Payment and Settlement System in India

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(Special Address delivered by Shri V Leeladhar, Deputy Governor, Reserve Bank of India at the Conclave on Indian Banking – Vision 2010, organised by the Indian Banks’ Association on August 1, 2008 in Mumbai)

Dear Friends,

It is my pleasure to be here with you this afternoon at this important conclave, which seeks to articulate the vision of Indian banking in 2010. I am thankful to the organisers for affording me this opportunity to be here today and share some of my thoughts with this august audience. The Indian banking system has come a long way, particularly during the last couple of decades and continues to evolve in a myriad of ways. While, no doubt, the future contours of the Indian banking would be shaped and driven by a variety of factors, the developments in the payment and settlement systems, to my mind, would be of particular significance. This is so since the payment and settlement systems are part of the basic infrastructure needed for the proper functioning of market-oriented economies. They are indispensable for the efficient flow of payments for goods, services and financial assets and their smooth functioning is crucial for the effective implementation of the central bank’s monetary policy and for maintaining the financial and monetary stability in the economy. The RBI has recognised the payment and settlement systems to be critically important for the broadening and deepening of the financial markets, as also for maintaining confidence in the financial system by enhancing the safety, soundness and efficiency of the market infrastructure.

I have, therefore, chosen to talk about the payment system in India, which is an important element of the financial sector infrastructure. Today, I would like to briefly touch upon the evolution and objectives of the Indian payment system – as a public good, various milestones crossed by us in the past few decades, the major initiatives that the RBI has taken to upgrade and modernise the payment system in India to benchmark it with the best in the world, and the various technological developments that can be leveraged to further deepen the penetration of the payment system services in the country to promote greater financial inclusion.

Evolution of Payment System in India

The history of the payment system can be said to be virtually co-terminus with the evolution of money. The earliest form of payment system could perhaps be traced back to the pre-historic days of barter trade when the settlement of consideration took place through exchange of conch shells, goods, cattle and later commodities. Such a system, in the absence of money as a medium of exchange, was obviously very cumbersome due to highly improbable ‘coincidence of wants’ of the two parties to a barter transaction. Subsequently, more formalised payment instruments, such as coins, developed. The earliest payment instruments known to have been used in India were coins, which were either punch-marked or cast in silver and copper; even leather is known to have been used for making coins. Thus, with the advent of institutionalised forms of money, initially in the form of coins and later as paper money, the barter trade withered away and the usage of currency became the order of the day.

Paper money, in the modern sense, has its origin in India in the late 18th century with the note issues of private banks as well as semi-government banks. Amongst the earliest issues were those by the Bank of Hindoostan, which was the first joint stock bank established in 1770, the General Bank in Bengal and Behar, and the Bengal Bank. Later, with the establishment of three Presidency Banks since 1809, the work of issuing notes was taken over by them and each Presidency Bank had the right to issue notes within certain limits. The private banks and the Presidency Banks introduced other payment instruments in the Indian money market and cheques were introduced by the Bank of Hindoostan. Buying and selling bills of exchange became one of the items of business to be conducted by the Bank of Bengal from 1839. The Paper Currency Act of 1861 conferred upon the Government of India the monopoly of Note Issue, thus, bringing to an end the note issues of private and Presidency Banks. In 1881, the Negotiable Instruments Act (NI Act) was enacted, formalising the usage and characteristics of instruments like the cheque, the bill of exchange and promissory note. The NI Act provided a legal framework for non-cash, paper payment instruments in India and continues to be an operative legislation even today.

While the modern cheques came into being in India only in the 19th century, it is noteworthy that India had pioneered the use of non-cash based payment systems long ago, which established themselves as strong mechanism for the conduct of trade and business. The most important form of credit instrument that evolved in India was termed as ‘Hundis’ and their use was reportedly known since the twelfth century. Hundis were used as instruments of remittance, credit and trade transactions, and were of various types, each type with its own unique features. However, with the steady rise in volumes of trade and commerce and the growing confidence of the public in the usage of cheques, etc., there was also rapid growth in the payment transactions using these instruments. With the development of the banking system and higher volume of cheques used, the need for an organised cheque clearing process emerged amongst the banks. Clearing associations were formed by the banks in the Presidency towns and the final settlement between member banks was effected by means of cheques drawn upon the Presidency Banks. With the setting up of the Imperial Bank in 1921, settlement was done through cheques drawn on that bank. After the establishment of the RBI in 1935, the Clearing Houses in the Presidency towns were taken over by the RBI, and continued with it for more than five decades.

It is noteworthy that the volume of paper-based clearing we handle is the sixth largest in the world and during the year April 2007 to March 2008 about 1.46 billion cheques were cleared in the country. The total number of cheques cleared and the value during the last three years in India are as follows:

Type	Volume (in billion)

(April – March)			Value (Rupees in lakh crore)
	2005-06	2006-07	2007-08	2005-06	2006-07	2007- 08
Total Cheques	1.29	1.37	1.46	113.29	120.42	133.96
Of these: a) MICR	1.03	1.14	1.22	94.74	104.35	115.29
b) Non MICR	0.026	0.023	0.024	18.55	16.07	18.67

In the wake of financial sector reforms, the maturing of the banking system and the rising volume of paper-based clearing, the RBI has now adopted a policy stance of moving away from the actual management of retail payment and settlement systems. Thus, for a few years now, the task of setting up new MICR-based cheques-processing centers has been delegated to the commercial banks. The management of clearing houses also stands decentralised to a large extent and in many cities and towns, the commercial banks have been entrusted with the management of the bankers’ clearing houses.

Just to provide an overview, let me mention for record that at present, there are 1089 Bankers’ Clearing Houses operating in India, of which 1036 are managed by State Bank of India and its Associates, 17 by the Reserve Bank, and the remaining 36 by 12 nationalised banks. The mechanised cheques processing using MICR technology (Magnetic Ink Character Recognition) is now available at 60 locations and six more locations are being upgraded with this technology. Thus, the computerised clearing houses numbering 915 (including the 60 MICR centres), account for 84 per cent of the total number of clearing houses in the country. This demonstrates that our payment system has indeed made remarkable progress during the last two decades, with ongoing adoption and up-gradation of technology.

Objectives of the Payment System

As some of you might recollect, a monograph on Payment Systems in India was prepared by the RBI in 1998 to increase the awareness, both within the country and abroad, of the payment systems existing in India. The monograph also detailed the objectives that needed to be achieved. To that end, a Payment System Vision Document for 2001-04 was prepared to draw up the roadmap for consolidation, development and integration of payment systems in the country. Once these objectives were achieved, a Vision Document for 2005–08 was published in May 2005, articulating the Reserve Bank’s vision for the coming four years for the payment and settlement area. The mission enshrined in the Vision Document is the establishment of safe, secure, sound and efficient payment and settlement systems for the country, towards which all the upgradation efforts are focused. Whereas safety in payment and settlement systems relates to risk reduction measures, security pertains to confidence in the integrity of the payment systems. All payment systems are envisaged to be on sound footing with adequate legal backing for operational procedures and transparency norms. Efficiency enhancements are envisaged by leveraging the benefits of technology for cost-effective solutions. Thus, as part of its public policy objectives, the Reserve Bank has played a major role in the design, development and functioning of payment and settlement systems, and the multi-dimensional efforts of the RBI over the years have been geared to realise this vision.

