The doctrine of ultra vires derives itself from the mother theory of Corporate Law i.e. the Theory of Perpetual Succession. This theory envisages that the company is a distinct entity and therefore exists independent from the members that constitute it. Every company that is established is for a purpose and its existence is complimented by that purpose. When a member of the company in particular the director of boards, does an act or puts forth an object that is not within the purpose or object of that company then the company will not be bound by such a contract and that object of purpose shall be ultra-vires of the company. This theory was established only after the late 1800's in England by virtue of the decision of Ashbury Railway Carriage & Iron Co Ltd v. Riche and then was strengthened and applied to cases of Attorney General v. Great Eastern Railway Company, Cotman v. Broughametc.
By virtue of this project the researcher seeks to analyze the evolution of the doctrine and the final version after the process of modification through various cases. The position that is prevailing in England shall also be seen and thereafter the Indian Position shall be established. The general trend of criticizing the doctrine has been seen in the case of English law and therefore an amendment bill in 2006 was taken out. The doctrine has therefore gone through a radical process of change and stands now at a position where legal scholars from around the world criticize its working to “old ways”.

Evolution Of The Doctrine Of Ultra Vires

In the early 19th Century the companies that were formed came into existence as a result of the Charters or grants from the crown or the Parliament. The church and other companies herein were the first to exploit such a system and therefore gained corporate status. This grant of status was directly related and a consequence of the public function that they performed. The legal theory behind the doctrine of ultra vires finds its roots from this system. The parliament had conferred some powers upon these bodies and therefore the bodies were restricted by those powers. Any act done by these bodies which went beyond the power conferred to them stood as “ultra-vires”. The rationale behind this kind of a restriction was the democracy argument i.e. to say if a company acts in powers which are more than the powers conferred by elected representatives of the people. Then such acts have no legitimacy. Another argument was one wherein the interests of the share-holder and the creditors would be jeopardy. By limiting the powers and the scope of the acts that can be done by the directors, the position of the shareholder and the creditor became secure since the directors would thenceforth be restricted in their choice of business.
Enlarged partnerships were the only form of corporations which were present prior to 1855 after which statutory registered corporations came into existence. The functioning of these kind of partnerships was premised on the fact that the act of one partner cannot be binding on the others if it is outside the scope of the actual or apparent authority. Furthermore, changes could not be made in the nature of business without prior or post facto ratification or consent of all of the partners. The creditor or the investor therefore had adequate safeguards.
With the introduction of the 1855 Act the doctrine stood established with provisions such as the pre-requisite of a Memorandum of association and therein an object clause. The powers which a corporation is authorized to exercise are set forth in its charter, or in its articles of incorporation. Statutes too, may place express prohibitions upon the exercise of certain powers. If the corporation enters into a transaction which is beyond the powers expressly or impliedly contained in the charter or articles of incorporation or in violation of the statutory restriction, the transaction is said to be ultra vires, i.e., beyond the powers of the corporation.
This question first came up for consideration in the case of Ashbury Railway Carriages & Iron Co v. Riche. The Ashbury Railway Carriage and Iron Company was established with an object clause which stated that the business that was purported to be carried on was to be one of mechanical engineers and general contractors who dealt in the buying selling and hiring of railway-carriages and wagons, and all kinds of railway plant, fittings, machinery, and rolling-stock. Also to buy sell and hire as merchants, timber, coal, metals, or other materials; and to buy and sell any such materials on commission, or as agents. As a result of the repudiation of a contract to supply funds for the construction of a railway line in Belgium entered into on behalf of the company by its directors, a case was brought forth against it. The court herein dealt with the object clause in detail. The court rightly pointed out that objects of M/s Ashbury Company, as stated in the Memorandum of Association, were to supply and sell the materials required to construct railways, but not to undertake their construction. The contract here was to construct a railway, using Messrs. Riche only as the persons to be employed in the construction which was contrary to the memorandum of association. Moreover, in constructing the scope of the words “general contractors” the court took a narrow view. The court herein concluded that according to the principles of construction, the term “general contractors” would be refer to that which precedes, and would indicate, in that theme of contracts, the making generally of contracts connected with the business of mechanical engineers in particular contracts as mechanical engineers are in the habit of making, and are in their business required, or find it convenient, to make for the purpose of carrying on their business.
The memorandum of association, the court concluded, defines the limitation of the powers of a company to be established under the Act and is the constituting document of a company. Therefore, if anything which goes beyond that memorandum, or is not warranted by it, the question will arise whether that which is so done is ultra vires , not only of the directors of the company, but of the company itself. While interpreting the scheme of the act the court scrutinized the act and its clauses and saw that the incorporation of the company found its foundation in the memorandum of association. The memorandum in return mandated the presence of an object clause which would prescribe the limits of the business, which according to the 11th clause has to be respected by every individual that makes the company and the company in itself. The court explicitly therein laid down that with respect to the contents of the memorandum of association.



SARFAESI Act (The Securitization and Reconstruction of Financial Assets and Enforcement of Securities Act, 2002) was enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest created in respect of Financial Assets to enable realization of such assets.

The SARFAESI Act provides for the manner for enforcement of security interests by a secured creditor without the intervention of a court or tribunal. If any borrower fails to discharge his liability in repayment of any secured debt within 60 days of notice from the date of notice by the secured creditor, the secured creditor is conferred with powers under the SARFAESI Act to

a) take possession of the secured assets of the borrower, including transfer by way of lease, assignment or sale, for realizing the secured assets

b) takeover of the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured assets,

c) appoint any person to manage the secured assets possession of which is taken by the secured creditor, and

d) require any person, who has acquired any of the secured assets from the borrower and from whom money is due to the borrower, to pay the secured creditor so much of the money as if sufficient to pay the secured debt.

The Central Government has prescribed Security Interest (Enforcement) Rules, 2002 pursuant to the powers conferred on it under the SARFAESI Act. The foregoing enforcement measures must be exercised by a secured creditor in accordance with the Enforcement Rules and are further subject to guidelines issued by the RBI.

In exercise of powers conferred by SARFAESI Act, 2002, Reserve Bank of India has issued guidelines to registration, measures of asset reconstruction, prudential norms, acquisition of financial assets etc., namely 'The Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003'. The Guidelines are available at the Downloads segment.  

