Published by Wolters Kluwer (India) Pvt Ltd. Business Think India - 2nd Edition...Preface This...

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Published by Wolters Kluwer (India) Pvt Ltd.

Foreword

O P VAISHSenior Advocate

I am glad to see the transcript of the comprehensively updated second edition of the book ‘Think Business Think India’. a result of the collective efforts of the different practice groups within Vaish Associates Advocates.

India’s growth story remains unfettered and the investment outlook about India continues to be optimistic. Business in India has been gradually progressing from ‘good’ to ‘better’. Of late, India has also signed bilateral trade agreements with Korea. Japan and Malaysia. These initiatives, I am sure, will further augment India’s trade partnership with these important neighboring economies.

The growth in India is largely driven by domestic demand and not by exports, as in the case of China. Government of India and the Reeserve Bank of India (RBI) have taken measures to further pep up the demand and to take the economic growth rate to 9% and above.

stock markets are responding positively and will help generate greater resources for investments/expansions. Companies in India and overseas should take advantage of the emerging opportunities.

The book, Think Business Think India, is intended to give entrepreneurs and executives all necessary information about the relevant laws and procedures for setting up and doing business in India. I am sure this edition will be a welcome edition in the law libraries and on the shelves of investors, entrepreneurs and professional advisors.

O P Vaish

10, Hailey Road, New Delhi - 110 001, India.Tel: 91-11-42492525, 23329191, 23355238 Fax: 91-11-23320484, 42492600 E-mail: [email protected]

PrefaceThis second edition of Think Business Think India is a compendium of laws, rules and regulations that govern Indian businesses, which are updated as on April 1, 2011

prepared after a detailed research and wide consultations among experts, attempts to give discerning investors, both domestic and international, a kaleidoscopic idea of establishing presence in India and, importantly, doing business in India.

“Focus India” is a growing mantra in boardrooms across the world. India’s continental market, sustained high growth, large-scale capacity building, particularly in the manufacturing and service sectors, addition of millions of high net worth individuals every year, propensity to absorb investments, especially in the frontier areas of technology, unprecedented blossoming of entrepreneurship, etc, are well known and documented. A combination of all these factors makes India one of the most-happening business destinations in the world. The thematic sequencing of the book is crafted in a way so as to unravel the “India Advantage” factor to the myriad business corporations, investors, analysts and the swelling ranks of entrepreneurs. A practical approach to forming joint ventures, technology transfer, formation of companies, intellectual property rights, investment opportunities in important sectors, etc, has been adopted. The book also dwells upon subjects like investment framework, governance including corporate governance framework, trade and competition policies, overview of various key enactments governing businesses, issues concerning expatriates working in India, etc. It also provides links to important government, business and other relevant websites.

The Government of India has embarked upon economic reform process with the twin objective of opening up of the Indian economy to attract foreign investment and to accelerate its process of global integration. Against this backdrop, it has been the endeavour of the Government to benchmark the country’s laws and regulations vis-à-vis the best global practices. This has led to quick and progressive adjustments in the economic and commercial laws of India. It is, therefore, important to keep pace with the changing dynamics of the legal landscape.

The publication captures the changes taking place in the legal and policy framework and the abounding business opportunities emerging on account of progressive policy

be confronted with. Tips, leads and bare facts contained in the publication are designed as value-added information, which are concise and crisp but not exhaustive. It serves as a valuable guide to your “India strategy”.

Think Business Think India is a consolidation of the body of experience and incisive knowledge accumulated over the years at Vaish Associates, Advocates. The seminal contributions of the team of professionals and their penchant for looking at every conceivable aspect of enactments governing businesses are commendable. Think Business Think India is an outcome of the seminal contributions bydifferent

practice groups at Vaish Associates, Advocates. The Editors, Mr Vinay Vaish and Mr Hitender Mehta, Partners, Vaish Associates, Advocates, deserve a special mention for accomplishing this edition of Think Business Think India.

We at Vaish Associates, Advocates shall be happy to respond to your requests for further information and guidance. As a partner in progress, we are committed to building India and building your business.

Vaish Associates, AdvocatesCorporate, Tax and Business Advisory Law Firm

New Delhi

Direct Tax & Corporate

Flat Nos. 5, 6 &72nd Floor10 Hailey RoadNew Delhi-110001

T: 91 11 42492525F: 91 11 23320484E: [email protected]

IPR Division

903, 9th FloorIndraprakash Building21 Barakhamba RoadNew Delhi-10001


Indirect Tax Division

Flat # 110511th Floor, Tolstoy House, New Delhi -110 001

T: 91 11 42492525 F: 91 11 43518415E: [email protected]

Mumbai

106, Penninsula CentreDr. S.S. Rao Road, ParelMumbai-400012


Gurgaon

803, Tower A, Signature TowerSouth City-I, NH-8Gurgaon-122001


Bengaluru

Royal Arcade No.6, 80 Ft. RoadKoramangala Indl. Area,Bengaluru – 560095

T: 91 80 42288501-02F: 91 80 42288503E: [email protected]

Contents

1. Introduction ...................................................................................................... 12. Advantage India ................................................................................................ 33. Constitutional Framework............................................................................... 124. Competition Policy and Laws ......................................................................... 185. Special Schemes for Export Promotion

(SEZs/EOUs/STPs/EHTPs/BTPs) ................................................................... 316. Investment Framework.................................................................................... 407. Establishing Presence in India ........................................................................ 868. Tax Laws ...................................................................................................... 1039. Labour and Industrial Laws........................................................................... 14210. Intellectual Property Laws ............................................................................ 15811. Consumer Protection Law ............................................................................ 18212. Environment Laws ........................................................................................ 18613. Important Considerations for Expatriates working in India ........................... 19114. Important Sectors .......................................................................................... 19715. Corporate Governance Framework................................................................ 221Important Websites................................................................................................ 231Index .....................................................................................................................236

Chapter

Foreword ..................................................................................................................vPreface................................................................................................................... viiAbbreviations .......................................................................................................... xi

Page

AbbreviationsAAI Airports Authority of IndiaAAR Authority for Advance RulingsAD Authorised DealerADR Alternate Dispute ResolutionADRs American Depository ReceiptsAGM Annual General MeetingAMT Alternate Minimum TaxAOA Articles of AssociationAOP Association of PersonsARC Asset Reconstruction CompanyASEAN Association of South-East Asian NationsBCAS Bureau of Civil Aviation SecurityBCD Basic Customs DutyBIPA Bilateral Investment Promotion and Protection Agreement

BOA Board of ApprovalBPO Business Process OutsourcingBSE Bombay Stock Exchange LimitedBSNL Bharat Sanchar Nigam LimitedBTPs Biotechnology ParksCARO Companies (Auditor’s Report) OrderCBDT Central Board of Direct TaxesCBEC Central Board of Excise & CustomsCBS Capacity Building for Service ProvidersCCI Competition Commission of IndiaCCR CENVAT Credit RulesCENVAT Central Value Added TaxCETA Central Excise Tariff ActCIC Credit Information CompanyCIT Commissioner of Income TaxCIT(A) Commissioner of Income Tax (Appeals)CPCB Central Pollution Control BoardCST Central Sales TaxCVD Countervailing DutyDBOD Department of Banking Operations and DevelopmentDCA Department of Company AffairsDDT Dividend Distribution TaxDEA Department of Economic AffairsDGCA Directorate General of Civil AviationDIC District Industries Centre

DIPP Department of Industrial Policy & PromotionDP Designated Partners

DRP Dispute Resolution PanelDTA Domestic Tariff AreaDTAA Double Taxation Avoidance AgreementECB External Commercial BorrowingEHTP Electronics Hardware Technology ParkEMRs Exclusive Marketing RightsEOUs Export Oriented UnitsEPFS Employees’ Provident Fund SchemeEPS Employees Pension SchemeESIC Employees’ State Insurance CorporationESOP Employees’ Stock Option Plan (Scheme)

FCCBs Foreign Currency Convertible BondsFCNR Foreign Currency Non-resident (bank account)FCRA Foreign Contribution Regulation Act, 1976FDI Foreign Direct InvestmentFEMA Foreign Exchange Management Act, 1999FII Foreign Institutional InvestorFIPB Foreign Investment Promotion BoardFIR First Information ReportFMCG Fast-moving Consumer Goods

FTAs Free Trade AgreementsFVCI Foreign Venture Capital InvestorGATT General Agreement on Trade and TariffsGDP Gross Domestic ProductGDRs Global Depository ReceiptsGMPCS Global Mobile Personal Communications ServicesGST Goods and Services TaxHSD High Speed DieselHUF Hindu Undivided FamilyI.T. Income TaxICA Indian Council of ArbitrationICADR International Centre for Alternate Dispute ResolutionICAI Institute of Chartered Accountants of IndiaICB International Competitive BiddingICs Integrated CircuitsIDA International Depository AuthorityIDBI Industrial Development Bank of IndiaIDR Indian Depository ReceiptsIEM Industrial Entrepreneurs’ Memorandum

IFCI Industrial Financial Corporation of IndiaIMR Infant Mortality RateIMTECH Institute of Microbial TechnologyIP Intellectual PropertyIPAB Intellectual Property Appellate BoardIRDA Insurance Regulatory and Development AuthorityIT Information TechnologyITAT Income Tax Appellate TribunalITeS IT-enabled ServicesIVCU Indian Venture Capital UndertakingIWAI Inland Waterways Authority of IndiaKPO Knowledge Process Outsourcing

LIBOR London Interbank Offered RateLIM Lawful Interception MonitoringLIS Lawful Interception SystemLLP Limited Liability Partnership

MAT Minimum Alternative TaxMCA Ministry of Corporate AffairsMOA Memorandum of AssociationMoCI Ministry of Commerce and IndustryMoEF Ministry of Environment and ForestsMRP Maximum Retail PriceMSE Micro and Small EnterprisesNASSCOM National Association of Software and Service CompaniesNBFC Non-banking Finance CompaniesNCCD National Calamity Contingency DutyNCLT National Company Law TribunalNCMP National Common Minimum ProgrammeNCTE National Council for Teachers EducationNFE Net Foreign ExchangeNIAPC National Initiative Against Piracy and Counterfeiting

NRI Non-resident IndianNSE National Stock Exchange of India LimitedNTP New Telecom PolicyOCB Overseas Corporate BodyOECD Organisation for Economic Cooperation and DevelopmentOSP Other Service ProviderPAB Project Approval BoardPAN Permanent Account NumberPCT Patent Cooperative TreatyPIO Person of Indian Origin

PIS Portfolio Investment SchemePMRTS Public Mobile Radio Trunked Services

PPP Purchasing Power ParityPSU Public Sector UndertakingR&D Research & Development RA Remote AccessRBI Reserve Bank of IndiaREITs Real Estate Investment TrustsROC Registrar of CompaniesROW Right of WaySCBs Scheduled Commercial BanksSEBI Securities and Exchange Board of IndiaSEBs State Electricity BoardsSEZs Special Economic ZonesSIA Secretariat for Industrial AssistanceSICI Shastri Indo-Canadian InstituteSPCBs State Pollution Control BoardsSRs Security ReceiptsSSI Small Scale IndustrySTPI Software Technology Park of IndiaSTPs Software Technology ParksTDRs Transferable Development RightsTRAI Telecom Regulatory Authority of IndiaTRIPS Trade Related Aspects of Intellectual Property Rights (agreement on)UAC Unit Approval CommitteeUEE Universalisation of Elementary EducationUNCITRAL United Nations Commission on International Trade Law

USEFI United States Educational Foundation in IndiaVAT Value Added TaxVCF Venture Capital FundVTM Vigilance Technical Monitoring

WT Wholesale Trading

Chapter 1 Introduction

India is the seventh-largest country in the world, spread over a total area of 3,287,263 sq kms, including the territorial seas. Located in South Asia in the tropical belt just north of the equator, it is separated from mainland Asia by the Himalayas, a mountain range that umbrellas the entire northern region stretching to a distance of 2,400 kms to the east. India is home to some of the world’s highest peaks shielding the country’s 28 States and 7 Union Territories. Several important rivers originate from this mountain range. To the south of the mountain range are the Indo-Gangetic Plains. To the west of this plain and cut off from it by the Aravali range is the Thar Desert. Further south, geologically, the oldest part of

and Western Ghats. Peninsular India is bordered by the Bay of Bengal in the east and the Arabian Sea in the west. The Indian Ocean forms a pedestal to the country.