The Role of the RBI

The development of a payment system is one developmental role that is common to most of the central banks. It is well recognised that an efficient payment and settlement system is essential for efficient functioning of the modern financial system. The Reserve Bank has, therefore, played a catalytic role, over the years, in creating an institutional framework for development of a safe, secure, sound and efficient payment system for the country. It has also initiated a variety of institutional, procedural and operational measures to strengthen and refine the payment system. In order to place the efforts of the RBI in a proper perspective, allow me to briefly trace some of the salient developments, chronologically.

Remittance Facilities Scheme

Many of you might remember that one of the earliest mechanisms for movement of settlement funds of banks between the clearing centres was provided by the Reserve Bank as far back as in 1940. Since October 1, 1940, the Reserve Bank has been operating an integrated Remittance Facilities Scheme, which facilitates transfer of funds between banks located at different centres in the country, expeditiously and with a minimum cost. The Scheme is operated by the Reserve Bank and the public sector banks as its agents, including treasuries and sub-treasuries of the government. In other centres, the SBI operates a remittance scheme to enable banks to fund and draw upon their various settlement accounts. In the absence of the SBI, its associate banks or the public sector banks managing the clearing house, provide the remittance facility. The Scheme has served us well and enables smooth movement of settlement funds between all the clearing centres.

Clearing House Regulations

As you are aware, the bankers’ clearing houses constitute the critical nodes in the entire payment system of the country and their efficient and orderly functioning is crucial for a robust payment system. However, prior to 1986, there were no formal regulations and rules governing the transaction of business in the clearing houses and each clearing house had its own rules and regulations, based on local conventions and convenience. Hence, in case of disputes, resolution of the problem proved to be difficult. In 1986, therefore, the Reserve Bank formulated a set of guidelines known as the Uniform Regulations and Rules (URR) for the Bankers' Clearing Houses, so as to harmonise, across the country, the framework governing the conduct of the clearing houses. These guidelines had also become necessary in the backdrop of increasing computerisation in the banking industry and the consequential changes in the functioning of the clearing houses. The Regulations have since been adopted individually by the general body of each clearing house in the country. Individual clearing houses are free to frame their own rules consistent with the broad framework provided by the Regulations. The Uniform Rules and Regulations represent a significant step forward in providing a formal institutional framework for the payment system in the country.

The Board for Payment & Settlement System

In order to strengthen the institutional framework for the payment and settlement systems in the country, the Reserve Bank constituted, in 2005, a Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) as a Committee of its Central Board. The Board is chaired by the Governor, RBI while all the four Deputy Governors and two external Directors of the Central Board are its members. The role of the BPSS is to lay down policies relating to the regulation and supervision of all types of payment and settlement systems, set standards for existing and future systems, approve criteria for authorisation of payment and settlement systems, and determine criteria for membership to these systems, including continuation, termination and rejection of membership. Thus, the BPSS is the highest policy making body in regard to the payment and settlement systems in the country and encompasses electronic, non-electronic, domestic and cross-border payment and settlement systems which affect the domestic transactions. In its relatively short span since its inception, the BPSS has provided valuable guidance in shaping the emerging contours of the payment and settlement system in the country and has helped widen the reach of the payment services of the banks to the hinterland areas.

Payment and Settlement Systems Act 2007

It is internationally acknowledged that payment and settlement systems should function on a well-founded legal basis. This entails among other things, proper authorisation requirement for setting up and payment systems, legal recognition for netting, settlement finality, providing for regulation and oversight of the payment and settlement systems. Many countries have either provided for these requirements in their central bank statutes or have drafted separate and comprehensive laws for this purpose. In India where the economy is growing at a fast pace increasingly large volumes and values are being handled by payment systems. Non-bank entities who are outside the explicit regulatory purview of the central bank are running/ are likely to run important payment systems. A number of innovative payment instruments/ systems have been introduced by unregulated entities. While large payment systems which are unregulated present risks to the stability of the financial systems, unauthorised retail payment systems without proper management and operational structures can undermine public confidence in the efficacy of the payment systems as a whole. The Reserve Bank and the Government felt that there should be an explicit law to regulate the payment and settlement systems. The Parliament has enacted the Payment and Settlement Systems Act in December 2007. This Act empowers the Reserve Bank to regulate and supervise the payment and settlement systems and provides a legal basis for multilateral netting and settlement finality. The Act empowers the Reserve Bank to lay down the policies for regulation and supervision of the payment and settlement systems, authorise their setting up/continuance, for issuing directions, laying down standards, calling for information/data, initiating prosecution/levying penalties for violation of the provisions of the Act, its regulations and directions etc. The Act will come into operation very shortly.

Umbrella Organisation for retail payments

In India the retail paper-based and electronic clearing is carried out by about 1089 clearing houses all over the country run by RBI, State Bank of India, its associate banks and other public sector banks. The multiplicity of local operators and diverse local practices which determine the conduct of clearing quite often compromises safety and efficiency of the clearing operations besides not giving due importance to customer service. This situation limits the scope for product innovation and expanding the reach of the payment systems. The Reserve Bank in its Vision Document (2005-08) for the Payment Systems in India, expressed its intention to move away from the operation of the retail payment systems and concentrate on operating the RTGS system, regulating and overseeing the payment systems and providing the settlement accounts for important payment systems. It also envisaged the setting up of an institution at the national level to own and operate all retail payment systems in the country. The setting up of this umbrella organisation would bring greater efficiency by way of uniformity and standardisation in retail payments, expand its reach and bring innovative payment products to augment customer convenience. The Indian Banks Association set up a Working Group which examined this issue and suggested the modalities for setting up this organisation. This organisation to be known as the National Payments Corporation of India (NPCI) will be an entity registered under the Companies Act and will be owned by banks and financial institutions. NPCI will be a Section 25 company, which will not distribute its profits as dividend, but will plough it back for the improvement and expanding the reach of the retail payment systems. The ownership of the company will be suitably diverse with no bank or group of banks having shareholding exceeding 10 % of the total shareholding. The Payment and Settlement Systems Act 2007 has laid down that such not less than 51% of the equity of this company will be held by public sector banks. The work relating to the setting up of NPCI is in progress.

Let me now say a few words about the RBI’s initiatives in the area of electronic payment system.

Reserve Bank’s initiatives for electronic payments and banking

As part of its public policy objective of promoting a safe, secure, sound and efficient payment system, the Reserve Bank has taken several initiatives to develop and promote electronic payments infrastructure. Towards this end, the RBI introduced the Electronic Clearing Service (ECS) and the Electronic Funds Transfer (EFT) system in 1995, the Real Time Gross Settlement (RTGS) system in March 2004, the National Electronic Funds Transfer (NEFT) system in November 2005 and Cheque Truncation System (CTS) in February 2008. Let me present a brief overview of these payment-system products launched by the RBI.

Electronic Clearing Service

With a view to upgrading our payment system to the international standards, the Reserve Bank took the initiative and set up Electronic Clearing Service in India, in the mid 1990s, which is the counterpart of the automated clearing house (ACH) system in certain other countries. It has two variants – ECS - Credit Clearing and ECS - Debit Clearing. While the Credit Clearing operates on the principle of ‘single debit-multiple credits’ and is used for making payment of salary, pension, dividend and interest, etc., the Debit Clearing functions on the principle of ‘single credit-multiple debits’ and is used for collecting payments by utility service providers like electricity, telephone bills as well by banks for receiving principal / interest repayments for housing and personal loans from the borrowers. At present, about 18 million transactions flow through the ECS system every month. This facility is currently available at 70 centers in the country. Settlement takes place on T+1 basis and the cycle gets completed on T+1. RBI is also in the process of developing a National ECS system – about which I will talk a little later.

