ELIL062003

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ECONOMIC, LABOUR AND INDUSTRIAL

LAWS (Guideline Answers)
INTERMEDIATE EXAMINATION
JUNE 2003
Time allowed: 3 hours Maximum marks: 100
NOTE: Answer SIX questions including Question Nos. 1 and 7 which are
COMPULSORY.
Question 1
Write notes on any five of the following:
i. Restrictions on the acceptance of foreign hospitality under the Foreign Contribution

(Regulation) Act, 1976
ii. Trade practice
iii. Powers of the MRTP Commission to punish for contempt under the Monopolies and
Restrictive Trade Practices Act, 1969
iv. Environmental clearances for setting up an industrial project under the Industries
(Development and Regulation) Act, 1951
v. Powers of the central government for the protection of security of India under the
Patents Act, 1970
vi. Certification trade mark’ under the Trade Marks Act, 1999. (3 marks each)
Answer 1(i)
Section 9 of Foreign Contribution (Regulation) Act, 1976 prohibits acceptance of

foreign hospitality by certain persons except with the prior permission of the Central
Government. Accordingly no member of a Legislature, office bearer of a political
party, Judge, Government servant or employee of a corporation shall, while visiting
any country or territory outside India accept, without the prior permission of the
Central Government, any foreign hospitality. However, it shall not be necessary to
obtain any such permission for an emergent medical aid needed on account of sudden
illness contracted during the visit outside India. But, where such hospitality has been
received, the person receiving such hospitality is under obligation to intimate, within
one month from the date of receipt of such hospitality, to the Central Government as
to the receipt of such hospitality and the source from which and the manner in which
such hospitality was received by him.
The Central Government has granted general exemption to members of delegations

sponsored by the Central Government from seeking prior permission for acceptance of
foreign hospitality while visiting any country or territory outside India. Similarly,
Government servants and employees of the Corporation have also been granted
exemption from seeking prior permission of the Central Government for acceptance of
foreign hospitality while visiting any country or territory outside India, in pursuance of
bilateral agreement between the Government of India, and the Government of any
foreign country, duly approved by the Department of Economic Affairs and/or for
attending long-term/short-term training programme duly approved by the Department
file://C:\Documents and Settings\subha\Desktop\qus\J2003\ELIL062003.htm 4/26/2007

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of Personnel Affairs.
Answer 1(ii)
Trade Practice as defined under Section 2(u) of MRTP Act, 1969 means any practice
relating to the carrying on of any trade and includes -
i. anything done by any person which controls or affects the price charged by, or
the method of trading of, any trader or any class of traders,
ii. a single or isolated action of any person in relation to any trade.
To be a ‘practice’ a particular conduct must be repetitive in nature; if it has happened

in one particular case for which there is some explanation, it cannot be said to be
practice.
(In Re: Auto Agents and Bajaj Auto Ltd. RTP Enq No.129/1986 order dated
10.12.1990).
(Students may refer to the definitions of trade and practice in the Competition Act,
2002 for future examinations. As per the said Act, “trade” means any trade, business,
industry, profession or occupation relating to production, supply, distribution, storage
or control of goods and includes the provision of any services and “practice” includes
any practice relating to carrying on of any trade by a person or enterprise. Therefore, a
stray action cannot be construed to be a practice).
Answer 1(iii)
Section 13B of MRTP Act, 1969 provides, that the Commission shall have and
exercise the same jurisdiction, powers and authority in respect of contempt as a High
Court and for this purpose, the Commission shall have the same powers as are
conferred in the Courts under the Contempt of Courts Act, 1971 subject to the
modification that references therein to ‘High Court’ and ‘Advocate General’ shall be
construed as including a reference to the ‘Commission’ and to ‘the officer specified by
the Central Government, respectively. The Commission thus, has been granted very
wide powers to ensure compliance of its orders.
Answer 1(iv)
Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control

and Environment for setting up an industrial project. The Environment Protection Act,
1986 by subsequent notification has listed 29 projects in respect of which
environmental clearance needs to be obtained from the Ministry of Environment,
Government of India. This list includes industries like petro-chemical complexes,
petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, paper
etc.
However, if investment is less than Rs. 500 million, such clearance is not necessary,
unless it is for pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos
products, integrated paint complexes, mining projects, tourism projects of certain
parameters, tarred roads in Himalayan areas, distilleries, dyes, foundries and
electroplating industries.
Further, any item reserved for the small-scale sector with investment of less than