India is surrounded by Afghanistan and Pakistan in the north-west, China, Bhutan and Nepal in the north, Myanmar in the east, and Bangladesh to the east of West Bengal. Sri Lanka is separated from India by a narrow channel of sea, formed by Palk Strait and the Gulf of Mannar.

the Indus river. India is a secular country where Hindusim coexists with Islam, Christianity,

and great ethnic diversity. As a consequence of India’s continental size, the history of the country has seldom been the same for two adjoining territories. The picturesque land is dotted with palaces, temples and monuments. One of the fascinations of India is a creative fusion of old and new, centuries of history rubbing shoulders with the computer age, Bengaluru’s (formerly Bangalore) “Silicon Valley” is as much a part of the world’s largest democracy as its remotest villages.

lend India harmony in variety. The second most-populous country in the world after China, India has over one billion people, accounting for one-sixth of the world’s population.

The Constitution of India came into force on January 26, 1950. The preamble to the

parliamentary form of Government. India has a bicameral Parliament operating under a

Sabha (Council of States) and the Lower House, called the Lok Sabha (House of People). India’s governance is based on a federal structure, consisting of the Central Government or the Union Government and federal units, known as the States. The power to govern issues relating to national security, defence, national waterways and airways, international treaties, foreign trade, foreign exchange, customs duties, income tax, etc (matters referred to in the “Union List” of the Constitution) vests within the Union Government. The State

2 Think Business Think India

Governments have a mandate over law and order, sales tax, land revenue, tolls, agriculture, mines and minerals, etc, in the respective States, (matters referred to in the “State List” of the Constitution). Certain areas (matters referred to in the “Concurrent List” of the Constitution) may be governed or legislated upon by both the Union Government and the

has a unitary three-tier judiciary consisting of the Supreme Court, High Courts and Trial Courts.

The President of India is the Head of State, while the Prime Minister is the Head of the Government. The Prime Minister runs the Government with the support of the Council of Ministers, who form the [Union] Cabinet.

its economy has steadily grown and today it is one of the fastest-growing economies in the world, with a growth rate higher than in many developed countries. Over the last decade, India has undergone a transformation and climbed to a high-growth path as

business environment, and opened the economy to greater competition. India’s GDP has already crossed the US$1-trillion mark, making the country the twelfth-largest economy in the world and the fourth-largest economy by purchasing power. In 2010, the Indian

approx 8.3% in terms of GDP.

globalisation, India offers a cost-effective environment for establishing and doing business for the burgeoning domestic and export markets.

Foreign investors are looking at India as an attractive investment destination owing to the prospects of high returns. A number of corporate and multinational companies from all over the world have established businesses in India and have expanded over the years.

Chapter 2 Advantage India

Market PlaceIndia versus the World ............................................................................. 2-010

Manufacturing and Service SectorsManufacturing ......................................................................................... 2-020Services ................................................................................................... 2-030

Information, Communication, TechnologyDevelopments in the Field........................................................................ 2-040

Low Cost and Skilled ManpowerEmphasis on Education and Skill Development ...................................... 2-050

Strong Banking and Financial SectorFinancial and Banking Sector at a Glance................................................ 2-060

Strong Reforms in InfrastructureRoadways ................................................................................................ 2-070Railways .................................................................................................. 2-080Ports ......................................................................................................... 2-090Inland Waterways .................................................................................... 2-100Airways ................................................................................................... 2-110 Electricity Sector ..................................................................................... 2-120Telecom Services ..................................................................................... 2-130

Liberalisation of Foreign Investment and Foreign Trade RegulationsForeign Investment and Foreign Trade Regulations at a Glance ............. 2-140International and Regional Trade Agreements ......................................... 2-150

Market Place

¶2-010 India versus the World India is the world’s largest democracy and is the fourth-largest1 economy in the world.

It has the third-highest Gross Domestic Product (GDP) in Asia. India is also the second-

1 “The World’s Largest Economies”, Economy Watch, http://www.economywatch.com/econo-mies-in-top/, accessed on April 9, 2011.


largest among emerging nations in terms of Purchasing Power Parity (PPP). India offers high prospects for potential growth and return on investment in all areas of businesses. Other salient features of the economy are:

Large and growing domestic market with a huge middle class Large pool of young skilled labour force, which is, by and large, educated and

Competitive wages Cost-effective production facilitiesExpanding industrial base and intellectual capitalCapacity upgradation in infrastructureContinuous liberalisation in the foreign investment frameworkAcceleration of the privatisation process Investor-friendly policies, etc

The Indian market is widely diverse, thus, tastes and preferences differ greatly among sections of consumers, creating a largely diverse and vast market for all areas of businesses.

India has been ranked at the second place in global foreign direct investments in 2010

investors during 2010–2012 period, according to United Nations Conference on Trade and Development (UNCTAD) in a report on world investment prospects titled, ‘World Investment Prospects Survey 2009–2012’.2

(radio paging, cellular mobile, basic telephone services). As per statistics from the

May 2010) are at US$1,36,855 million. .

Manufacturing and Service Sectors

¶2-020 ManufacturingManufacturing is the backbone of the Indian economy which has emerged as a premier

global manufacturing hub with the entry of a number of transnational corporations. India offers tremendous opportunity for automobiles, textiles, steel, metals, and engineering and

performance of different sectors, namely beverages, tobacco, cotton textiles, textile products, basic metals and alloy industries, non-metallic mineral products, transport equipment and

from global innovation and investments. India expects large investments into both capital

2 “Foreign Direct Investment”, India Brand Equity Foundation website, http://www.ibef.org/economy/fdi.aspx, accessed on April 9, 2011.

5Chapter 2 Advantage India

¶2-030 ServicesThe service sector continues to be the largest contributor to India’s GDP. In fact,

more than half of the GDP is contributed by the service sector. Trade, hotels, transport and communication services continue to be amongst the major sub-sectors of the service sector, which are growing at double-digit rates. The service sector growth continues to be

industry, information technology (IT)/software/software services, education and training services, etc. Impressive progress in the railway passenger network and production, rapid addition to the existing stock of telephone connections, particularly mobiles, growth in the

some of the key driving segments of the service sector in India.

Information, Communication, Technology

¶2-040 Developments in the FieldIndia is now well integrated with the rest of the world and is linked to most parts

of the world through the Internet. Within India, digital IT and telecommunications have seeped into the day-to-day activities of business houses and corporations. IT has made it possible for the large population of India to have global access. State-of-the-art IT-enabled voice and data services are readily available for conducting and executing business in the country.

Across the globe, countries have recognised IT as an effective tool in catalysing the

is a growing recognition of the wider possibilities of technology. Information Technology, together with communication technologies, has brought about unprecedented changes in the way people communicate and conduct business. There is even a greater realisation that instead of a single-track technology, lateral integration of technologies can deliver startling results and the world seems to be moving towards such converged systems.

In India, the new technology trends are evident in the development of electronic communication systems. Emerging digital techniques such as new network alternatives (intelligent networks), high-bandwidth communication technology and state-of-the-art software for network functions and services have come a long way. Telemedicine applications make it possible to deliver

enhancing the interactive capabilities of their services and equipment. India is adapting to the cutting-edge inventions in science and technology.

and private players in the Information Communication Technology sector have established manufacturing and value-added servicing capabilities. Perhaps, the most important feature of this technological breakthrough is India’s capability to build and successfully launch its own multi-purpose communications’ satellites under public–private partnership initiative.

With the emergence of IT on the national agenda and the announcement of IT policies by various State Governments, people-centric projects on governance, sustainable development


economy and social empowerment is being pushed to the centre-stage.

Low Cost and Skilled Manpower

¶2-050 Emphasis on Education and Skill Development

average literacy rate is pegged at 65.84%3. Concerted efforts towards Universalisation of Elementary Education (UEE) have resulted in manifold increase in schools, teachers

task in this decade and recently a sizeable plan allocation has been made for elementary education. The main thrust of the higher education sector has been in the following areas:

Organic growth of higher education system,Academically strengthening universities and colleges,Evolving socially relevant programmes,Programmes for enhancing accessibility to technical education in an equitable manner,Promotion of quality and excellence in every aspect of education,Enhancing accuracy of physically challenged persons, and

The technical education system in the country covers courses and programmes in engineering, technology, management, architecture, town planning, pharmacy, applied arts and crafts. A large number of institutes at the Central as well as at the State level are engaged

education have usually been the prerogative of the Government, but recently initiatives taken by private players are also being encouraged. They are allowed to make valuable and

been established by private players after due approval and accreditation by the Government. The focus is on overall development and networking of institutions. Thrust is on postgraduate education and research, particularly in IT. Keeping in view the emerging trends, efforts are under way to IT enable the entire engineering and technology education system in the country and to leverage new advances in Information and Communication Technologies to enhance learning effectiveness in the entire technical education system in the country.

All these efforts have ensured that India has, and will continue to have an abundant

IT professionals.

Technical Expertise

As a result of the successful economic liberalisation process and the quality of higher

and technical assistance is eagerly sought by a number of developing countries in Asia, Africa and West Asia. India provides expertise in projects ranging from construction of cement plants to airports and railway networks to many countries in these regions. A number

3 “Literacy at a Glance”, http://www.nlm.nic.in/lsi.htm, Accessed on April 9, 2011.


The Indian Technical and Economic Cooperation programmes provide expertise and consultancy services to a number of developing countries for feasibility and detailed technical evaluation studies. The programme supports training of personnel in India in a host of areas like agriculture, animal husbandry and small-scale industries.

Strong Banking and Financial Sector

¶2-060 Financial and Banking Sector at a Glance

economy. India boasts of a broad-based and sophisticated banking network. The sector

and institutional investors, investment funds, equipment leasing companies, venture capital funds, etc. All large Indian banks are nationalised. Though the banking industry is currently dominated by public sector banks, numerous private and foreign banks have made inroads

the Reserve Bank of India (RBI), the central banking institution of the country. Among other things, it supervises and administers exchange control and banking regulations, and administers the monetary policy. The banking sector is also being privatised with several public sector banks being restructure and divestment of Government holdings being carried out. At present, India has 27 public sector banks, 7 new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, 4 local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks.4

and development of the economy. Some of examples are the Industrial Financial Corporation of India (IFCI), Industrial Development Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI, which has now been privatised), etc. These institutions provide

Banking in India is fairly mature in terms of supply, product range and reach. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies. RBI is an autonomous body which pushes independent policies directed by its Board of Governors.

Further, the country has a well-established and thriving stock market, comprising 215

recognised stock exchanges with over 8,072 securities listed at the end of March 2010. The Bombay Stock Exchange Limited (BSE) as of date is the biggest bourse in number of listed companies and in terms of equity market capitalisation6. The National Stock Exchange of India Limited (NSE) is the largest stock exchange in India in terms of daily turnover and number of trades, for both equities and derivative trading. The average daily turnover at NSE in 2009-2010 increased by 59.1 percent to `72,097 crore from `45,311 crore in 2008-2009.The Indian capital markets are rapidly moving towards a market that is modern in terms of

4 “Tough norms for banking licences to corporates”, Business Standard, April 12, 2011, http://www.business-standard.com/india/news/tough-norms-for-banking-licences-to-corporates-/431953/, accessed on April 14, 2011.

5 SEBI Annual Report 2009-2010, http://www.sebi.gov.in/annualreport/0910/annualrep0910.pdf, accessed on April 9, 2011.

about/heritage.asp, accessed on April 9, 2011.


infrastructure as well as application of international best practices such as derivative trading with stock index futures.

Strong Reforms in Infrastructure

¶2-070 RoadwaysIndian roadways have grown rapidly. Ranging from the cross-country link of the

national highways to the roads in the deepest interiors, the country, as on date, has a road network of more than 3,316,452 kms (including 200 kms of expressways) which is second largest in the world7. National highways, that are the prime arterial routes, span about 70,934 kms throughout the country, catering to about 45% of the total road-transport demand. Recently, reforms have been initiated to improve and modernise roads. The Golden Quadrilateral Project is making progress. The Golden Quadrilateral,

will be completed by June 2011.8 At present, the project work is underway connecting the four major metros of the country, Delhi, Mumbai, Chennai and Kolkata, with four-lane expressways. Expressways connecting the eastern and western part of the country and the south and north corridor of the country are also being implemented.