Internet Banking

It may be recalled that pursuant to advent of internet-based banking in India, the RBI had appointed a Working Group on Internet Banking in 2001 to address the issues relating to technology and security, legal aspects, and the regulation and supervision of the internet banking activities of the banks. The recommendations of the Group were accepted for phased implementation and detailed guidelines on internet banking were issued by the RBI to the banks in June 2001, for adoption by the banks offering internet banking facilities. Even though the Group had made the recommendations in the context of the internet banking, these were to be applicable, in general, to all forms of electronic banking, to the extent relevant. The banks are now permitted to offer internet banking facilities based on the Board-approved internet banking policy and no longer require prior RBI approval. The product portfolio to be offered through internet banking is also no longer confined to only the local currency products but even foreign exchange services, for the permitted underlying transactions, can be offered through internet banking. Operations on the Vostro accounts of the overseas banks and exchange houses, maintained with the banks in India, are also permitted through the internet-based operations. Needless to say, the overarching concern in providing internet banking would be the effective management of the incremental operational risks acquired by the banks in using this new delivery channel for the banking services.

Real Time Gross Settlement System

The payment system in the country largely follows the deferred net settlement regime, under which the net amount is settled between the banks, on a deferred basis. Such a dispensation entails an element of settlement risk. Hence, as a step towards risk mitigation in the large value payment systems, the RTGS was operationalised by the RBI in March 2004, which enables settlement of transactions in real time, on a gross basis. Almost all the inter-bank transactions in the country and many time-critical customer transactions are now settled through this system. RTGS is fully secured electronic funds transfer system where banks and customers can receive payments on real time basis. The outreach of RTGS transactions has also grown geographically. Out of about 75,000 bank branches in the country, more than 48,300 bank branches now accept requests for remittance through RTGS system for customer transactions as well as inter-bank transactions. A minimum threshold of rupees one lakh has been prescribed for customer transactions to ensure that RTGS system is used only for large value transactions and retail transactions take an alternate channel of electronic funds transfer. The daily average of transactions is over 34,000 by volume and over Rs.2 lakh crore by value. The RBI also provides collateralised Intra-Day-Liquidity (IDL) support to the member banks for the RTGS operations. With the progressive expansion of the RTGS volume, a view needs to be taken on the continued need and relevance of the high-value clearing system – since the two systems have a functional overlap on account of the same value threshold and the target clientele.

National Electronic Funds Transfer System

Yet another product innovation by the RBI was the National Electronic Funds Transfer System, which was introduced in November 2005 as a more secure, nation-wide retail electronic payment system to facilitate funds transfer by the bank customers, between the networked bank branches in the country. It is a deferred net settlement system and is an improvement over other modes in terms of security and processing efficiency. It provides six settlement cycles a day and enables funds transfer to the beneficiaries account on T+0 basis. This facility is currently available at over 46,300 bank branches throughout the country. The daily average of the transactions is over 80,000 by volume and over Rs.500 crore by value. It is envisaged that all the RTGS-enabled bank branches would also be NEFT-enabled and the customer would have a choice between the RTGS or the NEFT systems, based on time criticality, value of the transaction and willingness of the customer to pay different charges for the two systems. With the introduction of NEFT, the Electronic Funds Transfer system, introduced in 1994 for retail funds transfer, is now available only for Government payments. Let me also mention that using the NEFT infrastructure, the system of one-way remittance from India to Nepal has been implemented by the RBI since 15th May 2008.

Cheque Truncation System (CTS)

The latest electronic payment product introduced by the RBI is the Cheque Truncation System, which was launched, on a pilot basis, in the National Capital Region of New Delhi on February 1, 2008, with the participation of 10 banks. At present all the banks are participating in the system through 53 direct member banks. The main objective of the CTS is to improve the efficiency and substantially reduce the cheque processing time in the system. The traditional clearing system requiring the physical presentation of cheques in the clearing house for payment and settlement, inevitably entails consequential inefficiencies in terms of clearing time and infrastructure required. The enormity of the logistics needed for physical cheque clearance can be gauged from the fact that we cleared about 1.46 billion cheques in the country during the year April 2007 to March 2008. In contrast, the main advantage of cheque truncation is that it obviates the physical presentation of the cheque to the clearing house; instead, the electronic image of the cheque would be sent to the clearing house. The CTS would enable the realisation of cheques on the same day, and provide a more cost-effective mode of settlement than manual and MICR clearing. Smaller banks, which may find it unviable to set up the infrastructure, could utilise the services of service bureaus set up for this purpose by a few larger banks.

Once the CTS become fully operational, the system would be the largest in the world and would leapfrog the country from the paper-based instruments to a fully electronic mode of payment and settlement. Necessary amendments have been made to the Negotiable Instruments Act, 1881, which provides legal recognition to the electronic image of the truncated cheque. These amendments provide a legal basis for the cheque truncation system. .

National Electronic Clearing Service (NECS)

The National ECS is a product being developed by the RBI to enable centralised processing of the ECS transactions, in contrast to the existing ECS system that has decentralised operations at 70 locations, spread all over the country. Under the National ECS, the processing of all the ECS transactions would be centralised at the National Clearing Cell at Nariman Point, Mumbai and sponsor banks would need to only upload the relative files to a web server, with online data validation facility. Destination banks would receive their inward clearing data / file at a central location, through the web server. The National ECS would leverage the Core Banking platform of the commercial banks, to enable around 50,000 core-banking-enabled branches of the various banks, to avail of this service. The system would facilitate end-to-end seamless posting of the NECS transactions in a straight-through-processing (STP) environment. This would help the users and member banks to send, receive and process the data files at one centralised place, thereby improving the efficiency of the payment system.

Mobile banking

As you are no doubt aware, with the rapid growth in the number of mobile phone subscribers in India, the banks have been exploring the feasibility of using mobile phones as an alternative channel of delivery of banking services. A few banks have also started offering, through the mobile phone, information-based services like balance enquiry, stop-payment instruction of cheques, record of last five transactions, etc. Considering that the use of this technology for the banking services is relatively new and calls for appropriate safeguards to ensure security of financial transactions, the Reserve Bank has formulated the ‘Draft Operating Guidelines for Mobile Payments in India', through a consultative process and placed them on the RBI’s website in June 2008 for public comments. It is expected that the guidelines when operationalised, would help strengthen the operating environment for mobile banking in the country.

Satellite Banking

The availability of reliable communication network is an important prerequisite for facilitating electronic modes of payment. However, the non-availability of the terrestrial communication link in many parts of the country, particularly the hinterland and hilly areas, poses a major constraint in securing greater penetration of electronic payment services in such areas. For such difficult terrain, which is not connected by terrestrial links, the satellite connectivity is considered to be the appropriate mode of connecting the branches in these areas, as also as a fallback system. In this background, a paper was prepared by a member of the Board for Payment and Settlement Systems of the Reserve Bank on the use of satellite communication technology to facilitate penetration of payment services to the rural areas which are denied these facilities due to non- availability of reliable communication links. A Technical Group constituted by the Reserve Bank has since examined the proposal and recommended the use of satellite connectivity as it would facilitate integration of the rural branches with the core banking solution platform of the banks and help them providing efficient funds-transfer facility to their customers.

However, reckoning the cost implications involved in creating satellite connectivity for the bank branches, the Reserve Bank is considering provision of financial incentive to the banks for adopting this technology. Under the proposal, the RBI would be bearing a part of the leased rentals for the satellite connectivity, provided the banks use it for connecting their branches in the North Eastern States and in the under-banked districts in the rest of the country. A discussion paper on this scheme was placed on RBI website in June 2008 for public comments.