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Rs.10 million is also exempt from obtaining environmental clearance from the Central
Government. Powers have been delegated to the State Governments for grant of
environmental clearance for certain categories of thermal power plants. Setting up
industries in certain locations considered ecologically fragile (e.g. Aravalli Range,
coastal areas, Doon Valley, Dahanu, etc.) are guided by the separate guidelines issued
by the Ministry of Environment of the Government of India.
Answer 1(v)
Section 157A as inserted by the Patents (Amendment) Act, 2002 contains provisions
relating to protection of security of India. This section empowers the Central
Government, not to disclose any information relating to any patentable invention or
any application relating to the grant of patent, which it considers prejudicial to the
interest of the security of India. The Central Government has also been empowered to
take any action including the revocation of any patent, which it considers necessary in
the interest of security of India.
Explanation to Section 157A clarifies that the expression ‘Security of India’ includes
any action necessary for the Security of India which -
i. relates to fissionable materials or the materials from which they are derived; or
ii. relates to the traffic in arms, ammunition and implements of war and to such
traffic in other goods and materials as is carried on directly or indirectly for the
purpose of supplying a military establishment; or
iii. is taken in time of war or other emergency in international relations.
Answer 1(vi)
Section 2(1)(e) of Trade Marks Act, 1999 defines the term certification trade mark as
to mean a mark capable of distinguishing the goods or services in connection with
which it is used in the course of trade which are certified by the proprietor of the mark
in respect of origin, material, mode of manufacture of goods or performance of
services, quality, accuracy or other characteristics from goods or services not so
certified and registerable as such in respect of those goods or services in the name, as
proprietor of the certification trade mark of that person.
Question 2
a. Write a brief note on ‘special economic zones’. (3 marks)

b. What is the effect of ‘notified order’ issued by the central government
authorising the taking over of the management of an industrial
undertaking under the Industries (Development and Regulation) Act, 1951?
(4 marks)
c. Rajeev suffered a loss of Rs. 10,000 on account of an unfair trade practice
indulged by Bigie Ltd. He instituted proceedings under the Monopolies and
Restrictive Trade practices Act, 1969 and the MRTP Commission granted
the compensation prayed for. The company wants to prefer an appeal
against the MRTP Commission’s order. Advise the company as to how it
should proceed. (4 marks)
d. On the basis of facts mentioned below, state whether these amount to
restrictive trade practices or unfair trade practices:
i. A shoe manufacturer is offering its products to its customers at price less

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than its cost of production.

ii. A pharmaceutical company producing certain health care products also
markets anti-typhoid capsules manufactured by another company under its
own brand name. It maintains that the manufacture by the other company
was strictly in accordance with the technical know-how and quality control
laid down by it. (2 marks each)
Answer 2(a)
Special Economic Zone
Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall
be deemed to be a foreign territory for the purposes of trade operations and duties and
tariffs. Goods and services going into the SEZ area from Domestic Tariff Area shall be
treated as exports and goods coming from the SEZ area into DTA area shall be treated
as if they are being imported. SEZ units may be set-up for manufacture of goods and
rendering of services, production, processing, assembling, trading, repair, remaking,
reconditioning, re-engineering including making of gold/ silver/platinum jewellery and
articles thereof or in connection therewith. A SEZ may be set-up in public, private,
joint sector or by state government as notified by the Ministry of Commerce and
Industry. SEZ are under the administrative control of the Development Commissioner.
SEZ unit may import/procure goods from DTA without payment of duty for setting
up, operation and maintenance of units in the Zones. SEZ unit shall be a positive net
foreign exchange earner. NFE shall be calculated cumulatively for a period of 5 years
from the commencement of commercial production according to the prescribed
formula. SEZ unit may sell goods, including by products and services in DTA in
accordance with the import policy in force, on the payment of applicable duty. The
DTA sales of SEZ units attract 100% import duties without any exemption.
The SEZ units are Chinese models and in China they are very successful. The existing
EPZ units in India are being converted into SEZ ones so that they avail benefits of
SEZ units on full scale.
Answer 2(b)
Section 18 B of the Industries (Development and Regulation) Act, 1951 provides that
on the issue of a notified order by Central Government under Section 18A authorizing
the taking over of the management of an industrial undertaking -
1. All persons in charge of the management, including persons holding office as

managers or directors of the industrial undertaking immediately before the issue
of notified order shall be deemed to have vacated their office as such.
2. Any contract of management between the industrial undertaking and any
director thereof holding office as such immediately before the issue of the
notified order, shall be deemed to have terminated.
3. The persons or body of persons authorized under Section 18A to take over
management (i) shall take all such steps as may be necessary to take into his or
their custody or control all the property, actionable claims to which the
industrial undertaking is or appears to be entitled; (ii) shall be for all purposes,
the directors of the industrial undertaking duly constituted under the Companies
Act and shall alone, be entitled to exercise all the powers of the directors of the
industrial undertaking, whether such powers are derived from the said Act or

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from the memorandum or articles of association of the industrial undertaking or

from any other source; (iii) shall take such steps as may be necessary for the
purpose of efficiently managing the business of the industrial undertaking and
shall exercise such other powers and have such other duties as may be
prescribed; and (iv) shall, notwithstanding anything contained in the
memorandum or articles of association of the industrial undertaking, exercise
his or their functions in accordance with such directions as may be given by the
Central Government.
Also that the contracts between the Company and outsiders may also be referred to
High Court (with prior approval of Central Government) for cancellation etc. if they
are found prejudicial to the interests of the company. Where any person/ body of
persons has been authorized to exercise any functions of control with respect to any
industrial undertaking, the undertaking shall be carried on pursuant to any directions
given by such authorized person(s) and any person having any function of
management in relation to that undertaking shall comply with all such directions.
Answer 2(c)
In the present case MRTP Commission has granted pecuniary compensation to