¶2-080 RailwaysIndian Railways, one of the largest rail networks in the world, is in the process of

upgrading itself with the latest technology by introducing high-speed bullet trains and converting metre gauge lines in the country with broad gauge. Stainless steel coaches are being installed in premier carriers. Improved ventilation and illumination are part of the new scheme of things, along with the decision to install air brake systems on all coaches .Ambitious Dedicated Freight Corridors projects are being undertaken.

The Indian Railways’ quadrilateral linking the four metropolitan cities of Delhi, Mumbai, Chennai and Kolkata, commonly known as the Golden Quadrilateral, and its

and Mumbai–Delhi on the Western Corridor are highly saturated, line capacity utilization varying between 115% and 150%. The surging power needs requiring heavy coal movement, booming infrastructure construction and growing international trade has led to the conception of the Dedicated Freight Corridors along the Eastern and Western Routes.

The Dedicated Freight Corridors will adopt world-class and state-of-the-art

capacity by modifying basic design features. The permanent way will be constructed with

speeds. Simultaneously, in order to optimize productive use of the right of way, dimensions

April 9, 2011.8 “Golden Quadrilateral to be over by June’11”, Business Standard, August 27, 2010, http://www.

business-standard.com/india/news/golden-quadrilateral-to-be-over-by-june%5C11/406182/, ac-cessed on April 9, 2011.


of the rolling stock are proposed to be enlarged. Both these improvements will allow longer and heavier trains to ply on the Dedicated Freight Corridors.

¶2-090 PortsPorts are the main gateways for trade. Presently, in India, about 95% of the trade by

quantity and 77% by value takes place through ports. There are 12 major ports and about 180 minor and intermediate ports in India. The major ports are managed by port trusts that are regulated by the Central Government. They come under the purview of the Major Port Trusts Act, 1963. The minor ports are regulated by the respective State Governments and many of these ports are private or captive ports. India is also among the few countries that offer fair and free competition to all shipping companies for obtaining cargo.

¶2-100 Inland Waterways India has an extensive network of inland waterways in the form of rivers, canals,

backwaters and streams. The total navigable length of important rivers as on date, is 14,464 kms9. The Inland Waterways Authority of India (IWAI) is the statutory authority in charge of the waterways in India, which provides for the necessary infrastructure in these waterways, surveys the economic feasibility of new projects and also administers and regulates projects. The natural advantage of a vast coastline requires India to use sea transport for the bulk movement of cargo.

The Indian shipping industry, major ports, national highways and water transport are increasingly being thrown open to the private sector.

¶2-110 AirwaysIndia’s booming economy has created a large middle-class population. Rapid

economic growth has made air travel much more affordable. India’s air transport network has attracted heavy investments in the past few years. In the recent years, more than half a dozen low-cost carriers have entered the Indian air landscape to meet the rapidly, increasing demand for air travel. In all, there are more than 20 international airports located within the country.

¶2-120 Electricity Sector The electricity sector in India is predominantly controlled by the Government of

India’s Public Sector Undertakings (PSUs). Major PSUs are involved in the generation of electricity; however, transmission and distribution is managed by the State Electricity Boards (SEBs) and private companies. At present, 76% of the electricity consumed in India is generated by thermal power, 21% by hydro electricity and 4% by nuclear power. India’s high economic development has created a surge in the demand for electricity. The 2012-

generating capacity in which the private sector will play a major role.

9 “Annual Report of 2009-10”, Central Water Commission website, http://www.cwc.gov.in/main/downloads/Final%20Annual%20Report%202009_10.pdf, accessed on April 9, 2011.


¶2-130 Telecom Services Telecom services have been recognised the world over as an important tool for the

crucial factor to realise the socio-economic objectives in India. A large population, low telephony-penetration levels, and rise in consumer income and spending owing to strong economic growth have contributed to making India the fastest-growing telecom market in

Sanchar Nigam Limited (BSNL), the seventh-largest telecom company in the world in terms of number of subscribers.

Liberalisation of Foreign Investment and Foreign Trade Regulations

¶2-140 Foreign Investment and Foreign Trade Regulations at a GlanceIndia presents vast potential for overseas investment and is actively encouraging the

entrance of foreign players into its domestic market. There are various forms in which business can be conducted by a foreign company in India, such as:

Incorporated entity: By incorporating a company under the Companies Act, 1956 through:

joint ventures, or wholly owned subsidiaries.

Unincorporated entity:

FDI in India can be made through two routes, namely Automatic and Approval Routes.

¶2-150 International and Regional Trade Agreements

Free Trade Agreements

Free Trade Agreements (FTAs) are generally made between two countries. Many countries, including India, have either signed FTAs or are negotiating or contemplating new bilateral free-trade and investment agreements. These agreements lead to integration of Indian economy with the global free market. It is assumed that free trade and removal of regulations on investments will lead to economic growth, reducing poverty in the FTA signatory countries, increasing standards of living and generating employment opportunities. In simple terms, FTAs seek to remove restrictions on businesses.

India has concluded FTAs/Framework Agreements with a number of countries, including Thailand, Association of South-East Asian Nations (ASEAN) and GCC states (Charter of the Cooperation Council for the Arab States of the Gulf), Korea, Japan and Malaysia.


FTAs improve living standards, deepen economic linkages, promote economic growth and investment opportunities, minimise barriers and create a larger and more integrated market with greater opportunities. FTAs strengthen the special bonds of friendship, economic relationship and cooperation that exist between the parties. They generate more business and investment growth opportunities for businesses based in India and in the economies of the FTA partners.

Bilateral Investment Promotion and Protection Agreement

The Bilateral Investment Promotion and Protection Agreement (BIPA) is a bilateral treaty, or an agreement, between two countries (or states) for reciprocal encouragement, promotion and protection of investments in each other’s territories by companies based in either country (or state). The purpose of these agreements is to create conditions that are favourable for fostering greater investments by the investors of one country in the territory

stimulate their business initiatives and, thus, enhance their prosperity.

Many countries have entered into bilateral investment treaties or agreements that

for their own investors abroad.

Generally, these bilateral agreements have, by and large, standard elements and provide a legal basis for enforcing the rights of the investors in the countries involved. They give assurance to the investors that their foreign investments will be guaranteed fair and equitable treatment, full and constant legal security and dispute resolution through international mechanisms.

The Indian Government undertook negotiations with a number of countries and entered into BIPAs with them. This was done with a view to providing more conducive and predictable investment climate to foreign investments in India as well as to protect Indian investments abroad. The Government as of date has signed BIPAs with 62 countries, out of which 50 BIPAs have already come into force and the remaining agreements are in the

negotiated with a number of other countries.

Chapter 3 ConstitutionalFramework

Governance FrameworkFramework of Indian Government .................................................................. 3-010Legislature ....................................................................................................... 3-020Executive ......................................................................................................... 3-030Judiciary .......................................................................................................... 3-040

Governance Framework

¶3-010 Framework of Indian Government “WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC, and to secure to all its citizens…”

The Republic of India is governed by the Constitution of India, which was adopted by the Constituent Assembly on November 26, 1949 and came into force on January 26, 1950. The Constitution of India seeks to protect the fundamental, political and civil rights of the people. It also embodies the basic governance structure of the country.

The Constitution of India provides for a Parliamentary form of Government, which is federal in structure with certain unitary features.

Broadly, the governance structure in India can be depicted as follows:

Structure of Indian Government

LEGISLATURE

GOVERNANCE STRUCTURE

EXECUTIVE JUDICIARY

Transparency, accountability and adherence to the rule of law depend on a systemic arrangement and coherency between the three arms of the state, viz, the Executive, the Legislature and the Judiciary. The Constitution of India provides for a system of governance based on the above-mentioned three arms within a federal framework with greater powers in the hands of the Union Government or Government of India or the Central Government (also referred to as the “Centre”), which governs the Union of India as a whole.

13Chapter 3 Goverance Mechanism in India

¶3-020 Legislature In India, the Parliament is the supreme legislative body. As per Article 79 of the

Constitution of India, the Council of Parliament of the Union consists of the President and two Houses, which are known as the Council of States (Rajya Sabha) and the House of People (Lok Sabha). The President has the power to summon either House of the Parliament or to dissolve the Lok Sabha. Each House has to meet within six months of its previous sitting. A joint sitting of two Houses can be held in certain cases.

The cardinal functions of the Legislature include overseeing of administration, passing of budget, ventilation of public grievances and discussing various subjects like development plans, international relations and national policies. The Parliament is also vested with powers to impeach the President, remove judges of the Supreme Court and High Courts, the Chief Election Commissioner, and the Comptroller and Auditor General, in accordance with the procedure laid down in the Constitution of India. All legislations require the consent of both the Houses of Parliament. The Parliament is also vested with the power to initiate amendments in the Constitution.

¶3-030 ExecutiveThe President serves as the Executive Head of the State and the Supreme Commander-

in-Chief of the armed forces. Article 74(1) of the Constitution of India provides that there shall be a Council of Ministers, with the Prime Minister as its head to aid and advise the President.

The President appoints the Prime Minister, Cabinet Ministers, Governors of States and Union Territories, Judges of the Supreme Court and High Courts, Ambassadors and other diplomatic representatives. The President is also authorised to issue Ordinances with the force of the Act of Parliament, when Parliament is not in session.

The President must consult the Council of Ministers and the Prime Minister before taking any executive decision. It is important to note that the Council of Ministers (usually known as the “Cabinet” and constituted of the members of the ruling political party/alliance) and the Prime Minister (usually the leader of the political party/consensus candidate of the alliance; also heads the Cabinet) are members of Parliament and, therefore, by convention, in their hands rest the legislative and executive powers of the Centre.

The federal units, ie the States, have their own set-up in terms of legislatures (normally referred to as the “State Legislature”) and state administrative wings similar to that of the Centre. Here, the Governor is the head of the Executive, though the real power rests with the Chief Minister and his/her Council of Ministers. There are certain territories in India that are not States, but are known as Union Territories and these are governed directly by the Centre.

The Constitution of India prescribes the separation of legislative and administrative powers between the Union and the States. Areas such as, defence, railways, maritime, interstate trade, airways, banking, etc, are under the jurisdiction of the Centre (Union List) and areas such as public order, police, agriculture, etc, fall under the jurisdiction of the States (State list). There is a third category of list also which is termed as the Concurrent List. It covers areas such as criminal law and procedure, economic and social planning, trusts, bankruptcy, etc, over which both the Centre and the States have legislative and executive


¶3-040 JudiciaryThe Indian Judiciary as of today is a continuation of the British legal system

established by the English in the mid-19th century. Before the arrival of the Europeans in India, it was governed by laws based on the Arthashastra, dating from 400 BC, and the

considered authoritative legal guidance, however, till today the legacy of the British system is manifested from the fact that India falls into the genre of common law system. The procedure and substantive laws of the country, the structure and organisation of courts, etc, emanate from the common law system.

The Judiciary of India is an independent body and is separate from the Executive and Legislative organs of the Indian Government. The Judiciary in India provides the people of the nation; the necessary “auxiliary precaution” required to ensure that the Government functions in favour of the people, for their amelioration and for the betterment of society.

The judicial system of India is divided into four basic levels. At the apex level is the Supreme Court, situated in New Delhi, which, under the scheme of the Constitution of India is the guardian and interpreter of the Constitution of India, which is followed by High Courts at the State level, District Courts at the district level and Lok Adalats at the village and panchayat level. The Supreme Court and High Courts have the special constitutional responsibility of enforcing the “Fundamental Rights” of the citizen, as enshrined in Part III of the Constitution.

