a law which is seen to multiply hard cases, not through any accident but by its necessary elements, is not worth preserving, for the law was made for man, not man for the law. — HERBERT, A.P., Uncommon Law (Garden City, New York : Double-day, Doran & Company, Inc., 1936), p. 274

Book Review

Credit Derivatives & Synthetic Securitisation

By Vinod Kothari

D.V.Sekhar
Asstt. Legal Adviser

Credit derivatives, a device of structured trading in credit risks, emerged around 1993 and in a short span of 8 years has attained a global volume of USD 1.5 trillion. Credit derivatives are today used in global banking to transfer risks, clone debt securities, structure and leverage positions on credit assets, etc. Add to it the device of securitisation, and credit risk becomes a commodity for the capital markets. As risk gets more concentric, there is greater need to diffuse it - and that is where credit derivatives come handy. It would be difficult to establish that credit derivatives reduce the risk of the corporate system we live with, but certainly, as more risk is traded, it becomes better understood, better appreciated, and diversified.

CREDIT DERIVATIVES & SYNTHETIC SECURITISATION, edited by Shri Vinod Kothari, presents a detailed outline of credit derivatives and synthetic securitisation. The book under review has been published by Academy of Financial Services, B 42, Metropolitan Cooperative Housing Society, Kolkata. The author of the book has stated in the preface that the book is a complete treatise on the technique, issues, motivations and structures.

The contents of the book are divided into 13 chapters. Chapter 1 deals with credit derivatives structure, evolution, motivations and economics. Credit derivatives are derivative contracts that seek to transfer defined credit risks in a credit product to the counterparty to the derivative contract. The counterparty to the derivative contract could either be a market participant, or could be the capital market through the process of securitisation. As the risks, and the corresponding rewards, are transferred to the counterparty, the counterparty assumes the position of a virtual or sympathetic lender to the debtor. Credit derivatives can be defined as arrangements that allow one party (protection buyer or originator) to transfer, for a premium, the defined credit risk, or all the credit risk, computed with reference to a notional value, of a reference asset or assets, which it may or may not own, to one or more other parties (the protection sellers). The credit asset so created is referred to as synthetic or unfunded asset. The author has given tabulations, diagrams and examples for the purpose of easy understanding. The terminology used in Credit derivatives is also given in Appendix B to this Chapter.

In Chapter 2, the author has discussed 'Credit Default Swaps'. A Credit Default Swap is a bilateral financial contract between two parties with reference to a certain notional value of a reference credit, whereby one person pays a premium to the other, expressed in basic points per annum on the notional value. The credit events as per the definitions published by ISDA have been discussed in this chapter. Basket trade has become quite popular in recent times. In a basket default swap, the reference asset is a basket or bundle of several equally-rated reference obligations, each having the same notional amount.

In Chapter 3, the author has discussed the topic, Total Rate of Return Swaps (TROR). In TROR swap, the protection buyer agrees to transfer, periodically and throughout the term of the contract, the actual returns from a reference asset, to the protection seller and the latter, in return, agrees to transfer returns calculated at a certain spread over a base rate.

Chapter 4 deals with Credit Linked Notes (CLN). A Credit linked note is a note or an obligation of an issuer, subscribed to by an investor, where the note carries an embedded credit derivative, whereby the principal, or coupon, or both of the note can be written down based on the protection payments required under the credit derivative. Credit derivatives being a commodity in the capital markets could not have been though of, in absence of credit linked notes. It is an investment product and is different from CDS or TROR swaps. The author has discussed substance of CLN, CLN issued by Special Purpose Vehicles etc., in this chapter.

