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Legal Aspects
Legal Aspects
Industrial Acts and Legislations:
Industries (Development and Regulation) Act 1951
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Growth of the industrial sector at a higher rate and on a sustained basis is a major determinant of a country's overall economic development. In this regard, the Government of India has issued industrial policies, from time to time, to facilitate and foster the growth of Indian industry and maintain its productivity and competitiveness in the world market.

In order to provide the Central Government with the means to implement its industrial policies, several legislations have been enacted and amended in response to the changing environment. The most important being the Industries (Development and Regulation) Act, 1951 (IDRA) which was enacted in pursuance of the Industrial Policy Resolution, 1948. The Act was formulated for the purpose of development and regulation of industries in India by the Central Government.

The main objectives of the Act is to empower the Government:- (i) to take necessary steps for the development of industries; (ii) to regulate the pattern and direction of industrial development; (iii) to control the activities, performance and results of industrial undertakings in the public interest. The Act applies to the 'Scheduled Industries' listed in the First Schedule of the Act. However, small scale industrial undertakings and ancillary units are exempted from the provisions of this Act.

The Act is administered by the Ministry of Industries & Commerce through its Department of Industrial Policy & Promotion (DIPP). The DIPP is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector. It monitors the industrial growth and production, in general, and selected industrial sectors, such as cement, paper and pulp, leather, tyre and rubber, light electrical industries, consumer goods, consumer durables, light machine tools, light industrial machinery, light engineering industries etc., in particular. It is also responsible for facilitating and increasing the foreign direct investment (FDI) inflow into the country as well as for encouraging acquisition of technological capability in various sectors of the industry.

The various provisions of the Act are:-

  • Establishment of a 'Central Advisory Council' for the purpose of advising the Central Government on matters concerning the development of the industries, making of any rules and any other matter connected with the administration of the Act. Its members shall consist of representatives of the owners of industrial undertaking, employees, consumers, primary suppliers, etc.


  • Establishment of a 'Development Council' for the purpose of development of any scheduled industry or group of scheduled industries. This council shall consist of the members representing the interests of the owners, employees, consumers, etc. and persons having special knowledge of matters relating to the technical or other aspects of the industries.


  • The development council shall perform the following functions assigned to it by the Central Government:- (i) recommending targets for production, co-ordinating production programmes and reviewing progress from time to time. (ii) suggesting norms of efficiency with a view to eliminating waste, obtaining maximum production, improving quality and reducing costs. (iii) recommending measures for securing the fuller utilisation of the installed capacity and for improving the working of the industry, particularly of the less efficient units. (iv) promoting arrangements for better marketing and helping in the devising of a system of distribution and sale of the produce of the industry which would be satisfactory to the consumer. (v) promoting the training of persons engaged or proposing engagement in the industry and their education in technical or artistic subjects relevant thereto, etc.


  • The development council shall prepare and transmit to the Central Government and the advisory council a report (annually) setting out what has been done in the discharge of its functions during the financial year last completed. The report shall include a statement of the accounts of the development council for that year, together with a copy of any report made by the auditors on the accounts.


  • The IDRA empowers the Central Government to regulate the development of industries by means of licensing with suitable exemptions as decided by the Government. Accordingly, the entry into a business or the expansion of an existing business may be regulated by licensing. A licence is a written permission from the Government to an industrial undertaking to manufacture specified articles included in the Schedule to the Act. It contains particulars of the industrial undertaking, its location, the articles to be manufactured, its capacity on the basis of the maximum utilisation of plant and machinery, and other appropriate conditions which are enforceable under the Act.


  • If an application for licence is approved and further clearance ( such as that of foreign collaboration and capital goods import) are not involved and no other prior conditions have to be fulfilled, an industrial licence is issued to the applicant. In other cases, a letter of intent is issued, which conveys the intention of the Government to grant a licence subject to the fulfilment of certain conditions such as approval of foreign investment proposal, import of capital goods, etc.


  • The Government may order for investigation before the grant of licence to an industrial undertaking. It can make a full and complete investigation if it is of the opinion that in the respect of any schedule industry or undertaking, there has been or is likely to be:- (i) a substantial fall in the volume of output; or (ii) a marked deterioration in the quality of output or an unjustifiable rise in the price of the output. Also, if it is of the opinion that any industrial undertaking is being managed in a manner highly detrimental to the scheduled industry concerned or to the public interest, it orders investigation.


  • As a result of such investigations, the Government is empowered to issue directions to the industrial undertaking for all or any of the following purposes:-

    • Regulating the production of output by the industrial undertaking and fixing the standards of production;


    • Requiring the industrial undertaking to take such steps as the Central Government may consider necessary to stimulate the development of the industry to which the undertaking relate.


    • Prohibiting the industrial undertaking from resorting to any act or practice which might reduce its production, capacity or economic value;


    • Controlling the prices, or regulating the distribution, of an output for securing its equitable distribution and availability at fair prices.


    • The Act also provides that any such directions may be issued by the Central Government at any time when a case relating to any industrial undertaking is under investigation. These directions shall have effect until they are varied or revoked by the Central Government.



  • The power of control entrusted to the Central Government under the Act extends to that of the take over of the management of the whole or any part of an industrial undertaking which fails to comply with any of the directions mentioned above. The Government can also take over the management of an undertaking which is being managed in a manner highly detrimental to the scheduled industry concerned or to the public interest. Further, the Central government can take over the management of industrial undertaking owned by a company under liquidation, with the permission of the High Court, if the Government is of the opinion that the running or restarting the operations of such an undertaking is necessary for the maintaining or increasing the production, supply or distribution in the public interest.

Until liberalisation, the industrial licence was required for the establishment of a new industrial undertaking, manufacturing of a new item by an existing undertaking, change of location of an industry, substantial expansion of existing capacity and for all other purposes. But the new industrial policy s liberalised this and exempted many industries from obtaining industrial licence. In today's scenario, only 6 categories of industries require industrial licensing under the Industries (Development and Regulation) Act, 1951 (IDRA). Such industries file an Industrial Entrepreneur Memoranda (IEM) with the Secretariat of Industrial Assistance (SIA),Department of Industrial Policy and Promotion to obtain an acknowledgement.

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