Issues under the SARFAESI
Right of Title
A securitisation receipt (SR) gives its holder a right of title or interest in the financial assets included in securitisation. This definition holds good for securitisation structures where the securities issued are referred to as ‘Pass through Securities’. The same definition is not legally inadequate in case of ‘Pay through Securities’ with different tranches.
Thin Investor Base
The SARFAESI Act has been structured to enable security receipts (SR) to be issued and held by Qualified Institutional Buyers (QIBs). It does not include NBFC or other bodies unless specified by the Central Government as a financial institution (FI). For expanding the market for SR, there is a need for increasing the investor base. In order to deepen the market for SR there is a need to include more buyer categories.
Investor Appetite
Demand for securities is restricted to short tenor papers and highest ratings. Also, it has remained restricted to senior tranches carrying highest ratings, while the junior tranches are retained by the originators as unrated pieces. This can be attributed to the underdeveloped nature of the Indian market and poor awareness as regards the process of securitisation.
Risk Management in Securitisation
The various risks involved in securitisation are given below:
Credit Risk: The risk of non-payment of principal and/or interest to investors can be at two levels: SPV and the underlying assets. Since the SPV is normally structured to have no other activity apart from the asset pool sold by the originator, the credit risk principally lies with the underlying asset pool. A careful analysis of the underlying credit quality of the obligors and the correlation between the obligors needs to be carried out to ascertain the probability of default of the asset pool. A well diversified asset portfolio can significantly reduce the simultaneous occurrence of default.
Sovereign Risk: In case of cross-border securitisation transactions where the assets and investors belong to different countries, there is a risk to the investor in the form of non-payment or imposition of additional taxes on the income repatriation. This risk can be mitigated by having a foreign guarantor or by structuring the SPV in an offshore location or have an neutral country of jurisdiction
Collateral deterioration Risk: Sometimes the collateral against which credit is sanctioned to the obligor may undergo a severe deterioration. When this coincides with a default by the obligor then there is a severe risk of non-payment to the investors. A recent example of this is the sub-prime crisis in the US which is explained in detail in the following sections.
Legal Risk: Securitisation transactions hinge on a very important principle of “bankruptcy remoteness” of the SPV from the sponsor. Structuring the asset transfer and the legal structure of the SPV are key points that determine if the SPV can uphold its right over the underlying assets, if the obligor declare bankruptcy or undergoes liquidation.
Prepayment Risk: Payments made in excess of the scheduled principal payments are called prepayments. Prepayments occur due to a change in the macro-economic or competitive industry situation. For example in case of residential mortgages, when interest rates go down, individuals may prefer to refinance their fixed rate mortgage at lower interest rates. Competitors offering better terms could also be a reason for prepayment. In a declining interest rate regime prepayment poses an interest rate risk to the investors as they have to reinvest the proceedings at a lower interest rate. This problem is more severe in case of investors holding long term bonds. This can be mitigated by structuring the tranches such that prepayments are used to pay off the principal and interest of short-term bonds.
Servicer Performance Risk: The servicer performs important tasks of collecting principal and interest, keeping a tab on delinquency, maintains statistics of payment, disseminating the same to investors and other administrative tasks. The failure of the servicer in carrying out its function can seriously affect payments to the investors.
Swap Counterparty Risk: Some securitisation transactions are so structured wherein the floating rate payments of obligors are converted into fixed payments using swaps. Failure on the part of the swap counterparty can affect the stability of cash flows of the investors.
Financial Guarantor Risk: Sometime external credit protection in the form of insurance or guarantee is provided by an external agency. Guarantor failure can adversely impact the stability of cash flows to the investors.
Provisions of the SARFAESI Act
The Act has made provisions for registration and regulation of securitisation companies or reconstruction companies by the RBI, facilitate securitisation of financial assets of banks, empower SCs/ARCs to raise funds by issuing security receipts to qualified institutional buyers (QIBs), empowering banks and FIs to take possession of securities given for financial assistance and sell or lease the same to take over management in the event of default.
The Act provides three alternative methods for recovery of NPAs, namely:
  • Securitisation: It means issue of security by raising of receipts or funds by SCs/ARCs. A securitisation company or reconstruction company may raise funds from the QIBs by forming schemes for acquiring financial assets. The SC/ARC shall keep and maintain separate and distinct accounts in respect of each such scheme for every financial asset acquired, out of investments made by a QIB and ensure that realisations of such financial asset is held and applied towards redemption of investments and payment of returns assured on such investments under the relevant scheme.

  • Asset Reconstruction: The SCs/ARCs for the purpose of asset reconstruction should provide for any one or more of the following measures:
    • the proper management of the business of the borrower, by change in, or take over of, the management of the business of the borrower
    • the sale or lease of a part or whole of the business of the borrower
    • rescheduling of payment of debts payable by the borrower
    • enforcement of security interest in accordance with the provisions of this Act
    • settlement of dues payable by the borrower
    • taking possession of secured assets in accordance with the provisions of this Act.

  • Exemption from registration of security receipt: The Act also provides, notwithstanding anything contained in the Registration Act, 1908, for enforcement of security without Court intervention: (a) any security receipt issued by the SC or ARC, as the case may be, under section 7 of the Act, and not creating, declaring, assigning, limiting or extinguishing any right, title or interest to or in immovable property except in so far as it entitles the holder of the security receipt to an undivided interest afforded by a registered instrument; or (b) any transfer of security receipts, shall not require compulsory registration.
The Guidelines for SCs/ARCs registered with the RBI are:
  • act as an agent for any bank or FI for the purpose of recovering their dues from the borrower on payment of such fees or charges
  • act as a manager between the parties, without raising a financial liability for itself;
  • act as receiver if appointed by any court or tribunal.


The Reserve Bank of India (RBI) was constituted under the Reserve Bank of India Act, 1934 and started functioning with effect from 1 April, 1935. RBI is the oldest among the central banks operating in developing countries, though it is much younger than the Bank of England and the Federal Reserve Board operating as the central banks in UK and USA respectively, being developed countries. RBI is a state owned institution under the Reserve Bank (Transfer of Public Ownership) of India Act, 1948. This Act empowers the Union Government, in consultation with the Governor of the RBI, to issue such directions to RBI as considered necessary in public interest. The Governor and four Deputy Governors of RBI are appointed by the Union Government. The control of the RBI vests in the Central Board of Directors that comprises the Governor, four Deputy Governors and 15 Directors nominated by the Union Government. The RBI’s internal management is based on functional specialization and coordination amongst about 20 departments, with headquarters at Mumbai, which is the financial capital of the country.

The main objectives of the RBI are contained in the preamble of the RBI Act, 1934. It reads ‘Whereas it is expedient to constitute a Reserve Bank for India to regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage’, The main objectives of RBI may be stated as follows in specific terms:
(i) To maintain monetary stability such that the business and economic life of the country can deliver the welfare gains of a mixed economy.
(ii) To maintain financial stability and ensure sound financial institutions so that economic units can conduct their business with confidence,
(iii) To maintain stable payment systems, so that financial transactions can be safely and efficiently executed,
(iv) To ensure that credit allocation by the financial system broadly reflects the national economic priorities and social concerns.
(v) To regulate the overall volume of money and credit in the economy to ensure a reasonable degree of price stability,
(vi) To promote the development of financial markets and systems to enable itself to operate/regulate efficiently.

We will now discuss the essential functions of RBI that help it to achieve the objectives mentioned above. These are as follows:

Notes Issuance
RBI has the sole authority for the issuance of currency notes and putting them into circulation, withdrawing them or exchanging them. RBI has issued and put in circulation notes in the denomination of Rs. 2, 5, 10, 20, 50, 100, 500 and 1000. Except Re. 1 notes and all coins, which are issued by the Government of India, but put into circulation by RBI. The RBI has about seventeen Issue Offices and above 4, 000currency chests where new and reissuable notes are stored. The currency chests are kept by various banking groups as agents of RBI. The RBI Group has over 2,800 currency chests, nationalized banks have about 800, Treasuries about 420 and private sector banks have about 20 currency chests. As a cover for the notes issue, RBI keeps a minimum value of gold coin, bullion and foreign securities as a part of the total approved assets.

Government’s Banker
RBI acts as the banker to the Central and State Governments. As such , it provides them banking services of deposits, withdrawal of funds, making payments and receipts, collection and transfer of funds and management of public debt. Government deposits are received free of interest and RBI does not receive any remuneration for the routine banking business of the government. RBI also makes ‘ways and means advance’ to central and state governments, subject to certain rules and limits on the amount of overdrafts with a view to contain the fiscal deficit as decided by the central government . RBI charges a commission for managing the public debt and interest on overdrafts from the concerned governments.
Banker’s Bank
Every central bank acts as a banker’s bank and so does RBI. The commercial banks and state cooperative banks which are scheduled banks (appearing in the second schedule of the RBI Act) have to keep stipulated reserves in cash and in approved securities as a percentage of their Demand and Time Liabilities (DTL). These reserves, as discussed in a later section of this Unit, regulate the banks’ ability to create credit and affect money supply in the economy. RBI also changes its Bank Rate to regulate the cost of bank credit and thereby its volume indirectly. RBI also acts as a ‘lender of the last resort, for banks by rediscounting bills and by refinance mechanism for certain kinds of credit , subject to the conditions laid down in its Credit Policy announced by annually.

Bank’s Supervision
From November 1993, RBI’s banking supervisory function has been separated from its traditional central banking functions. The Board of Financial Supervision (BFS) was set up in 1994 to oversee the Indian Financial System, comprising not only commercial banks, state cooperative banks, but also the All India Financial Institutions (AIFIs) and Non-Banking Finance Companies (NBFCs). The BFS has a full time vice-chairman and six other members, apart from the RBI Governor as its chairman.
RBI’s supervisory powers over commercial banks are quite wide as mentioned below and their objective is to develop a sound banking system in the country:
(i) To issue licences for new banks and new branches for the existing banks.
(ii) To prescribe the minimum requirements for the paid-up capital and reserves, maintenance of cash reserves and other liquid assets.
(iii) To inspect the working of the scheduled banks in India and abroad from all relevant angles to ensure their sound working.
(iv) To conduct ad hoc investigations into complaints, irregularities and frauds pertaining to the banks.
(v) To control appointments, reappointments, termination of Chairmen and CEOs of private banks.
(vi) To approve or force amalgamation or merger of two banks. The recent example is the merger of Global Trust Bank with Oriental Bank of Commerce, after the RBI’s moratorium of the former in early 2004.