Rajeev. The provisions of Section 55 of the M.R.T.P. Act, 1969 do not cover appeals
against pecuniary compensation. As per Section 55 any person aggrieved by the order
of the MRTP commission, may prefer an appeal to Supreme Court within 60 days of
the date of the order on one or more of the grounds specified in Section 100 of the
Code of Civil Procedure, 1908.
Section 100 contains the following grounds of appeal at the time when Section 55 of
the MRTP Act, 1969 was enacted:
a. the decision being contrary to law or to some usage having the force of law;
b. the decision having failed to determine some material issue of law or use having
the force of law;
c. a substantial error or defect in the procedure provided by the Code of Civil
Procedure or by any law for the time being in force, which may possibly have
produced error or defect in the decision of the case upon the merits.
The amended Section 100 by the Code of Civil Procedure (Amendment) Act, 1976
provides for an appeal on the substantial question of law only. The Supreme Court in
Mahindra and Mahindra Ltd. v. Union of India (AIR 1979 SC 1982) held that Section
55 of the MRTP Act relating to grounds of appeal should be deemed to incorporate the
old Section 100 of CPC.
However, in the present case, the company may invoke appellate jurisdiction of the
Supreme Court, by way of Special Leave Petition under Article 136 of the
Constitution.
Answer 2(d)(i)
The practice of selling products below the cost of production so as to eliminate a

competitor or competition is called predatory pricing within the meaning of Section 33
(i)(j) of Monopolies and Restrictive Trade Practices Act, 1969. However, in cases of
very sluggish demand, sales below cost may be necessitated to prevent losses from
getting aggravated. Thus, the practice adopted by shoe manufacturer by offering

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products less than its cost of production amounts to restrictive trade practice provided
the practice amounts to eliminate competition or there is an existence of malafide
intention on the part of charged party to drive its competitors out of business.
Under the provisions of the Competition Act, 2002 (which has replaced the MRTP
Act, 1969), it will amount to abuse of dominant position under Section 4(2)(a)(ii).
Answer 2(d)(ii)
The practice adopted by the company does not amount to an unfair trade practice. The
facts given in the problem are similar to the case of Director General of Investigation
and Registration v. Glaxo Laboratories India Ltd. [UTP Enq. No.22 of 1985 dt.
20.10.1987] where Glaxo marketed cephalexin capsules which were manufactured by
another company but in accordance with the technical know-how and quality control
standards etc. laid down by Glaxo and in its trade name, it was held that there was no
unfair trade practice.
Question 3
a. Help Line, a voluntary organisation providing succour to the destitutes, has

been offered a grant of US $ 5,000 by a trust in the USA. What are the
circumstances under which the central government can prohibit Help Line
from receiving the said contribution? Is the central government required to
serve a show-cause notice before issuing the order? (5 marks)
b. Advise on the following with reference to the relevant provisions of the
Foreign Exchange Management Act, 1999:
i. Ramesh, a person resident outside India, has sold shares in India and
is interested in repatriating the sale proceeds.
ii. Suresh, a person resident in India, wants to acquire immovable
property outside India.
iii. Mega Ltd. has contravened the provisions of the Foreign Exchange
Management Act, 1999. The company secretary has been held liable
for the contravention.
iv. Rama Ltd., a company incorporated in India, is required to issue
shares on rights basis to Dharmendra, a person resident outside
India.
v. Jamil and Co., a partnership firm, registered under the Indian
Partneship Act, 1932 and engaged in rendering professional services,
is interested in making investment in a foreign partnership concern
engaged in similar professional services. (2 marks each)
Answer 3(a)
Under Section 10 of Foreign Contribution Regulation Act, 1976 Central Government

is authorized to prohibit Help Line, a voluntary organization providing succour to the
destitute from receiving grant of US $ 5000 by a trust in USA, if it is satisfied that the
acceptance of foreign contribution by the Help Line is likely to affect prejudicially:
i. the sovereignty and integrity of India, or

ii. the public interest; or
iii. freedom of fairness of election to any legislature; or
iv. friendly relations with any foreign state; or

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v. harmony between religions, racial, linguistic or regional groups, castes or

communities.
In Association of Voluntary Agencies for Rural Development v. Union of India

[(1991), 72 Comp. Cas. 369], it has been held that any order under Section 10 is
required to be passed on objective material and facts disclosed to the concerned
association. A show-cause notice and an opportunity of explaining alleged objective
material must be given to the person concerned.
Answer 3(b)(i)
Ramesh, a person resident outside India can repatriate the sale proceeds of the shares
provided the security has been sold on a recognized stock exchange in India through a
stock broker at the ruling market price as determined on the floor of the exchange, or
the Reserve Bank’s approval has been obtained in other cases for sale of the security
and remittance of the sale proceeds thereof; and a no objection/tax clearance
certificate has been produced from the Income Tax authority.
Answer 3(b)(ii)
Suresh, a resident in India may acquire immovable property outside India by way of
gift or inheritance from a person who was resident outside India, in terms of Section 6
(4) of FEMA Act, 1999 or who is a national of a foreign state or such property was
acquired by a person resident in India on or before July 8, 1947 and continued to be
held by him with the permission of RBI.
Suresh may acquire immovable property outside India by way of purchase out of
foreign exchange held in Resident Foreign Currency (RFC) account maintained in
accordance with the Foreign Exchange Management (Foreign Currency Accounts by a
person resident in India) Regulations, 2000.
Answer 3(b)(iii)
Section 42 of the Foreign Exchange Management Act, 1999 deals with contravention
of the provisions of the Act by the Companies. It states that every person who was in
charge of and was responsible to the company for the conduct of the business of the
company shall be deemed to be guilty of the contravention and liable to be proceeded
against and punished accordingly. In Mega Ltd., if it is proved that the contravention
is committed with the knowledge, consent and connivance or is attributed to the
neglect on the part of company secretary, he will be deemed to be guilty of
contravention. However, he shall not be guilty if he proves that such contravention
took place without his knowledge or that he took adequate measures to prevent such
contravention.
Answer 3(b)(iv)
Rama Ltd., a company incorporated in India, on satisfying the following conditions,

