The Industrial Development Regulation Act 1951

The Industrial Development Regulation Act 1951

The Industries (Development and Regulation) Act, 1951

Contents

An Act to provide for the development and regulation of certain industries (also known as Schedule Industries)

According to Section 2, it is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule.

Thus the scope of this act includes both:

  • Development of SI
  • Regulation of SI

For the development of the industries CG has established Central Advisory Council and Development Councils. Functions of Central Advisory Council and Development Councils are discussed later.

CG regulates SI by

  • Registration of existing industries and
  • Licensing of new industries

Further, CG may exempt any undertaking or industry from all or any of the provisions of this Act. (under Section-29B)

Certain definitions

Existing Industrial Undertaking [Sec-3(bb)]

Existing industrial undertaking means —

  1. in the case of an industrial undertaking pertaining to any of the industries specified in the First Schedule as originally enacted,
    • an industrial undertaking which was in existence on the commencement of this Act or for the establishment of which effective steps had been taken before such commencement, and
  2. in the case of an industrial undertaking pertaining to any of the industries added to the First Schedule by an amendment thereof,
    • an industrial undertaking which is in existence on the coming into force of such amendment or for the establishment of which effective steps had been taken before the coming into force of such amendment;

According to Rule 2 of the Registration and Licensing of Industrial Undertakings Rule, 1952, “Effective steps” shall mean one or more of the following:-

  1. that, in case of public company within the meaning of the Indian Companies Act, 1956/2013,
    • 60 % or more of the capital issued for an industrial undertaking which is a has been paid up;
  2. that a substantial part of the factory building has been constructed;
  3. that a firm order has been placed for a substantial part of the plant and machinery required for the undertaking.

Factory [Sec-3(c)]

A factory means any premises in any part of which a manufacturing process is being carried on or is ordinarily so carried on–

  1. with the aid of power, provided that 50 or more workers are working or were working thereon on any day of the preceding 12 months; or
  2. without the aid of power, provided that on 100 or more workers are working or were working thereon on any day of the preceding 12 months and provided further that in no part of such premises any manufacturing process is being carried on with the aid of power;

Industrial Undertaking

Industrial undertaking means

  • any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government

Means to be an industrial undertaking within the meaning of this Act, such undertaking

  • shall be related to a schedule industry and
  • shall be carried on in a factory

New Article [Sec-3(dd)]

New article

  • in relation to an industrial undertaking which is registered or in respect of which a licence or permission has been issued under this Act,

means —

  1. any article which falls under an item in the First Schedule other than the item under which articles ordinarily manufactured or produced in the industrial undertaking at the date of registration or issue of the licence or permission, fall;
  2. any article which bears a mark or which is the subject of a patent at the date of registration or issue of the licence or permission, as the case may be, if the industrial undertaking was not manufacturing or producing such article bearing that mark or which is the subject of that patent;

Thus according to this definition, an article which is not covered under the licence or which is not manufactured at the time of registration is covered under the scope of New Article.

But under broad banding facility, an article shall not be considered as “New Article” if

  •  no new trade mark or patent is involved and
  • such article is covered within the ambit of the same item (for which registration or licence has already been granted) in the First Schedule.

Owner [Sec-3(f)]

Owner

  • in relation to an industrial undertaking

means

  • the person who, or the authority which, has the ultimate control over the affairs of the undertaking, and, where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent shall be deemed to be the owner of the undertaking

The term “Person” in the above definition includes Artificial Person also like body corporate etc.

Imposition of cess on scheduled industries in certain cases [Section 9]

  1. There may be levied and collected as a cess for the purposes of this Act on all goods manufactured or produced in any such scheduled industry as may be specified in this behalf by the Central Government, a duty of excise at such rate as may be specified in the notified order, and different rates may be specified for different goods or different classes of goods.
    No such rate shall in any case exceed 2 anna % of the value of the goods.
  2. The Central Government may hand over the proceeds of the cess collected under this section in respect of the goods manufactured or produced by any scheduled industries to the Development Council established for that industry or group of industries, and where it does so, the Development Council shall utilise the said proceeds –
    1. to promote scientific and industrial research with reference to the scheduled industry or group of scheduled industries in respect of which the Development Council is established;
    2. to promote improvements in design and quality with reference to the products of such industry or group of industries;
    3. to provide for the training of technicians and labour in such industry or group of industries;
    4. to meet such expenses in the exercise of its functions and its administrative expenses as may be prescribed.