Development of the Financial System
This represents RBI’s developmental role as against its regulatory and supervisory role over banks as mentioned above. RBI has created specialized financial institutions for:
(i) Industrial finance: Industrial Development Bank of India (IDBI) in 1964, small Industries Development Bank of India (SIDBI) in 1989.
(ii) Agricultural credit: National Bank for Agriculture and Rural Development (NABARD) in 1981.
(iii) Export-import finance: Export-Import Bank of India (EXIM Bank) in 1981.
(iv) Deposits Insurance Corporation of India in 1961. Which later became Deposit Insurance and Credit Guarantee Corporation of India (DICGC).
RBI has also initiated several schemes connected with various facets of banking which have significantly impacted the banking development in the country over the last five decades. Some of these are as follows:
(i) Bill Market Scheme of 1952 and 1970.
(ii) Lead Bank Scheme for backward districts development (1970s)
(iii) P.L. Tandon Committee on Inventory norms for Bank Credit, 1974.*
(iv) Credit Authorization Scheme (1960s)*
(v) Consortium Financing Scheme (1970s).*
(vi) Priority Sector Advances Scheme (discussed later in this Unit).

Note: The schemes marked with an asterisk (*) have been discontinued after the liberalization since 1991.
RBI has also tried to integrate the large unorganized financial sector (indigenous bankers, various kinds of non-banking finance companies etc.) into the organized financial system by regulating them to some extent. However, the task is so enormous and complex that it will take longer for RBI to have the desired integration of the two sectors, so as to work as a single financial system in the country.

Exchange Control
RBI is entrusted with duty of maintaining the stability of the external value of the national currency Indian Rupee. It used to regulate the foreign exchange market in the country in terms of the Foreign Exchange Regulation Act (FERA), 1947 (amended and enlarged in 1973). The FERA, 1973 has been replaced by the Foreign Exchange Management Act, 1999 (FEMA) and RBI is now guided by the provisions of the new Act The RBI performs the following tasks:
(i) It administers foreign exchange control through its Exchange- Control Department. It authorizes the bank’s specified branches and other dealers, called Authorized Dealers (ADs) to deal in the prescribed kinds of foreign exchange transactions and issues the AD series of circulars for regulating such transactions.
(ii) It manages the exchange rate between the Indian Rupee and foreign currencies, by selling and buying foreign exchange to/ from the Authorized Dealers and by other means.
(iii) It manages the foreign exchange reserves of the country and maintains reserves in gold and foreign securities issued by foreign governments and international financial institutions.

Monetary Control
The RBI controls the money supply, volume of bank credit and also cost of bank credit (via the Bank Rate) and thereby the overall money supply in the economy. Money supply change is a technique of controlling inflationary or deflationary situations in the economy. The RBI issues monetary policy for the country as the Ministry of Finance issues fiscal policy and the Ministry of Commerce issues the EXIM policy of the country from time to time. All these policies are among the important macroeconomic policies that influence various businesses in the country. RBI issues monetary and credit policies annually.
Financial Supervision
The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India.
Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.
The Board is constituted by co-opting four Directors from the Central Board as members for a term of two years and is chaired by the Governor. The Deputy Governors of the Reserve Bank are ex-officio members. One Deputy Governor, usually, the Deputy Governor in charge of banking regulation and supervision, is nominated as the Vice-Chairman of the Board.
BFS meetings
The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.
BFS through the Audit Sub-Committee also aims at upgrading the quality of the statutory audit and internal audit functions in banks and financial institutions. The audit sub-committee includes Deputy Governor as the chairman and two Directors of the Central Board as members.
The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Financial Institutions Division (FID) and gives directions on the regulatory and supervisory issues.
Some of the initiatives taken by BFS include:
  1. restructuring of the system of bank inspections
  2. introduction of off-site surveillance,
  3. strengthening of the role of statutory auditors and
  4. strengthening of the internal defences of supervised institutions.
The Audit Sub-committee of BFS has reviewed the current system of concurrent audit, norms of empanelment and appointment of statutory auditors, the quality and coverage of statutory audit reports, and the important issue of greater transparency and disclosure in the published accounts of supervised institutions.
Current Focus
  • supervision of financial institutions
  • consolidated accounting
  • legal issues in bank frauds
  • divergence in assessments of non-performing assets and
  • supervisory rating model for banks.
Regulation and Supervision of Payment systems
The Payment and Settlement Systems Act 2007(PSS Act 2007) empowers the Reserve Bank of India to regulate and supervise the payment systems in the country. The Act states that these powers will be exercised by the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) constituted by it for the purpose. The BPSS will be a Committee of the Reserve Bank of India's Central Board.
Objective and Functions
The functions of the BPSS will be to lay down policies for regulation and supervision of the payment systems in the country, laying down standards for existing and future payment systems, authorisation of payment systems, determination of the criteria for membership of payment systems including continuation, termination and rejection of membership, overseeing the administration of regulations and guidelines framed under the PSS Act 2007, issuing directions to payment system operators, calling for returns/information, etc.
The BPSS consists of the Governor of the RBI as Chairperson, Deputy Governors as Members out of whom the Deputy Governor who is in charge of the Department of Payment and Settlement Systems will be the Vice Chairperson and three Directors of Reserve Bank of India Central Board will be members.
Two Executive Directors of Reserve Bank of India and its principal Legal Adviser will be permanent invitees to the meetings. Persons with experience in the field of payment and settlement systems may be invited to the meetings of the BPSS either as permanent or ad-hoc invitees.
BPSS is assisted by the Department of Payment and Settlement Systems.
Current Focus
  1. Authorisation/ refusal of authorisation of/to payment systems.
  2. To lay down policies for encouraging the movement from paper-based payment systems to electronic modes of payments.
  3. Setting up of the regulatory framework of newer payment methods.
  4. Enhancement of customer convenience in payment systems.
  5. Improving security and efficiency in paper-based and electronic modes of payment.
Umbrella Acts
Acts governing specific functions
  • Public Debt Act, 1944/Government Securities Act (Proposed): Governs government debt market
  • Securities Contract (Regulation) Act, 1956: Regulates government securities market
  • Indian Coinage Act, 1906:Governs currency and coins
  • Foreign Exchange Regulation Act, 1973/ Foreign Exchange Management Act, 1999 : Governs trade and foreign exchange market
  • Payment and Settlement Systems Act 2007: Regulation and supervision of the payment systems.
Acts governing Banking Operations
  • Companies Act, 1956:Governs banks as companies
  • Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980: Relates to nationalisation of banks
  • Bankers'' Books Evidence Act
  • Banking Secrecy Act
  • Negotiable Instruments Act, 1881
Acts governing Individual Institutions
  • State Bank of India Act, 1954
  • The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003
  • The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993
  • National Bank for Agriculture and Rural Development Act
  • National Housing Bank Act
  • Deposit Insurance and Credit Guarantee Corporation Act

Monetary Authority:
  • Formulates, implements and monitors the monetary policy.
  • Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.
Regulator and supervisor of the financial system:
  • Prescribes broad parameters of banking operations within which the country''s banking and financial system functions.
  • Objective: maintain public confidence in the system, protect depositors'' interest and provide cost-effective banking services to the public.
  • Regulator and supervisor of the payment systems
    • Authorises setting up of payment systems
    • Lays down standards for operation of the payment system
    • Issues direction, calls for returns/information from payment system operators.
Manager of Foreign Exchange
  • Manages the Foreign Exchange Management Act, 1999.
  • Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
Issuer of currency:
  • Issues and exchanges or destroys currency and coins not fit for circulation.
  • Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.
Developmental role
  • Performs a wide range of promotional functions to support national objectives.
Related Functions
  • Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
  • Banker to banks: maintains banking accounts of all scheduled banks.

