Agri-Business and

Entrepreneurship
Development
for
Post Graduate Diploma in Agricultural Extension
Management (PGDAEM)
MANAGE

Dr. Sangita Warade

Assistant Professor
School of Agri-Business Management, Nagpur
Dr. PDKV,Akola
 Entrepreneurship
• Haggen defines entrepreneurship as “the function
of seeing investment and production opportunity,
organizing and enterprise to undertake a new
production process, raising capital, hiring labour,
arranging the supply of raw materials and
selecting top managers for day-to-day operation of
the enterprise.”
• Entrepreneurship involves task accomplishment
that embodies a reasonable challenge to the
individuals, competence.
• Entrepreneur have many of the same traits as
leaders.
 Entrepreneurship

• According to McClelland entrepreneur is “some

one who exercises some control over the means of
production and produces more than what he can
consume in order to sell it for profit. He executes
the functions of coordination, organization and
supervision. Entrepreneur is basically an
innovator who introduces new combinations.
 Characteristics of Entrepreneur

• Desire for responsibility.

• Preference for moderate risk.
• Confidence to succeed
• Desire for immediate feedback:
• High level of energy
• Future orientation
• Skill at organizing
• Value of achievement over money
 Business Plan

• A Business Plan is a written description of your

business’s future.
 Reasons for writing a business plan include

• • Support a loan application

• • Raise equity funding
• • Define and fix objectives and programs to achieve
those objectives
• • Create regular business review and course
correction
• • Define a new business
• • Define agreements between partners
• • Set a value on a business for sale or legal
purposes
• • Evaluate a new product line, promotion, or
expansion
 What makes a successful business plan?

• A well thought out idea

• Clear and concise writing
• A clear and logical structure
• Illustrates management’s ability to make the
business a success
• Shows profitability
 Business plan consists of SEVEN key
components

• 1. Executive summary
• 2. Business description
• 3. Market strategies
• 4. Competitive analysis
• 5. Design and development plan
• 6. Operations and management plan
• 7. Financial factors
 Types of Business Firms

1. Initiation
Startups
Established firms seeking help
2. Objectwise
Miniplan
Working Plan
Balance sheet
Financial position of an entity on a specific
date at the end of accounting period
Asset & Liabilities

Break – Even Analysis

Number of units to be produced to get
return at least equal to cost incurred.
Marketing Strategy: actions against or in
respect of competition in market.
Trade Show: show organised by industry for
promotion of trade
 Cash Management

Cash: current asset, maintain liquidity

Cash Management: Effective utilisation of
cash.
 Cash Management
Problem in Cash management:
1.Controlling level of cash:
Predictable and unpredictable discrepancies:
discrepancies between inflow & outflow
Sources of fund: current assets, Relation with banks
2. Control inflow of cash: Lock Box System: amount
deposit in post office locker or regional bank office,
collection through regional bank office.
3. Controlling outflow of cash: time adjustment
between inflow and outflow, centralised cash
payment system.
4. Optimal investment of surplus cash: short term
instrument.
 Cash Planning
Forecasting the cash needs well in advance for a
given period with a view to maintain adequate
cash.
Tools for cash control: Cash Budget report, Inflow
and Outflow of cash, ratio analysis.
Tools of cash planning : Net cash forecast, cash
budget, forecasting an overall working capital
position
Cash Budget
Estimation of the flow of cash for particular
business.
Maintaining the cash balance to ensure the
business to make available sufficient cash to
meet its needs as and when necessary.
 Cash Budget

Function of cash budget:

• Evaluation of performance: budget act as standard
• Sound dividend policy
• Helpful in planning
• Controlling cash expenditure
• Testing the influence of proposed expansion
programmed
 Block-II
AGRI-BUSINESS
 Marketing Management system:
An efficient marketing management system
provides an incentive to farmers to produce more;
conveys changing needs of the economy to enable
production planning; and fosters competition
among traders, and eliminates exploitation,
particularly among the small and marginal
farmers.
 Agricultural Marketing:
• Agricultural marketing includes the movement of
agricultural produce from farms where it is
produced to the consumers or manufacturers.
• Agricultural marketing also includes the marketing
of production inputs and services to the farmers.
Some of these include fertilizers, pesticides and
other agricultural chemicals; livestock feed; farm
machinery, tools and equipment.
• The American Marketing Association (AMA) defines
“The process of planning and executing the
conception, pricing, promotion, and distribution of
ideas, goods, and services to create exchanges
that satisfy individual and organizational
objectives.”
Marketing Concept vs. Selling Concept

• If a product is not selling, more aggressive

measures must be taken to sell it e.g., cutting
price, advertising more, or hiring more aggressive
sales-persons.
• The marketing concept focuses on getting
consumers what they seek, regardless of whether
this entails coming up with entirely new products.
Market segmentation
Market segmentation is the process in marketing
of dividing a market into distinct subsets
(segments) that behave in the same way or have
similar needs.”
Several different kinds of variables can be used for
segmentation based on
• • Demographic variables (income, gender,
education, location ethnicity, and family size
• • Physiographic Variables (Lifestyle and
Values(religion wise))
• • Psychographie variables (Behavior, Preferences
etc.,)
• • On benefits sought
Marketing Environment
The marketing environment involves factors that
are beyond the control of the company.

Competition
Social
Legal
Economic
Political
Technological
Form of Product

Consumer products: any FMCG

Shopping Product: Car
Specialty Product: drilling machine

Levels of Product

Core Product: original: Mango

Actual Product: quality, features, brand: Pickle
Augmented Product: come with product:
warranty, insurance
A firm’s product line
The lines refers to the assortment of similar things
that the firm holds.
Chilli pickle , mango pickle.
New product development stages.
• New product strategy development.
• Idea generation
• Screening and evaluation
• Business analysis
• Development
• Market testing
• Commercialization
Price
The value expressed in terms of money