Below is a schematic representation of the hierarchy of courts in India:

Hierarchy of Courts for Civil Matters

Munsif Courts/Small Causes Courts

Civil Courts

District Courts

High Court

Supreme Court

Special Courts/Tribunals (CentralAdministrative Tribunal, NationalConsumer Redressal Commission,Central Board of Direct Taxes, etc)

Supreme Court

The Supreme Court has original, appellate and advisory jurisdiction. Its exclusive original jurisdiction includes any dispute between the Centre and State(s) or between States as well as matters concerning enforcement of fundamental rights of individuals. The

both civil and criminal cases, involving substantial questions of law as to the interpretation of the Constitution. Supreme Court decisions are binding on all Courts/Tribunals in the


country and act as a precedence for lower courts. Under Article 141 of the Constitution, all courts in India are bound to follow the decision of the Supreme Court as the rule of law.

High Courts

High Courts have jurisdiction over the States in which they are located. There are at present, 21 High Courts in India. However, the following three High Courts have jurisdiction over more than one State: Bombay (Mumbai) High Court, Guwahati High Court, and Punjab and Haryana High Courts. For instance, the Bombay High Court is located at Mumbai, the capital city of the State of Maharashtra. However, its jurisdiction covers the States of Maharashtra and Goa, and the Union Territories of Dadra and Nagar Haveli. Predominantly, High Courts can exercise only writ and appellate jurisdiction, but a few High Courts have original jurisdiction and can try suits. High Court decisions are binding on all the lower courts of the State over which it has jurisdiction.

District Courts

District Courts in India take care of judicial matters at the District level. Headed by a judge, these courts are administratively and judicially controlled by the High Courts of the respective States to which the District belongs. The District Courts are subordinate to their respective High Courts. All appeals in civil matters from the District Courts lie to the High Court of the State. There are many secondary courts also at this level, which work under the District Courts. There is a court of the Civil Judge as well as a court of the Chief Judicial Magistrate. While the former takes care of the civil cases, the latter looks into criminal cases and offences.

Lower Courts

Courts and Small Causes Courts. These courts only have original jurisdiction and can try suits up to a small amount. Thus, Presidency Small Causes Courts cannot entertain a suit in which the amount claimed exceeds ̀ 1,000. However, in some States, civil courts have unlimited pecuniary

Tribunals

Special courts or Tribunals also exist for the sake of providing effective and speedy justice (especially in administrative matters) as well as for specialised expertise relating

matters of grave concern. The Tribunals that need a special mention are as follows:

Income Tax Appellate Tribunal Central Administrative Tribunal Intellectual Property Appellate Tribunal, Chennai Railways Claims Tribunal Appellate Tribunal for Electricity Debts Recovery Tribunal Central Excise and Service Tax Appellate Tribunal


For instance, the Rent Controller decides rent cases, Family Courts try matrimonial and child custody cases, Consumer Tribunals try consumer issues, Industrial Tribunals and/or Courts decide labour disputes, Tax Tribunals try tax issues, etc.

It also needs special mention here that certain measures like setting up of the National Company Law Tribunal (NCLT) to streamline and effectuate the liquidation proceedings of companies, dispute resolution and compliance with certain provisions of the CompaniesAct, 1956 are also in the pipeline.

Alternate Dispute Resolution (ADR)

An interesting feature of the Indian legal system is the existence of voluntary agencies

Conciliation and Negotiations and are governed by the Legal Services Authorities Act, 1987. Every award of Lok Adalats shall be deemed to be a decree of a civil court and shall be binding on the parties to the dispute. The ADR mechanism has proven to be one of the

In India, laws relating to resolution of disputes have been amended from time to time to facilitate speedy dispute resolution in sync with the changing times. The Judiciary has also encouraged out-of-court settlements to alleviate the increasing backlog of cases pending in the courts. To effectively implement the ADR mechanism, organisations like the Indian Council of Arbitration (ICA) and the International Centre for Alternate Dispute Resolution (ICADR) were established. The ICADR is an autonomous organisation, working under the aegis of the Ministry of Law & Justice, Government of India, with its headquarters at New Delhi, to promote and develop ADR facilities and techniques in India. ICA was established in 1965 and is the apex arbitral organisation at the national level. The main objective of the ICA is to promote amicable and quick settlement of industrial and trade disputes by arbitration. Moreover, the Arbitration Act, 1940 was also repealed and a new and effective arbitration system was introduced by the enactment of the Arbitration and Conciliation Act, 1996. This law is based on the United Nations Commission on International Trade Law (UNCITRAL) model of the International Commercial Arbitration Council.

Likewise, to make the ADR mechanism more effective and in coherence with the demanding social scenario, the Legal Services Authorities Act, 1987 has also been amended from time to time to endorse the use of ADR methods. Section 89 of the Code of Civil Procedure, as amended in 2002, has introduced conciliation, mediation and pre-trial settlement methodologies for effective resolution of disputes. Mediation, conciliation, negotiation, mini trial, consumer forums, Lok Adalats and Banking Ombudsman have already been accepted and recognised as effective alternative dispute-resolution methodologies.

A brief description of few widely used ADR procedures is as follows:

1. Negotiation: A non-binding procedure in which discussions between the parties are initiated without the intervention of any third party, with the object of arriving at a negotiated settlement of the dispute.

2. Conciliation: In this case, parties submit to the advice of a conciliator, who talks to the each of them separately and tries to resolve their disputes. Conciliation is non-binding procedure in which the conciliator assists the parties to a dispute to arrive at a mutually satisfactory and agreed settlement of the dispute.


3. Mediation: A non-binding procedure in which an impartial third party known as a mediator tries to facilitate the resolution process but he cannot impose the resolution, the parties are free to decide according to their convenience and terms.

4. Arbitration: It is a method of resolution of disputes outside the court, wherein the parties refer the dispute to one or more persons appointed as an arbitrator(s) who reviews the case and imposes a decision that is legally binding on both parties. Usually, the arbitration clauses are mentioned in commercial agreements wherein the parties agree to resort to an arbitration process in case of disputes that may arise in future regarding the contract terms and conditions.

While the judicial process is largely considered fair, a large backlog of cases to be heard and frequent adjournments result in considerable delays before a case is decided. However, matters of priority and public interest are often dealt with expeditiously and interim relief is usually allowed in other cases.

Chapter 4 Competition Policy and Laws

Competition Laws in IndiaAn Overview ........................................................................................... 4-010Growth of Legislations Governing Competition in India ....................... 4-020

Legislations Governing Competition in IndiaMonopolistic and Restrictive Trade Practices Act, 1969 (MRTP Act) .......................................................................................... 4-030The Competition Act, 2002 ..................................................................... 4-040Penalties under the Competition Act ...................................................... 4-050

Recent Developments in Competition Law in IndiaDevelopments........................................................................................... 4-060

Competition Laws in India

¶4-010 An Overview In the wake of economic liberalisation and widespread economic reforms introduced

in 1991, and in its attempt to move from a “command and control” regime to a regime based on free market principles, India decided to replace its then existing competition law—the Monopolies and Restrictive Trade Practices Act, 1969, which was primarily designed to restrict the growth of monopolies in the market—with a modern competition law in sync

the Competition Act, 2002 (Competition Act) was enacted and received presidential assent on January 13, 2003. The Competition Act seeks to achieve the following objectives:

to prevent practices that have an adverse effect on competition;(i)to promote and sustain competition in the markets;(ii)to protect the interests of consumers; and(iii)to ensure freedom of trade carried on by other participants in markets in India.(iv)

These objectives are sought to be achieved by the establishment of the Competition Commission of India (hereinafter referred to as “Competition Commission” or “Commission” or CCI), which was established by the central government with effect from October 14, 2003. Accordingly, the Commission is mandated to prohibit anti-competitive agreements and abuse of dominant positions by enterprises and to regulate combinations (ie, mergers,

19Chapter 4 Competition Policy and Laws

amalgamations, or acquisitions) through a process of inquiry and investigation. However,

in January 2005 after the Government gave an assurance to amend the Competition Act and create a separate adjudicatory appellate authority, while leaving the expert regulatory space for the Commission. Accordingly, the Competition Act was amended in September 2007 to provide for, among other things, the establishment of a Competition Appellate Tribunal to be headed by a judicial member to adjudicate appeals against commission orders and to determine compensation claims arising out of commission decisions. The appellate tribunal has since been constituted and is headed by a retired Supreme Court judge. The Commission was also re-constituted on February 28, 2009 and besides the chairperson, six other members have since been appointed.

relating to anti-competitive agreements (section 3) and abuse of dominant positions (section 4) with effect from May 20, 2009. The provisions of the Act relating to the regulation of

anti-competitive agreements or allegations of abuse of dominance by enterprises or groups thereof and matters connected therewith, are displayed on the commission’s website.

¶4-020 Growth of Legislations Governing Competition in India It is important to understand the historical development of laws that control and

regulate competition in India. Regulating concentration of economic powers to the common detriment and controlling

monopolistic, unfair and restrictive trade practices coupled with consumer welfare and

form the bulwark of competition law in India. To attain these objectives, the Government has set up various committees. The Mahalanobis Committee Report on “Distribution and Levels of Income”, 1964, stated that the top 10% of the population accounted for 40% of income and big business houses were emerging because of planned economy model. The MonopoliesInquiry Commission Report, 1965 stated that there was concentration of economic power and a few industrial houses were controlling a large number of companies and there existed large-scale restrictive and monopolistic trade practices. The Hazari Committee Report, 1966,on industrial licensing procedure under the Industries (Development and Regulation) Act, 1951, inter alia, stated that the licensing system had resulted in disproportionate growth of some big houses. Pursuant to the recommendations of these Reports, the Government enacted the Monopolistic and Restrictive Trade Practices Act.

Legislations Governing Competition in India

¶4-030 Monopolistic and Restrictive Trade Practices Act, 1969 (MRTP Act )

The MRTP Act governed the activities/practices of all industrial undertakings engaged in production, storage, supply and distribution of articles/goods either directly or indirectly through any of its units or divisions. Till 1991, public sector undertakings were out of the purview of the MRTP Act.


The MRTP Act was designed to ensure that the operation of economic system does not result in the concentration of economic power to the common detriment and to prohibit such monopolistic and restrictive trade practices prejudicial to public interest. The MRTP Act prohibits the following types of trade practices:

1. Monopolistic Trade Practice: This refers to a trade practice that has the effect of maintaining the price of goods at unreasonable levels or that prevents or limits competition or that increases the prices of goods or services to an unreasonable extent.

2. Restrictive Trade Practice: This refers to a trade practice that has the effect of preventing or restricting competition in any manner and that tends to bring about

3. Unfair Trade Practice: This refers to a trade practice, where for the purpose of promoting the sale or use of any goods or services, any unfair means or deceptive practices

product are adopted in a manner that misleads the consumer/public.

However, with the passing of the Competition (Amendment) Act, 2009, which was passed by Parliament on December 16, 2009 and received the assent of the President of India on December 22, 2009, the Monopolies and Restrictive Trade Practices Commission stands dissolved and the governing statute, the MRTP Act stands repealed with effect from October 14, 2009. The pending cases will be disposed by the Competition Appellate Tribunal and pending investigations or proceedings relating to unfair trade practices referred to in section 36A(1)(x) of the MRTP Act, relating to “giving false or misleading facts disparaging the goods, services or trade of another person”, stand transferred to the Competition Commission from the said date.

¶4-040 The Competition Act, 2002 With the liberalization of economic policy and growth in the market, the Government

of India decided to review the MRTP Act, which had lost its sheen and lacked teeth insofar as the recent international trade developments and their impact on Indian markets was concerned. As a result, the Government formulated a new Competition Policy. For this, the Government of India in October 1999, appointed a High-level Committee on the Competition Policy and Law (Raghavan Committee) to formulate a competition law consistent with international developments. Acting on the report of the Raghavan Committee, the Government enacted the Competition Act, which seeks to replace the MRTP Act.

The objective of the Competition Act is to prevent anti-competitive practices, promote and sustain competition, protect the interests of the consumers and ensure freedom of trade.

The Competition Act attempts to make a shift from curbing “monopolies” under the archaic MRTP Act to curb practices having “adverse effects on competition” and promote and sustain competition.

The Competition Act has been designed as a code to deal with matters relating to the existence and regulation of competition and monopolies. Thus, it aims at curbing negative


aspects of competition. The CCI shall have a principal bench and additional benches, including merger benches.