Chapter 5 deals with Synthetic Securitisation. Synthetic Securitisation is responsible for much of the growth in the credit derivatives market. It is not a type of credit derivative but is a type of Securitisation different from cash structure securitisations. The modus operandi, advantages etc., of the Synthetic Securitisation are discussed in this chapter. Securitisation requires massive legal documentation for achieving the transfer of assets and the elaborate representations and warranties, transfer of collateral etc. Credit derivatives have a much simpler documentation. There is no transfer of receivables. Therefore, there are no stamp duties whatsoever. Similarly no upfront taxation and avoids double taxation of residual profits. The author has also discussed the various elements of synthetic securitisation, Special purpose vehicle and its role, arbitrage etc., in this chapter.

In Chapter 6, the author has discussed some of the important case studies pertaining to the securitisation. The author has stated that the objective of the case study is to illustrate the distinctive features of different transactions.

The legal aspects of credit derivatives are discussed in Chapter 7. Legally speaking a credit derivate is not very different from other derivatives and within the genre of derivatives, it is akin to any other OTC derivatives. The author has distinguished the credit derivatives from the other forms of contracts such as contingent contracts, actionable claims, contract of guarantee or surety, contract of indemnity, bank letters of credit, insurance contracts, gaming, gambling or wager contracts, investment contracts, transferable contracts etc. The author has also discussed the enforceability of credit derivative contracts, commodities futures law in USA, permissibility for banks etc.

In Chapter 8, the author has discussed the taxation of Credit derivatives. In most countries, credit derivatives have not reached a level where they can draw the attention of the taxmen. The author has discussed the key issues in taxation of credit derivatives, taxation of the protection buyer & protection seller, notional principle contract etc. Notional principle contract is a contract based on a notional amount, where periodic payments are exchanged based on an index. The US tax regulations provide for detailed rules for taxation of notional principle contracts.

Chapter 9 deals with the accounting for Credit derivatives. Accounting for credit derivatives is a part of the larger issue of accounting for financial instruments. Accounting for financial instruments has been in a flux since the collapse of Barings Bank and other derivatives related failures in 1997-98. The author has discussed in detail the accounting standards applicable to the various credit derivative instruments by giving many examples. The author has also elaborately discussed the accounting rules for the various derivatives and accounting systems that are required to be followed in the books of the protection buyer and seller.

The Regulatory and Economic Capital impact of Capital Derivatives is analysed in Chapter 10. The author has also discussed the existing regulatory framework/ guidelines in USA, UK, proposals of the Bank for International Settlements (BIS) etc.

The pricing of Credit derivatives find place in Chapter 11. A credit derivative is essentially a credit risk product. What is being transferred through a credit risk? Risk and its mathematical measurement apparently sound aliens. If risk was measurable, it would not be a risk but a certainty. If there was a uniform method for measurement of risk, no two persons using the same measurement would ever trade in risk. Therefore, it is obvious that there cannot be a uniform way of measuring the credit risk inherent in credit derivatives. The author has highlighted the procedure of estimating default probabilities, estimating recovery rates etc.

In Chapter 12, the author has discussed the Recent advances in Credit Risk Management with a Comparison of five Models. The concepts and models of Fisher Black, Mayson Scholes, Robert Merton, Kamakura and Mckinsey are discussed with examples and diagrams.

The last Chapter deals with Pricing of Multi Name Credit Derivatives presented by Mr Roy Mashal. The author has discussed various forms of approaches for fixing the prices of credit derivatives and the difficulties therein. In the end, an extensive subject index has been provided, which would help the readers to have quick access to the required topic in the book.

On the whole, the book would be useful for the bankers, business community, practicing lawyers, risk managers and those who deal with credit derivatives and securities. The book is priced Rs 1250/-.

The attempt to silence a man is the greatest honour you can bestow on him. It means that you recognize his superiority to yourself. — Joseh Sobran One cannot subdue a man by holding back his hands. Lasting peace comes not from force. — David Borenstein The cure for the evils of democracy is more democracy. — H.L. Mencken I’d like to start a religion. That’s where the money is. — L. Ron Hubbard

FAQ

Frequently Asked Questions on Electronic Cheques and Truncated Cheques

K.D.Zacharias
Legal Adviser

1. What is meant by an electronic cheque?

   An electronic cheque is a cheque in electronic form (as against the usual paper instrument in writing). A cheque in electronic form is defined in Explanation 1 to Section 6 of the Negotiable Instruments Act as a cheque which contains the exact mirror image of a paper cheque and is generated, written and signed in a secured system ensuring the minimum safety standards with the use of digital signature (with or without biometric signature and asymmetric crypto system).