REGULATION OF SCHEDULED INDUSTRIES

Registration of existing industrial undertakings [Section 10]

  1. The owner of every existing industrial undertaking, not being the Central Government, shall, within such period as the Central Government may fix in this behalf register the undertaking in the prescribed manner.
  2. The Central Government shall also cause to be registered in the same manner every existing industrial undertaking of which it is the owner.
  3. Where an industrial undertaking is registered under this section, there shall be issued to the owner of the undertaking or the Central Government, as the case may be, a certificate of registration containing the productive capacity of the industrial undertaking and such other particulars as may be prescribed.

Revocation of registration in certain cases [Section 10A]

If the Central Government is satisfied

  • that the registration of any industrial undertaking has been obtained by misrepresentation or
  • that any industrial undertaking has ceased to be registrable under this Act by reason of any exemption granted under this Act or
  • that for any other reason the registration has become useless or ineffective and therefore requires to be revoked
    the Central Government may
  • after giving an opportunity to the owner of the undertaking to be heard
    revoke the registration.

Circumstances where registration is not necessary

  • if the undertaking is a small scale undertaking
  • if the undertaking is not a “factory” under this Act
  • if the undertaking is exempted from the licensing or registration

Penalty for failure to register (section 19)

  • imprisonment upto 6 months or
  • fine which may extend to Rs. 5000
  • or both

What is licence?

It is written permission from the government to an undertaking on the matter concerned. Under this Act, undertaking require licence for

  • setting up of new schedule undertaking
  • manufacturing or production of new articles
  • carrying on the business without registration
  • carrying on the business after the revocation of certificate of registration
  • change in location
  • effecting substantial expansion

Licensing of new industrial undertakings [Section 11]

  1. No person or authority other than the Central Government shall establish any new industrial undertaking, except under and in accordance with a licence issued in that behalf by the Central Government
    Provided that a State Government may, with the previous permission of the Central Government, establish a new industrial undertaking.
  2. A licence or permission under sub-section (1) may contain conditions related to
    • the location of the undertaking and
    • the minimum standards in respect of size and
    • such other conditions as CG thinks fit

Licence for producing or manufacturing new articles [Section 11A]

The owner of an industrial undertaking not being the Central Government which is registered under section 10 or in respect of which a licence or permission has been issued under section 11 shall not produce or manufacture any new article unless –

  1. in the case of an industrial undertaking registered under section 10, he has obtained a licence for producing or manufacturing such new article; and
  2. in the case of an industrial undertaking in respect of which a licence or permission has been issued under section 11, he has had the existing licence or permission amended in the prescribed manner.

Power of Central Government to specify the requirements which shall be complied with by small scale industrial undertakings [Section 11B]

The Central Government may,

  • with a view to ascertaining which ancillary and small scale industrial undertakings need supportive measures, exemptions or other favourable treatment under this Act to enable them to maintain their viability and strength so as to be effective in –
    1. promoting in a harmonious manner the industrial economy of the country and easing the problem of unemployment, and
    2. securing that the ownership and control of the material resources of the community are so distributed as best to sub-serve the common good,

specify

  • the requirements which shall be complied with by an industrial undertaking to enable it to be regarded, for the purposes of this Act, as an ancillary, or a small scale, industrial undertaking

Provided that no industrial undertaking shall be regarded as an ancillary industrial undertaking unless it is, or is proposed to be, engaged in –

  1. the manufacture of parts, components, sub-assemblies, toolings or intermediates; or
  2. rendering of services, or supplying or rendering, not more than 50% of its production or its total services, as the case may be, to other units for production of other articles.

Small Scale industrial undertaking means an undertaking in which the investments in the fixed assets in plants and machinery, whether held on ownership term or lease or hire purchase, does not exceed Rs. 1 Crore

Revocation and amendment of licences in certain cases [Section 12]

If the Central Government is satisfied,

  • either on a reference made to it in this behalf or otherwise,

that any person or authority, to whom or to which, a licence has been issued under section 11, has, without reasonable cause,

  • failed to establish or to take effective steps to establish the new industrial undertaking in respect of which the licence has been issued
    • within the time specified therefor or within such extended time as the Central Government may think fit to grant in any case,

it may revoke the licence.