The Competition Act seeks to regulate the following important areas:

Anti-competitive Agreements (Section 3)

An agreement in respect of the production, supply, distribution, storage, acquisition or control of goods or the provision of services, which causes or is likely to cause an

agreement”. The Competition Act prohibits anti-competitive agreements and declares that such agreements shall be void. However, the prohibition contained in section 3 is not absolute and permits joint venture agreements where certain parameters are met. Anti-competitive agreements can be “horizontal” (agreement between direct competitors), “vertical” (agreements between enterprises at different levels of the production chain in different markets, such as agreements between a manufacturer and a distributor or a distributor and a retailer) or both. Horizontal agreements include:

(i)agreements to limit production, supply, markets, technical development, (ii)investments or provisions of services;agreements to allocate markets or the source of production or provision of (iii)services through the allocation of, for example, geographical area, type of good or service or the number of customers; andbid rigging or collusive bidding.(iv)

These horizontal agreements are presumed to have an appreciable adverse effect on competition, which is similar to the per se rule. The “cartel” is the most pernicious

distributors, traders or service providers which, by an agreement among themselves, limit, control or attempt to control the production, distribution, sale or price of or trade in goods or the provision of services.

Vertical agreements include:tie-in arrangements;(i)exclusive supply agreements;(ii)exclusive distribution agreements;(iii)refusal to deal; and(iv)resale price maintenance.(v)

However, such arrangements are common business practices and infringe the law only

have the potential for foreclosing competition by hindering the entry of new players into the market and hence may be considered anti-competitive. Horizontal agreements other than those mentioned above and vertical agreements including those mentioned above are dealt with on a case-by-case basis. Agreements that are entered into to protect the rights of holders of patents, copyrights and other IP rights under their respective statutes are not considered anti-competitive agreements, provided that they contain “reasonable conditions” to permit the exercise of such rights. Similarly, export agreements related exclusively to the


production, supply, distribution or control of goods or the provision of services are also not considered anticompetitive as they do not have an effect on competition in India.

Implications of Enforcement of Section 3 Any agreement which may cause an adverse effect on competition in the relevant

market in India is likely to be challenged before the Commission and, if proved to violate section 3, declared null and void and hence legally unenforceable. Since such agreements are private agreements, they are unlikely to be known to the outside world, except either

likely to be affected by such agreement (eg, customers or consumers) chooses to challenge the agreement before the commission. Therefore, it is advisable to have these agreements examined to reduce the possibility of a challenge.

Abuse of Dominant Position (Section 4)

holding of a dominant position by an enterprise or a group in itself is not prohibited. The Competition Act prohibits abuse of such a dominant position by an enterprise or a group. The commission is empowered to enquire whether an enterprise or group has the dominant position and whether it has abused such dominant position on the basis of:

its own motion;(i)information received from any person, consumer or association or any trade (ii)association; oron a reference received from the Central Government, State Government or a (iii)statutory authority.

The Act provides for the following business practices which, if found to be conducted by an enterprise or a group, will lead to the inference of abuse of a dominant position, provided that the enterprise or group is found to be dominant in the relevant market:

imposition of an unfair or discriminatory condition on the purchase or sale (i)of goods or services, or on price in the purchase or sale of goods or services, including predatory pricing;the limitation or restriction of the production of goods or the provision of services (ii)or the market thereof;

(iii)goods or services to the prejudice of consumers;denial of market access in any manner;(iv)making the conclusion of contracts subject to acceptance by other parties of (v)supplementary obligations which, by their nature or commercial usage, have no connection with the subject of such contracts; oruse of its dominant position in one relevant market to enter into or protect (vi)another relevant market.

Implications of enforcement of Section 4 The enforcement of section 4 brings within its ambit all enterprises that enjoy a dominant

position in the relevant market, including public sector enterprises or government departments


engaged in any trade or business activity that is not covered under the sovereign functions of the state. In an inquiry under section 4, unlike that under section 3, an appreciable adverse effect on competition in the relevant market need not be proved. However, any of the six

within the ambit of the commission’s scrutiny and instances of such prohibited activities in India are not scarce.

The Competition Act mandates the commission to follow “competitive neutrality” and the public sector no longer enjoys any special privileges or exemptions so far as violation of the Competition Act is concerned. For instance, if a public sector enterprise attempts to deny market access to a private enterprise that may be its competitor in any product market, a complaint of abuse of a dominant position would be brought against such public sector enterprise before the commission. Even multinational corporations that operate in India and have large market shares in the relevant market are subject to the commission’s scrutiny if they are found to be indulging in any prohibited business practices. The consequences of enquiry by the commission into any such allegation of abuse of dominance by a large enterprise are too serious to be ignored, as it can order the division of such enterprise into smaller groups, which may have serious consequences for the business and investors. Therefore, expert advice may be considered in cases of enterprises with large market shares.

Regulation of Combination (Section 6)

Under the Competition Act, “combinations” mean:

acquisition of control, shares, voting rights or assets;(i)acquisition of control by a person over an enterprise where such person has (ii)control over another enterprise engaged in competing businesses; andmergers and amalgamations between or among enterprises when the combining (iii)parties exceed the thresholds, as set out in the Act.

Entering into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India is prohibited and such combinations would be void.

However, there is no merger control at present as the relevant sections have not yet

under:

Thresholds

combined assets of more than (i) `10 billion in India;combined domestic turnover of more than (ii) `30 billion in India;combined worldwide assets of more than $500 million (including at least (iii) `5billion of assets in India); or


combined worldwide turnover of more than $1.5 billion (including at least (iv) `15billion turnover in India).

If the merged entity belongs to a group, the threshold limits are as follows:

combined group assets in India of more than (i) `40 billion;combined group turnover in India of more than (ii) `120 billion;combined worldwide assets of the group value of more than $2 billion (including (iii)at least `5 billion group assets in India); orcombined worldwide group turnover of more than $6 billion (including at least (iv)`15 billion group turnover in India).

(i)the thresholds. “Turnover” includes value of sale of goods or services. It is the overall turnover which is taken into consideration and not turnover limited to the relevant product market.

(ii)is announced daily by the Reserve Bank of India (RBI) as the RBI Reference Rate on its website. It is advisable to follow the reference rate to determine thresholds.Market shares are not to be taken into account for the threshold test.(iii)

Stages

India. The relevant provisions of the Competition Act prescribe a maximum waiting period of 210 calendar days for scrutiny of the proposed combination by the commission, after which the combination is deemed to have been approved.

control.

1. Filing of Notice The notice, disclosing the details of the proposed combination (including acquisitions,

acquisition of control, mergers and amalgamations) is compulsorily required to be given to the Commission within 30 days of (i) approval of the proposal relating to the merger or amalgamation from the board of directors of the enterprises concerned; or (ii) execution of any agreement or other document for the acquisition or acquisition of control. There

date. On the expiry of the waiting period, the combination will be deemed to have been approved.

2. Issue of Show Cause Notice

the prima facie opinion that the combination may result in an appreciable adverse effect on competition within the relevant market in India, issue a show cause notice within 30 days


require a report from the Director General of the Commission.

3. Publication of Details of Combination On receipt of the parties’ response to the show cause notice and the director general’s

report, if the commission is still of the prima facie opinion that the combination may result in an appreciable adverse effect on competition within the relevant market in India, it may, within seven working days of receipt, direct the publication of details of the combination

into public knowledge.

4. Invitation of Comments and Objections from the Public Within 15 working days of publication of the details, the commission may invite

objections and comments from members of the public or call for such information from the

5. Passing of Order On receipt of all information, the commission may approve the combination

the Competition Act.

¶4-050 Penalties under the Competition Act Unlike the erstwhile MRTP Commission, the Competition Commission has vast

powers in relation to anti-competitive agreements and abuse of dominant positions. If the commission concludes that there is an anti-competitive agreement which has caused or is likely to cause an appreciable adverse effect on competition within India, or that any enterprise has abused its dominant position in the market, it may pass all or any of the following orders:

a cease and desist order, which directs the parties involved in such agreement or (i)abuse of a dominant position to discontinue acting upon such agreement and not to re-enter such agreement, or to discontinue such abuse of a dominant position, as the case may be;

(ii)

on each party to the agreement or abuse. Provided that in case any agreement referred to in section 3 has been entered into by a cartel, the commission may impose on each producer, seller, distributor, trader or service provider included in

of such agreement or 10% of its turnover for each year that it continues such agreement, whichever is higher;

(iii)


an order that directs compliance with its orders and directions, including payment (iv)of costs;an order that directs the division of an enterprise that is abusing its dominant (v)position to ensure that it can no longer abuse its dominance; and

(vi)

In addition, any person may apply to the appellate tribunal for the recovery of compensation from any enterprise for any loss or damage shown to have been suffered by such person as a result of the enterprise:

violating directions issued by the commission;(i)contravening, with no reasonable ground, any decision or order of the commission (ii)issued under sections 27, 28, 31, 32 and 33 or any condition or restriction subject to which any approval, sanction, direction or exemption in relation to any matter has been accorded, given, made or granted under the Competition Act; ordelaying in carrying out such orders or directions.(iii)

Execution of Commission orders Imposing Monetary Penalty

The Commission is empowered to frame regulations for the recovery of monetary penalties imposed under the Competition Act, which may include a reference to the Income Tax Authority for recovery of the penalty as tax due under the Income Tax Act.

Consequences of Contravention of Commission Orders

The Commission has vast powers to ensure compliance with its orders and directions,

`100,000 for each day that such noncompliance occurs, subject to a maximum of `10 million. The second non-compliance

to `250 million, or both.

Penalty for Failure to Comply with Commission Directions

If a person fails to comply, without reasonable cause, with a commission direction given under section 36(2) or (4) or a director general direction given under section 41(2),

`100,000 for each day during which such failure continues, subject to a maximum of `10 million. Power to impose penalty for non-furnishing of information on combinations If any person or enterprise fails to give notice to the commission under section 6(2), the commission will impose a penalty which may extend to 1% of the combination’s total turnover or assets, whichever is higher.

Penalty for Making False Statement or Omission to Furnish Material Information

If any party to a combination makes a statement which is false or is known to be false in any particular material, or omits to state any material that is known to be material, such party will be liable to a penalty of no less than `5 million, which may extend to `100million, as may be determined by the Commission.


Penalty for Offences in Relation to Furnishing of Information

Without prejudice to section 44, if a person knowingly furnishes false information or suppresses any material fact or willfully alters or destroys any document that is required to

`100million, as may be determined by the Commission.

Power to Impose Lesser Penalty: Leniency Scheme for Cartel Members

provider that is involved in a cartel which is alleged to have violated section 3 has made a full and true disclosure in respect of the alleged violations and that such disclosure is vital, it may impose on such producer, seller, distributor, trader or service provider a lesser penalty than is leviable under section 27 of the Competition Act. Such a lesser penalty must not be imposed in cases where the investigation report has already been received from the director general and where the member of the cartel refuses to cooperate with the Commission until completion of the proceedings before it.

Further, the Commission has made regulations to facilitate such disclosure by members of cartels wherein up to a 100% waiver of the penalty is permissible to such members on a

Recent Developments in Competition Law in India

¶4-060 Developments

1. Fast Disposal of Pending Monopolies Act Cases

The Competition Appellate Tribunal’s (COMPAT) fast-track disposal of pending Monopolies Act cases is noticeable. According to information, by December 2010,COMPAT had disposed of 755 cases:

RTP cases 121

UTP cases 355

Compensation cases 279

MTP cases 0

The Central Government, vide 2011, has brought the provisions of the Competition Act, 2002 (the Act) relating to regulation of “combinations”, ie, acquisitions, acquiring of control, mergers or

of combinations, regulation of combination, power of the CCI to inquire into combinations, procedure for investigation of combination and procedure in case of notice under sub-section (2) of section 6 of the Act and orders of the CCI on


certain combinations, respectively, have been brought into force with effect from June 1, 2011.

thethresholds for qualifying the transaction as a combination under section 5 of the Act on the basis of the increase in the wholesale price index. The amended thresholds are given below in the table.