I may add that the satellite communication link is the most disaster-proof, since the satellite, up in the sky, continues to function even in the face of major natural disasters on earth, such as floods or earthquakes. It is, therefore, ideally suited for use as a back-up communication link for the major centers in the country, where a disaster can otherwise disrupt the terrestrial connection.

The challenges ahead

We have no doubt covered considerable ground in modernising our payment and settlement system. The banking system too has made considerable investment in the related infrastructure to upgrade the payment system. However, there are several challenges that need to be effectively addressed if the full benefits of the achievements so far are to be reaped.

One of the main challenges in the payment system area is to promote large-scale use of the electronic modes of payment across the country and requires addressing the constraints that impede the adoption of this mechanism. To my mind, the primary reason for slow pace of adoption of the electronic modes of funds transfer, particularly in the retail segment, is the lack of education – particularly on the part of the bank staff at the branch level that have interface with the public. A survey conducted by one of the Regional Offices of the RBI in the recent past revealed that in the limited sample covered, there were several bank branches in the State which were not even aware of the National Electronic Fund Transfer system. The banks, therefore, need to make concerted efforts to increase the degree of awareness at the level of the branch staff so that the electronic fund transfer services percolate down to the level of the public in a significant manner.

The other side of the coin is the lack of customer education and awareness about the features and benefits of the EFT, which precludes wider adoption of this product and leads to carrying on with the traditional modes of payment. I would, therefore, like to urge upon the banks to launch a systematic educational campaign for their clients to educate them of the suite of electronic products offered by them. This would not only reduce the avoidable paper work in the operation of the banks but would also improve the quality of customer service and eventually, business volume.

In so far as the RBI is concerned, with a view to promoting the electronic payment culture and to make it more user-friendly, the RBI has intervened and mandated reasonability in pricing of transactions effected through ATMs and compulsory use of electronic mode for transactions above a specified threshold. The service charge levied on banks by the RBI for ECS, EFT / NEFT and RTGS transactions has been waived until March 2009, so that this benefit of reduced costs is passed on to customers, and the right incentive framework is created for the use of electronic retail payment products. Similarly, the limits set for ECS and EFT / NEFT transactions were also dispensed with in November 2004 with a view to expanding the user base. This, of course, is apart from various measures taken by the RBI for strengthening the payment systems infrastructure in a variety of ways.

Although the share of electronic payment products is improving in the overall retail segment, the share of public sector banks in this area is very low even as the number of branches offering the electronic payment facility is increasing. It is, therefore, necessary to make these products available across all bank branches. There is also a need to focus on expanding the geographical reach of the electronic payment services so as to include the segments of the population not yet touched by it. It is difficult to achieve financial inclusion without encompassing rural-India in the payment system out-reach and the banks that do so first, will reap the rewards of the ‘first-mover advantage’ in terms of higher market share, with the concomitant increase in business and revenues. And as we all know, the electronic payment medium is not only speedier and more efficient, but is also more environment friendly as it reduces the reliance on paper required for effecting payments. It is our vision that electronic products reach a level of 50% by volume and 95% by value of the aggregate payment system transactions in the country, by the end of March 2009.

Then, there are also some nagging efficiency issues in the payment system. Whilst the current clearing cycle of T+1 basis for the cheques payable locally, compares favourably with the best in the world, it is necessary to look into the entire cheque collection cycle – from the time a customer deposits a cheque at a branch till the point of realisation of credit in his account. There is perhaps scope for continuous improvement in overall collection cycle. Going by the number of complaints received, it appears that customer-service in this area is not very customer-centric.

Conclusion

The payment and settlement system constitutes the backbone of the financial sector and enables conclusion and settlement of financial contracts. The country has made phenomenal progress in enhancing the reach and improving the efficiency of the national payment system – in which the RBI and the banking system have been equal partners. Creating a world-class payment system in the country is a long, arduous but an exciting journey in which we have to constantly keep striving to better our past achievements. I am sure the banking community present here would make dedicated and systematic efforts in this direction to meet the challenges ahead and actively contribute to realising our vision for the payment system that we have set for ourselves.

Thank you.

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Vacancy at Banasthali University

Vacancy at Pondicherry University Last date 17.11.2008

CLARIFICATION REGARDING TDS OF ARREARS OF SALARY PAID TO GOVERNMENT SERVANTS ON ACCOUNT OF THE IMPLEMENTATION OF THE RECOMMENDATIONS OF SIXTH CPC

The Implementation Cell of the Department of Expenditure, Ministry of Finance vide its Office Order F. No. 1/1/2008-IC dated 30th August, 2008 has stated at Para 2(v) “Bills may be drawn separately in respect of the arrears of pay and allowances for the period from January 1, 2006 to August 31, 2008. The aggregate arrears, computed after deduction of subscription at enhanced rates of GPF and NPS with reference to the revised pay, may be paid in two installments, the first installment being restricted to 40% of the aggregate arrears. DDOs/PAOs will ensure that action is taken simultaneously in regard to Government’scontribution towards enhanced subscription. Orders in regard to the payment of the second installment of arrears will be issued separately.”
A number of representations have been received by CBDT seeking clarification as to whether TDS need to be deducted on 40% of arrear to be paid during 2008-09 or on the entire arrear payable to the government servant. The matter has been examined by the Board; the issue is clarified as given below.
Salary is as defined under Section 15 of Income Tax Act’61 :-
(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;
(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;
(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.
2. It is clear from the Office Memorandum issued by the Department of Expenditure that 60% of the pay arrears neither fall in the category of due nor are allowed. Moreover, Section 192 of Income Tax Act’61, inter alia, requires any person responsible for paying any income chargeable under the head “Salaries” to deduct income tax on the amount payable at the stipulated rate at the time of payment. Therefore it is clarified that income tax at source would be deducted u/s 192 only from the arrears of salary actually paid during FY 2008-09. On the balance, tax would be deducted during the financial year in which these pay arrears are actually paid.
Source : Here

MASTER OF BUSINESS ADMINISTRATION (PART TIME) FROM FMS, NEW DELHI

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Vacancy at Indian Institutes of Science Education and Research (IISER) Pune

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Levy of Service Charges for Electronic Payment Products and Outstation Cheque Collection By Banks

Please find here letter issued by RBI to various banks regarding above mentioned subject. This will help us in dealing with our Banker
Source here