Further provision for licensing or industrial undertakings in special cases [Section 13]

  1. No owner of an industrial undertaking shall –
    1. in the case of an industrial undertaking required to be registered under section 10, but which has not been registered within the time fixed for the purpose under that section,
      • carry on the business of that undertaking after the expiry of such period, or
    2. in the case of an industrial undertaking the registration in respect of which has been revoked under section 10A,
      • carry on the business of the undertaking after the revocation, or
    3. in the case of an industrial undertaking to which the provisions of this Act did not originally apply but became applicable after the commencement of this Act for any reason,
      • carry on the business of the undertaking after the expiry of 3 months from the date on which the provisions of this Act became so applicable, or
    4. effect any substantial expansion of an industrial undertaking which has been registered or in respect of which a licence or permission has been issued, or
    5. change the location of the whole or any part of an industrial undertaking which has been registered,
      except under, and in accordance with, a licence issued in that behalf by the Central Government.

A substantial expansion means

  • the expansion of an existing industrial undertaking
    • which substantially increases the productive capacity of the undertaking, or
    • which is of such a nature as to amount virtually to a new industrial undertaking,

but does not include any such expansion as is normal to the undertaking having regard to its nature and the circumstances relating to such expansion.

It has been cleared by the Department of Industrial Development that any increase in the production by 25% over the licensed capacity would not amount to substantial development if

  • no additional plant and machinery has been installed
  • no additional expenditure has been incurred or new foreign exchange was involved
  • additional production does not give rise to any additional demand for scarce raw material

Circumstances where licence is not required

  • where any industrial undertaking is exempted under section 29B by Central Government
  • small scale industrial undertaking
  • industrial undertaking operating under 100% EOU/EPZ/SEZ scheme and engaged in the manufacture of items reserved exclusively for small scale sectors

Industrial Entrepreneur Memorandum (IEM)

Industrial Undertakings exempted from obtaining an Industrial Licence are required to file Industrial Entrepreneur Memorandum (IEM) in Part A with the Secretariat of Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Government of India.

No further approval is required. Immediately after commencement of commercial production, Part B of the IEM has to be filed.

IEM should be submitted with a demand draft of Rs. 1000 drawn in the favour of “Pay & Accounts Officer, Department of Industrial Policy and Promotion”.

Power to cause investigation to be made into scheduled industries or industrial undertakings [SECTION 15]

Where the Central Government is of the opinion that –

  1. in respect of any scheduled industry or industrial undertaking or undertakings-
    1. there has been or is likely to be a substantial fall in the volume of production in respect of any article relatable to that industry or manufactured or produced in the industrial undertaking or undertakings for which there is no justification; or
    2. there has been or is likely to be a marked deterioration in the quality of any article relatable to that industry or manufactured or produced in the industrial undertaking or undertakings which could have been or can be avoided; or
    3. there has been or is likely to be a rise in the price of any article relatable to that industry or manufactured or produced in the industrial undertaking or undertakings for which there is no justification; or
    4. it is necessary to take any such action as is provided in this Chapter for the purpose of conserving any resources of national importance which are utilised in the industry or the industrial undertaking; or
  2. any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest,

the Central Government may make or cause to be made a full and complete investigation into the circumstances of the case by such person or body of persons as it may appoint for the purpose.

Power to investigate into the affairs of a company in liquidation [SECTION 15A]

Where a company, owing an industrial undertaking,

  • is being wound up by or under the supervision of the High Court, and
  • the business of such company is not being continued,
    the Central Government may,
  • if it is of opinion that it is necessary,
    • in the interests of the general public and
    • in the interests of production, supply or distribution of articles relatable to the concerned scheduled industry,
  • to investigate into the possibility of running or re-starting the industrial undertaking,
    make an application to the High Court praying for permission to make, or cause to be made, an investigation into such possibility by such person or body of persons as that Government may appoint for the purpose.

Where any such application is made by the Central Government, the High Court shall grant the permission prayed for.

Powers of Central Government on completion of investigation under section 15 [SECTION 16]

If after making any such investigation as is referred to in section 15, the Central Government is satisfied, it may issue such directions to the industrial undertaking concerned as may be appropriate in the circumstances for all or any of the following purposes, namely:-

  1. regulating the production of any article or class of articles by the industrial undertaking or undertakings and fixing the standards of production;
  2. requiring the industrial undertaking to take such steps as the Central Government may consider necessary to stimulate the development of the industry to which the undertaking relates;
  3. prohibiting the industrial undertaking or undertakings from resorting to any act or practice which might reduce its or their production, capacity or economic value;
  4. controlling the prices, or regulating the distribution, of any article which have been the subject-matter of investigation.