may offer to Dharmendra, a person resident outside India, shares on rights basis,
namely:
i. The offer on right basis does not result in increase in the percentage of foreign
equity already approved, or permissible under the Foreign Direct Investment
Scheme.

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ii. The existing shares or debentures against which shares or debentures are issued
by the company on right basis were acquired and are held by the person resident
outside India in accordance with the Regulations.
iii. The offer on right basis to the persons resident outside India is at a price which
is not lower than that at which the offer is made to resident shareholders.
Thus the right shares purchased by Dharmendra shall be subject to same conditions
including restrictions in regard to repatriability as are applicable to the original shares
against which right shares are issued.
Answer 3(b)(v)
Jamil & Co., a partnership firm registered under the Indian Partnership Act, 1932 and
engaged in providing specified professional services, can make investment in foreign
concerns engaged in similar activities, by way of a remittance from India and/or
capitalization of fees or other entitlements due to it from such foreign concerns.
However, such investment should not exceed US$ one million or its equivalent in one
financial year and also such Indian firm should be member of the respective All India
Professional Organization/body. In this regard, the investing firm is required to submit
with RBI a report within 30 days of making such investment. Such report should
contain name, address, registration, membership, and amount etc. of investing firm as
well as foreign firm in which the investment is made.
Question 4
a. Describe the provisions of the Patents Act, 1970 relating to the grounds for
opposition to the grant of a patent. (5 marks)
b. Mention the provisions of the Trade Marks Act, 1999 regarding the
assignment and transmission of registered trade marks. (5 marks)
c. What are the circumstances under which a copyright is deemed to be
infringed under the Copyright Act, 1957? (5 marks)
Answer 4(a)
Section 25(1) of the Patent Act, 1970 stipulates the following grounds for opposition
to grant of patent:
i. the applicant for the patent or the person under or through whom he claims,
wrongfully obtained the invention or any part thereof from him or from a person
under or through whom he claims;
ii. the invention so far as claimed in any claim of the complete specification
a. has been published before the priority date of the claim in any
specification filed in pursuance of an application for a patent made in
India on or after January 1st, 1912; or in India or elsewhere, in any other
document;
b. is claimed in a claim of a complete specification published on or after the
priority date of the applicants claim and filed in pursuance of an
application for a patent in India, being a claim of which the priority date is
earlier than that of the applicants claim;
c. was publicly known or publicly used in India before the priority date of
that claim.
d. is obvious and clearly does not involve any inventive step;

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iii. the subject of any claim of the complete specification is not an invention or is
not patentable under this Act;
iv. the complete specification does not sufficiently and clearly describe the
invention or the method by which it is to be performed;
v. the applicant has failed to disclose to the Controller the required information or
has furnished the information which in any material particular is false to his
knowledge;
vi. in the case of a convention application, the application is not made within
twelve months from the date of the first application for protection for the
invention.
vii. The complete specification does not disclose or wrongly mentions the source or
geographical origin or biological material used for the invention.
viii. The invention so far as claimed in any claim of the complete specification is
anticipated having regard to knowledge, oral or otherwise, available within any
local or indigenous community in India or elsewhere.
The application of opposition duly filed will be forwarded to the applicant for patent
with a notice and the applicant has to reply within one month of receiving the notice of
opposition. Then both parties shall be heard.
Answer 4(b)
Section 37 of the Trade Mark Act, 1999 entitles the registered proprietor of a
trademark to assign the trademark and to give effectual receipts for any consideration
for such assignment. Section 38 deals with the assignability and transmissibility of a
registered trade mark with or without goodwill of the business either in respect of all
goods or services or part thereof. Section 39 provides that unregistered trademark may
be assigned or transmitted with or without the goodwill of the business concerned.
Section 40 contains restriction on assignments or transmissions of trade mark where

multiple exclusive rights would be created in more than one person in relation to same
goods or services; same description of goods or services; goods or services which are
associated with each other, which would be likely to deceive or cause confusion.
Nevertheless, such assignment is not deemed to be invalid, if having regard to the
limitations imposed, the goods are to be sold in different markets - either within India
or though exports.
The Act under Section 42 stipulates conditions for assignment of a trademark without
goodwill of business. Such an assignment shall not take effect unless the assignor
obtains directions of the Registrar and advertises the assignment in accordance with
the directions of the Registrar and as per the prescribed manner.
Section 45 deals with the procedure for registration of assignment and transmission
and provides that where the validity of an assignment is in dispute between the parties,
the Registrar may refuse to register the assignment or transmission unless the rights of
the parties are determined by the competent court.
Answer 4(c)
Section 51 of the Copyright Act, 1957 contemplates situation in which a copyright

shall be deemed to be infringed. This Section says that a copyright is infringed when
any person without a license granted by the owner of the Copyright or the Registrar of
Copyright or in contravention of the conditions of a license so granted or of any