Parties (ie, acquirer and target jointly)

Combined Group (acquirer group and target combined)

Assets Turnover Assets Turnover

`1,500 crore or (USD 300 million)

`4,500 crore or (USD 900 million)

`6,000 crore or (USD 1,200 million)

`18,000 crore or (USD 3,600 million)

USD 750 million (with at least `750million of assets in India)

USD 2,250 million (with at leaset `2,250crore or USD 450 million of turnover in India)

USD 3 billion (with at least `750crore or USD 150 million of assets in India)

USD 9 billion (with at least `2,250crore or USD 450 million of turnover in India)

Act, the target enterprise, whose control, shares, voting rights or assets are being acquired having assets of the value of more than `250 crore or turnover of not more than `750 crore have been exempted from the provisions of section 5 of the

3. CCI Publishes the New Draft Merger Regulations

2011 has published the new draft merger regulations titled “”.

The draft regulations are available on the website of CCI (www.cci.gov.in.)

Features of the New Draft RegulationsSome of the are listed below:

Pre-merger Consultation - The CCI has provided for voluntary pre-merger

views expressed by the CCI during such consultations will not be binding.Shorter Review Period – CCI will form its prima opinion within 30 days of

1

as opposed to earlier waiting period of 210 days.Exemption for Certain Target Enterprises under Acquisition - The new draft

1 Calendar Days.

INDIA

WORLDWIDE


target enterprise, whose control, shares, voting rights or assets are being acquired having assets of the value of more than `250 crore or turnover of not more than `

for 5 years. Three Types of Notice Formats – The draft regulations provide for three forms of

Form I, which is short notice form includes,

Acquisitions of not more than 15 percent of the total shares solely for an investment purpose or in the ordinary course of business and which does not lead to a control of the enterprise;Acquisitions where the acquirer is already in control of the enterprise; Acquisition of assets where the assets of the parties are not directly related to the business activities of the party acquiring or made solely as an investment or in the ordinary course of business;Acquisitions taking place within the group.

Form IIother than those listed above.

Form IIIforeign institutional investors, banks or venture capital fund, in respect of share

covenant of a loan agreement or investment agreement, in pursuant to sub-section (5) of section 6 of the Act.

Filing Fee – The amount of fee payable along with the notice in Form I or Form II, as may be applicable, shall be as under:

(a) in case of merger or amalgamation or acquiring of control over an enterprise, the fee shall be `4,000,000;(b) in case of acquisition of shares, voting rights or assets of the enterprise, the fee shall be as given in the Table below:

Value of Acquisition Fee`1,000,000

one thousand crore `2,000,000

Rupees one thousand crore and above `4,000,000

The draft merger regulation imposes the obligation to notify on the acquirer.Draft regulations propose that the combinations which have taken effect prior to

requirement. – The draft regulations propose that any request


duly considered having due regard to the procedure laid down in the Competition.

– The draft regulations provide for appointment of independent agencies to oversee the carrying

any other professional organization or independent practitioners of repute.

ObservationsThe implementation of the Competition Act in May 2009 marks the beginning of

the modern competition law regime in India. Although the act was passed in 2002, it was delayed due to judicial intervention at the highest level because of the earlier proposed constitution of the Competition Commission, which included a judicial function, but did not have a judge as its chairperson. The 2007 amendment to the Competition Act removed this anomaly and created an appellate tribunal headed by a sitting or retired Supreme Court judge or a chief justice of a High Court, while leaving the regulatory space for the Competition Commission as an expert body.

Thus, the development of competition law jurisprudence has now begun in India. However, given the nascent stage of its development and the high penalties contemplated under the Competition Act, international businesses with existing activities in or with India or those contemplating investing in business in India are advised to have their contracts and

law and that they will comply with it in future.

4. The Companies Act, 1956

Another legislation that is often overlooked is the Companies Act, 1956 which contains certain provisions under sections 108A to 108G in Part IV of the Companies Act, dealing

and transfers. These provisions intend to prevent acquisition or takeover of companies to further restrict concentration of economic power. Consequently, prior approval of the relevant Government authority is required in certain cases of acquisition of shares of a public company or a private company that is a subsidiary of a public company, where the nominal value of the shares held post-acquisition would exceed a certain prescribed limit. Similarly, transfer of shares held by a body corporate or bodies corporate in a company, under certain circumstances, allowed only after prior notice of the transfer of shares to the relevant government authority, including details of proposed transfer. Upon such notice, if

are being transferred or against public interest; it can prohibit the transfer of such shares.

However, the new Companies Bill is on the anvil and likely to be introduced in the Monsoon session (2011) of the Parliament.

Useful Web Link

Competition Commission of India (www.cci.gov.in)

Chapter 5 Special Schemes for Export Promotion (SEZs/EOUs/STPs/EHTPs/BTPs)

Special Economic ZonesIntroduction...................................................................................................... 5-010Administrative Set-up ..................................................................................... 5-020Online Filing Facility for SEZ Proposals ........................................................ 5-030Minimum Investment/Net-worth Criteria for setting up SEZ.......................... 5-040Process of Setting up of SEZ .......................................................................... 5-050Incentives to the SEZs .................................................................................... 5-060Obligations of SEZ Units ................................................................................ 5-070Conclusion ...................................................................................................... 5-080

Export Oriented Units

Introduction ..................................................................................................... 5-090

Software Technology Parks

Introduction...................................................................................................... 5-100

Electronics Hardware Technology ParksIntroduction...................................................................................................... 5-110

Biotechnology ParksIntroduction...................................................................................................... 5-120

Various schemes have been introduced by the Government from time to time to encourage exports, viz, Special Economic Zones (SEZs), Export Oriented Units (EOUs), Software Technology Parks (STPs), Electronics Hardware Technology Parks (EHTPs), Biotechnology Parks (BTPs), etc.

Special Economic Zones

¶5-010 IntroductionWith a view to providing an internationally competitive environment for exports, the

Government of India announced the SEZ Policy in April 2000. The objectives of the SEZ Policy include making available goods and services free of taxes and duties supported by integrated infrastructure for export production, expeditious and single-window approval mechanism and a package of incentives to attract foreign and domestic investments for promoting export-led growth.


SEZs in India functioned from November 1, 2000 to February 9, 2006 under the

available through the provisions of relevant statutes. This system did not lend enough

and for the setting up of units for export of goods and services.

In order to provide a long-term and stable policy framework with minimum regulatory regime and to provide expeditious and single-window clearance mechanism in line with the international best business practices, a Central Act for Special Economic Zones was therefore found to be necessary. The Special Economic Zones Act, 2005 (SEZ Act) was enacted by the Government in 2005. Subsequently, on and from 10 February 2006, with the support of the Special Economic Zones Rules, 2006 (SEZ Rules), the SEZ Act came into operation.

mechanism to deal with matters under Central/State enactments. For SEZ developers, there are different minimum-land requirements for different classes of SEZs. Every SEZ is divided into a processing area, within which only the SEZ units would come up, and the non-processing area, where the supporting infrastructure is to be created.

The salient features of the SEZ Policy are:

and for setting up units and conducting business in SEZs;Single-window clearance for setting up of SEZ;Single-window clearance for setting up units in SEZ;Single-window clearance on matters relating to Central as well as State Governments; and

¶5-020 Administrative Set-up The administrative set-up for functioning of SEZs is as under:

Board of Approval

Zonal Development Commissioner(s)

Unit Approval Committee(s)

Development Commissioner(s)

The Board of Approval (BOA) is the apex body and is headed by the Secretary, Department of Commerce, Ministry of Commerce and Industry, Government of India.The Unit Approval Committee (UAC) at the Zone level deals with approval of units in the SEZs and other related issues.

33Chapter 5 Special Schemes for Export Promotion (SEZs/EOUs/STPs/EHTPs/BTPs)

Each SEZ is headed by a Development Commissioner, who is chairperson of the UAC. Once an SEZ has been approved by the BOA and Central Government has

proposals for setting up of units in the SEZ are approved at the Zone level by the UAC consisting of Development Commissioner, Customs Authorities and representatives of the State Government.

¶5-030 Online Filing Facility for SEZ Proposals The Department of Commerce, Ministry of Commerce and Industry (MoCI), has

vide Circular F. No. D.12/13/2008-SEZ,dated October 21, 2008. The following online services are offered through the SEZ online link on the website (http://www.sezindia.nic.in/):

Filing of application (Form A) for setting up SEZFiling of other requests, viz, Application for authorised operations, addition of co-developer, application for conversion of in-principle approval to formal approval, application for validity extension of approvals, change in developing entity, change in sector, change in area/location, land details Inbuilt e-mail box for each developer/co-developer to enable them to communicate with the DepartmentOnline status of requests.

due signatures and authentication has to be submitted along with necessary enclosures.

¶5-040 Minimum Investment/Net-worth Criteria for setting up SEZThe minimum investment or net-worth of the promoters, all group companies, and

Multi-product SEZs - Minimum investment of `1,000 crore (INR 10 billion) or Net-worth of `250 crore (INR 2.5 billion)

- Minimum investment of `250 crore (INR 2.5 billion) or Networth of `50 crore (INR 0.5 billion)


¶5-050 Process of Setting up of SEZ Setting up of a Special Economic Zone

(a)

Person intending to set up an SEZ

(Developer)

Identificationof Area

Proposal toState

Government (SG)for

recommendation

Proposal with SGs recommendation

to BOA

Direct Proposal to BOA Grant of Approval

by the BOA

WithoutModifications

WithModifications

Rejection of Proposal

r rejection

e

to SG/Person concerned

me to person/SG concerned.

modifications accepted by person/

Apporval on terms& conditions approved

by BOA to the Developer,ie, Any Person/SG

(b)

Development Commissioner

Record reasons

Person setting upNew SEZ Unit

Letter of Approval/Rejection Application (Form F)

RejectionWith orwithout

Modifications

ApprovalCommittee(15 days)


¶5-060 Incentives to the SEZs The SEZs are deemed to be a foreign territory within the country. The SEZs are

tariffs. SEZs enjoy a host of exemptions from income tax, customs duties, excise duties, central sales tax (CST), service tax and state levies.

Major Incentives to SEZ Developers

The major incentives and facilities available to SEZ Developers include:

(i) Direct Taxes

100% income tax deduction, allowed to the Developer under section 80-IAB of

Exemption from minimum alternate tax (MAT) under section 115JB of the Income-tax Act. However, with effect from the assessment year 2012/13, MAT @ 18.5% has been imposed on SEZ Developers.Exemption from dividend distribution tax (DDT) under section 115-O of the Income-tax Act to the SEZ Developers. However, with effect from June 1, 2011, DDT @ 15% has been imposed on the dividend distributed by the SEZ Developers.

(ii) Indirect Taxes

Duty-free import/domestic procurement of goods for development, operation and maintenance of SEZsExemption from Central Sales Tax (CST)Exemption from Service Tax

(iii) FEMA/FDI/ECB

100% Foreign Direct Investment permitted for setting up of SEZ with approval of the BOA.External Commercial Borrowing (ECB), allowed under Approval Route, for

However, ECB shall not be permissible for development of integrated township and commercial real estate within SEZ.

(iv) Miscellaneous

Full freedom in the allocation of space and built-up area to approved SEZ units on commercial basisAuthorisation to provide utilities and maintenance services, viz, water, electricity, security, restaurants and recreation centres on a commercial basisGeneration, transmission and distribution of power in SEZ.

Major Incentives to SEZ Units

The major incentives and facilities available to SEZ Units include:


(i) Direct Taxes

Fifteen years tax holiday in a phased manner, subject to certain conditions. 100%

the next 5 years. Exemption from minimum alternate tax (MAT) under Section 115JB of the Income-tax Act. However, with effect from the assessment year 2012/13, MAT @18.5% has been imposed on SEZ Units.

(ii) Indirect Taxes

Duty-free import/procurement from domestic sources for all their requirement of

of their project in the SEZ, without any licence.Exemption from CST.Exemption from Service Tax.

(iii) FEMA/FDI related

100% FDI allowed through automatic route for all manufacturing activities in the Special Economic Zone, except for the following activities:

Arms and ammunition, explosive and allied items of defence equipment, defence aircraft and warships;Automatic substances;Narcotics and psychotropic substances and hazardous chemicals;Distillation and brewing of alcoholic drinks; andCigarettes/cigars and manufactured tobacco substitutes.

services. The cases not covered by automatic route to be considered and approved by the BOA.SEZ Units are allowed to raise external commercial borrowings (ECBs) up to US$500 million in a year, under the automatic route without any maturity restriction.Freedom to bring in export proceeds without any time limit.Flexibility to keep 100% of export proceeds in foreign currency account.Freedom to make overseas investment from such foreign currency account.