2. Are electronic cheques valid and binding in law like paper instruments?

   The Negotiable Instruments Act, 1881 has been amended by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 to include a cheque in electronic form within the definition of cheque in Section 6 of the Negotiable Instruments Act. Hence, cheques in electronic form are valid and binding in law like the paper instruments (cheques in writing on paper).

3. Does the Information Technology Act apply to cheques? What about other negotiable instruments?

   The Information Technology Act was not originally applicable to Negotiable Instruments in terms of Section 1(4) of that Act. The Information Technology Act was amended by the Negotiable Instruments (Amendments and Miscellaneous Provisions) Act, 2002 modifying Section 1(4) and inserting Section 81A making the Act applicable to electronic cheques. This is, however, subject to such modifications and amendments as may be necessary for carrying out the purposes of Negotiable Instruments Act by the Central Government, in consultation with the Reserve Bank of India by notification in the Official Gazette. The Act, however, does not apply to other negotiable instruments,namely promissory notes and bills of exchange.

4. What is meant by truncation of cheques?

   In truncation of cheques, cheques will be scanned and the electronic image, instead of the physical cheque, will be transmitted in the clearing cycle. A truncated cheque is defined in Section 6 (Explanation 1) of the Negotiable Instruments Act as a cheque which is truncated during the course of a clearing cycle either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.

5. Can the presentment of an electronic image of a truncated cheque to the paying bank be treated as a valid 'presentment' within the meaning of section 64 of the NI Act?

   Under Section 64 of the Negotiable Instruments Act, a cheque must be presented for payment on behalf of the holder. The definition of 'cheque' under section 6 of the Negotiable Instruments Act as amended by the Negotiable Instruments (Amendments and Miscellaneous Provisions) Act, 2002 includes an electronic image of a truncated cheque. Hence, the presentment of an electronic image of a truncated cheque would amount to presentment of cheque for the purpose of section 64 .

6. What is the advantage of truncation of cheques?

   Cheques are truncated for the purpose of avoiding the physical movement of the paper instruments and instead transmitting the electronic image of the truncated instruments thereby ensuring faster clearing of the instruments and reduction in the cost of processing. It is, however, open to the drawee bank to demand further information regarding a truncated cheque from the bank holding the truncated cheque in case of any reasonable suspicion about the genuineness of the apparent tenor of the instrument. Only in the case of suspicion of any fraud, forgery, tampering or destruction of the instrument, the drawee/paying bank is entitled to demand the presentment of the truncated cheque itself for verification.

7. Who will have the custody of the truncated cheques?

   The collecting bank who receives the payment shall be entitled to retain the truncated cheque. However, on suspicion of any fraud, forgery, tampering or destruction of the instrument , the drawee bank demands the presentment of the truncated cheque itself for verification and after verification makes payment, the truncated cheque so demanded and paid shall be retained by the drawee/paying bank.

8. In the case of a truncated cheque, will any difference in apparent tenor of the electronic image with the truncated cheque be a material alteration under Section 87 of the Negotiable Instruments Act ? Who is responsible to verify any difference in apparent tenor of the electronic image with the truncated cheque?

   In the case of an electronic image of a truncated cheque, any difference in apparent tenor of such electronic image with the truncated cheque shall be a material alteration. It shall be the duty of the bank or the clearing house, as the case may be, to ensure the exactness of the apparent tenor of the electronic image of the truncated cheque while truncating and transmitting the image. Any bank or the clearing house which receives a transmitted electronic image of truncated cheque has a duty to verify from the party who transmitted the image to it that the image so transmitted to it and received by it is exactly the same.