  • Has 19 regional offices, most of them in state capitals and 9 Sub-offices.
Has five training establishments
  • Two, namely, College of Agricultural Banking and Reserve Bank of India Staff College are part of the Reserve Bank
  • Others are autonomous, such as, National Institute for Bank Management, Indira Gandhi Institute for Development Research (IGIDR), Institute for Development and Research in Banking Technology (IDRBT)
For details on training establishments, please check their websites links which are available in Other Links.
Fully owned: Deposit Insurance and Credit Guarantee Corporation of India(DICGC), Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL)


Some of the major topics which come in professional knowledge section are given below:-
  • RBI’s Constitution and Objectives
  • Banking Regulation Act, 1949
  • Reserve Bank of India Act, 1934
  • Credit Information Bureau (India)
  • Banker-Customer Relationship
  • Payment and Collection of Cheques and Other Negotiable Instruments
  • Documentation
  • Different modes of Charging Securities
  • Types of Collaterals and their Characteristics
  • Foreign Exchange Management Act, 1999
  • The Prevention of Money Laundering Act, 2002
  • Limitation Act, 1993
  • Banker’s Books Evidence Act, 1891
  • The Recovery of Debts due to Banks and Financial Institutions (DRT) Act, 1993
  • Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest SARFAESI) Act, 2002
  • Central Registry
  • Offences and Penalties
  • Miscellaneous Provisions
  • Consumer Protection Act, 1986
  • The Banking Ombudsman Scheme, 2006
  • Procedure for Redressal of Grievance
  • Lok Adalats
  • Contracts of Guarantee
  • Contracts of Bailment
  • Contracts of Pledge
  • Contracts of Agency
  • Meaning and Essentials of a Contract of Sale
  • Conditions and Warranties
  • Unpaid Seller
  • Definition, Meaning and Nature of Partnership
  • Relations of Partners to one another
  • Relations of Partners to Third Parties
  • Minor Admitted to the benefits of Partnership
  • Dissolution of a Firm
  • Effects of Non-Registration
  • Definition and Features of Company
  • Types of Companies
  • Memorandum of Association and Articles of Association
  • Doctrines of Ultra/Constructive Notice/Indoor Management
  • Prospectus
  • Transfer of Property Act, 1882
  • The Right to Information Act, 2005
  • Right to Information and Obligation of Public Authorities
  • Information Technology Act, 2000


Some of the major topics which come in professional knowledge section are given below:-

    Nature and Functions of HRM
    Personnel policies and procedures
    Principles of HRM
    Human resource Planning
    Recruitment and selection
    Orientation and Socialisation
    Mobility of Personnel and Retirement(transfers, promotion, demotion, separation)
    Training and Development
    Job analysis, Job design, job evaluation
    Compensation (wages and salary), incentive plans
    Performance and potential appraisal (MBO)
    Employee morale and productivity
    Personnel problems and employee counselling (labour turnover, absenteeism, alcoholic and drug abuse)
    Employee health, safety and welfare
    Trade unionism, collective bargaining, worker’s participation in management, discipline and grievance procedure, motivation(theories), job satisfaction



MCQs on Industrial and Labour Laws
  1. Appointment of Welfare Officer under Factories Act, 1948 is compulsory where_______ employees are employed.
 ( (a) 50 (b) 500 (c) 1000 (d) 100)
  1. Crèche is mandatory under the Factories Act  where ______________ workers are employed
( (a) 30 (b) 100 (c) 30 women (d) 250)
  1. A canteen for use of workers providing subsidized food is statutory under the Factories Act where _____________ workers are employed.
 ( (a) 250 (b) 1000 (c) 100 (d) 150)
  1. Under Factories Act, appointment of a Safety Officer is mandatory where the no. of employees exceeds ________
( (a) 1000 (b) 500 (c) 100 (d) 50)
  1. Under Plantation Labour Act, 1951 a Welfare Officer is required to be appointed where the no. of workers is __________
( (a) 100 (b) 300 (c) 500 (d) 1000)
  1. Under Plantation Labour Act, crèche is to be set up where ______________ women workers are employed or the no. of children of women workers exceeds ________
( (a) 50 and 20 (b) 30 and 20 (c) 50 and 30 (d) 30 and 5)
  1. Under Plantation Labour Act, canteen is compulsory where ________ workers are working
( (a) 100 (b) 250 (c) 500 (d) 150)
  1. An adult worker under the Factories Act is eligible for leave with wages @ I day for every________ days worked during the preceding year
( (a) 50 (b) 20 (c) 15 (d) 240)
  1. Under the Factories Act no worker is permitted to work for more than _____ hours in a day
( (a) 8 (b) 9 (c) 10 (d) 24)
  1. Under the Factories Act, white washing of the factory building should be carried out in every _________ months
 ( (a) 12 (b) 24 (c) 26 (d) 14)
  1. Repainting or re varnishing under the Factories Act is required to be carried out in every ________ years
 ( (a) 5 (b) 10 (c) 3 (d) 1)
  1. Certification of Standing Orders under the Industrial Employment (Standing Orders) Act, 1946 is mandatory where ________ workers are employed
( (a) 500 (b) 1000 (c) 250 (d) 100)
  1. In order to be eligible for maternity benefit under the Maternity Benefit Act, 1961, a woman worker should have worked for not less than_________ days in the 12 months immediately preceding the date of delivery
( (a) 160 (b) 240 (c) 30 (d) 80
  1. Under the Maternity Benefit Act, a woman worker is eligible for ______ weeks leave with wages
( (a) 6 (b) 24 (c) 15 (d) 12)
  1. In case of miscarriage, a woman worker shall be allowed______ weeks leave with wages
 ( (a) 12 (b) 6 (c) 4 (d) 24)
  1. Under the Payment of Wages Act, 1936 payment of wages of establishments employing not more than 1000 employees shall be paid within _______ of the wage month
( (a) 10th day (b) 7th day (c) 2nd day (d) 15th day)
  1. Under the Payment of Wages Act, payment of wages of establishments employing not less than 1000 employees shall be paid within __________ of the wage month ( (a) 7th day (b) 15th day (c) 2nd  day (d) 10th day)
  2. An employee is eligible to get bonus under the Payment of Bonus Act, 1965 if he had worked for not less than ________ days in the preceding year
 ( (a) 30 (b) 240 (c) 160 (d) 190 )
  1. An employee whose salary does not exceed ____________ is eligible for Bonus under the Payment of Bonus Act.
 ( (a) Rs 3500 (b) Rs 2500 (c) Rs 6500 (d) Rs 10000 )
  1. The statutory minimum bonus is ________
 ( (a) 8.33% (b) 10% (c) 24% (d) 20%)
  1. Maximum bonus under the Payment of Bonus Act is _______
( (a) 8.33% (b) 10% (c) 24% (d) 20% )
  1. In order to be eligible for Gratuity under the Payment of Gratuity Act, 1972, an employee should have a minimum continuous service of __________
( (a) 10 years (b) 5 years (c) 7 years (d) 3 years)
  1. Under the Payment of Gratuity Act, the rate of gratuity is _________ salary for every completed year of service
 ( (a) 20 days (b) 30 days (c) 15 days (d) 2 months)
  1. A news paper employee is eligible for gratuity if he has ______ years continuous years of service
( (a) 10 (b) 5 (c) 7 (d) 3 )
  1. Employees who are drawing salary not more than __________ are covered under the Employees State Insurance Act, 1948.
 ( (a) Rs 15000 (b) Rs 7500 (c) Rs 6500 (d) Rs 3500)
  1. Employees’ share of contribution under the ESI Act is ________
( (a) 12% (b) 8.33% (c) 1.75 % (d) 4.75% )
  1. The employer’s share of contribution under the ESI Act is _____
( (a) 12 % (b) 8.33 % (c) 1.75 % (d) 4.75 % )
  1. Employees who are getting a daily average wages up to ________ are exempted from contributing employees’ share of ESI contribution.
( (a) Rs 70 (b) Rs 50 (c) Rs 100 (b) Rs 384.60 )
  1. Employees Provident Fund and Miscellaneous Provisions Act, 1952 is applied to establishments employing not less than _______
( (a) 10 employees (b) 20 employees (c) 50 employees (d) 100 employees )
  1. An employee whose salary at the time of joining does not exceed _________ shall become a member of the provident fund under the Act.
( (a) Rs 10000 (b) Rs 7500 (c) Rs 6500 (d) Rs 5000 )
  1. Employees’ share of provident fund contribution is __________
 ( (a) 12 % (b) 8.33% (c) 1.75 % (d) 4.75% )
  1. Employer’s share of contribution to the provident fund is  ________
( (a) 8.33% (b) 12% (c) 3.67 % (d) 4.75 % )
  1. Employer’s contribution to Employees Pension Scheme is _______
 ( (a) 8.33% (b) 12% (c) 3.67 % (d) 4.75 % )
  1. Employer’s contribution to Employees’ Deposit Linked Insurance is __________ ( (a) 3.67 % (b) 1.1 % (c) 0.5 % (d) 0.05 % )
  2. Prior intimation to the appropriate Govt to lay off, retrench or close down an establishment is required under the Industrial Disputes Act, 1947 where there are ________ workers
 (  (a) 100 (b) 1000 (c) 50 (d) 500 )
  1. Prior permission from the appropriate Govt to lay off, retrench or close down an establishment is required under the Industrial Disputes Act where there are ________ workers
 ( (a) 100 (b) 1000 (c) 50 (d) 500 )
  1. Forming of a Works Committee under the Industrial Disputes Act, is mandatory where the no. employees is _________
( (a) 1000 (b) 100 (c) 500 (d) 250 )
  1. Lay off compensation is to be paid @ _________  of average wages
 ( (a) 15 days (b) 50%  (c) 60% (d) 75 % )
  1. The minimum no. of workers required to register a Trade Union under the Trade Unions Act, 1926 is _________
( (a) 10% (b) 50% (c) 33 % (d) 10% or 100 whichever is less )
  1. Continuous Service under major labour legislations means _______________         ( (a) work of 240 days if work is above the ground and 190 days if work is below the ground (b) work of 240 days (c) work of 180 days ( d) work of 160 days )
  2. _______________________prohibits discrimination in fixing salary to men and women engaged in the work of similar nature
( (a) Minimum Wages Act, 1948, (b) Payment of Wages Act, 1936,   (c) Payment of Subsistence Allowance Act  (d) Equal Remuneration Act, 1976 )
  1. Subsistence Allowance @ __________ shall be paid if suspension extends to a period beyond 90 days
( (a) 50% (b) 75% (c) 90% (d) 100% )
  1. The wages under the Minimum Wages Act, 1948 shall  include ______________ (  (a) CTC (b) a basic rate of wages and dearness allowance variable according to cost of living (c) basic rate of wages, DA, HRA and CCA (d) A consolidated amount decided by the employer  )
  2. ______________ absolves the employer’s liability under the Maternity Benefit Act and Workmen’s Compensation Act.
( (a) Employees Provident Fund Act (b) Industrial Employment (Standing Order ) Act (c) Employees State Insurance Act (d) Industrial Disputes Act
  1. Any amount due from an employer under settlement or award can be recovered following the procedures laid down in ______________
( (a) The Standing Orders   (b) section 15 of the Payment of Wages Act   (c) Minimum Wages Act (d) section 33 (C) of the Industrial Disputes Act.