DIRECT MANAGEMENT OR CONTROL OF INDUSTRIAL UNDERTAKINGS BY CG IN CERTAIN CASES

Power of Central Government to assume management or control of an industrial undertaking in certain cases [SECTION 18A]

If the Central Government is of opinion that

  1. an industrial undertaking to which directions have been issued u/s 16
    • has failed to comply with such directions, or
  2. an industrial undertaking in respect of which an investigation has been made u/s 15
    • is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest,

the Central Government may, by notification,

  • authorise any person or body of persons
    • to take over the management of the whole or any part of the undertaking.

Any such notified order shall have effect

  • for such period not exceeding 5 years as may be specified in the order.

But Central Government may issue directions for continuance of the effect of notified order for such period, not exceeding 2 years at a time.

  • However the total period of such continuance (after the expiry of the said period of five years) does not exceed 12 years.

(So in total max. period shall not exceed 17 years)

Power to take over industrial undertakings without investigation under certain circumstances [Section 18AA]

If the Central Government is satisfied, in relation to an industrial undertaking, that –

  1. the persons in charge of such industrial undertaking have,
    • by reckless investments or creation of incumbrances on the assets of the industrial undertaking, or
    • by diversion of funds,
      brought about a situation which is likely to affect
    • the production of articles manufactured or produced in the industrial undertaking,
      and that immediate action is necessary to prevent such a situation; or
  2. the industrial undertaking
    • has been closed for a period of not less than three months and
    • such closure is prejudicial to the concerned scheduled industry
      and that
    • the financial condition of the company owing the industrial undertaking and
    • the condition of the plant and machinery of such undertaking
      are such that it is possible to re-start the undertaking and such re-starting is necessary in the interests of the general public

it may, by a notified order,

  • authorise any person or body of persons
    • to take over the management of the whole or any part of industrial undertaking or
    • to exercise in respect of the undertaking such functions of control as may be specified in the order.

Effect of notified order under section 18A [Section 18B]

On the issue of a notified order under section 18A (or u/s 18AA) authorizing the taking over of the management of an industrial undertaking-

  1. vacation of offices of management
    all persons in charge of the management (including managers or directors) of the industrial undertaking shall be deemed to have vacated their offices as such;
  2. termination of contract of management
    any contract of management between the industrial undertaking and any managing agent or any director shall be deemed to have terminated;
  3. a managing agent appointed by CG shall be deemed to be appointed under the Companies Act
    the managing agent appointed under section 18A (by CG), shall be deemed to have been duly appointed under the Companies Act, 1956 and such managing agent shall not be removed from office except with the previous consent of the Central Government;
  4. the person/s authorized under section 18A shall take over the management and control all the property of such industrial undertaking and shall act as director (in case of company)

Contracts in bad faith, etc., may be cancelled or varied after takeover [Section 18C]

The authorised may, with the previous approval of the Central Government,

  • make an application to any court for the purpose of cancelling or varying any contract or agreement entered into, at any time before the issue of the notified order under section 18A, between the industrial undertaking and any other person and
    • the court may,
      • if satisfied after due inquiry that such contract or agreement had been entered into in bad faith and is, detrimental to the interests of the industrial undertaking,
    • make an order cancelling or varying (either unconditionally or subject to such conditions as it may think fit to impose) that contract or agreement, and the contract or agreement shall have effect accordingly.

No right to compensation for termination of office or contract [Section 18D]

No person who ceases to hold any office by reason of such takeover, or whose contract of management is terminated after takeover, shall be entitled to any compensation for the loss of office or for the premature termination of his contract of management.

Application of Act 7 of 1913 [Section 18E]

Where the management of an company, is taken over by the Central Government, then, –

  1. shareholders of such company cannot nominate or appoint any person to be a director of the company;
  2. no resolution passed at any meeting of the shareholders of such undertaking shall be given effect to unless approved by the Central Government;
  3. no proceeding for the winding up of such undertaking or for the appointment of a receiver in respect thereof shall lie in any court except with the consent of the Central Government.

MANAGEMENT OR CONTROL OF INDUSTRIAL UNDERTAKINGS OWNED BY COMPANIES IN LIQUIDATION

Power of Central Government to authorise, with the permission of the High Court, persons to take over management or control of industrial undertakings [Section 18FA]

Subsection 1

If the Central Government is of opinion that

  • there are possibilities of running or re-starting an industrial undertaking,
    • in relation to which an investigation has been made under section 15A,

and that

  • such industrial undertaking should be run or re-started
    • for maintaining or increasing the production, supply or distribution of articles or class of articles relatable to the scheduled industry, needed by the General public,

Central Government may make an application to the High Court praying for permission to appoint any person or body of persons to take over the management of the industrial undertaking.