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condition imposed by a competent authority does -
1. anything for which the exclusive right is conferred upon the owner of the
copyright, or
2. permits for profit any place to be used for the communication of the work to
public where such a communication constitutes an infringement of the copyright
in the work, unless he was not aware and had no reasonable ground for
believing that such communication would be an infringement of copyright.
3. When any person (i) makes for sale or hire or lets for hire or by way of trade
display or offers for sale or hire, or (ii) distributes either for the purpose of trade
or to such an extent as to affect prejudicially the owner of the copyright, or (iii)
by way of trade, exhibits in public, or (iv) imports into India any infringing
copies of the work.
However, import of one copy of any work is allowed for private and domestic use of
the importer. Explanation to Section 51 clarifies that the reproduction of literary,
dramatic, musical or artistic work in the form of cinematograph film shall be deemed
to be an infringing copy.
Question 5
With reference to the provisions of the Consumer Protection Act, 1986, decide the
following giving reasons in support of your answer:
i. Sohan sent all relevant documents in an envelope regarding

consignment of goods to a buyer in the USA through Fast
Service Couriers. The documents did not reach the buyer as a
consequence of which the buyer could not take delivery of the
goods. By the time the duplicate copies of the document had
been received by the buyer, the season of the goods was over.
He claimed that he had suffered a loss of US $ 5,000 as a result
of the negligence of the courier. The State Commission ordered
the payment to be made by the Fast Service Couriers, but the
National Commission in appeal reversed the order and ordered
payment of US $ 100 only as per the receipt issued by the Fast
Service Courier to the consignor at the time of the despatch of
the letter. Advise Sohan. (5 marks)
ii. Mahesh purchased a machine from Astute Ltd. to operate it
himself for earning his livelihood. He took the assistance of a
person to assist him in operating the machine. The machine
developed fault during the warranty period. He filed a claim in
the consumer forum against the company for deficiency in
service. Astute Ltd. alleged that Mahesh did not operate the
machine himself but had appointed a person exclusively to
operate the machine. Will Mahesh succeed? (5 marks)
iii. Pillai purchased a car by taking a loan from Kerala
Cooperative Bank Ltd. and gave post-dated cheques to the
bank not only in respect of repayment of loan installments but
also of premium of insurance policy for two succeeding years.
On the expiry of the policy. Pillai’s car met with an accident.
Will Pillai succeed in getting a claim against the bank? (5
marks)
Answer 5(i)

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The facts given in the problem are similar to the case of Bharathi Knitting Co. v. DHL
Worldwide Express Courier Division of Airfreight Ltd. [1996 (5) SCALE 142 (SC)]
wherein the Supreme Court upheld the decision of the National Commission that in
view of the terms and conditions of contract between the parties, the National
Commission was right in limiting the liability undertaken in the contract and in
awarding compensation to the extent stated there in.
Therefore, in the present case Sohan will not succeed and Fast Service Couriers
liability will be limited to US $ 100.As per IATA Regulations, any valuable document
sent by courier shall be insured as a precautionary measure. It is the duty of the
consigner to declare the value. Otherwise, the courier services will be put to heavy
loss for no fault of theirs.
Answer 5(ii)
The present problem is based on the leading case Laxmi Engineering Works v. P.S.G.
Industrial Institute [(1995) II LPR 11 (SC)] where the Supreme Court held that if a
person purchased a machine to operate himself for earning his livelihood, he would be
a consumer. If such person took the assistance of one or two persons to assist him in
operating the machine, he would still be a consumer. But if a person purchases a
machine and appoint or engage another person exclusively to operate the machine,
then such person would not be a ‘consumer’. Therefore in the given case Mahesh will
succeed.
Moreover, the complainant will succeed even if he engages somebody to operate the
machine exclusively on the ground that the defect took place during the warranty
period. This is the case of deficiency of service (See J.K. Puri v. Mohan Breweries).
Answer 5(iii)
The facts given in the problem are similar to the facts in Pradeep Kumar Jain v.
Citibank [1999 (4) SCALE 662] wherein the Supreme Court held that there is no
deficiency in service because the obligation to renew the policy is on the owner of the
car alone. Merely passing on cheques towards premium of insurance policy for two
succeeding years would not absolve him of his liability to renew the policy. He has
certain duties to discharge in the matter of obtaining the policy and cannot merely pass
the blame on someone else. Thus, Pillai will not succeed in getting a claim against the
Bank.
Question 6
a. Mention the provisions relating to environmental audit contained in the

Environment (Protection) Rules, 1986. (4 marks)
b. A major leakage of a poisonous gas in an industrial plant caused death of 5
workmen besides injuring 15 others. The ‘occupier’ of the industrial plant
pleaded that he had exercised all due diligence to prevent the escape of the
gas and that the leak was attributable to an act of God. Will he succeed?
Refer to decided case law in support of your answer. (6 marks)
c. Mention the provisions of the Water (Prevention and Control of Pollution)
Act,1974 relating to restrictions on new outlets and new discharges. (5
marks)
Answer 6(a)