Unrealised export bills allowed to be written off.Enhanced limit of `24,000,000 (INR Twenty-four million) per annum allowed as managerial remuneration under the Companies Act, 1956.

¶5-070 Obligations of SEZ Units SEZ units to achieve positive Net Foreign Exchange (NFE), in accordance with the formula provided under Rule 53 of SEZ Rules, 2006Units required to execute Bond-cum-Legal Undertaking and submit to the Development Commissioner in the prescribed Form-H under SEZ Rules, 2006


Units to submit Annual Performance Report to the Development Commissioner, in the prescribed Form-I under SEZ Rules, 2006Units to abide by local laws, rules, regulations or bye-laws with regard to the area planning, sewerage disposal, pollution control and the likeUnits to comply with Industrial and Labour Laws, as are applicable locally. It may be noted that the labour laws will apply to all the units inside the SEZs. However, the respective State Government may declare units within the SEZ as public utilities and may delegate the powers of Labour Commissioner to the Development Commissioner of the SEZs.

¶5-080 ConclusionThe SEZ scheme has generated tremendous response amongst investors, both in India

domestic investment in the development of SEZs. During the year 2009/10, exports effected from SEZs aggregated `220,711.39 crore (as against exports of `99,689 crore during 2008/09), thereby registering a whooping growth of 121.40% over the year 2008/09. In the times to come, SEZs are going to be the biggest driver of export-led growth for India.

Export Oriented Units

¶5-090 Introduction The Export Oriented Unit (EOU) Scheme was introduced in the year 1980 and is

covered under Chapter 6 of the Foreign Trade Policy. Establishment of units and their performance is monitored by the jurisdictional Development Commissioner under the Foreign Trade Policy provisions.

The purpose of the scheme was to boost exports by creating additional production capacity. Under this scheme, units undertaking to export their entire production of goods are allowed to be set up as an EOU. These units may be engaged in manufacturing, services, development of software, trading, repairing, remaking, reconditioning, re-engineering including making of gold/silver/platinum jewellery and articles thereof, agriculture

horticulture, pisciculture, viticulture, poultry, sericulture and granites. EOUs can export all products except prohibited items of exports in ITC (HS) without payment of duty. However, permissions required for import under other laws shall be applicable.

A minimum investment of `10 million in plant and machinery is required before commencement of commercial production in an EOU. Applications for setting up of units under EOU scheme, other than proposals for setting up of units in the service sector (except R&D, software and IT-enabled services or any other service activity, as may be delegated by the BOA), are approved or rejected by the Unit Approval Committee.

EOUs may import, without payment of duty, all types of goods, including capital

provided they are not prohibited items of imports in the ITC (HS). The units are also permitted to import goods required for the approved activity, including capital goods, free of cost or on loan from clients.


EOU units are exempted from central excise duty in procurement of goods manufactured in India, procured from DTA and from customs duty on import of capital goods, raw materials, consumables, spares, etc. Such units are further entitled to reimbursement of CST paid on purchases.

Supplies from Domestic Tariff Area (DTA) to EOUs are considered deemed exports

up to 100% is allowed, subject to sectoral norms.

Software Technology Parks

¶5-100 Introduction The Software Technology Parks (STP) Scheme is covered under Chapter 6 of

the Foreign Trade Policy. The STP Scheme is a 100% export-oriented scheme for the development and export of computer software and services using data communication links or in the form of physical media including the export of professional services. The major attraction of this scheme is a single-point contact service to the STP units.

For implementing the STP scheme, the Ministry of Communications and Information Technology formed the Software Technology Park of India (STPI) in 1991. STPI is an autonomous body for the management and regulation of IT Parks or STPs in India. The main aim of STPI is to develop India into an IT giant and one of the leading generators and exporters of IT and software within the coming few years. STP scheme approvals are given under a single-window clearance mechanism.

An STP unit can be located in areas designated as STP complexes or at any place where EOUs can be set up. Such a unit is a duty-free custom bonded area and is entitled to refund of CST paid on purchases. STP units are allowed to import all types of goods

equipment, etc) for the purpose of manufacture/production of export products and export thereof, without payment of duties. Units can export software through data communication channel or through physical transport. Further, foreign investment up to 100% is allowed, subject to sectoral norms.

Electronics Hardware Technology Parks

¶5-110 Introduction The Electronics Hardware Technology Park (EHTP) Scheme is covered under Chapter

6 of the Foreign Trade Policy. The EHTP Scheme is administered by the Ministry of Communications and Information Technology. Under the EHTP Scheme, an EHTP can be set up by the Central Government, State Government, public or private sector undertaking or any combination of them.

An EHTP unit can be located in areas designated as EHTP complex or at any place where EOUs can be set up. Such a unit is a duty-free custom-bonded area and is entitled to refund of CST paid on purchases. EHTP units are allowed to import all types of goods

equipments, etc) for the purpose of manufacture/production of export products and export


thereof, without payment of duty. Units can export software through data communication channel or through physical transport. Further, foreign investment up to 100% is allowed, subject to sectoral norms.

Biotechnology Parks

¶5-120 IntroductionThe Biotechnology Park (BTP) Scheme is covered under Chapter 6 of the Foreign

Trade Policy. The BTP units can export all products, except prohibited items of exports in ITC (HS) without payment of duty. Units may import, without payment of duty, all types

its activities or in connection therewith, provided they are not prohibited items of imports in the ITC (HS).

BTP units are entitled to refund of CST paid on purchases and exempted from payment of Central Excise Duty on goods manufactured in India procured from DTA.

Chapter 6 InvestmentFramework

Policy on Foreign Direct InvestmentFDI Policy ................................................................................................ 6-010Person Resident outside India ................................................................. 6-020Foreign Institutional Investor (FII) .......................................................... 6-030Non-resident Indians (NRIs) ................................................................... 6-040Foreign Venture Capital Investor (FVCI) ................................................ 6-050

Entry RoutesInvestment Routes under FDI Policy ....................................................... 6-060Procedure under Automatic Route ........................................................... 6-070Procedure under Government Route ....................................................... 6-080

Prohibition on Investment in IndiaInvestments which are Prohibited ............................................................ 6-090

Types of Instruments Eligible for FDIEligible Investment Instruments............................................................... 6-100

Entities into which FDI can be madeFDI in an Indian Company ..................................................................... 6-110 FDI in a Partnership Firm or a Proprietary Concern ............................... 6-120FDI in Trusts ............................................................................................ 6-130FDI in other Entities ................................................................................. 6-140

Issue of InstrumentsConditions for Issue of Shares to Non-resident Investor ......................... 6-150Issue of Rights/Bonus Shares .................................................................. 6-160Acquisition of Shares under Scheme of Merger/ Demerger/Amalgamation ................................................................... 6-170Issue of Shares under Employee Stock Option Scheme (ESOPs) ........... 6-180Share Swap .............................................................................................. 6-190Issue of Shares by Indian Companies under FCCB/ADR/GDR ............. 6-200

Transfer of Instruments Investment in Existing Shares .................................................................. 6-210Pricing Guidelines for Transfer of Shares ............................................... 6-220

41Chapter 6 Investment Framework

Requirement of Prior Permission of RBI for Transfer of Capital Instruments ........................................................................ 6-230Calculation of Total Foreign Investment, ie Direct and Indirect Foreign Investment ......................................................... 6-240Downstream Investment by Indian Companies ....................................... 6-250Remittance and Repatriation .................................................................... 6-260

............................................................................... 6-270

Policy on Foreign Direct Investment

¶6-010 FDI PolicyThe Government of India recognises the key role of foreign investment in economic

development not only as an addition to domestic capital but also as a contributor to industrialization and socio-economic development.

The Foreign Direct Investment (FDI) in India is governed by the FDI Policy issued by the Government of India and the provisions of the Foreign Exchange Management Act (FEMA), 1999. Reserve Bank has issued

from time to time.

The FDI Policy is reviewed and updated on continuous basis and the half-yearly system of periodic consolidation has been introduced. Changes in sectoral policy / sectoral

formulated by the Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce and Industry, Government of India.

FDI is freely permitted in almost all the sectors. Under the FDI Scheme, investments can be made by non-residents in the shares / convertible debentures / preference shares of an Indian company, through two routes—the Automatic Route and the Government Route. The pricing of shares / convertible debentures / preference shares should be decided/determined upfront at the time of issue of the instruments.

A schematic representation of various types of foreign investments permitted in India is given below:


ForeignInvestments

Foreign DirectInvestments

Fo reign PortfolioInvestments

Foreign VentureCapital

Investments

Other investments(G. Sec, NCDs,

etc)

Investment onnon -repatriable

basis

AutomaticRoute

Govt.Route

Persons Residentoutside India

FIIs NRIs,PIO

SEBI regd.FVCIs

FIIs NRIs,PIO

NRIs,PIO

VCF,IVCUs

Eligibility for Investment in India—Who can invest?

The following persons are permitted to invest in India, subject to the FDI Policy.

¶6-020 Person Resident outside India A person resident outside India or a non-resident entity (other than a citizen of Pakistan

or an entity incorporated in Pakistan) can invest in India (Note: A citizen of Bangladesh or an entity incorporated in Bangladesh can invest in India, only under the Government route).

¶6-030 Foreign Institutional Investor (FII) A registered FII is eligible to purchase shares and convertible debentures issued by Indian companies either under the Portfolio Investment Scheme (PIS) or under the FDI Policy. FIIs can invest/trade in the capital of Indian companies, in the Stock Exchanges, directly through brokers.

A FII may invest in the capital of an Indian company under the PIS which limits the individual holding of a FII to 10% of the capital of the company and the aggregate limit for FII investment to 24% of the capital of the company. This aggregate limit of 24% can be increased to the sectoral cap / statutory ceiling, as applicable, by the Indian company concerned by passing a resolution by its Board of Directors followed by passing of a special resolution to that effect by its General Body. The aggregate FII investment, in the FDI and PIS, should be within the above caps.

Asset Reconstruction Companies (ARCs), banking sector, infrastructure companies in Securities Market, Credit Information Companies, Commodity Exchanges, etc.FIIs are allowed to trade in all exchange-traded derivative contracts, approved by RBI/SEBI on recognised Stock Exchanges in India, subject to the position limits and margin requirements as prescribed by RBI/SEBI from time to time, as well as the stipulations regarding collateral securities as directed by the RBI from time to time.


FIIs have been permitted to invest in an Indian company through offer/private placement, subject to total FII investment, viz PIS/private placement/offer, being within the ceilings.FIIs can invest in Indian Depository Receipts (IDRs) issued by non-resident companies in India, subject to and under the terms and conditions of Companies

, the subsequent amendment made thereto, and the SEBI Regulations.FIIs can buy, on repatriation basis, dated Government securities/treasury bills, listed non-convertible debentures/bonds issued by Indian companies and units of domestic mutual funds, either directly from the issuer of such securities or through a registered stock broker on a recognised stock exchange in India. Purchase of

time to time.FIIs can subscribe to the Perpetual Debt instruments (eligible for inclusion as Tier I capital), with an aggregate ceiling of 49%, and Debt Capital instruments (eligible for inclusion as upper Tier II capital), subject to the limits stipulated by SEBI for FIIs.

¶6-040 Non-resident Indians (NRIs) NRIs are allowed to invest in shares of listed Indian companies in recognised Stock Exchanges under the PIS. NRIs can invest through designated ADs, on repatriation and non-repatriation basis under PIS route up to 5% of the paid- up capital/paid-up value of each series of debentures of listed Indian companies. The aggregate paid-up value of shares/convertible debentures purchased by all NRIs cannot exceed 10% (or 24% in case a special resolution of the shareholders to this effect is passed) of the paid-up capital of the company/paid-up value of each series of debentures of the company. NRIs are allowed to invest in Exchange Traded Derivative Contracts approved by SEBI from time to time out of Rupee funds held in India on non-repatriation basis, subject to the limits prescribed by SEBI.Non-repatriation basis:

NRIs can invest in the capital of an Indian company on non-repatriation (a)basis without any limit, and the consideration for such investment shall be paid only by way of inward remittance. NRI can also, without any limit, purchase on non-repatriation basis dated (b)Government securities, treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds. The amount invested under the scheme and the capital appreciation thereon will not be allowed to be repatriated abroad.