CHECK POINTS FOR PREPARATION OF TENDER ENQUIRY

Ensure that
1. Standard and correct forms are used for tender enquiry and all amendments authorized to these forms from time to time are carried out before issue.
2. Time and date for receipt and opening of tenders are indicated as per the guidelines.
3. The prescribed time been allowed to the to the tenderers to submit their quotations, depending on the type of enquiry being issued.
4. The period for which the tenders are to be kept open for acceptance been indicated realistically keeping in view the nature of the store and the time lag likely to be involved where consultation with the indentor on the suitability of offers received would become necessary.
5. The amount to be furnished by unregistered firms as EMD been calculated correctly and indicated if the enquiry is for purchase against adhoc indent ?
6. Description of stores including specifications/drawing is correctly indicated in the schedule.
7. The sources from where the specification/drawing can be obtained are indicated.
8. If stores are required as per BIS specification a clause for giving Purchase Preference to ISI Marked stores is included.
9. If the store is required to non-standard specification/drawing, required number of copies of drawings/specifications are available.
10. Where tender sample is required to be furnished authority to whom it should be sent for testing and the time within which the sample should be submitted are indicated correctly in the enquiry.
11. If the store is reserved item for purchase from any particular sector of industry a clear indication is given to that effect.
12. Inspecting Authority is correctly indicated.
13. The instructions to invitation to tender and conditions of contract applicable have been correctly indicated in the enquiry.
14. Contract clauses contained in the standard forms used for issue, of tender enquiry and the general and Special Conditions of contract are not reproduced in the tender enquiry.
15. The appropriate price variation clauses in the enquiry where such a provision is necessary has been given along with base price on which firms should offer their prices.
16. Delivery required is correctly given. Where purchase of large quantities of stores are involved delivery may be specified in installment particularly in respect of cases where contracts are likely to be concluded on variable price basis.
17. Insertion of standard pre-estimated Liquidated Damages Clause in Tender Enquiry for claim against delay in supplies.
18. Insertion of modified clause for cancellation of contract and effecting repurchase.
19. In case of purchase of imported stores the appropriate shipping clauses are incorporated. Other special conditions viz. payment terms for FOB/FAS contracts etc. should also be indicated in the enquiry.
20. That all other special conditions as per existing orders are incorporated in the Tender Enquiry.
21. Period of validity of, performance guarantee whether to cover warranty period also.

Efficiency, Economy and Accountability in Public Buying

Public procurement procedures must conform to exemplary norms of best practices to ensure efficiency, economy and accountability in the system.To achieve this objective, the following key areas should be taken care of:
(i) To reduce delays, each Ministry / Department should prescribe appropriate time frame for each stage of procurement; delineate the responsibility of different officials and agencies involved in the purchase process and delegate, wherever necessary, appropriate purchase powers to the lower functionaries with due approval of the competent authority.
(ii) Each Ministry / Department should ensure conclusion of contract within the original validity of the tenders. Extension of tender validity must be discouraged and resorted to only in absolutely unavoidable, exceptional circumstances with the approval of the competent authority after duly recording the reasons for such extension.
(iii) The Central Purchase Organizations should bring into the rate contract system more and more common user items, which are frequently needed in bulk by various Ministries / Departments. The Central Purchase Organizations should also ensure that the rate contracts remain available without any break.
Source: MANUAL ON POLICIES AND PROCEDURES FOR PURCHASE OF GOODS

Vacancy at IIT Bombay Last Date 24/10/2008

Vacancy at IIT Punjab Last Date 7/11/2008

For more information Click here

Transparency, Competition, Fairness and Elimination of Arbitrariness in Public Buying

Public buying should be conducted in a transparent manner to bring competition, fairness and elimination of arbitrariness in the system. This will enable the prospective tenderers to formulate competitive tenders with confidence. The following are some important measures to achieve the same and, thus, secure best value for money:
(a) The text of the tender document should be user-friendly, selfcontained, comprehensive, unambiguous, and relevant to the objective of the purchase. The use of terminology used in common parlance in the industry should be preferred.
(b) The specifications of the required goods should be framed giving sufficient details in such a manner that it is neither too elaborately restrictive as to deter potential tenderers or increase the cost of purchase nor too sketchy to leave scope for sub-standard supply.
The specifications must meet the essential requirements of the user department. Efforts should also be made to use standard specifications, which are widely known to the industry.
(c) The tender document should clearly mention the eligibility criteria to be met by the tenderers such as minimum level of experience, past performance, technical capability, manufacturing facilities, financial position, ownership or any legal restriction etc.
(d) Restrictions on who is qualified to tender should conform to extant Government policies and be judiciously chosen so as not to stifle competition amongst potential tenderers.
(e) The procedure for preparing and submitting the tenders; deadline for submission of tenders; date, time & place of public opening of tenders; requirement of earnest money and performance security; parameters for determining responsiveness of tenders; evaluating and ranking of tenders and criteria for full or partial acceptance of tender and conclusion of contract should be incorporated in the tender enquiry in clear terms.
(f) Tenders should be evaluated in terms of the criteria already incorporated in the tender document, based on which tenders have been received. Any new condition, which was not incorporated in the tender document, should not be brought into consideration while evaluating the tenders.
(g) Sufficient time should be allowed to the tenderers to prepare and submit their tenders.
(h) Suitable provisions should be kept in the tender document allowing the tenderers reasonable opportunity to question the tender conditions, tendering process, and/or rejection of its tender and the settlement of disputes, if any, emanating from the resultant contract.
(i) It should be made clear in the tender document that tenderers are not permitted to alter or modify their tenders after expiry of the deadline for receipt of tender till the date of validity of tenders and if they do so, their earnest money will be forfeited.
(j) Negotiations with the tenderers must be severely discouraged. However, in exceptional circumstances, where price negotiations are considered unavoidable, the same may be resorted to, but only with the lowest evaluated responsive tenderer, and that too with the approval of the competent authority, after duly recording the reasons for such action.
(k) The name of the successful tenderer to whom the supply contract is awarded should be appropriately notified by the purchase organization for the information of general public, including display at notice board, periodical bulletins, website etc.

Source: MANUAL ON POLICIES AND PROCEDURES FOR PURCHASE OF GOODS

Option Date Under 6th CPC w.r.t Date of Promotion/ Increment after 1/1/2006

(1) For option from Date of Increment :- The studies shows that employees defer 6CPC pay fixation to their respective increment month get no benefit out of the same.
This is because when an employee misses the revised increment during July 2006 on account of deferred fixation, he loses 3% of revised pay which is at any point of time more than the pre-revised increment the employee gets when he continues to get old pay after 1.1.2006. This is why the new Pay Fixation after 01.01.06 based on fitment table is lesser than the New Pay fixed on 1.1.2006.

(2) For option from Date of Promotion :- The studies shows that those who have been promoted or received their ACP after June-2006 can get benefits out of deferred pay fixation in the form of enhanced new pay as on Sept 2008. But you may have to incur loss in the pay arrears as you end up in receiving only the old pay till the date of New pay fixation.

The beneficial aspect of differing option to date of promotion is apparent particularly in case of Assistant Gr(I) of CSIR , for whom Pay scale has been revised w.e.f 15/09/2006, and their Basic is fixed below 6500 after fixation in revised scale of 6500-200-10500. The lower the fixation more the benefit.

Acceptance of 6th Pay Commission Recommendation By CSIR

CSIR vide OM No 5-1(3)/2008-PD Dt. 4/10/2008 implemented the 6th Pay commission recommendation in CSIR in line of DR.Vikram Kumar committee recommendation except
(1) Non Functional scale 0f 8000-275-13500 to SO/ PS from 3/10/2003 instead of 1/1/1996
(2) Grant of Central Secretariat Official Language Services scale to Rajbhasha staff wef 1/1/2006
(3) Withhold of implementation in case of Gr IV & Director (only interim payment of Rs 50000.00)

The 10% of the additional expenditure will be met out of LRF.

For Detail Please visit:- here

GoI OM related to Austerity in TA/DA Expenditure

With issue of higher TA/DA rates under 6th Pay commission, to observe austerity measures GoI has issued a OM with regard to following guidelines:-

1. No additional funds will be provided.
2. To undertake official tour only under absolute official requirement.
3. Utilizing cheapest fare system system of Airlines.
4. Use of corporate coupons.
5. Travel in lower class.
6. Use of incentive (e.g Mileage points) earned during tour for other official tours .
   