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Rule 14 of the Environment Protection Rules, 1986 provides for the submission of
environmental audit report. Accordingly, every person carrying on an industry,
operation or process requiring consent under Section 25 of the Water (Prevention and
Control of Pollution) Act 1974 or Section 2 of the Air (Prevention and Control of
Pollution) Act, 1981 or both or authorization under the Hazardous Wastes
(Management and Handling) Rules, 1989 is required to submit an environmental audit
report in Form V for the financial year ending on 31st March every year on or before
the 15th of May, beginning 1993 to the concerned State Pollution Control Board.
Answer 6(b)
In an earlier case, Shriram Foods and Fertilisers Industries and Another v. Union of
India and Others (1986 1 Company LJ 25), Supreme Court had held that if the escape
of the gas took place as a result of vis majeur or sabotage or where the officer proves
that he had exercised due diligence to prevent the escape of the gas, he shall be
entitled to be indemnified by the company. There would not be any personal liability
attached to the Chairman/ Managing Director if the gas leak was due to an act of God
or vis majeur or sabotage. However in a subsequent landmark judgment in M.C.
Mehta and Another v. Union of India and others, [(1987) 1 Company LJ 1999 (SC)]
the Supreme Court laid down that an enterprise which is engaged in hazardous or
inherently dangerous activity and any industry which poses a potential threat to the
health and safety of the persons working in the factory and of those residing in the
surrounding area, owes an absolute and non-delegatable duty to the community to
ensure that no harm results to anyone on account of any hazardous or inherently
dangerous nature of the activity which it has undertaken. The Supreme Court
reiterated that the rule of strict liability laid down in Rylands v. Fletcher [(1816-73)
AII ER. 146 HL] would apply in India without any exceptions whatsoever recognized
in England. The court also ruled that the measure of compensation must be correlated
to the magnitude and capacity of the enterprise because such compensation must have
a deterrent effect. The Supreme Court in its judgement increased the sphere of liability
from strict liability to absolute liability.
Answer 6(c)
Section 25 of the Water (Prevention and Control of Pollution) Act, 1974 places certain
restrictions on new outlets and new discharges. This section makes it obligatory on the
part of a person to obtain the consent of the Board for establishing or taking any steps
to establish any industry, operation or process which is likely to cause pollution of
water and also empowering the Board to limit their consents for suitable period so as
to enable them to monitor observance of the prescribed conditions.
Without the previous consent of the State Pollution Control Board no person is
authorized to :
i. establish or take any steps to establish any industry, operation or process or any
treatment and disposal system or any extension or addition thereto which is
likely to discharge sewage or trade effluent into a stream or well or sewer or on
land;
ii. bring into use any new or altered outlet for discharge of sewage; or
iii. begin to make any new discharge of sewage or trade effluent.
The application for consent should be made in the specified form and manner
accompanied by the prescribed fee. When an application for consent is received, the

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State Board make such enquiry as it may deem fit. The procedure for making such
enquiry is specified in the Rules framed by the State Government. While granting
consent, the Board may impose certain conditions and such conditions shall be binding
on the person establishing or taking steps to establish any industry or using the new or
altered outlet or discharging the effluent from the land or premises.
The Board can also refuse to grant consent for reasons to be recorded in writing.
Where without the consent of the Board any of the aforesaid acts like establishment of
industry, operation, bringing into use outlet or effecting discharge of effluents etc. are
done by any person, the Board may serve on the person concerned a notice imposing,
such conditions as it might have imposed on an application for its consent in respect of
such establishment outlet or discharge.
Question 7
a. Discuss any two of the following:
i. Procedure for certification of draft standing orders under the

Industrial Employment (Standing Orders) Act, 1946.
ii. ‘Allocable surplus’ under the Payment of Bonus Act, 1965.
iii. Workers participation in management. (5 marks each)
b. Attempt any five of the following stating the relevant legal provisions and
case law:
i. An employer orders ex parte dismissal of a workman for

unauthorised absence without leave for more than 8 days. Is the
order valid?
ii. A laboratory assistant consumes a chemical during the night shift and
dies. The chemical was not used in the laboratory. Will his wife
succeed in claiming compensation?
iii. The increment of an employee was due in April. He would have
received an additional amount of Rs. 100 in the wages to be paid in
May. The employer withheld the increment. Does it amount to
deduction from wages under the Payment of Wages Act, 1936?
iv. Sun-cured tobacco leaves are subjected to processes of moistening,
stripping, breaking up, adaption, packing, etc., with a view to
transporting them to company’s main factory for their use in
manufacturing cigarettes. Does it amount to a ‘manufacturing
process’ under the Factories Act,1948?
v. Mohan meets with an accident on a public road on his way to the
place of employment. Does it amount to ‘employment injury’ entitling
him to benefits under the Employees’ State Insurance Act, 1948?
vi. Sambha is the President of a registered trade union in a factory. He is
a very influential leader and has the support of majority of the
workers in espousing trade disputes. He is in the habit of reporting
late for duty and picking up quarrels with the supervisor. The
management punishes him for breach of discipline. He files a suit
claiming immunity under the Trade Unions Act, 1926. Will he
succeed?
vii. The services of a bus conductor were terminated on the ground of
weak eye-sight. Does it amount to a valid ground for retrenchment
under the Industrial Disputes Act, 1947?
viii. Raju, a contract labour, engaged for keeping industrial premises