The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

1.       PF act is applicable to an establishment engaged in any industry specified in ……...
A.      Schedule II
B.      Hazardous Industries List
C.      Schedule IX
D.      Schedule I

2.       Minimum ……….. persons must be employed in as establishment for the applicability of the PF act.
A.      15
B.      20
C.      35
D.      50

3.       The term “Appropriate Government” is defined in which section of the PF Act?
A.      Section 2(a)
B.       Section 2 (b)
C.      Section 2 (d)
D.      Section 2 (e)

4.       According to Section 2(a) which is the appropriate Government for a mine in a given state?
A.      State Government
B.      Central Government
C.      Both (A) and (B)
D.      None of these

5.       Section 2(aa) of the PF act defines the term ……………
A.      Basic Wages
B.      Authorized Officer
C.      Government
D.      None of these

6.       Deputy Provident Fund Commissioner is an authorized officer.
A.      True
B.      False

7.       The term “Basic Wages” is defined in which section of the Provident Fund Act?
A.      Section 2(g)
B.      Section 2(d)
C.      Section 2(b)
D.      None of these

8.       Bonus is part of Basic Wages as defined in the respective section in the PF Act.
A.      True
B.      False

9.       The term contribution is defined in the section ………
A.      Section 2-bb
B.      Section 2-bc
C.      Section 2-cc
D.      Section 2-c

10.   Section 2(d) of the Provident Fund Act defines ………
A.      Hazardous Process
B.      Employee
C.      Employment
D.      Controlled Industry

Answers to Labour Laws Questions 1: 1D, 2B, 3A, 4B, 5B, 6A, 7C, 8B, 9D, 10D

The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

11.       The term “Employer” is defined in the section ……….. of the PF Act.
A.      2(e)
B.      2(g)
C.      2(f)
D.      2(m)

12.       Can an agent, of the owner of a factory, be termed as an employer?
A.      Yes
B.      No

13.       The term “Employee” is defined in the section …… of the PF Act, 1952.
A.      2(ab)
B.      2(g)
C.      2(f)
D.      2(d)

14.       A person employed through a contractor will not be considered as an employee of the establishment.
A.      True
B.      False

15.       A person engaged as an apprentice under the Apprentices Act, 1961 will not be considered as an employee.
A.      True
B.      False

16.       The term “Exempted Employee” is defined under section ……. of the PF Act, 1952
A.      2 (gg)
B.      2(hh)
C.      2(ff)
D.      2(cc)

17.       An employee is said to be exempted if the exemption is granted under section………
A.      26
B.      17
C.      14
D.      20

18.       The term “Exempted Establishment” is defined under which section of the EPF Act, 1952?
A.      2(aaa)
B.      2(ee)
C.      2(j)
D.      2(fff)

19.       Section 2(g) of the PF Act defines ………………
A.      Non-Exemption
B.      Exemption
C.      Factory
D.      Exempted Job

20.   The term “Fund” is defined under section ………. of the PF Act, 1952
A.      2(i)
B.      2(h)
C.      2(k)
D.      None of these

Answers to Labour Laws Questions 2: 11A, 12A, 13C, 14B, 15A, 16C, 17B, 18D, 19C, 20B

The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

21.       Under the PF Act, 1952 “Insurance Fund” means ……………
A.      Unit Linked Insurance Plan
B.      Deposit Linked Insurance Fund
C.      Employees’ Group Accident Insurance
D.      Medical Insurance Fund

22.       The scheme defined under section 2(i-b) of the PF Act, 1952 is ……………..
A.      Pension Scheme
B.      Provident Fund Scheme
C.      Family Pension Scheme
D.      Insurance Scheme

23.       The section 2(i-a) of PF Act, 1952 defines………..
A.      Member
B.      Insurance
C.      Insurance Fund
D.      None of these

24.       The Insurance Scheme is framed under sub-section (1) of the Section ……… of the PF Act, 1952.
A.      8-A
B.      7-B
C.      6-C
D.      5-D

25.       The term “Member” is defined in the section ………… of the PF Act, 1952.
A.      2(j)
B.      2(u)
C.      2(m)
D.      2(p)

26.       Section 2(k-A) of the PF Act, 1952 defines …………..
A.      Occupier of the factory
B.      Pension Fund
C.      Establishment
D.      Pension Scheme

27.       The Employees’ Pension Fund is established under sub-section (2) of the section ………
A.      8-A
B.      7-A
C.      6-A
D.      5-A

28.       Section 2(kb) of the PF Act, 1952 defines ……….
A.      Recovery Amount
B.      Recovery Office
C.      Recover Officer
D.      Repayment Amount

29.       Section 2(ll) of the PF Act, 1952 defines …………
A.      Superannuation
B.      Annual Salary
C.      Scheme Policies
D.      Recovery

30.   The Employees’ Provident Funds Appellate Tribunal which is constituted under sec 7-D is defined under which section?
A.      2(j)
B.      2(k)
C.      2(l)
D.      2(m)
Answers to Labour Laws Questions 3: 21B, 22D, 23C, 24C, 25A, 26B, 27C, 28C, 29A, 30D

The Factories Act, 1948

31.       The term “Adult” is defined in the section ……….
A.      2(a)
B.      2(ad)
C.      2(aa)
D.      None of these

32.       Adult is a person who has completed …………
A.      21 years
B.      14 years
C.      18 years
D.      20 years

33.       Section 2(c ) of the act defines ……..
A.      Child
B.      Competent person
C.      Adolescent
D.      None of these