Pricing Objectives
• • Maximize current profits and return on
investments
• • Exploit competitive position
• • Survival in a competitive market
• • Balance price over product line
Psychological Pricing: emotions, perception
Product Line Pricing
Optional Product Pricing: once consumer buys, extra
charge
Captive Product Pricing: Charge premium where
market is captured
Product Bundle Pricing
Promotional Pricing
Geographical Pricing
Value Pricing
Place (Distribution)
• A channel of distribution comprises a set of
institutions which perform all of the activities
utilised to move a product and its title from
production to consumption place is also known as
channel, distribution, or intermediary.
• It is the mechanism through which goods and/or
services are moved from the manufacturer/
service provider to the user or consumer.
There are six basic ‘channel’ decisions:
• 1. Do we use direct or indirect channels? (e.g.
‘direct’ to a consumer, ‘indirect’ via a wholesaler).
• 2. Single or multiple channels.
• 3. Cumulative length of the multiple channels.
• 4. Types of intermediary.
• 5. Number of intermediaries at each level (e.g.
how many retailers in South India).
• 6. Which companies as intermediaries to avoid
‘intra-channel conflict’ (i.e. infighting between
local distributors).
Types of Channel Intermediaries
1. Wholesalers
2. Agents
3. Retailers
4. Internet
Promotion
This includes all of the tools available to the
marketer for ‘marketing communication’.
The elements of the promotions mix are
• • Personal Selling
• • Sales Promotion
• • Public Relations
• • Direct Mail
• • Trade Fairs and Exhibitions
• • Advertising
• • Sponsorship
Rural Marketing
Rural Marketing means delivering manufactured or
processed inputs or services to rural producers or
consumers.
Features of Indian Rural Markets
• Heterogeneity: Landlords to peasant farmers
• Annual Income
• Collective Decision Making: buyer, decider,
influencer are different , still take collective
decision
Rural vs Urban Consumers – Challenges
• Choices
• Market Research
• Segmentation
• Agriculture, the Prime Business
• Role of Retailer
• Literacy Level
 Marketing Strategies
• Product
• Pricing
• Sales
• Distribution
Rural Market Needs
• 1. Small unit packing
• 2. Simple and easily understandable literature
• 3. New product designs
• 4. Sturdy(strong) products
• 5. Proper selection of colours
• 6. Utility oriented products
• 7. Brand name
• 8. Usage of Logos
• 9. Basic packaging
• 10. Reusable packaging
• 11. Innovative distribution strategies
• 12. Developmental marketing
• 13. Extensive distribution
• 14. Appointing opinion leaders
• 15. Relevant promotional strategies
• 16. Taking care of price sensitivity
Role of Information Technology (IT)
Combination of high-speed sleek computing
machines having vast storage capacities, user-
friendly-versatile software packages with Global
communication network for gathering data, its
storage, analysis, accessing and sharing the
information. It lead to rapid and radical changes.
Benefits of IT Applications in Industry
• Creation of databases of markets, customers and
suppliers
• Avoidance of repetitive jobs
• Accuracy
• Quick access to information
• Quick and informed decision making
• Sharing of common information
• Saving of time and manpower
• Data-based decision making
Procurement(Purchase)
The importance of procurement function in agro-business is
even more since
• (1) cost of raw material constitutes a very high percentage
of the total cost of processed products;
• (2) it involves operations under highly fluctuating markets,
and (3) it affects the economy of large number of producers
(farmers) often inviting government intervention.
• The importance of agro-processing is increasing in view of
the expected large growth of demand for processed
products for internal consumption and exports,
• Demand for professional procurement managers is
increasing with the entry of a number of large national
and multinational corporations in organized retailing of
processed agro-based products, fresh fruits and vegetables
and other agricultural commodities .
• Procurement and Marketing: “Buying is
Marketing Too!”

A person selling / marketing his product needs

a buyer. Without buyer there is no selling and
without seller one cannot buy. For a transaction to
take place we need both – seller and buyer.
Procurement of Agricultural commodities
Agril Commodities are organic matter. Their
procurement is affected due to their perishable
nature, seasonality of production, production
density, degree of freedom in quality control, etc.
Procurement Management Environment
• Indian agriculture is an economic activity with mainly a
small unit of management .
• The small size causes two problems. On one hand,
providing knowledge of modern agricultural practices
(extension services), credit, inputs, irrigation, power and
other services (including infrastructure) to each farmer
and other primary producers becomes increasingly
difficult and costly. On the other hand, small units
produce small quantities; two units may produce the
same commodity but of somewhat different qualities.
• From this small produce he keeps some for his
consumption and some for seed for next season. This
marketable surplus is even smaller. This small surplus
somehow gets pooled and then reaches the market.
 Procurement Function
Sales Forecast - Production Schedule - Procurement
Action

Types of Purchasing
• There are two types of purchasing:
• (i) purchasing for resale
• ii) purchasing for conversion or consumption.
In agro-processing there are three distinct
types of factories:
• 1st type: Does not make finished end products.
Only does crude processing. Eg Lint(ginning)
• 2nd type: Makes finished goods. Buys material
from 1st type. Eg cloth(textile)
• 3rd type: Has its own plantations. It processes the
crude raw material as well as produces finished
products. (Operate full chain)
Procurement Objective
The classical definition of procurement objective is to
buy materials and services
• • of the right quality: grading , standards
• • of the right quantity: order cost, storage cost,
optimum
• • at the right price: perfect/imperfect competition,
distance between market and storage reduce cost
• • from the right source: Supplier, own plantation,
semi-finished goods, selection of vendor over
other
• • at the right time
Sources of Information on Suppliers
There are:
• • Suppliers’ Catalogs
• • Trade registers and directories
• • Trade Journals
• • The “Yellow Pages”
• • Purchasing department’s vendor file
• • File on mailing pieces (mail advertisement)
• • Salesmen
• • Trade Exhibits
• • Company personnel (having past experience of
purchasing)
Evaluating a New Supplier
• Plant Visit: Procurement Manager should personally
visit the plant of the supplier, and check the following:
• Plant location and capacity
• Technology used and process followed
• Hygienic conditions at all stages of handling,
processing, and storage and transport
• Technology and process for quality control
• Variety of commodities processed
• Financial condition
• Overall reputation in the market
• Management
• Services the supplier can provide
Developing a Source of Supply
Depending upon the availability, a manager can buy
a commodity locally, nationally or internationally.
• A company may buy some green and leafy
vegetables, grains, oilseeds etc. locally;
• some vegetables like onion, potato and fruits,
grains, oilseeds etc nationally from various
production and supply zones in the country; and
some fruits like apple, peaches, kiwi etc,
• some oil & oilseeds (e.g. palm oil), soybean, coco
etc. from other countries i.e. internationally.
Vendor Performance Rating
How to Obtain the Right Price?
• Information about prevailing prices in the market
is obtained from
• published pricelists,
• competitive bidding(auction),
• negotiation and
• price investigation.
 Timings of Purchase
This depends on
• (i) Policies for Purchasing: These should be in
relation to quality, source, price and quantity.
• (ii) Speculative Buying: It means buying at one price
and selling it at higher price later. The purpose of
buying here is making profit by this transaction.
• (iii) Forward Buying: Here company purchases
quantity which is more than its current requirement.
The surplus quantity is stored for its future use.
• (iv) Hand-to-mouth Buying: But buy the quantity
needed according to their daily or weekly capacity
and/or demand for the processed product.
Buy or Produce
Reasons for company buying the raw materials and
processing the material in its own factory are
• Quality consideration
• Reliable Supply
• Vertical Integration
• Cost Consideration
Transportation
Purchased goods have to be transported from
suppliers to various locations (depending on the
use of material) such as processing plant,
godowns, cold storage, collection, cleaning and
grading centers etc.