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clean, has been engaged for 270 days in a year. He approaches the
employer to absorb him in the establishment. Is the employer under
an obligation to absorb the contract labour under the Contract
Labour (Regulation and Abolition) Act, 1970? (3 marks each)
Answer 7(a)(i)
Section 5 of the Industrial Employment (Standing Orders) Act, 1946 lays down the
procedure to be followed by Certifying Officer. On receipt of the draft Standing
Orders from the employer, the Certifying Officer shall forward a copy thereof to the
trade union of the workmen or where there is no trade union, then to the workmen in
the prescribed manner, together with a notice requiring objections, if any, which the
workmen may desire to make in the draft Standing Orders. These objections are
required to be submitted to him within 15 days from the receipt of the notice. On
receipt of such objections he shall provide an opportunity of being heard to the
workmen or the employer and will make amendments, if any, required to be made
therein and this will render the draft Standing Orders certifiable under the Act and he
will certify the same. A copy of the certified Standing Orders will be sent by him to
both the employer and the employees association within seven days of the
certification.
The certified Standing Orders framed in accordance with the Industrial Employment
(Standing Orders) Act have the force of law like any other statutory instrument.
Answer 7(a)(ii)
“Allocable Surplus”, as per Section 2(4) of the Payment of Bonus Act, 1965 means-
a. in relation to an employer, being a company (other than a banking company)

which has not made the arrangements prescribed under the Income-tax Act, for
the declaration and payment within India of the dividends payable out of its
profits in accordance with the provisions of Section 194 of that Act, sixty -
seven per cent of the available surplus in an accounting year;
b. in any other case sixty per cent of such available surplus.
Answer 7(a)(iii)
Worker’s participation in management is an important part of human relations because

it offers an enormous potential for higher productivity, improved satisfaction and
creative thinking. Worker’s participation in management is defined as sharing of
decision making power by rank and file of an industrial organization through proper
representation at all levels of management in the entire range of managerial actions.
The basic objective of worker’s participation is to make the workers an active partner
in the management of industrial enterprise so as to win their co-operation and
commitment.
The rationale of labour participation in management lies not merely in raising

productivity and promoting industrial peace but more importantly in creating a sense
of involvement of workers in the enterprise.
Some of the advantages of worker’s participation are as follows:
a. it helps better decision making;

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b. it uses the creativity of all employees;

c. it encourages people to accept responsibility;
d. it improves morale and teamwork;
e. it helps acceptance of change.
Answer 7(b)(i)
The order is prima facie valid if proper inquiry has been held before dismissal even if
the dismissal order is ex parte.
Answer 7(b)(ii)
Since it is a case of suicide by the employee, the employer is not liable to pay
compensation.
The Supreme Court in Mackenzie v. I.M. Issak, AIR !970 SC 1906 observed that the
words “in the course of employment” mean“ in course of the work which the
workman is employed to do and which is incidental to it. ”The words “arising out of
employment” are understood to mean that “during the course of employment, injury
has resulted from some risk incidental to the duties of the service, which unless
engaged in the duty owing to the master, it is reasonable to believe the workman
would not otherwise have suffered”. In other words, there must be a causal
relationship between the accident and the employment. If the accident had occurred on
account of a risk, which is an incident of the employment, the claim of compensation
must succeed, unless of course the workman has exposed himself to an added peril by
his own imprudent act.
Answer 7(b)(iii)
It shall not be deemed to be a deduction from wages.
Explanation II appended to Section 7 of the Payment of Wages Act, 1936 provides

that any loss of wages resulting from the imposition, for good and sufficient cause,
upon a person employed of any of the penalties stated therein. One of such penalties
prescribed is the withholding of increment or promotion (including the stoppage of
increment at an efficiency bar) shall not be deemed to be a deduction from wages in
any case where the rules framed by the employer for the imposition of any such
penalty are in conformity with the requirements which may be specified in this behalf
by the State Government.
Answer 7(b)(iv)
It amounts to a manufacturing process under the Factories Act, 1948.
The Supreme Court in V.P. Gopala Rao v. Public Prosecutor, AIR 1970 SC 66, has
held that sun-cured tobacco leaves subjected to processes of moistening, stripping,
breaking up, packing, with a view to transport to company’s main factory for their use
in manufacturing cigarette is a manufacturing process.
“Manufacturing process” has been defined in Section 2(k) of the Factories Act 1948.
Answer 7(b)(v)