9. Who will verify the prima facie genuineness of the cheque to be truncated?

   The banker who wants to receive payment based on an electronic image of a truncated cheque held with him (collecting bank) has the duty to verify the prima facie genuineness of the cheque to be truncated. Any fraud, forgery or tampering apparent on the face of the instrument which can be verified with due diligence and ordinary care has to be so verified.

LD News

The India Trade Promotion Organisation, Government of India invited the Principal Legal Adviser, Shri N.V. Deshpande, to the working group meetings at New Delhi between 16th and 18th December 2002 and in Chennai between 19th December and 20th December 2002. He was an expert speaker in the sessions on Policy, Legal and Regulatory Aspects at the E-Trade, Bridge SMEs-Kick of Meeting.

Shri S.R. Kolarkar, Legal Adviser has been appointed as a Member of the Working Group on ADB Assisted Housing Finance II (LN) 1761 IND on Mortgage Registration.

Shri K.D. Zacharias, Legal Adviser addressed the participants of the programme on Information System Audit at BTC, Mumbai on IT Act and Its Implications for Information Systems Security and Audit. He also attended a seminar on Straight through processing organised by TCS at Taj, Mumbai.

Good Bye

Shri S.R. Hegde, Legal Adviser, DNBS, Legal Division retired from the services of the Bank at the close of business on 31st July 2002.

Shri N.K. Puri, Joint Legal Adviser retired from the services of the Bank at the close of business on 31st December 2002.

Welcome

Shri S.M. Kunder, Record Clerk, reported to Legal Department from BTC on 18th October 2002.

Congrats

Shri C. Pushparaj, P.S. Gr. A, has been promoted to P.S. Gr. B with effect from 2nd September 2002 and retained in the Department.

Hindi Day

The Department celebrated Hindi day on 21st October 2002 with great enthusiasm. Deputy Governor, Shri G.P. Muniappan inaugurated the Hindi Vidhi Graha Patrika.

Mail Bag

We have received letters from M/s. M. Chaturvedi, Mukeshchand, S.R. Subrahmanya, Bahadur Singh, Pradeep K. Madhaav, K. Mohan, Sarita Panda, Shamlal Gaur, Deepak Kumar Barik, R.S. Bakkannavar, S.S. Nigam, and C.N. Vazirani.

The names of the above readers have been included in the mailing list.

 

The nuts and bolts of lending money is getting it back. And that still depends upon human judgment. — WRISTON, Walter, as quoted in Bennett, Robert A. "Inside Citicorp", The New York Times Magazine, May 29, 1983, p.46   Turn now to the oath of the Queen herself at Her coronation and you will find that there too law and justice are treated as inseparable. The Archbishop asks "Will you to your power cause Law and Justice, in Mercy, to be executed in all your judgments?". And the Queen answers " I will," Now the judgments of Her Majesty’s judges are the judgments of the Queen herself. They are her delegates for the purpose. By this oath, they must in her name execute, not law alone but "law and justice"; and they must do so "in Mercy"; and how shall they be merciful unless they have in them something of that quality which "droppeth as the gentle rain from heaven upon the earth beneath"? — DENNING, Alfred, The Road to Justice (London : Stevens & Sons Limited, 1955) p.5   If it be true that, both in the popular and in the professional view, a Contract was long regarded as an incomplete Conveyance, the truth has importance for many reasons. The speculations of the last century concerning mankind in a state of nature, are not unfairly summed up in the doctrine that "in the primitive society property was nothing, and obligation everything". — MAINE, Hency Sumber, Ancient Law (New york : Henry Holt and Company, 1888), p. 311   Your obligations are stronger than your personal desires. — ADAMS, Abigail, to john Adams, Channel 46, February 24, 1976, The Adams Chronicles, at 9:40 p.m.