34.       A person who is not 15 years old is a ………..
A.      Kid
B.      Adolescent
C.      Child
D.      All of the above

35.       A person has turned 17 yesterday. Which of the statements is true with respect to that person?
A.      The person is a child.
B.      The person is a child as well as an adolescent.
C.      The person was an adolescent 1 year back.
D.      All of the above

36.       Section 2(cb) of the Factories Act defines ……
A.      Child Labour
B.      Labour
C.      Process
D.      Hazardous Process

37.       A person who is either a child or an adolescent will be considered a ….. as per the factories Act, 1948.
A.      Competent Person
B.      Young Person
C.      Productive Person
D.      Casual Labour

38.       “Day is a 24 hours period that begins at 06:00 AM as per the act.
A.      True
B.      False

39.       According to the Factories Act, 1948 “Week” starts at midnight on ………. night.
A.      Monday
B.      Sunday
C.      Saturday
D.      There is no such mention

40.   “Power” also means energy generated by human or animal.
A.      True
B.      False

Answers to Labour Laws Questions 4: 31A, 32C, 33A, 34C, 35C, 36D, 37B, 38B (begins at midnight), 39C, 40B

The Factories Act, 1948

41.       The term “Power” is defined in which section of the Factories Act, 1948?
A.      Section 2(p)
B.      Section 2(h)
C.      Section 2(g)
D.      Section 2(l)

42.       Section 2(j) of the act defines which term?
A.      Machinery
B.      Transmission Machinery
C.      Prime Mover
D.      None of these

43.       The term “Manufacturing Process” is defined in which section of the Factories Act, 1948?
A.      Section 2(l)
B.      Section 2(k)
C.      Section 2(m)
D.      Section 2(n)

44.       Preserving an item in cold storage is considered as Manufacturing Process.
A.      True
B.      False

45.       “Worker” is defined in which section of the Factories Act, 1948?
A.      Section 2(l)
B.      Section 2(m)
C.      Section 2(p)
D.      None of these

46.       A person employed through a contractor is not considered as a Worker as per the act.
A.      True
B.      False

47.       The term “Factory” is defined in section ……… of the act.
A.      2(s)
B.      2(p)
C.      2(v)
D.      None of these

48.       A railway running shed is a factory as per the Factories Act, 1948.
A.      True
B.      False

49.       A restaurant is not a factory as per the Factories Act, 1948.
A.      True
B.      False

50.   A mine is a Factory as per the definition of Factory given in Factories Act, 1948.
A.      True
B.      False

Answers to Labour Laws Questions 5: 41C, 42A, 43B, 44A, 45A, 46B, 47D - 2(m), 48B, 49A, 50B

The Factories Act, 1948

51.       Section 2(n) of the Factories Act, 1948 defines …….
A.      Occupier
B.      Employee
C.      Owner
D.      Manager

52.       The Power or exempt, any factory, during public emergency is given in which section of the Factories Act, 1948?
A.      Section 5
B.      Section 6
C.      Section 4
D.      Section 3

53.       An occupier, before using any premises as a factory, should send a written notice to the Chief Inspector at least ….. days in advance.
A.      30
B.      20
C.      15
D.      10

54.       If a new manager is appointed and takes charge on a given day, the Occupier must send a written notice to the Inspector within ….. days.
A.      10
B.      15
C.      7
D.      3

55.       If a Manager is not appointed for a factory then the Occupier of the factory will be considered as the Manager of the factory as per the Factories Act, 1948.
A.      True
B.      False

56.       General duties of the Occupier are mentioned in which section of the act?
A.      Section 7-D
B.      Section 7-C
C.      Section 7-B
D.      Section 7-A

57.       The term “Inspectors” is discussed in which section of the Factories Act, 1948?
A.      Section 7
B.      Section 8
C.      Section 9
D.      Section 10

58.       The State Government cannot appoint Joint Chief Inspectors.
A.      True
B.      False

59.       Powers of Inspectors are discussed in the Section ……….
A.      8
B.      10
C.      11
D.      None of these

60.   Section 10 of the Factories Act, 1948 speaks about ………….
A.      Certifying Surgeons
B.      Certifying Doctors
C.      Certified Employees
D.      Certified Examiners

Answers to Labour Laws Questions 6: 51A, 52A, 53C, 54C, 55A, 56D, 57B, 58B, 59D (section 9), 60A

The Factories Act, 1948

61.       Section 11 of the Factories Act, 1948 relates to …….
A.      Natural Humidification
B.      Cleanliness
C.      Health
D.      Poisonous Substances

62.       For a given work place, the floor should be washed at least once in every ……….
A.      1 year
B.      6 months
C.      1 month
D.      1 week

63.       The walls, ceilings or partitions which are painted should be repainted once every ……….
A.      3 years
B.      4 years
C.      5 years
D.      It is the owners choice

64.       The walls, ceilings or partitions which are painted with washable paint should be washed in a period of ………
A.      6 months
B.      8 months
C.      3 months
D.      1 month

65.       The walls, ceilings or partitions which are white washed, should be white washed once every ………..
A.      3 months
B.      10 months
C.      14 months
D.      2 years

66.       Windows, doors or shutters that are painted or varnished should be painted or varnished at least once every …………..
A.      1 year
B.      3 years
C.      5 years
D.      7 years

67.       “Disposal of waste and effluents” relates to section ………
A.      12
B.      13
C.      14
D.      15

68.       Section 13 relates to ……
A.      Dust and Fume
B.      Natural Oxidation
C.      Ventilation and temperature
D.      Air Conditioning

69.       It is not necessary to ensure flow of fresh air and arrange for adequate ventilation in the factory.
A.      True
B.      False

70.   Section 10 relates to Cleanliness.
A.      True
B.      False

Answers to Labour Laws Questions 7: 61B, 62D, 63A, 64A, 65C, 66C, 67A, 68C, 69B, 70B (Section 11).


STUDY MATERIAL FOR SPECIALIST OFFICER MARKETING :Marketing Definitions & Marketing Environment


The term marketing has evolved over time, today marketing is based around providing continual benefits to the customer following a transactional exchange. The Chartered Institute of Marketing define marketing as 'The management process responsible for identifying , anticipating and satisfying customer requirements profitably'
Marketing Definitions

Philip Kotler defines marketing as 'satisfying needs and wants through an exchange process'

Customers will only undertake the exchange, if they feel that their needs are being satisfied, clearly the transactional value can not be more than the amount customers are prepared to pay to satisfy their need.

P.Tailor of suggests that 'Marketing is not about providing products or services it is essentially about providing changing benefits to the changing needs and demands of the customer (P.Tailor 7/00)'
Marketing is the job of the marketing department?

If we look at CIM's definition in more detail Marketing is a management responsibility and should not be left to a specific department or person. In fact everyone that works for or represents a company are responsible for marketing, as their actions contribute towards the company's reputation.
What does marketing involve?

Marketing requires co-ordination, planning, implementation of campaigns and employees with the appropriate skills to ensure marketing success. Marketing objectives, goals and targets have to be monitored and met, competitor strategies analysed, anticipated and exceeded. Through effective use of market and marketing research an organisation should be able to identify the needs and wants of the customer and try to deliver benefits that will enhance or add to the customers lifestyle, while at the same time ensuring that the satisfaction of these needs results in a healthy turnover for the organisation.



The concept of marketing has evolved over time. Whilst in today’s business world "the customer is king". In the past this was not the case, some businesses put factors other than the customer first. This article examines factors that businesses may orientate their marketing around, so that you can recognise when your marketing strategy is orientated around something other than the customer.

Production Orientation

The focus for the business is to reduce costs through mass production. A business orientated around production believes that the "economies of scale" generated by mass production will reduce costs and maximise profits. A production orientated business needs to avoid production efficiency processes which affect product design and quality. Compromising product design and quality for the sake of production is likely to reduce the product's appeal to customers.

Product Orientation

A product orientated company believes that its product's high quality and functional features make it a superior product. Such a company believes that if they have a superior product customers will automatically like it as well. The problem with this approach is that superiority alone does not sell products; superior products will not sell unless they satisfy consumer wants and needs.