While deciding about the transport contract the

company has to check the following:
• The point at which the buyer takes the legal title of
the goods.
• freight charge
• responsible for prosecuting claims against carriers
for loss or damage
Planning Technique for Procurement
Major constituents of a total company budget are
• 1. Budget for Capital equipment
• (i) Production department
• (ii) Other line and staff departments.
• 2. Budget for production material expense
(including procurement, transport, storage).
• 3. Budget for production labor expense .
• 4. Budget for production labor expense.
• 5. Operating budget for other line and staff
departments.
• 6. Budget for finished goods inventory.
General Procedure for a Typical Purchase
• • Processing department/Central office issues Purchase Requisition (P.R.),
Traveling Requisition (T.R.) or Bill of Materials (B.M.).
• • Procurement Department checks to see if the material is in stock (inventory
at godowns, cold storage as the case may be).
• • Procurement Department finds the potential right sources, negotiates,
determines the right price, selects the suppliers and then issues the Purchase
Order (P.O.).
• • Vendor acknowledges the order and signs agreement/contract.
• • Follow up action on order.
• • Vendor ships material to place as agreed upon.
• • Receiving Department (at factory or godown or any other places), checks
material against packing slip and P.O., and issues Receiving Report (R.R.).
• • Store/godown in-charge stores materials carefully and systematically.
• • Inspection Department inspects material for quality and quantity and issues
Inspection Report (I.R.).
• • Purchase Department closes order.
• • Supplier issues invoice in multiple copies.
• • Accounts Department issues invoice against P.O., R.R., and I.R. and issues
payment voucher and/or cheque.
• • Audit Department audits the entire transaction and submits the
• report to the top management.
 Supply Chain (SC)
• Supply chain is a network of suppliers of raw
materials, processing facilities and distribution
channels to deliver the furnished product to
customers efficiently.

Stages / Components of SC
• The basic stages / components in a supply chain
can be classified as:
• a) Supplier’s / Vendors / Sub-Contractors
• b) Processing plants / facilities
• c) Distribution / sale channels of finished products
to customers.
• The Major Objectives of SCM are
• a) To reduce the overall cost of the finished product
sold to the customer
• b) To reduce the overall delivery time – from
customer order to delivery of goods
• c) To minimize losses at every stage of the supply
chain
• d) To achieve higher customer satisfaction through
quality, variety, cost and time.
• e) Value addition at each stage to be enhanced by
constant effort.
• f) Ensuring profitability and growth of all the
partners involved through proper integration,
collaboration and profit & risk sharing.
Key Issues in SCM
• Strategic Level: Decisions with more than one year time
span.
• a. The number, location and capacity of manufacturing
plants / warehouse .
• b. Strategic Partnerships – With suppliers, Transporters,
Distributors Retailers.
• c. Flow of materials through the logistic networks.
• d. Supply contracts
• e. Distribution Strategies – Own / outsource, Centralised / De-
Centralised.
• f. Product Design – Features, size, capacity, technology
needed, cost.
• g. Customer value – Utility, cost, uniqueness / pride, service.
• h. IT and Decision Support Systems. Flow of money / finance
through the chain – system of payments / Receipts policies.
• Tactical Level:
• Decisions from 3 months to one year time span: (without
details)
• a. Production: Which items / how much value / when to
produce.
• b. Purchasing: Procurement of raw materials / Components /
External Services
• c. Transportation: Type, frequency, cost, time location of
moving materials.
• d. Inventory Policies: When / how much / at what rate to
purchase & store.
• e. Customer-Calls Frequency: Contacting customers to
receive orders and payments.
• f. Cash Flow Review: Payment / Receipt / Credit
• Operational Level:
• Day-to-Day Descisions:
• The information contained in the daily/weekly production –
planning sheets with full details.
• a. Scheduling: When and what item to produce–time period
for starting each product.
• b. Lead Time: How much time is needed for the specific
quantity to produce.
• c. Routing: Where / on which machines / facilities- to
produce.
• d. Loading: Moving the materials physically through the
various production stages.
• Why SCM is so Vital for Organization Today?
• Some of the major reasons for popularity of SCM practice are
• a) Competition and saturation of markets in developed
countries, need for new markets.
• b) Globalization practices being politically accepted by most of
the nations.
• c) Higher expectations and affordability of products by customers
• d) Growth of transportation and manufacturing facilities
within and across countries.
• e) Shortened Product-life cycles and faster introduction of new
products .
• f) Cheaper labour availability in backward regions of a country
as well as in Developing / Under-developed nations.
• g) Availability of cheaper sources of raw materials across the
country/world not earlier tapped.
• h) Progress of Information Technology to provide cheap
hardware, software and communication system. Many software
vendors now develop software for SCM which enhances the
existing ERP systems to SCM as add-ons.
Logistics
• A) Inbound Logistics
• The purchase department decides the suppliers or vendors for different
bought-out materials / parts and places orders on them with broad
details of quantity and delivery period for each item.
• B) Processing Logistics
• In large factories, the conversion / processing of raw materials into
finished products takes place at a number of stages in different
manufacturing / assembling / testing units, spread over large areas /
long distances. The logistics function in this is to plan, coordinate and
move the work in process across the various departments smoothly.
• C) Outgoing Logistics
• Once a product is finished by the processing plant the entire operations
of packaging, moving to central warehousing, planning of transport
modes / routes to deliver the items in suitable consignments to
customers / retailers through regional warehouses, coordinating all the
partners (factories, distributors, wholesalers, retailers), tracing and
tracking the items movement avoiding bottle-necks
 Block-III
Commodity and Future Marketing
Commodities:
• A commodity is anything for which there is
demand, but which is supplied without qualitative
differentiation across a given market
Characteristics of Commodities
• • They are essential things that are produced and
consumed in large quantities.
• • Physical goods that have a value attached to them and
hence can be called asset classes.
• • They are often used as inputs in the production of other
goods or services.
• • The prices are determined as a function of their market
as a whole.
• • There is little differentiation between commodity
coming from one producer and the same commodity from
another producer.
• • Generally they do not have brands, if branded they are
called as products
• • Include physical substances, such as food, grains, and
metals, which are interchangeable with another product
of the same type, and which investors buy or sell.
• How are commodities different from other
assets?
• • Commodities are bulky in nature
• • They are perishable – especially agro products
• • Commodities are physical assets - have added
storage costs
• • They are goods, which have logistics problem -
as they are bulky and as their production and
consumption centers are far apart
• • They have wide variations in quality and
hence certain grades are taken as standards
Market Players and Motives
• Buyers
• Sellers
• Stockiests
• Trade facilitators / brokers
1. Buyer
• • A person who buys commodities or products
• • Buyers are classified as consumer / industrial buyer
• • The buying behaviour varies with time, place etc.,
2. Seller
• • A person who has goods to offer for willing buyers to buy.
3. Stockiest
• • A trader who buys goods at lower levels and stores it for
some time and sells when prices improve.
• • They take advantage of the price variation
4. Brokers
• • Intermediaries who operate between buyers and sellers
• • They facilitate trade and take some part of the price
margin
Motives of Market Participants
• The market participants have different kinds of
motives to meet physical requirement. The
different kinds of motives are listed below
• Investment motive: to get profit from investment
in firm
• Speculative motive: profit from price movement
over time
• Arbitrage motive: change in prices in two market
at same time
Forward and Backward Linkages in Markets
1. Backward linkage
• a. Contract Farming: contract with farmers for growing
crop
• b. Corporate Farming: direct ownership or leasing in of
farmland by business organizations