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The Supreme Court in Regional Director ESI v. Francis De Costa (1997 LLJ 134 SC),
held that mere road accident on a public road while the employee was on his way to
place of employment cannot be said to have its origin in his employment in the
factory. So the injury can not be said to be caused by an accident arising out of and in
the course of employment. Therefore, Mohan in not entitled to benefits under the
E.S.I. Act, 1948
Answer 7(b)(vi)
Sambha will not succeed. The Supreme Court in Burn & Co. v. Workman, AIR 1959
SC 529, held that a union leader is not entitled to claim immunity from punishment for
breach of discipline.
Section 18 of the Trade Unions Act, 1926 grants immunity to a trade union from civil
suits on the grounds specified therein. The union, its office bearers and members shall
however be liable for Acts, which are not covered by Section 18 of the said Act.
Answer 7(b)(vii)
Weak eye-sight is not a valid ground for retrenchment. In Anand Bihari v. RSRTC,
AIR 1991 SC 1003, where the services of a driver working in the Rajasthan State
Road Transport Corporation were terminated on the ground that he has developed
eyesight which was not of standard required to drive the buses, the Supreme Court has
held that such termination would be covered by continued ill-health and this would not
amount to retrenchment.
Retrenchment under Section 2(oo) of the Industrial Disputes Act, 1947 means, “to
end, conclude, or cease.” The term as used in the Industrial Disputes Act means the
termination by the employer of the service of a workman for any reason whatsoever,
otherwise than as punishment inflicted by way of disciplinary action.
Retrenchment however, does not include -
a. voluntary retirement of the workman; or

b. retirement of the workman on reaching the age of superannuation if the contract
of employment between the employer and the workman concerned contains a
stipulation in that behalf; or
(bb) termination of the service of the workman as a result of the non-

renewal of the contract of employment between the employer and the
workman concerned on its expiry or of such contract being terminated
under a stipulation in that behalf contained therein; or
c. termination of the services of a workman on the ground of continued ill-health.
Answer 7(b)(viii)
In the Air India Statutory Corporation case, (AIR 1996 SC) the Supreme Court held
that though there exists no express provision in the Contract Labour (Regulation and
Abolition) Act, 1970 for absorption of employees in establishments where contract
labour system is abolished by publication of notification, the principal employer is
under obligation to absorb the contract labour. The linkage between the contractor and
employee stood snapped and direct relationship stood restored between the employer

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and contract labour as its employees.
In Steel Authority of India Ltd. v. National Union of Water Front Workers and Others,
AIR 2001 SC 3527, the Supreme Court overruled the judgement delivered in the AIR
India Statutory Corp. Case. The Apex Court held that neither Section 10 of the Act nor
any other provision in the Act whether expressly or by necessary implication provides
for automatic absorption of contract labour on issuing a notification by the
Appropriate Government under Sub-section (1) of Section 10 prohibiting employment
of contract labour in any process or operation or other work in any establishment.
Consequently, the principal employer cannot be required to order absorption of
contract labour working in the concerned establishment.
In the light of the above mentioned decision of the Supreme Court, the employer in the
given problem is under no obligation to absorb the contract labour.

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ECONOMIC, LABOUR AND INDUSTRIAL

Time allowed: 3 hours Maximum marks: 100

Write notes on any five of the following:

i. Restrictions on the acceptance of foreign hospitality under the Foreign Contribution

Section 9 of Foreign Contribution (Regulation) Act, 1976 prohibits acceptance of

The Central Government has granted general exemption to members of delegations

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To be a ‘practice’ a particular conduct must be repetitive in nature; if it has happened

Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control

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a. Write a brief note on ‘special economic zones’. (3 marks)

i. A shoe manufacturer is offering its products to its customers at price less

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than its cost of production.

Special Economic Zone

1. All persons in charge of the management, including persons holding office as

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from the memorandum or articles of association of the industrial undertaking or

In the present case MRTP Commission has granted pecuniary compensation to

The practice of selling products below the cost of production so as to eliminate a

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a. Help Line, a voluntary organisation providing succour to the destitutes, has

Under Section 10 of Foreign Contribution Regulation Act, 1976 Central Government

i. the sovereignty and integrity of India, or

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v. harmony between religions, racial, linguistic or regional groups, castes or

In Association of Voluntary Agencies for Rural Development v. Union of India

Rama Ltd., a company incorporated in India, on satisfying the following conditions,

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Section 40 contains restriction on assignments or transmissions of trade mark where

Section 51 of the Copyright Act, 1957 contemplates situation in which a copyright

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condition imposed by a competent authority does -

i. Sohan sent all relevant documents in an envelope regarding

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a. Mention the provisions relating to environmental audit contained in the

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file://C:\Documents and Settings\subha\Desktop\qus\J2003\ELIL062003.htm 4/26/2007

a. Discuss any two of the following:

i. Procedure for certification of draft standing orders under the

i. An employer orders ex parte dismissal of a workman for

file://C:\Documents and Settings\subha\Desktop\qus\J2003\ELIL062003.htm 4/26/2007

a. in relation to an employer, being a company (other than a banking company)

Worker’s participation in management is an important part of human relations because

The rationale of labour participation in management lies not merely in raising

Some of the advantages of worker’s participation are as follows:

a. it helps better decision making;

file://C:\Documents and Settings\subha\Desktop\qus\J2003\ELIL062003.htm 4/26/2007

b. it uses the creativity of all employees;

It shall not be deemed to be a deduction from wages.

Explanation II appended to Section 7 of the Payment of Wages Act, 1936 provides

It amounts to a manufacturing process under the Factories Act, 1948.

file://C:\Documents and Settings\subha\Desktop\qus\J2003\ELIL062003.htm 4/26/2007

Retrenchment however, does not include -

a. voluntary retirement of the workman; or

(bb) termination of the service of the workman as a result of the non-

c. termination of the services of a workman on the ground of continued ill-health.

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and contract labour as its employees.

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