Sales Orientation

A sales orientated company's focus is simple; make the product, and then sell it to the target market. This type of orientation involves the organisation making what they think the customer needs or likes without relevant research. However as we know sales usually aren't this simple. An effective marketing strategy requires market and marketing research, prior to product development and finally an effective promotion strategy.
Market Orientation

A market orientated company puts the customer at the "heart" of the business; all activities in the organisation are based around the customer. The customer is truly king!. A market orientated organisation endeavours to understand customer needs and wants, then implements marketing strategy based on their market research; from product development through to product sales. Once sales have begun further research will be conducted to find out what consumers think about the product and whether product improvements are required. As markets continuously change, market research and product development is an ongoing process for a market orientation company.


In today’s competitive world, it is more important than ever to implement a market orientated strategy. In this digital age customers are able to research the products available on the market fairly quickly. If an organisation does not offer customers what they are looking for (product and customer service) they will buy from a competitor that does.



Firms are affected by lots of different things; a firm's marketing environment is made up of all of the things that affect the way it operates. Some of the factor's in a firm's marketing environment can be controlled by the firm but some are uncontrollable. Firms need to understand their marketing environment so that they can make the most of positive factors and manage the impact of negative factors. A firm's marketing environment can be spilt into three parts: internal environment, macro environment and micro environment.
Internal Environment

The internal environment is made up of factors within the firm itself. Examples include employees, company policy, capital assets, the firm's structure and the firm's products (materials). These factors can be controlled by the firm.
Micro Environment

The micro environment is made up of factors that are close to the firm and affect it on a 'day to day' basis; usually these factors interract with the firm or are involved in the same industry. Micro environment examples include customers, banks and trade unions as they all interract with the firm. Competitors are also part of the micro environment because they are selling competing products, their activity could have a direct impact on the firm's daily business. Some of the factors within the micro environment can be controlled whilst other's can not. For more information about the micro environment and how to analyse a firm's micro environment through a stakeholder analysis, click here.
Macro Environment

The macro environment is made up of factors that affect the firm on a long term basis. In general macro environment factors are not close to the firm. Micro environment factors could be national or global measures and affect many industries and groups. Macro environment examples include legislation, the economy (e.g. recession, inflation, VAT changes), and technological change such as the internet. Macro environment factors are uncontrollabe factors but still influence company strategy. For more information about the macro environment including how to analyse a firm's macro environment through a PEST Analysis, click here.

One factor can be part of a firm's micro environment and macro environment. The media can be used to illustrate this:

- A one off media story about the firm may affect daily operations and will therefore be part of the firm's micro environment;

- Whilst a general desire to avoid a negative media story may influence a firm's long term business operations and therefore make up the firm's macro environment.

Firms should not concern themselves too much about which of the three categories a factor fits into. Instead firms should ensure that they have correctly identified all of the factors which make up their marketing environment and plan how to manage them for the firm's benefit.


Micro environment factors, are factors close to a business that have a direct impact on its business operations and success. Before deciding corporate strategy businesses should carry out a full analysis of their micro environment. In this article we discuss common micro environment factors.

As all businesses need customers, they should be Centred (Orientated) around customers. The firm's marketing plan should aim to attract and retain customers through products that meets their "wants and needs" and excellent customer service.

Employing staff with relevant skills and experience is essential. This process begins at recruitment stage and continues throughout an employee's employment via ongoing training and promotion opportunities. Training and development play a critical role in achieving a competitive edge; especially in Service Sector Marketing. If a business employs staff without motivation, skills or experience it will affect customer service and ultimately sales.

Suppliers provide businesses with the materials they need to carry out their business activities. A supplier's behaviour will directly impact the business it supplies. For example if a supplier provides a poor service this could increase timescales or product quality. An increase in raw material prices will affect an organisation's Marketing Mix strategy and may even force price increases. Close supplier relationships are an effective way to remain competitive and secure quality products.

As organisations require investment to grow, they may decide to raise money by floating on the stock market i.e. move from private to public ownership. The introduction of public shareholders brings new pressures as public shareholders want a return from the money they have invested in the company. Shareholder pressure to increase profits will affect organisational strategy. Relationships with shareholders need to be managed carefully as rapid short term increases in profit could detrimentally affect the long term success of the business. 

Positive media attention can “make” an organisation (or its products) and negative media attention can “break” an organisation. Organisations need to mange the media so that the media help promote the positive things about the organisation and reduce the impact of a negative event on their reputation. Some organisations will even employ public relations (PR) consultants to help them manage a particular event or incident.

Consumer television programmes with a wide and more direct audience can also have a very powerful impact on the success of an organisation. Some businesses recognise this and will change their reaction when consumers mention that they are going to contact a consumer television programme or the newspapers about the business.

The name of the game in marketing is differentiation. Can the organisation offer benefits that are better than those offered by competitors? Does the business have a unique selling point (USP)? Competitor analysis and monitoring is crucial if an organisation is to maintain or improve its position within the market. If a business is unaware of its competitor's activities they will find it very difficult to “beat” their competitors. The market can move very quickly for example through a change in trading conditions, consumer behaviour or technological developments. As a business it is important to examine competitors' responses to these changes so that you can maximise the impact of your response.

Businesses can not always control micro environment factors but they should endeavour to manage them along with Macro Environment and Internal Environment factors.



Any organisation that wishes to succeed in their market, needs to analyse their competitor's strategies. Competitor analysis is a vital part of the marketing planning process. A strong competitor can hinder business success, even lead to business failure. Competitor analysis helps firms to anticipate their competitor's actions and exploit competitor's weaknesses. It also helps firms to identify their firm's unique selling points, so that these can be promoted in marketing campaigns. Competitor analysis is an ongoing task, as successful competitors will continuously develop their marketing strategies, in response to changes in the market place.
Market Entry

A new business or a firm entering into a new market should gather information to help answer the following questions about their competitors:

Who are your competitors?

The firm should decide on which competitors are likely to impact on their business and which businesses the firm will be able to compete with. This will depend on the size of the business and whether it is a national or local business. For example a local shop will not be able to compete with a national supermarket but they may need to take a local store of a supermarket into account if it is located near to the shop. There are a number of models which can be used to identify competitors including Porters Five Forces model.

What is their size and dominance within the market?

An understanding of the market share each competitor has, will help you identify their size and dominance. It will also reveal whether there is market share available for your business.

What customer base do competitors have?

This will help you identify if a firm is a competitor. If a firm is aimed at a different customer base to yours they may not be a competitor. However if their success is due to their customer base should your firm reconsider your customer base? Or would you like to compete directly with the competitor?

What is their positioning strategy within the market?

This question is about the perceptions customers have about your competitor's products. Are they quality products? cheap products or luxury products? Think about how each competitor's positioning strategy is the same or different to yours?

What objectives does each competitor have?

This includes future growth plans and company values. For example are they about to embark on an aggressive growth programme? Or do they believe in recycling and saving the planet. To gather information about competitor objectives and plans look at their websites, company reports, press releases and marketing material. It is important to analyse competitor objectives so that you get an idea of their values and likely strategy.

What are their strengths and weaknesses?

A SWOT analysis may help you to identify and record the answers to this question. Each competitor will have strengths that give them a competitive advantage. They are also likely to have weaknesses that may give you or other competitors an advantage. Once you know a competitor's strengths you can think about how to minimise their impact on your business. Conversly if a competitor has a weakness your marketing plan should look at how to exploit it and benefit your firm.

Information from an array of sources can be collected on your competitors. Examples of data sources include:

    Competitor's websites.
    Annual reports produced by competitors.
    Observing competitor activity.
    News about competitors on the TV or in newspapers and magazines.
    Asking people using competitor products and services for their views about the competitor
    Mystery shopper and covert operations such as pretending to be a customer at your competitor's store, or phoning their telephone sales line.

In 1997 Davidson suggested that the sources of competition information could be placed into three groups.

1. Recorded data. This is data on competitors that has been published. This data could be produced by the organisation itself (internal) e.g. annual reports or by an outside body (external) e.g. newspaper articles or magazine reviews of competitor products.

2. Observable data. This is data collected through observing competitor activities. This could include analysing competitor marketing mix strategy, product launches and service offerings.

3. Opportunistic data. This type of data is collected through talking to bodies that have/have had contact with competitors such as their suppliers, their customers, and their former and/or current employees. Some firms take this a step further and employ employees who have worked for competitors.