2. Forward linkage
• Forward linkage means the dealings with retail chains and
processors. The most essential things in forward linkages
are
• • Quantity and consistency in supply,
• • Competitive pricing of the produce,
• • Market knowledge, and
• • Farmers’ ability to build their associations, which are
very much required.
Challenges for Commodities Markets
• • Encourage the retail companies to evolve sourcing
models and meanwhile proactively prepare farmer
group to establish linkage with retailers.
• • Necessary infrastructure in order to provide, multi
commodity service, preserving quality, enhancing agri
produce shelf life etc
• • Improved market access for farmers both in the
national and overseas markets
• • Increase bargaining power of farmers by building
their own associations
• • Introduce de-intermediation process into the
current marketing system
• • Forward linkage of farmers and backward linkage of
retail chain etc.
 Regulation of Commodity Markets
1. India
• a. APMC
• b. State Marketing Board
• c. Forward Markets Commission (FMC)
2. International
• a) WTO
• b) United Nations Conference on Trade and
Development (UNCTAD)
• APMC (Agricultural Produce Marketing Committee) Act
• The Act provides improved regulation in marketing of
agricultural produce, development of an efficient marketing
system, promotion of agri-processing and agricultural export
and the establishment and proper administration of markets for
agricultural produce in the States.
• State Agricultural Marketing Board
• The Board acts as a liaison(link) agency between the Market
Committees and the Government for all round development of
agricultural marketing in the State. The State Agricultural
Marketing Board has been made specifically responsible for
setting up of a separate marketing extension cell in the Board to
provide market-led extension services to farmers.
• Forward Markets Commission
• It is a regulatory authority for all Commodity Derivatives
Exchanges in India, which is overseen by the Ministry of
Consumer Affairs and Public Distribution, Government of India. It
is a statutory body set up in 1953 under the Forward Contracts
(Regulation) Act, 1952.
• United Nations Conference on Trade and Development
(UNCTAD)
• The United Nations Conference on Trade and Development
(UNCTAD) was established in 1964 as a permanent
intergovernmental body, UNCTAD is the principal organ of the
United Nations General Assembly dealing with trade,
investment and development issues.

• World Trade Organization (WTO)

• WTO is the only international body dealing with the rules of
trade between nations. The main functions of WTO can be
described in very simple terms. These are
• • To oversee implementation and administering of WTO
agreements
• • To provide a forum for negotiations
• • To provide a dispute settlement mechanism and
• • Expand the production of and trade in goods and services.
Recent Innovation in Commodities Markets
1. Safal Market
• This was the initiative by NDDB, which came into existence in
April 2003 with setting up of a fullfledged trading platform for
Fruits and Vegetables at Bangalore. It has been formed to
establish an alternative market set-up that operates parallel to
mandis to stimulate production, raise quality standards,
reduce losses etc.
• Reasons for NDDB’s debut into the Fruit &Veg sector
could be
• • Dominated by small farmers, who were unable to effectively
bargain in the Mandis and get remunerative prices
• • APMC Act emphasizes on regulation and restrictions on
marketing activity which create a situation which is
disadvantageous to growers
• • Mandi operations were poorly designed - inefficient & lack
transparency
• E-Choupal
• E-Choupal is an initiative of ITC Limited (a large
diversified group in India) to link directly with rural
farmers for the procurement of agricultural/aquaculture
produce like soya, coffee, and prawns.
• E-Choupal was started to tackle the challenges posed
by the unique features of Indian agriculture,
characterized by fragmented farms, weak
infrastructure and the involvement of numerous
intermediaries.
• Metro Cash & Carry
• Cash and Carry is a new initiative in wholesaling in
which services of credit and delivery are
replaced with discounts. Metro’s Cash & Carry’s
business model brings together small, medium and
large-sized producers, farmers, agricultural
cooperatives and manufacturers, with the dispersed
community of hotels, restaurants, caterers, traders,
retailers and small to medium business enterprises,
under one roof.
• They buy directly from producers and
manufacturers and sell to business customers at
wholesale centers.
• This way, they shorten the supply chain and thereby
eliminate the high costs associated with a
fragmented supply chain.
Derivative
Derivative is a product whose value is derived from the value
of one or more underlying variables or assets in a
contractual manner. The underlying asset can be equity,
forex, commodity or any other asset.
Types of Derivative market
• Commodity derivatives markets: Commodity derivatives
markets trade contracts for which the underlying asset is a
commodity. It can be an agricultural commodity like wheat,
soybeans, rapeseed, cotton, etc or precious metals like gold,
silver, etc.
• Financial derivatives markets: Financial derivatives
markets trade contracts that have a financial asset or
variable as the underlying. The main types of derivatives are
futures, forwards, options, and swaps.
• a. Futures: A futures contract is an agreement between two
parties to buy or sell the underlying asset at a future date at a
future price. Futures contracts differ from forward contracts in the
sense that they are standardized and exchange traded.
• b. Options: There are two types of options - calls and puts. Calls
give the buyer the right but not the obligation to buy a given
quantity of the underlying asset, at a given price on or before a
given future date. Puts give the buyer the right, but not the
obligation to sell a given quantity of the underlying asset at a
given price on or before a given date.
• c. Warrants: Options generally have lives of up to one
year, the majority of options traded on options exchanges having
a maximum maturity of nine months. Longer dated options are
called warrants and are generally traded over the counter.
• d. Swaps: Swaps are private agreements between two parties
to exchange cash flows in the future according to a
prearranged formula. They can be regarded as portfolios of
forward contracts.
• Forward contracts
• A forward contract is an agreement to buy or sell an asset on a
specified date for a specified price.
• Futures contract
• A futures contract is an agreement between two parties to buy
or sell an asset at a certain time in the future at a certain price.
• But unlike forward contracts, the futures contracts are
standardized and exchange traded(auction system is used
to come on optimum price).
• To facilitate liquidity in the futures contracts, the exchange
specifies certain standard features of the contract. It is a
standardized contract with standard underlying instrument, a
standard quantity and quality of the underlying instrument that
can be delivered, (or which can be used for reference purposes
in settlement) and a standard timing of such settlement.
• A futures contract may be offset prior to maturity by
entering into an equal and opposite transaction.
Commodity Exchanges and Futures Trading:
A commodity exchange is an association or a company
or any other body corporate that is organizing futures
trading in commodities.

Objectives of Commodity Exchange:

• To create a platform for the market participants.
• To bring professionalism and transparency into
commodity trading.
• To inculcate best international practices like de-
modularization, technology platforms, low cost solutions
and information dissemination without noise etc. into the
trade.
• To provide nation wide reach and consistent offering.
• To bring together the entities that the market can
trust.
Exchange membership
• Membership of exchanges is open to any person, association
of persons, partnerships, cooperative societies, companies
etc. that fulfills the eligibility criteria set by the exchange.
• a. Trading cum Clearing Member - An individual or
corporate can be admitted by the Commodity Exchange as a
Trading-Cum-Clearing Member (TCM) conferring upon them a
right to trade and clear through the clearing house of the
Commodity Exchange. Moreover, the member may be
allowed to make deals for themselves (proprietary positions)
besides trading on behalf of registered approved / authorized
users and to clear/ settle them.
• b. Professional Clearing Member (PCM) - Any Financial
Institution or Bank, which is registered as PCM is conferred
the right only to clear and settle trades through the clearing-
house of the exchange. They may clear and settle trades of
such members of the exchange who choose to do so through
that PCM.
Participants in the futures trading
Hedgers
Speculators
Arbitragers
Commodity Exchanges at National level
• a. National Commodities Derivatives Exchange (NCDEX)
• NCDEX is a nation-level, technology driven de-mutualized on-line commodity exchange
with an independent Board of Directors and professionals. It is a professionally managed
by ICICI Bank, LIC, NABARD and (NSE). NCDEX is a public limited company incorporated
on April 23, 2003 under the Companies Act, 1956.
• b. Multi Commodity Exchange (MCX)
• MCX an independent and de- mutulised multi commodity exchange established on
November 2003. It has permanent recognition from Government of India for
facilitating online trading, clearing and settlement operations for commodity futures
markets across the country. Key shareholders of MCX include Financial Technologies (I)
Ltd., SBI & associates, Fidelity International, NSE and NABARD.
• c. National Multi Commodity Exchange (NMCE)
• National Multi Commodity Exchange of India Limited (NMCEIL) is the first de-mutualized,
Electronic Multi-Commodity Exchange in India. On 25th July, 2001, it was granted
approval by the Government to organize trading in the edible oil complex. It has
operationalized from November 26, 2002. It is being supported by Central Warehousing
Corporation Ltd., Gujarat State Agricultural Marketing Board and Neptune Overseas
Limited. It got its recognition in October 2002.
Global Commodities Exchanges
a. Chicago Board of Trade(CBOT)
b. New York Board of Trade (NYBOT)
c. Chicago Mercantile Exchange (CME)
d. Chicago Mercantile Exchange (CME)
e. London Metal Exchange (LME)
f. New York Mercantile Exchange (NYMEX)
g. Tokyo Commodity Exchange (TOCOM)
h. Dubai Gold & Commodity Exchange (DGCX)
i. Dubai Mercantile Exchange (DME)
Exchange Transactions
Trading: Electronic form
a. How to invest/trade in commodities exchange
a.1 Client code: through broker
a.2. Depositing initial margin: 5-6 %
a.3 Trading process: The client has to place his trade with broker through
NCDEX/MCX terminals. The trade placed at brokers terminal is submitted to the
exchange terminal. When any order enters the trading system, it is an active
order. It tries to find a match on the other side of the book. If it finds a match, a
trade is generated. From the exchange terminal the trade confirmation is sent
to the broker and broker in turn gives the trade confirmation to the client.
• a.4 Pay-in / Pay-out: Daily exchanges calculate the difference of the entry
value and closing price of the particular date. If the difference is positive the
exchanges credit that particular amount into the client account. In case the
difference is negative, the exchanges deduct that particular amount from the
credit account.
• 2. Clearing: National Securities Clearing Corporation Limited (NSCCL)
• 3. Settlement: The responsibility of settlement is on a trading cum clearing
member for all trades done on his own account and his client’s trades
• Price Risk
The rate of price volatility in agricultural produce
would create uncertainty and risks, which could
hamper the performance of the agricultural sector
and negatively impact the income and welfare of
the farmers.
• Besides, it will have a negative impact on overall
economic growth, income distribution and poverty
alleviation.
Causes of Price Risks
a. Production Risks
b. Financial or Credit Risk
c. Institutional Risks: Govt decision/policies
d. Market linked Risks: supply-demand, lack of market
info

Methods of Tackling Price Risks

a. Handling price risks
b. Self-insurance
c. Crop storage
d. Diversification
e. Taking credit
f. Contract farming
g. Crop Insurance
h. Hedging in futures
Evaluation of Methods for their Efficiency and
Limitation
Hedging
• • Taking a position in the futures market that is
opposite to a position in the physical market
• • Reduces or limits risks associated with
unpredictable changes in price
• • The objective behind this mechanism is to offset
a loss in one market with a gain in another
• • A temporary substitution of futures market
transaction for a planned cash market transaction

• Goals of Hedging
• 1. Reducing the underlying volatility of your cash
flows.
• 2. Minimizing the probability of large losses.
• Types of Hedging
1. Short Hedge
• A Short hedge is a hedge that requires a short position in
futures contracts. It is appropriate when the hedger already
owns the asset, or is likely to own the asset and expects to
sell it at some time in the future. For example, a short hedge
could be used by a cotton farmer who expects the cotton
crop to be ready for sale in the next two months.
2. Long Hedge
• Hedges that involve taking a long position in a futures
contract are known as long hedges. Long hedge strategy is
used by dealers, consumers, fabricators, traders and
processors etc, who have taken or will be taking an exposure
in the physical market.
3. Cross hedging:
• Cross hedging is the process of hedging a cash commodity
in the futures market of a different, but related, commodity
Hedge Ratio
• Hedge ratio is the ratio of the size of position
taken in the futures contracts to the size of the
exposure in the underlying asset.

• = Correl Coeff bet SP & FP X SD of SP /

SD of FP
Warehouse:
• A warehouse is a location with adequate facilities
where volume shipment are received from a
production center, broken down, reassembled into
combinations representing a particular order or
orders, and shipped to the customer’s location or
locations.
Functions of Warehouses
• Receive the Material
• Store the Material properly
• Mixing/Repacking of material
• Deliver the material to right place
• Keep the records perfectly in discipline
• Arranging transport
• Arranging Finance
• Price Stabilization and Market Intelligence
Classification of Warehouses
1. On the basis of Type of Commodities Stored
• a. General Warehouses
• b. Special Commodity Warehouses
• c. Refrigerated Warehouses/Cold Storages
2. On the basis of Ownership
• a. Private warehouses
• b. Public warehouses
• c. Bonded warehouses
Warehouse Receipt
• A warehouse receipt is simply a document stating
the ownership of a commodity. It is a warrant issued
by the warehouse to the person depositing the
goods/produce in the warehouse stating the
following:
• a) Specified quantity, quality and grade of produce
stored
• b) Warehouse location, storage fee etc.
• c) Date of Issue
• d) Approximate value of the produce indicating the
present price

Different banks have different guidelines for providing

loans against the stored produce.
 Hypothecation/Pledge of stocks
• This system is prevalent mostly for the small
private warehouses where the entire warehouse is
occupied with material belonging to a single
entity. The material deposited in the warehouse is
pledged /Hypothecated as security.
Collateral Management:
It may be defined as a third-party commitment
accepted by the collateral (guarantee) taker to
secure an obligation of the collateral provider.
In the context of warehouse based financing, the
obligation is the amount lent and the collateral is
the goods stored.
• Thus collateral management deals with the
following
• 1. Storage and Preservation
• 2. Testing and Certification
• 3. Market Intelligence for Price Risk Management
• 4. Price Risk Hedging: minimise risk
• 5. Developing Market Linkages
• 6. Insurance
• 7. Stock Documentation and Information
repository
Issues related to Warehouse Receipts:
Negotiability
1. Preconditions for Viability of a Fully Negotiable
Warehouse Receipt System
2. Warehouse Receipts must be functionally
equivalent to stored commodities
3. Warehouse Receipts must be freely transferable
by delivery and endorsement
4. Existence of Reliable warehouse certification,
guaranteeing basic physical and financial
standards
5. The integrity of the system must be assured
through performance guarantees.
Warehousing (Development and Regulation)
Bill, 2005 which has been passed in the
Parliament in early 2007
• 1. Context
• 2. Features
• 3. Negotiable Warehouse Receipts
• 4. The Role of Warehousemen
• 5. Regulatory Structure
• 6. Penalties for Offences
• 7. Advantages of Negotiable Warehouse Receipts
Dematerialization of Warehouse Receipts and
Linkage of Warehousing With Futures Trading
 Block-IV
Business Laws and Ethics
Business Ethics:
• Business Ethics is a form of applied ethics that
examines ethical principles and moral or ethical
problems that arise in a business environment
The Three R’s of Business Ethics:
• i. Respect - for other people, the organization and
the social environment we live and work in. This is
similar to the concept of ‘team building’. Even a
genius can succeed only if he has a team to
support his accomplishments.
• ii. Responsibility - is the Second ‘R’ of the
business ethics. You have a responsibility to your
customers, your co-workers, your organization and
yourself. Being responsible entails providing high-
quality goods and services on time, sharing the
workload and meeting your deadlines.
• iii. Results - The third ‘R’ of business ethics is
results.
Distinction between discretionary or non-
discretionary
Discretionary : compromise / lead to corruption, loss
Non-discretionary: stick up to one side