Subsection 2

Where an application is made under sub-section (1),

  • the High Court shall made an order empowering the Central Government to authorise any person or body of persons to take over the management of the industrial undertaking for a period not exceeding 5 years

Provided that

  • if the Central Government is of opinion that it is expedient in the interests of the general public that the authorised person should continue to manage the industrial undertaking, after the expiry of the period of five years aforesaid,
    • it may make an application to the High Court for the continuance of such management or functions of control, for such period not exceeding 2 years at a time, as may be specified in the application and
    • thereupon the High Court may make an order permitting the authorised person to continue to manage the industrial undertaking or to exercise functions of control in relation to the concerned part.

Provided further that

  • the total period of such continuance (after the expiry of the initial period of five years) shall not, in any case, be permitted to exceed 12 years.

Subsection 3

Where an order has been made by the High Court under sub-section (2),

  • the High Court shall direct the Official Liquidator or any other person having charge of the management or control of the industrial undertaking,
    • to make over the management of such undertaking to the authorised person and
      • thereupon the authorised person shall be deemed to be the Official Liquidator in respect of the industrial undertaking or the concerned part, as the case may be.

LIQUIDATION OR RECONSTRUCTION OF COMPANIES

Power of Central Government to call for report on the affairs and working of managed company [Section 18FC]

Where the management or control of an industrial undertaking has been taken over under section 18A, or under section 18AA or section 18FA,

  • the Central Government may,
    • at any time during the continuance of such management or control,
  • call for a report from the authorised person on the affairs and working of the industrial undertaking

Decision of Central Government in relation to managed company [Section 18FD]

Subsection 1 (industrial undertaking should be sold as a running concern)

If, on receipt of the report submitted by the authorised person, the Central Government is satisfied, –

  1. in relation to the company owning the industrial undertaking, which is not being wound up by the High Court,
    • that the financial condition and other circumstances of the company are such that it is not in a position to meet its current liabilities out of its current assets and
    • that it is necessary or expedient in the interests of the general public that the industrial undertaking should be sold as a running concern as provided in section 18FE and
    • that the proceedings should simultaneously be started for the winding up of the company;
  2. in relation to the company, owning the industrial undertaking, which is being wound up by the High Court,
    that

    • its assets and liabilities are such that in the interests of its creditors and contributories the industrial undertaking should be sold as a running concern as provided in section 18FE,

it may, by order, decide accordingly.

If, on receipt of the report submitted by the authorised person, the Central Government is satisfied that –

  1. in the interests of the general public, or
  2. in the interests of the shareholders, or
  3. to secure the proper management of the company owning the industrial undertaking,

it is necessary to reconstruct the company, Central Government may, by order,

  • decide to prepare a scheme for the reconstruction of the company owning the industrial undertaking:

18FH. Stay of suits and other proceedings

In the case of a company in respect of which an order under section 18FD has been made, no suit or other legal proceeding shall be instituted or continued against the company except with the previous permission of the Central Government or any officer or authority authorised by that Government in this behalf.

CONTROL OF SUPPLY, DISTRIBUTION, PRICE ETC., OF CERTAIN ARTICLES

Power to control supply, distribution, price, etc., of certain articles [Section 18G]

The Central Government,

  • so far as it appears to it to be necessary or expedient for
    • securing the equitable distribution and
    • availability at fair prices

of any article or class of articles relatable to any scheduled industry,

may, by notified order,

  • provide for regulating the supply and distribution thereof and trade and commerce therein.

Such notified order may provide for-

  1. controlling the prices at which any such article or class thereof may be bought or sold;
  2. regulating by licences, permits or otherwise the distribution, transport, disposal, acquisition, possession, use or consumption of any such article or class thereof;
  3. prohibiting the withholding from sale of any such article or class thereof ordinarily kept for sale;
  4. requiring any person
      • manufacturing, producing or holding in stock any such article or class thereof
    • to sell
      • the whole or part of the articles so manufactured or produced during a specified period or
      • the whole or a part of the articles so held in stock
        to such person or class of persons and in such circumstances as may be specified in the order;
  5. for regulating or prohibiting any class of commercial or financial transactions relating to such article or class thereof which in the opinion of the authority making the order are, or if unregulated are likely to be, detrimental to public interest;
  6. for collecting any information or statistics with a view to regulating or prohibiting any of the aforesaid matters; and
  7. for any incidental or supplementary matters, including, in particular, the grant of issue of licences, permits or other documents and the charging of fees therefor.
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