7. Use of other technological tool in lieu of travel

Payment of Bonus Act, 1965

The key provisions of the Act are:-

• According to the Act, the term 'employee' means "any person employed on a salary or wage not exceeding three thousand and five hundred rupees per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied".
• An employee is entitled to be paid by his employer a bonus in an accounting year subjected to the condition that he/she has worked for not less than 30 working days of that year.
• An employer shall pay minimum bonus at the rate of 8.33% of the salary or wages earned by an employee in an year or one hundred rupees,whichever is higher. Here it is not required that the employer has any allocable surplus in the accounting year. However, where an employee has not completed fifteen years of age at the beginning of the accounting year, the minimum bonus payable is 8.33% or sixty rupees, whichever is higher.
• In any accounting year, if the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer shall in lieu of such minimum bonus, be bound to pay bonus (maximum bonus) equivalent to the amount which shall not exceed 20% of the salary or wages earned by employees.
• In computing the allocable surplus, the amount set on or the amount set off shall be taken into account. In other words:- (i) If, in any accounting year, the allocable surplus exceeds the amount of maximum bonus payable to the employees in the establishment, then the excess surplus is carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year for the purpose of payment of bonus; or (ii) If there is no or less allocable surplus in respect of that year, then such a shortfall is carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the fourth accounting year.
• Where in any accounting year, any amount has been carried forward and set on or set off, then in calculating bonus for the succeeding accounting year, the amount of set on or set off carried forward from the earliest accounting year shall first be taken into account.
• All amounts payable to an employee by way of bonus under this Act shall be paid in cash by his employer within a month from the date on which the award become enforceable or the settlement comes into operation, in respect of any dispute regarding payment of bonus. But, in any other case, it shall be paid within a period of eight months from the close of the accounting year.

  However, the Government may order, upon receiving application made to it by the employer and for sufficient reasons, to extend the said period of eight months to such further period or periods as it thinks fit, such that that the total period so extended shall not, in any case, exceed two years.

• An employee shall be disqualified from receiving bonus if he/ she is dismissed from service for:- (i) fraud; or (ii) riotous or violent behavior while on the premises of the establishment; or (iii) theft, misappropriation or sabotage of any property of the establishment.

Wages of Workers under Labour contract

As per the 'Committee on Fair wages', there are three distinct levels of wages:-

(i) Living wage represents a standard of living which provides not merely for a bare physical subsistence, but for the maintenance of health and decency, a measure of frugal comfort including education for children, protection against ill-health, requirements of essential social needs and some insurance against the more important misfortunes;

(ii) Minimum wage ensures not merely the bare sustenance of life, but the preservation of the efficiency of the worker by providing some measure of education, medical requirements and amenities. Thus, the minimum wage prescribes the lower limit while the upper limit is set by the capacity of the industry to pay;

(iii) Fair wage is the wage which is above the minimum wage but below the living wage.

Role of Finance in National Lab

Role of Finance in National Lab.:- Service oriented, primarily in three fields

(1) Financial advice: - the Director and other Officer down the line are vested with power to accord financial sanction subject to budget allocation as laid down in delegation of financial power to the national lab of CSIR. Hence all financial sanction irrespective of amount is subject to observance of codal formalities need financial concurrence of the finance of national lab. This is called audit of sanction as per norms stipulated in the GFR & budget & accounts manual of the CSIR.

(2) Auditing: - all payments of the lab are subject to pre-audit with a view to see that rules and procedure are followed. This calls for good understanding of various govt. rules.

(3) Accounting & Budgeting: - Budget is prepared according to need and demand of a lab on approved projects authorized by the apex body of the lab for a particular year. Project oriented budget estimates and revised budget are formulated each year for approbation of CSIR and allocation of funds.

Accounting is done as per procedure laid down by CAG and various books of account are prepared accordingly.

Pre-auditing of Purchase Proposals

As per the purchase procedure 2002, para 19.0.0 "Audit of Purchase Proposals All indents shall be audited concurrently by the Sr. FAO/ FAO of the lab who is the member of the SPC. However, the finance member of the SPC shall ensure that all the financial parameters are fully complied with before according his concurrence."
While complying this instruction the officer of the Accounts Division should ensure that

1. Approval of competent authority/committee exists for the purchase.
2. In case of proprietary items, detailed technical justification wherever necessary for the choice of the proprietary make is furnished by the Indenter.
3. Tenders are evaluated in terms of the criteria already incorporated in the tender document, based on which tenders have been received.
4. It is against the Responsive Bid.
5. Sufficient funds are available.
6. Head of Account to which expenditure is to be debited is correctly indicated.
7. Lowest quotation is accepted or satisfactory reasons have been recorded in writing for not accepting the lowest quotation.
8. Proper procedure for making purchase is followed.
9. Approval of the competent authority is obtained for deviation from the procedure and also from the standards terms and conditions of the contract where applicable.
10. Provision is made in the contract for safeguarding government property required to be entrusted to the contractor.
11. Paying authority has been correctly stipulated in the purchase order.
12. Price preference/purchase preference wherever applicable as per the Government order is accorded.
13. All the necessary details concerning the offers, such as rates, make, delivery, quantity offered, together with any other information relevant to the decision of the tender are extracted and neatly entered in the comparative statement.

14. When a purchase order is proposed based on a single offer received against limited tender, adequacy of the coverage of field and reasonableness of the price are certified by the officer concerned in the Purchase / Indenter.
15. Whether the provisions of GFR particularly those relating to contracts, purchases and cannons of financial propriety have been followed.
16. If the purchase order proposed to be placed is on ex-works or F.O.R. basis whether suitable provision has been made in the purchase order for safe delivery of the items by the contractor to be purchaser’s site.
17. Whether suitable clause for proper packing is incorporated and whether name and address of the consignee, quantity, rate and other relevant commercial terms and conditions have been correctly reflected in the purchase order.
18. If previous purchase references are available, whether the rates stipulated in the purchase order are comparable with the previous purchase order.
19. In respect of imported stores, when foreign bids are received in different currencies, conversion of foreign currency into rupees is to be done taking into account the B.C. Selling rate of State Bank of India on the date of opening of price bid.

20. Wherever required and agreed to, whether liquidated damages clause has been incorporated in the purchase order.
21. Whether appropriate guarantee clause has been incorporated in the purchase order.
22. Whether documents to be presented for release of payment have been listed out properly.
23. In cases where free issue materials are to be provided by the Department to the Contractors, whether suitable provision for safeguarding the interests of the governments, manner and method for delivery of free issue materials, furnishing safeguards by the contractor, accounting of free issue materials, the maximum permitted percentage of loss/wastage have been incorporated in the purchase order.
24. In case of supply by Indian agents of imported items whether the Indian Agents are registered with DGS&D as authorized Indian Agent of Foreign Supplier under the Compulsory scheme of Ministry of Finance. Agents quoting on behalf of their principals should;

1. Produce their foreign principals’ Performa invoice indicating commission, payable to the Indian agent, nature of after-sales service to be rendered by the Indian agent.,

2. Clearly indicate, if their offer is on F.O.R basis, the break up of the prices viz. net f.o.b value, insurance, freight and clearing/handling charges at the Indian Port, profit margin and charges for dispatch up to destination.

3. Produce copy of the Agency Agreement with their foreign principals.

4. Give particulars regarding precise relationship with the foreign principals and their mutual interest in the business.

25. Whether state statutory liabilities are dispensed.

26. One time purchase for projects or capital equipments / spares should be properly justified depending on the actual requirement usage, rate of return etc. Further, the obsolescence factor should also be taken into account i.e. the equipment to be purchased should conform to the latest specifications and technology available in the market.