Competitor analysis is crucial if the firm wants to stay ahead. Competitor analysis may give a firm new ideas and help formulate new business strategies for growth and profit. Competitor analysis should stimulate innovation, beneficial for both the firm and the customer.



Ethical marketing is about making marketing decisions that are morally right. The morality of the marketing decision can encompass any part of marketing including sourcing of raw materials, staff employment and product advertising and pricing. Each person's view of morality is different, it is based on personal values and experiences. This creates a challenge for companies who want to pursue ethical marketing in a manner that will appeal to customers.
Examples of marketing decisions that involve ethics

Does the firm exaggerate the benefits of its products on its packaging? Are claims overstated? Many firms make bold claims to help sell their products. Are such claims morally wrong or merely "advertising puff".

Is it morally wrong to adopt high pressurised selling techniques or focus on customer groups that are vulnerable e.g. pensioners? Vulnerable customer groups have needs? Can you get customer's to buy without pressurised selling?

Firms need to make profits, a reduction in production costs increases profit margins. Is it morally wrong to negotiate tough contracts with suppliers to reduce production costs when it will reduce the supplier's profit margin?

Is it morally wrong to disregard the impact of business activities on the environment. To find out more about environmental marketing click here.
Why do businesses want to adopt ethical marketing?

Some businesses are set up because the founders feel strongly about an issue and they would like to deal with issue through the business. Whilst other businesses pursue ethical marketing because they feel that is what customers expect from them. Some consumers buying products and services because they feel that the products, services (or organisations responsible for them) are ethical. In response to this consumer demand organisations have increased their focus on ethical marketing. The UK Co-operative bank is good example of an organisation that tries to follow a ethical principal, based on what their customers feel strongly about.
How do companies begin the ethical marketing process?
After a company has decided to implement ethical marketing it will need to make the following decisions:

1. Define what is ethical.
2. Decide which branch of ethics it will subscribe to.
3. How will the ethical approach to marketing be implemented.
4. In which areas of the firm’s operations will ethical marketing be implemented e.g. employees, suppliers, consumers/clients, production techniques, distribution or the whole value chain.
5. Complete an analysis of how much ethical marketing will cost and compare this against the likely benefits of ethical marketing. This will help them decide whether they would like to pursue ethical marketing.
Challenges of Ethical Marketing

Ethical marketing requires marketing strategies that are ethical and reflect consumer and market expectations. It is not easy to define the term ethical or identify which ethical decisions cater to market expectations. An individual’s view of ethics and morality is influenced by a variety of things including their culture, background, experience, upbringing/family, peers, community, religion and country.

Balancing ethics and remaining competitive can be difficult. If ethical marketing involves considering the needs and welfare of suppliers, employees and customers it could add to business costs. For example Fair trade products provide producers with a minimum price. When business costs increase profit margins reduce or the costs are passed onto customers through price increases. However if firms can adopt ethical marketing which reflect market expectations, it may make them more appealing to customers and therefore create a competitive edge.

Ethics can form one element of a firm's marketing strategy or the whole strategy can be based around ethical marketing. It all depends on what the business is trying to achieve and what they feel is expected by the public, customers, legislation, shareholders and the target market. Ethical marketing can increase business costs or create a competitive edge.


An increased focus on environmental issues, has contributed to a rise in the demand for environment friendly products and services . The spotlight on sustaining the environment has created terminology such as “carbon footprint” and “offsetting”. Many organisations have adapted their marketing strategies to capitalise on the consumer appetite for environment friendly products and services. Environment friendly marketing strategy takes into account additional factors which are not usually part of the marketing mix. Such a deviation from the academic acceptance of the “marketing mix” components has led Learnmarketing to develop the ‘environmental marketing mix.’
Environmental Product Strategies

There are a large number of environmental issues impacting on the production of goods and products, for example:

    - What is the impact of production, sourcing of materials and packaging on the environment?

    - Can minimum levels of packaging and environment friendly packaging be achieved without compromising product quality or appeal?

    - Supplier practices i.e. are they at least as environmentally friendly as the organisation they are supplying?

Environmentally friendly products can increase and decrease production costs; environmentally friendly production may increase costs for organisations and their suppliers but this may be offset by lower fuel bills through energy efficiency measures or an increase in sales caused by a positive product image. An organisation may able to pass increases in production costs (caused by Environment Friendly products) to consumers. However this will depend on the level of increase, type of consumer, competitor prices and the strength of the economy. For example during times of recession consumers will place price above many of the other factors making up the marketing mix.
Environmental Place Strategies

All organisations need to “carefully” time when their product reaches consumers; exact time of distribution will depend on the product or service being distributed. Such timing may have an environmental implication.

Some products will need to reach the consumer shortly after production for example fresh food in order to retain freshness, taste or nutritional value. The fastest method of distribution may damage the environment. Conversely a more environmentally friendly method e.g. via canals may impact on speed of distribution and consequently quality of the product. A method of distribution that combines speed with “environmentally friendliness” may increase distribution costs as some of these processes are still under development e.g. electric vehicles.

In addition to the type of transport used for distribution, an organisation will need to review distribution techniques; For example timing deliveries so that they occur during off peak hours and do not contribute to congestion. Some organisations attempt to make fewer deliveries, whilst others promote concentrated products (e.g. fabric conditioner) as they increase the number of products that can carried in each delivery vehicle.

Even if “environment friendly distribution” is not at the top of an organisation’s list of priorities, government policies may elevate it to the top. Congestion charging and low emission zones have been introduced in the London. Apart from the obvious increase in costs involved in following such policies, a failure to observe environment friendly rules and regulations will lead to fines, sanctions and negative publicity.

After reviewing internal distribution methods an organisation will need to review supplier and subcontractor distribution as consumers and the media expect organisations claiming environmental credentials to work with other environment friendly organisations.. For example do subcontractors use Bio-fuel? Are subcontractors actively managing their “carbon footprint” and energy use?
Environmental Promotion Strategies

Due to the consumer, celebrity and government appetite for protecting the “environment” environment friendly practices are used as promotional tools. For example the award of ISO 14001 (which certifies that an organisation has certain environmental standards, as certified by an independent external auditing organisation) is often quoted in marketing literature.

Product packaging that can be recycled will have a message on the packaging clearly stating the recycling properties for the packaging. Similarly organic products will be labelled, not only on the packaging but also around the shelving displaying the organic produce.

Some organisations have sought to reduce costs through the promotion of environmentally friendly strategies. The use of carrier bags has changed dramatically in the UK over the last five years. Retailers actively promote the benefit of reusable bags as they have many benefits:

- Lower costs for the retailer
- Consumers “feel good” as they believe that the use of a reusable bag is helping the environment
- Fewer carrier bags go to landfill

Another example is hotels offering guests the opportunity to accept fewer linen and towel changes. Such strategy is environmentally friendly as it reduces the use of detergents and energy and it also reduces costs for the hotel and improves corporate image.

Some organisations providing products and services which may harm the environment have added “off setting” methods to their portfolios and marketing literature. The idea behind “off setting” is that the consumer is offered the opportunity to indirectly engage in an activity (such as tree planting) that benefits the environment and therefore balances/evens out the damage they caused for example through flying. Such schemes attempt to ease the consumer’s conscience and retain a positive image for the organisation providing the environmentally unfriendly product or service.

Environmental Pricing Strategies

Throughout this article we have discussed how environmentally friendly strategies can either increase or decrease organisational costs. The ideal marketing mix is a reduction in costs or an increase in costs which exceeded by an increase in profits.

Pricing must reflect the demand for the product, an incorrectly priced product will reduce demand; this is now further complicated by the impact environmental issues have on pricing. If an organisation is paying more for raw materials because the supplier is “environmentally friendly” it may decide to “pass on” this price increase to the consumer, the ideal price will be dictated by the target market.

On the other hand companies cutting costs and increasing profits at the expense of the environment are risking negative publicity, fines, sanctions or may simply lose out to organisations actively promoting their environmentally friendly practices even if such competitors offer more expensive products and services.

The environmental marketing mix is becoming extremely important in today’s business world. Firms will have to carefully manage this mix if they are to successfully operate in a world which is becoming increasingly aware of climatic changes.


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