Widespread Norms
• • Criminal offences and illegal trade such as dealing in
narcotics
• • Land Laws and Regulations
• • Physical and Verbal abuse of employees to be shunned
• • Public and employee safety
• • Transparency and truthfulness of records and
statements
• • Human slavery and captivity in any form
Ethical practices in Organizations
1. Legal framework
2. Rules and Procedures
3. Principles
4. Sense of Right and Wrong
5. Trust and Commitment
6. Role Model
7. Check before you act
Code of Conduct for Business Executives
• • Do not criticize your subordinates behind their back.
• • Do not favor an employee because he belongs to the same
caste, creed, religion, region, province or state as yours.
• • Do not use office stationery, office vehicle, telephones, and
fax machine etc., for personal purpose.
• • It is improper to talk in a language which others do not
understand in order to hide something.
• • It is unethical to commit something and not honor it.
• • It is unethical to tease some of your colleagues for their
personal shortcomings, physique or religion.
• • It is unethical to disrespect a woman employee.
• • Senior executives should not use company’s money for
their gain.
• • Company executives must not indulge in character
assassination of other colleagues by sending anonymous
complaints.
• • They should not discuss or divulge information about the
company and confidential information to competitors.
• • Spying on the activities of employees and getting feedback
from attendants, recording telephone
• calls and installing cameras in the workplace are unethical
and erode trust between the CEO and other company
executives.
• • The hide and seek game of keeping personal secret files
relating to mistakes committed by the executives, juniors
and other staff members and intimidating them is highly
unprincipled.
• • It is unethical to give false information to the employer or
other government agencies.
• • Senior executives should not take advantage of juniors for
doing their personal work.
• • Meeting with leaders of the unionized work force must be
open and transparent.
• • There must be clear prohibition and ethical code against
sexual harassment.
• Key Words in Ethics Management
• I. Greed(voracity) should be curbed.
• II. Speed should be avoided as it may cut corners
in procedures.
• III. Laziness should be shunned(avoid). It can be
interpreted as taking the easy path of least effort
and resistance.
• IV. Haziness(not clear) results from not thinking
one’s actions through. It should be avoided.
Moral Code of Conduct for Today’s Manager
• • There are no short cuts - cutting corners is no efficiency.
• • Perfect your job efficiency.
• • Applaud and recognize junior’s efforts, contributions
and ethical behavior.
• • Share your knowledge, no more hiding.
• • Go the extra mile!
• • Try to understand others view point.
• • No one likes sermons(lectures), be open in ethical
discussions.
• • Focus on serving before selling.
• • Learn from past mistakes.
• • No more ‘Chalta hai’ attitude.
• • We need to voice our concerns.
• • Stakeholders are more important than shareholders.
• • Learn the rules before you drive.
• • There is no foolproof system.
• • Total quality organizations are ethical.
• • As a leader, you need to talk ethics habitually.
• • Eliminate barriers.
• • Deliberate and solve the probable dilemmas.
• • Have ethical mentors for employees.
• • Use ethics as a tangible matter of performance.
• • Include ethics in your performance feedback.
• • Reward ethical behavior and celebrate integrity.
• • Pick your partners carefully.
• • Keep your eyes and ears open.
• • Take immediate action.
• • Never compromise, deal with others on sound
principles.
• Indian Contract Act, 1872
• Sale of Goods Act, 1930
• Indian Partnership Act, 1932
• Companies Act, 1956
• Negotiable Instrument Act, 1881
• The Essential Commodities Act, 1955
The Contract Act, 1872
• In the present commercial world we find
commercial transactions taking place every
second. These include trading in goods, supply of
material, service contracts etc. On account of
volume of contract being done daily, it was
proposed to make an enactment which shall bind
parties to the agreement and to necessitate a
smooth flow of commercial transactions.
• Contract:
As per section 2(h) of the Act, contract is any agreement
between parties, which is enforceable under law.
• Agreement:
Every promise or set of the promises forming considerations
to each other is an agreement.
• Capacity of Parties to Contract
• All the persons to the agreement must be competent enough
to enter into the contract in order to form a valid contract.
• As per section 11 of the Act, every person is competent to
contract provided:
• • He is not minor
• • He is not a person with an unsound mind
• • He is not disqualified from entering into contract by any
law which is in force and to which he is subject.
• Free Consent for contract
Two or more persons are said to be in consent
when they agree upon the same thing and in the
same sense.
• Quasi Contract(indirect)
It is a relationship between two parties not by
virtue of mutual agreement between them, which
gives advantage to one party over the other and
creates obligation on the first party to transfer
such benefits to the other.
Discharge of the Contract
A contract can be discharged by any of the following
ways:
• • By performance of the contract
• • By mutual agreement a contract could be put to
an end
• • By lapse of time provided in the agreement and if
agreement is silent then lapse of reasonable time.
• • On account of occurrence of any event which
makes performance of the contract impossible
• • By breach of terms of the contract by one party to
the contract. Such breach can be the actual breach
or anticipatory breach
Breach of the Contract
Consequences of breach of duty under a contract:
• • Suit for the cancellation of the contract
• • Suit for damages on account of breach of
contract by the other party
• • Suit for money to the extent of work completed
in the agreement
• • Suit for the specific performance of the contract
• • Suit for injunction from restraining the other
person to do or abstain from doing any act.
Contract of Guarantee & Indemnity (Section 124)
• Indemnity
• A contract by which one party promises to save the other
party from the loss caused to him by the conduct of
promisor or any other person, is called indemnity.
• Guarantee
• • A contract of guarantee is a contract to perform the
promise or discharge the liability of the third person in case
of default.
• • In case of contract of guarantee there shall be three
parties, a debtor, a creditor and a guarantor.
• Contingent Contract
• A contingent contract is a contract to do or not to do
something in event of occurrence of some uncertain future
event.
• Bailment:
Bailment is delivery of goods by one person to
another for some purpose, upon a contract that
they shall, when the purpose is accomplished be
returned or otherwise disposed of according to the
direction of the person delivering them.
• Person who delivers goods is called bailor and the
person to whom the goods are delivered are called
bailee and the contract is called Bailment.
• Pledge
The bailment of goods for payment of any debt or
for the performance of any contract is called
pledge.
• Agency
• The term agency means the relationship between
two persons wherein one person is called the
principal and the other is called an agent. The
relationship between the two is called the Agency
Sale of Goods Act, 1930
On account of numerous day-to-day commercial
transactions involving goods it was sought to have
a separate legislation on such transactions
• Contract: A contract for sale of goods is a
contract whereby the seller transfers or agrees to
transfer property in goods to a buyer for a price.
• Goods: Section 2(7): Goods means every kind of
movable property other than money and
actionable claims, including shares, stock, growing
crops and things attached to or forming part of
land which are agreed to be severed before sale or
under the contract of sale.
• Hire-Purchase Contract: Hire purchase contract
is a contract wherein one person transfers goods
to another for hire charges. There is no transfer of
ownership in goods.
 Existing Goods:
Existing goods are the goods, which form the subject matter
of the contract, which are in physical possession of the
person at the time of entering of the contract.
Future Goods:
• Future goods are the goods
• • Which are not acquired or manufactured by the seller
• • Which are not in the possession or ownership of the seller