Report of the committee on implementation of Sixth Central Pay Commission Recommendations in CSIR

LINK HERE

Procedure for generation and utilization of ' Laboratory/ Headquarter Reserve Fund'

Please find here the CSIR OM No 1(11)/Acctt./2000-2001 Dated 4th September 2000 regarding Procedure for generation and utilization of ' Laboratory/ Headquarter Reserve Fund' as this has been quite in demand at the time of Audit & LRF expenditure . And this is also not available at CSIR website.

Vacancy at IIT Hyderabad, Last Date 31/10/2008

Vacancy at IIT Delhi, Last Date 20/10/2008

6th pay commission for Autonomous Bodies

GoI vide OM No 7/23/2008 E-III A Dated 30/09/2008, issued the guideline for extension of 6th Pay commission recommendation to Autonomous Bodies
link here

Income Tax rate AY 2008-09 and AY 2009-10

For detail Please see Link

TDS rate for FY 2008-09

Manual for Guidence

Ministry of Finance, GoI had issued some manuals/ models for guidance in framing detailed rules/ procedure & detailed instructions. A review of these instructions may helpful in carrying out our duties. These are
(1) Manual of policies & procedure works contract
http://finmin.nic.in/the_ministry/dept_expenditure/GFRS/Structure%20CP%20WG.pdf
(2) Manual of policies & procedure purchase of goods
http://finmin.nic.in/the_ministry/dept_expenditure/GFRS/MPProc4ProGod.pdf
(3) Manual of policies & procedure of employment of consultant
http://finmin.nic.in/the_ministry/dept_expenditure/GFRS/MPProc4ProCons.pdf
(4) Bidding document for works
http://finmin.nic.in/the_ministry/dept_expenditure/GFRS/BiddDocWorks.pdf
(5) Public procurement- A reference paper
http://finmin.nic.in/the_ministry/dept_expenditure/press/notNo8(3)-E.II(A)0-02.pdf

Guidelines for the Principal Employer in respect of Labour contract.

1 An employee of the Lab should not be made as a contractor (Sham/ False contract). Go for an independent contractor. As far as possible, the preference should be given to a contractor, who has got the contract in similar concern of the same type.
2 If the contractor has similar type of contract in different concerns, then he should try to transfer the employees from one establishment to another establishment. Hence the contract employees can be transferable. This is a with a view that the contractor should not employ the contract workmen in the same establishment for not more than a certain stipulated period.
3 The contractor shall select and appoint the workmen without any interference of the Lab. The supervision and control on the workmen of contractor will be solely by the Contractor. Hence the Lab will not have supervision and control over the contractor’s workmen.
4 The contractor shall determine the mode, method and manner of working. The Lab shall not interfere in regard to the same.
5 The Contractor shall employ the workforce according to his requirement but he shall not in any case exceed the number of workmen shown in the licence or do any other work what is not given in the licence.
6.1 Similarly Employer shall register itself under the Contract Labour (Regulation & Abolition) Act, 1970.
6.2 The Contractor shall submit monthly printed bill to the Lab for payment of the work done by him by 1st day of following month and the printed bill should be signed under the Rubber Stamp.
6.3 The Employer has to ensure that the Contractor is paying the workmen minimum wages and the payment to them is made on or before 7th of every month in presence of the representatives of the Lab who shall also sign on the muster/register.
6.4 The Contractor shall deduct the income tax as per income tax act or any other law applicable from time to time from the payment made to his workmen.
6.5 The Contractor shall pay his own taxes as per provisions of statutory acts.
6.6 The Contract shall be given for the job to be done and rates of job shall be paid to contractor as per mutual agreed basis.
6.7 The Lab shall ensure while making payment to the contractor that the contractor has paid the employees’ provident fund and ESI contributions deductions both of employees and of contractor on time (along with copy of challan paid).
7 The Lab shall check up that the Contractor renews his licence from time to time.
8 The Contractor shall decide about the disciplinary action to be taken against his employees in case of any acts of misconducts committed by his employees.
9 The Lab shall see that if possible the Contractor has obtained separate code numbers of Employees State Insurance and Employees Provident Fund under the respective Acts.
10 The Contractor shall maintain necessary records such as identical card. Attendance register and/or card and other statutory registers through his staff and not by the staff of the Lab.
11 The contract workmen shall do the specific work of the contract and not any other work of the Lab.
12 Contract Labourers are not to be employed for doing perennial and permanent nature of jobs of the Lab.
13 Contract Labourers should not be employed for doing any main activity of the Lab.
14 Do not pay from the regular fund of Lab
15 If possible insert following clause in NIT/ Contract w.r.t LIABILITIES, CONTROL ETC. OF THE PERSONS DEPLOYED
(a) The Contractor shall depute a co-odinator who would be responsible for immediate interaction with the Lab so that optimal services of the persons deployed by the agency could be availed without any disruption.
(b) It will be the responsibilities of the Contractor to meet transportation, food, medical and any other requirements in respect of the persons deployed by it (Agency) in this Lab and this Lab will have no liabilities in this regard.
©. For all intents and purposes, the Contractor shall be the “Employer” within the meaning of different Labour Legislations in respect of Persons so employed and deployed in this Lab. The persons deployed by the Contractor in the Lab shall not have claims of any Master and Servant relationship nor have any principal and agent relationship not have any principal and agent relationship with or against Lab.
(d).The Contractor shall be solely responsible for the redressal of grievances / resolution of disputes relating to person deployed. This Lab shall, in no way, be responsible for settlement of such issues whatsoever.
(e) This Lab shall not be responsible for any damages, losses, claims, financial or other injury to any person deployed by service providing agency in the course of their performing the functions/duties, or for payment towards any compensation.
(f) The persons deployed by the Contractor shall not claim nor shall be entitled to pay, perks and other facilities admissible to casual, ad hoc, regular / confirmed employees of this Lab during the currency or after expiry of the contract.
(g) In case of termination of this contract on its expiry or otherwise, the persons deployed by the Contractor shall not be entitled to and will have no claim for any absorption nor for any relaxation for absorption in the regular / otherwise capacity in this Lab

CONTRACT LABOUR IN INDIA

The system of employing contract labour is prevalent in most industries in different occupations including skilled and semi skilled jobs. It is also prevalent in agricultural and allied operations and to some extent in the services sector. A workman is deemed to be employed as Contract Labour when he is hired in connection with the work of an establishment by or through a contractor. Contract workmen are indirect employees; persons who are hired, supervised and remunerated by a contractor who, in turn, is compensated by the establishment. Contract labour has to be employed for work which is specific and for definite duration. Inferior labour status, casual nature of employment, lack of job security and poor economic conditions are the major characteristics of contract labour. While economic factors like cost effectiveness may justify system of contract labour, considerations of social justice call for its abolition or regulation.

The condition of contract labour in India was studied by various Commissions, Committees, and also Labour Bureau, Ministry of Labour, before independence and after independence. All these have found their condition to be appalling and exploitative in nature. The Supreme Court of India in the case of Standard Vacuum Refinery Company Vs. their workmen (1960-II-ILJ page 233) observed that contract labour should not be employed where:

(a) The work is perennial and must go on from day to day;

(b) The work is incidental to and necessary for the work of the factory;

(c) The work is sufficient to employ considerable number of whole time workmen; and

(d) The work is being done in most concerns through regular workmen.