• • And which, are intended to be acquired by the seller for
the contract of sale
Contingent Goods:
Goods whose acquisition depends upon happening or
occurrence of contingency are called contingent goods.
• Condition:
A condition is a stipulation to the main purpose of
the contract, the breach of which gives the other
party to repudiate the contract.
• Warranty:
A warranty is a stipulation collateral to the main
purpose of the contract, the breach of which gives
the other party the right to claim for damages but
is not entitled to claim for repudiation of contract.
• Doctrine of Caveat Emptor (warning)
The basic principal behind this doctrine is that, let the buyer be
aware. This means that the buyer is responsible for his fault in
identifying damages in the goods if such damages can be found
easily or are apparent from such goods when the buyer has been
given reasonable opportunity to examine goods before its
purchase.
• Transfer of Property in the Goods
Sale of goods shall be complete upon transfer of ownership in
the property. With the transfer of ownership, risk also passes
from seller to the buyer of goods.
• Performance of the Contract
A contract of sale of goods apart from transfer of ownership in
goods involves delivery of goods by a seller to a buyer. Further
the delivery and payment of goods must be according to the
terms of the contract of sale of goods.
• Auction Sale
• An auction sale is a public sale of goods through
the process of open bidding by the prospective
buyers of the goods.
Indian Partnership Act, 1932
• Partnership firm is a contract among two or more
persons to carry on business in order to derive
profits out of business.
• Mutual Agency
• A partnership firm, every partner is an agent and
principal of himself and of other. This is an
important step that determines the existence of a
partnership firm.
Characteristics of a Partnership Firm
Following are the characteristics of a Partnership Firm
• • Partnership firm is a contract between the parties and is
required to be registered
• • Partnership firm does not have a separate legal
existence separate from its partners
• • Minimum number of partners is two and maximum
number of partners is 10 for a banking firm and 20 in case
of any other partnership firm.
• • All the partners are jointly and severally liable for all the
acts of the partnership firm
• • Partnership firm is a mutual agency wherein each
partner of the firm is the agent and the principal of himself
and of all the other partners of the firm.
• • All the partners of the partnership firm are the joint
owners of the assets of the partnership firm
• • Partnership firm is dissolved on the death or insolvency
of any of the partners of the partnership firm.
• Illegal Partnership
A partnership firm is illegal in the following cases:
• • If it is engaged in a business which is unlawful
• • If the maximum number of the partners exceed 10 in
case of banking business and 20 in case of any other
business and the business is conducted for more than
six months without being registered as a company
• Registration of the Firm
• Registration of the firm is the procedure wherein details
of the firm are recorded in the books of registrar
• Re-constitution of the Firm
• A firm is said to be re-constituted on the admission of a
new partner, on the retirement of an existing partner or
on the expulsion of a partner.
• Dissolution of the Firm
• • Dissolution of the firm marks an end to the functioning
life of the firm and necessitates return of capital and
profits thereon by the firm.
• • Dissolution of the firm implies the dissolution of
partnership between all partners of the firm.
• Settlement of claims on Dissolution of the Firm
• Winding up shall involve sale of assets of the firm,
assessing losses and settling the claims of the creditors:
• 1. Payment of losses: Losses of the firm need to be paid
first out of the profits then out of the capital and out of the
individual assets of the firm
• 2. Application of assets: Any amount received out of the
sale of the assets including goodwill needs to be paid
Companies Act, 1956
Company means a group of people with a common
goal. With the growing needs in commercial
transactions, formation of companies has become
mandatory and company law was established to
govern the acts of the companies. Now in India,
Companies Act, 1956, governs all companies.
Unlike partnership, company shall come into
existence on registration.
• Company
A company is an association of many persons who
contribute money or money’s worth to a common
stock and is employed in some trade or business
and who share profits and losses among
themselves.
• Features of company
• (a) Incorporated entity: A company comes into
existence with its registration.
• (b) A Company is an artificial person and all the
powers of the company are executed by its board
of directors as its agents.
• (c) Separate legal entity: A company has a
separate legal entity separate from its members. It
has the power to own a particular property and
has power to be liable or borrow money from
others. Company has legal entity separate from its
promoter.
• Types of company
• a. Based on formation of companies
• Statutory companies: Corporations created under
special laws of legislature are called statutory
companies.
• Ex: Life insurance Corporation of India & Food
Corporation of India.
• Registered companies: Companies, which are
registered under Company’s Act 1956, or any law
pertaining to companies are called registered
companies.
• b. On the basis of the permitted number of members
• Private limited company: A private limited company
having subscribed capital of more than one lakh is a
company which by virtue of its articles
• Restricts the number of members to 50, not including the
employees of the company or the past employees of the
company who subscribe for company’s shares while they
are in employment of the company
• Public limited company: Sec (i) (iv)
• A Private company or public limited company means a
company which
• (i) Is not a private company.
• (ii) Has minimum paid up capital of 5 lakhs and above as
may be prescribed.
• C. On the basis of liabilities of members of
the company
• (i) Limited company
• Liability limited by share: liability of each
shareholder of the company shall be restricted to
the unpaid value of shares held by them.
• Liability limited by guarantee: Guarantee
Company is a company which does not have any
share capital and shall run with the guarantee
given by members of the company eg: societies,
clubs
• (ii) Unlimited company: Liability of the member of
the company is said to be unlimited if their liability
is more than the unpaid value of shares, if any,
held by them.
• d. On the basis of ownership of the company
• Holding company
• A company is said to be holding if such a company
possesses control over the other.
• Subsidiary company
• As per section 4(1), a company shall be deemed to
be a subsidiary company of the other if
• (i) The other company controls the composition of
board of directors.
• (ii) Where the other company holds the majority of
shareholder rights.
• (iii) Where the first mentioned company is
subsidiary of a company and such a company is
subsidiary of such other company.
• 1. Nonprofit companies (or) Section 25 companies
• It is a company, which is not formed to derive profit out of its
operations but is formed for promotion of sports or one of an art
or of commerce. Such a company does not distribute excess of
income generated over expenditure but applies the same for
furtherance of its objective. It can be with or without capital.
• 2. Government Company
• Government company is a company wherein not less than 51% of
its paid up share capital is owned by the central government or
state government or any other company owned by the central or
state government. (Sec. 617)
• 3. Foreign companies
• Foreign companies means any company incorporated outside
India according to the laws of such other country and
• (i) Having place of business in India after the commencement of
the act.
• (ii) Having place of business in India before the commencement of
the act and continues to exist even after the commencement of
this act.
• Memorandum of the company
• Memorandum means a primary document, which
determines the strengths and lays the limitations of the
company. The following points can determine
significance of the same:
• (a) It determines the basic features of the company
being formed like name, address, capital etc.
• (b) It determines the area of the activity of the
company and informs the prospective investor.
• (c) It lays down the parameters to determine the
relationship of the company with the outsiders.
• Following are the clauses in the memorandum:
• Name, Object, registration, liability, capital ,
subscrition.
• Doctrine of ultra-virus
• As per this doctrine if any act is done by the company which is
outside its powers then the company shall not be liable for such
a transaction. It is the duty of the supplier, financier or customer
to verify whether the company has the right to undertake such
business by virtue of memorandum of the company. If the
company does not have the power to do such transaction then
they cannot proceed against the company for any loss they have
incurred on account of such a transaction.
• Doctrine of constructive notice
• As per the doctrine, outsiders who deal with the company must
have the basic knowledge about the memorandum and articles of
the company, as they are public documents.
• Doctrine of Indoor management
• As per this doctrine, an outsider must know about the
memorandum and the articles of the company and also know the
powers of the company but is not responsible for internal
irregularities of the company.
• Prospectus: (sec 2(36))
• Prospectus means any document described or
issued as prospectus and includes any notice,
circular advertisement or any other document
inviting deposits from the public for subscription of
any shares or debentures of the company.
• Prospectus must be
• (a) Any invitation to subscribe for shares,
debentures of the company or to raise deposits.
• (b) An invitation must be to public.
• Different kinds of Capital
• Allotment of shares
• Allotment of shares subscribed shall be done by the board of the
company in accordance with the listing agreement with any of stock
exchanges where the shares of the company are proposed to be
listed.
• Shares of the company
• Share capital of the company consists of
• (i) Authorized share capital
• This is registered share capital of the company issued.
• (ii) Subscribed share capital
• It is the share capital issued by the company and subscribed by the
general public.
• (iii) Paid up capital
• It is the amount of capital paid up by the members of the company.
• (iv) Reserve capital
• It is the amount of uncalled capital reserved for liquidation of the
company. This is reserved for storage of funds in the hands of the
company to pay off its liabilities incase of liquidation of the company.
• Kinds of shares
• (i) Equity shares
• Equity shares are shares, which carry voting power with
them and equity shareholders are entitled to have dividend
only after satisfying claims of creditors, financiers and
preference shareholders.
• (ii) Preference shares
• Preference shares are the shares, which enjoy preference
both in payment of dividends and also in capital pay back
during liquidation over equity shareholders of the company.
They do not enjoy the voting rights of the company.
• Types of Meeting
• i. Statutory General Meeting
• Every company upon its formation shall organize within six
months a meeting called statutory general meeting. This is
required to be organized in order to explain the details of
promotion of the company and pass the preliminary contracts
and also to elect first directors of the company.
• ii. Annual General Meeting
• It is conducted only once in every calendar year by the
company. Financials of the company are adopted, dividends are
declared, and auditors and directors are appointed in the annual
general meeting.
• iii. Extraordinary Meeting
• Any meeting, which is conducted between two annual
meetings is called extraordinary meeting. It is organized to
transact any business of urgent nature which requires the
approval of shareholders and which cannot be postponed to the
next annual general meeting. It can be called by the board or by
the shareholders of the company.
 The Essential Commodities Act, 1955
• The Essential Commodities Act, 1955 is an
important legislation in the interest of the general
public ---
• for the control and regulation of production, sale,
supply, distribution of and trade and commerce in
certain commodities, ---
• increase supply of those commodities in the
market and ensure than those commodities are
available at reasonable prices.
• The object of the enactment is to secure fair and
equitable distribution of essential commodities at
fair prices to the public and punish hoarding and
black marketing in essential commodities.
• Essential Commodity: Sec (2 (a)) – Essential commodity
means any of the following:
• • Cattle fodder including oil cakes and other concentrates
• • Coal including coke and other derivatives
• • Component parts and accessories of automobiles
• • Cotton and woolen textiles
• • Drugs as defined under section 3(b) of Drugs and Cosmetics Act
1940
• • Food stuff including edible oil and oil seeds
• • Iron and steel including manufactured products of Iron and steel
• • Paper including newsprint, paper board and straw board
• • Petroleum and petroleum products
• • Raw cotton, whether ginned or unginned and cotton seeds
• • Raw jute
• • Any other class of commodity, which the Central Government
by notified order declares to be an essential commodity Ex: Sugar
etc.
Powers of the Central Government
Power to control production, supply, and distribution etc. of essential
commodities
• Central Government shall: (Section 2)
• a) Regulate the permits, licenses for the production or
manufacture of any essential commodity
• b) Bring under cultivation waste or arable land for growing food
crops and thereby increase the supply of food crops
• c) Control the price at which any essential commodity is
purchased and sold
• d) Regulate by licenses or permit the storage, transport, supply,
distribution, use, consumption of any essential commodity.
• e) Prohibit withholding of sale of any essential commodity
• f) Require any person holding stock of essential commodity or is
engaged in the business of production, trading of essential
commodity
• g) Regulate or prohibit any class of commercial or financial
transaction relating to food stuffs Or cotton textiles, which are in
the opinion of government detrimental to public interest.
• Power of the Government to procure Essential
Commodity
• (Section 3 A) When central government is of the opinion that in
order to prevent raising of prices, or to prevent hoarding and
black marketing of goods it shall by notification in official
gazette order that such goods shall be sold to the government.
• (Section 3 B) Price are fixed by govt to the seller who want to
sell the commodity to govt
• (Section 3 C) Price are fixed by govt to the seller who want to
sell the sugar to govt
• (Section 3 D) Central government may direct any person,
producer, importer, exporter not to deliver, remove sugar even
if the same are in bonded godowns of the factory. Further, the
central government shall give such directions to any producer,
importer, and exporter with regard to production, sale, supply,
and export pertaining to sugar.
• Control on the Manufacturing activity by
Government (Section4)
• If the central government is of the opinion that to
maintain adequate supply of essential goods
• or the commodity or to maintain price of any
essential commodity it may authorize such person
or the
• class of persons to exercise control over the whole
or any part of undertaking where such commodity
is manufactured.
Confiscation (Seize) of the Commodity (section 6 A)
• Where any essential commodity is seized in accordance
with the provisions of the Act such commodity shall be
brought before the collector of the district or the
presidency town and shall be produced for inspection
before him and if the collector is satisfied that
contravention(breach) has taken place may order for
confiscation.
• Issue of show cause notice before confiscation of goods:
(Section 6 B)
Appeals against the orders (Section 6 C)
• Any person who is aggrieved by the order of the
confiscation by the collector, can file an appeal against
such order within 30 days from the date of order to the
judicial authority of the state government.
• Penalties under the Act (Section 7)
• If any person has contravened any order passed
under section 3 of the Act: he shall be punishable,
imprisonment,

• Offences by companies: (Section 10)

• If the company does any contravention of any
order under section 3 of the act then the company
and every such person who is in charge of the
affairs of the company when such default has
taken place shall be liable for such contravention.
• Power of the court to publish names(offence
company): (Section 10 B)