THE CONTRACT LABOUR (REGULATION AND ABOLITION) ACT, 1970

The concern for providing legislative protection to this category of workers, whose conditions have been found to be abysmal, resulted in the enactment of the Contract Labour (Regulation and Abolition) Act, 1970.

OBJECTS AND PURPOSES OF THE ACT

The Contract Labour (Regulation and Abolition) Act, 1970 was brought on the Statute Book to regulate the employment of Contract Labour in certain establishments and to provide for its abolition in certain circumstances and for matters connected therewith.

APPLICATION

The Contract Labour (Regulation and Abolition) Act, 1970 and the Contract Labour (Regulation and Abolition) Central Rules, 1971 came into force on 10.2.71.The constitutional validity of the Act and the Central rules were challenged before the Supreme Court in Gammon India Ltd. Vs. Union of India 1974-ILLJ-480. The Supreme Court upheld the constitutional validity of the Act & Rules and held that there is no unreasonableness in the measure. The Act & Rules were enforced w.e.f. 21.03.1974.

The Act applies to every establishment in which 20 or more workmen are employed or were employed on any day on the preceding 12 months as contract labour and to every contractor who employs or who employed on any day of the preceding 12 months 20 or more workmen. It does not apply to establishments where the work performed is of intermittent or seasonal nature. An establishment wherein work is of intermittent and seasonal nature will be covered by the Act if the work performed is more than 120 days and 60 days in a year respectively. The Act also applies to establishments of the Government and local authorities as well.

APPROPRIATE GOVERNMENT

The jurisdiction of the Central and State Government has been laid down by the definition of the ‘Appropriate Government’ in Section 2(1)(a) of the Act, as amended in 1986. The Appropriate Government, in respect of an establishment under the Contract Labour (Regulation and Abolition) Act, 1970 is the same as that in the Industrial Disputes Act, 1947.

As per the interpretation given by the Supreme Court, through its judgement dated 30.08.2000, in Steel Authority of India Limited and Ors Vs. National Union Water Front Workers & Ors., the ‘appropriate government’ in relation to an establishment would be the Central Government if (i) the concerned Central Government company/ undertaking or any undertaking is included by name in clause (a) of Section 2 of the Industrial Disputes Act, or (ii) any industry carried on by or under the authority of Central Government or by a railway company, or (iii) any such controlled industry as may be specified in this behalf by the Central Government, otherwise in relation to any other establishment, the Government of the State in which that other establishment is situated, will be the appropriate government.

REGISTRATION OF ESTABLISHMENT AND LICENSING OF CONTRACTORS

The establishments covered under the Act are required to be registered as principal employers with the appropriate authorities. Every contractor is required to obtain a licence and not to undertake or execute any work through contract labour except under and in accordance with the licence issued in that behalf by the licensing officer. The licence granted is subject to such conditions as to hours of work, fixation of wages and other essential amenities in respect of contract labour as laid down in the rules.

WELFARE AND HEALTH OF CONTRACT LABOUR

The Act has laid down certain amenities to be provided by the contractor to the contract labour for establishment of Canteens and rest rooms ; and arrangements for sufficient supply of wholesome drinking water, latrines and urinals, washing facilities and first aid facilities and have been made obligatory. In cases of failure on the part of the contractor to provide these facilities, the Principal Employer is liable to provide the same.

PAYMENT OF WAGES

The contractor is required to pay wages and a duty is cast on him to ensure disbursement of wages in the presence of the authorised representative of the Principal Employer. In case of failure on the part of the contractor to pay wages either in part or in full, the Principal Employer is liable to pay the same. The contract labour who performs same or similar kind of work as regular workmen, will be entitled to the same wages and service conditions as regular workmen as per the Contract Labour (Regulation and Abolition) Central Rules, 1971.

PENAL PROVISIONS

For contravention of the provisions of the Act or any rules made there under, the punishment is imprisonment for a maximum term upto 3 months and a fine upto a maximum of Rs.1000/-.

OTHER PROVISIONS

The Act makes provision for the appointment of Inspecting staff, for maintenance of registers and records and for making Rules for carrying out the purpose of the Act. In the central sphere, officers of the CIRM have been appointed as Inspectors.

PROHIBITION

Apart from the regulatory measures provided under the Act for the benefit of the contract labour, the ‘appropriate government’ under section 10(1) of the Act is authorised, after consultation with the Central Board or

State Board, as the case may be, to prohibit, by notification in the official gazette, employment of contract labour in any establishment in any process, operation or other work. Sub-section (2) of Section 10 lays down sufficient guidelines for deciding upon the abolition of contract labour in any process, operation or other work in any establishment.

The guidelines are mandatory in nature and are:-Conditions of work and benefits provided to the contract labour.

• Whether the work is of Perennial nature.

• Whether the work is incidental or necessary for the work of an establishment.

• Whether the work is sufficient to employ a considerable number of whole-time workmen.

• Whether the work is being done ordinarily through regular workman in that establishment or a similar establishment.

The Central Government on the recommendations of the Central Advisory Contract Labour Board, have prohibited employment of contract labour in various operations/ category of jobs in various establishments. So far 48 notifications have been issued since inception of the Act.

EXEMPTION

The ‘appropriate government’ is empowered to grant exemption to any establishment or class of establishments or any class of contractors from applicability of the provisions of the Act or the rules made thereunder on such conditions and restrictions as may be prescribed. Nine notifications granting exemption to establishments in exercise of this power in the Central sphere have been issued.

ENFORCEMENT

In the Central sphere, the Central Industrial Relations Machinery (CIRM) have been entrusted with the responsibility of enforcing the provisions of the Act and the rules made thereunder, through Inspectors, Licensing Officers, Registering Officers and Appellate Authorities appointed under the Act.

Regular inspections are being conducted by the Field Officers of the CIRM and prosecutions are launched against the establishments, whenever violations of the Act/Rules/notifications prohibiting employment of contract labour are detected. From time to time, instructions/directions have been issued to the field officers of CIRM and State Government for proper implementation of the Act.

IMPORTANT JUDGEMENTS OF THE SUPREME COURT.

Three judgements delivered by the Supreme Court in the cases of Gujarat State Electricity Board Vs Union of India, Air India Statutory Corporation Ltd. & Ors Vs United Labour Union & Others, and Steel Authority of India Ltd. & Others Vs National Union of Waterfront Workers and others on 09.05.1995, 06.12.1996 and 30.08.2001 respectively, are landmark judgements.

In Gujarat State Electricity Board case, inter-alia, the Supreme Court recommended that the Central Government should amend the Act by incorporating a suitable provision to refer to industrial adjudicator the question of the direct employment of the workers of the ex-contractor in the principal establishments, when the appropriate Government abolishes the contract labour.

In Air India Statutory Corporation case, the Supreme Court held that though there exists no express provision in the Act for absorption of employees in establishments where contract labour system is abolished by publication of the notification under section 10 (1) of the Act, the principal Employer is under statutory obligation to absorb the contract labour. The linkage between the contractor and employee stood snapped and direct relationship stood restored between principal employer and contract labour as its employees.

The Supreme Court in the case of Steel Authority of India Ltd. Vs National Union of Waterfront Workers & Others and others have held that neither Section 10 of the Act nor any other provision in the Act whether expressly or by necessary implication provides for automatic absorption of contract labour on issuing a Notification by the appropriate Government under sub section (1) of Section 10 prohibiting employment of contract labour in any process or operation or other work in any establishment. Consequently the Principal Employer cannot be required to order absorption of the contract labour working in the concerned establishment. The judgement in Air India’s case was over-ruled prospectively.

Vacancy at CBSE