NRIs are not permitted to make Investments in Small Savings Schemes including PPF. On repatriation basis:

NRIs can purchase on repatriation basis, without limit, Government dated (a)securities (other than bearer securities) or treasury bills or units of domestic mutual funds; bonds issued by a public sector undertaking in India and


shares in Public Sector Enterprises being disinvested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids. NRIs resident in Nepal and Bhutan and citizens of Nepal and Bhutan can (b)invest in the capital of Indian companies on repatriation basis, and the consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.

NRIs can invest in IDR in the same manner as an FII.NRIs can subscribe to the Perpetual Debt instruments (eligible for inclusion as Tier I capital), with an aggregate ceiling of 24%, and Debt Capital instruments (eligible for inclusion as upper Tier II capital), subject to the extant policy for investments by NRIs.

repatriation basis subject to certain terms and conditions.

¶6-050 Foreign Venture Capital Investor (FVCI) A SEBI-registered FVCI may contribute up to 100% of the capital of an IVCU and may also set up a domestic asset-management company to manage the fund. All such investments can be made under the automatic route. A SEBI registered FVCI can also invest in a domestic venture capital fund registered under the

. Such investments would also be subject to the extant FEMA regulations and extant FDI policy including sectoral caps, etc. SEBI registered FVCIs are also allowed to invest under the FDI Scheme, as non-resident entities, in other companies, subject to FDI Policy and FEMA regulations.If a domestic VCF is set up as a trust, a person resident outside India (non-resident entity/individual, including an NRI) cannot invest in such domestic VCF under the automatic route of the FDI scheme and would be allowed subject to approval of the FIPB. However, if a domestic VCF is set-up as an incorporated company under the , then a person resident outside India (non-resident entity/individual, including an NRI) can invest in such domestic VCF under the automatic route of FDI Scheme, subject to the pricing guidelines, reporting requirements, mode of payment, minimum capitalization norms, etc.

Entry Routes

¶6-060 Investment Routes under FDI PolicyFDI is freely permitted in almost all sectors. Under the FDI Policy, investments can be

made by non-residents in the equity shares; fully, compulsorily and mandatorily convertible debentures; or fully, compulsorily and mandatorily convertible preference shares, of an Indian company, through two routes:

the Automatic Route; and(i)the Government Route.(ii)

The rate of dividend on preference shares or convertible preference shares shall not exceed 300 basis points over the prime lending rate of State Bank of India (SBI) prevailing


as on the date of board meeting of the company in which shares are issued. Banks in India have switched over from prime lending rate system to the base rate system. However, change in the FEMA regulations in this regard is awaited.

The pricing of the compulsorily and mandatorily convertible preference shares and debentures should be decided upfront at the time of the issue of the instruments.

¶6-070 Procedure under Automatic RouteUnder the Automatic route, the non-resident investor or the Indian company does not

require any approval from the RBI or Government of India for the investment. An Indian company, not engaged in any activity/sectors where FDI is prohibited, may issue shares or convertible debentures to a Person resident outside India, subject to entry routes and sectoral caps prescribed in the FDI Policy (provided, the shares or debentures are not issued by the Indian company with a view to acquire existing shares of any Indian company).

¶6-080 Procedure under Government Route FDI in activities not covered under the automatic route requires prior approval of the

Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded from http://www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable. Indian companies having foreign investment approval through FIPB route do not require any further clearance from the RBI for receiving inward remittance and for the issue of shares to the non-resident investors.

Proposals for foreign investment under Government route, as laid down in the FDI Policy from time to time, are considered by the FIPB in Department of Economic Affairs (DEA), Ministry of Finance. Approval of the FIPB/Government of India is required in the following cases:

If any industrial undertaking, which is not an MSE (Micro and Small Enterprise) (a)but manufactures items reserved for the MSE sector, where the proposed foreign investment is more than 24% in the capital [such an undertaking would also require an industrial license under the Act, 1951 for such manufacture, which will be subject to certain conditions];If the investment falls under the approval route as stipulated in “Entry Routes” (b)of the FDI Policy; If the consideration for issue of shares to the non-resident investor by the (c)Indian company is not through funds received via normal banking channels [The only exception is the situation where shares are to be issued against External Commercial Borrowings (ECBs) and/or royalty payments (including lump-sum technical know-how fees), which fall under the automatic route]; Issue of equity shares against import of capital goods/ machinery/ equipment (d)(including second-hand machinery.)Issue of equity shares against pre-operative/pre-incorporation expenses (e)(including payment of rent, etc);

The Indian company receiving investment, either under Automatic Route or Government Route, from outside India, for issuing shares/convertible debentures/preference


shares under the FDI Policy, is required to report the details of the receipt of the amount of consideration for issue of equity instrument viz shares; fully and mandatorily convertible debentures or fully and mandatorily convertible preference shares, through an AD Bank, together with copy(ies) of the FIRC, evidencing the receipt of inward remittances along with the Know Your Customer (KYC) report on the non-resident investors from the overseas

receipt of inward remittances. After the issue of shares; fully and mandatorily convertible debentures; or fully and mandatorily convertible preference shares, the Indian company

Prohibition on Investment in India

¶6-090 Investments which are ProhibitedFDI, in any form, is prohibited where the entity is engaged or proposes to engage in

any of the following activities:

Retail Trading (except single brand product retailing)(a)Lottery Business including Government/private lottery, online lotteries, etc(b)Gambling and Betting including casinos, etc(c)Business of chit funds(d)Nidhi Company(e)Trading in Transferable Development Rights (TDRs)(f)Real Estate Business or Construction of Farm Houses (“Real estate business” does (g)not include development of townships, construction of residential/commercial premises, roads or bridges, educational institutions, recreational facilities, city

Manufacture of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of (h)tobacco substitutesActivities/sectors not opened to the private sector investment including Atomic (i)Energy and Railway Transport (other than Mass Rapid Transport Systems)Agriculture (excluding Floriculture, Horticulture, Development of seeds, (j)Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc, under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea Plantations)

Besides foreign investment (in any form), foreign technology collaboration (in any form), including licensing for franchise, trademark, brand name and management contract, is also completely prohibited for Lottery Business and Gambling and Betting activities.

Types of Instruments Eligible for FDI

¶6-100 Eligible Investment InstrumentsIndian companies can issue equity shares; fully, compulsorily and mandatorily (a)convertible debentures; and fully, compulsorily and mandatorily convertible


preference shares, subject to pricing guidelines / valuation norms prescribed under FEMA Regulations. The price/conversion formula of convertible capital instruments should be determined upfront at the time of issue of the instruments. The price at the time of conversion should not in any case be lower than the fair value worked out, in accordance with the extant FEMA Regulations [the Discounted Cash Flow method of valuation for the unlisted companies and valuation in terms of SEBI (Issue of Capital and Disclosure Requirements)Regulations, for the listed companies].Issue of other types of preference shares such as, non-convertible, optionally (b)convertible, or partially convertible, have to be in accordance with the guidelines applicable for ECBs. Since these instruments are denominated in rupees, the rupee interest rate will be based on the swap equivalent of LIBOR plus the spread permissible for ECBs of the corresponding maturity.As far as debentures are concerned, only those which are fully and mandatorily (c)

equity under the FDI Policy.Warrants and partly paid shares can be issued to persons resident outside India (d)only under the Government Route.

Entities into which FDI can be made

¶6-110 FDI in an Indian CompanyIndian companies including micro and small enterprises can issue capital against FDI.

FDI in a Micro and Small Enterprise

A person resident outside India can invest in the capital of a company which is reckoned as MSE (Micro and Small Enterprise, earlier known as Small Scale Industrial Unit) in terms of the , including an EOU or a Unit in Free Trade Zone or in Export Processing Zone or in a STP or in an EHTP, and which is not engaged in any activity/sector prohibited for FDI, subject to the prescribed limits as per FDI Policy, in accordance with the Entry Routes and the provision of the FDI Policy.

A person resident outside India can invest in the capital of an industrial undertaking, which is not an MSE, having an industrial license under the provisions of the

for manufacturing items reserved for manufacture in the MSE sector, may issue shares to a Person resident outside India, to the extent of 24% of its paid-up capital under the Automatic route.

FDI in an Asset Reconstuction Companies (ARC)

A person resident outside India, other than FII, can invest in the capital of an ARC under the Government Route, up to the extent of 49% of paid-up capital of the ARC.

FDI in Infrastructure Companies in the Securities Market and Commodity Exchanges

FDI plus FII investment up to 49% is permitted in infrastructure companies in Securities Markets (stock exchanges, depositories and clearing corporations) subject to compliance with the SEBI Regulations; and in Commodity Exchanges, subject to the regulations issued


by the Forward Markets Commission, under the Government Route. The limit for FDI is 26% of the paid-up capital.

FDI in Credit Information Companies

FDI plus FII investment under the Portfolio Investment Scheme up to 24% is permitted in Credit Information Companies (CICs) listed at the Stock Exchanges within the overall limit of 49% of the paid-up capital in accordance with the FDI Policy, subject to compliance with the .

FDI in Public Sector banks

FDI is permitted in nationalized banks, subject to an aggregate limit of 20%, and subject to compliance with the

.

¶6-120 FDI in a Partnership Firm or a Proprietary Concern

Investments on Non-Repatriation basis

An NRI or a Person of Indian Origin (PIO) resident outside India can invest by way

basis, by way of inward remittance. The amount invested shall not be eligible for repatriation outside India.

The application will be decided in consultation with the Government of India.

Investments by Non-residents other than NRIs/PIOs

A person resident outside India other than NRIs/PIO may make an application and seek prior approval of RBI for making investment. The application will be decided in consultation with the Government of India.

Restrictions

any agricultural/plantation activity or real estate business (ie dealing in land and immovable

media.

¶6-130 FDI in Trusts FDI in Trusts (other than by SEBI-registered FVCIs in domestic VCF) is not permitted.

¶6-140 FDI in other EntitiesFDI in resident entities other than those mentioned above is not permitted.


Issue of Instruments

¶6-150 Conditions for Issue of Shares to Non-resident InvestorThe equity instruments should be issued within 180 days from the date of receipt of

the inward remittance or by debit to the NRE/FCNR(B) (Foreign Currency Non-resident Bank) account of the non-resident investor, failing which the amount of consideration should be refunded immediately to the non-resident investor. Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions. In exceptional cases, refund/allotment of shares for the amount of consideration outstanding beyond a period of 180 days from the date of receipt may be considered by the RBI, on the merits of the case.

Pricing Guidelines

The price of shares issued to persons resident outside India under the FDI Policy, shall not be less than the following:

In case of a Company Listed on a Stock Exchange: (a) The price worked out in accordance with the SEBI guidelines, as applicable, where the shares of the company is listed on any recognised stock exchange in India;In case of a Company not Listed on a Stock Exchange: (b) The fair valuation of shares done by a SEBI registered AD Bank or a Chartered Accountant, as per

listed on any recognised stock exchange in India; andIn case of Preferential Allotment:(c) The price as applicable to transfer of shares from resident to non-resident as per the pricing guidelines laid down by the RBI from time to time, where the issue of shares is on preferential allotment.

¶6-160 Issue of Rights/Bonus Shares General permission of the RBI is available to Indian companies to issue right/bonus

shares to existing non-resident shareholders, subject to certain conditions.

An Indian company may offer equity or preference shares or debentures on right basis, or bonus shares to persons resident outside India, on the following conditions:

The offer on rights basis should not increase the percentage of foreign equity (a)already permitted under the FDI Policy or FEMA Regulations.The overall issue of rights shares to non-residents in the total paid-up capital (b)should not exceed the sectoral cap.The existing shares/debentures, against which offer on rights basis is made, (c)or bonus shares are issued, are held or acquired by the person resident outside India in accordance with the FEMA Regulations.The bonus shares acquired shall be subject to the same conditions, including (d)repatriation restrictions as are applicable to the original shares.Price for rights shares shall be,: (e)

in the case of shares of a company listed on a recognised stock exchange in India, at a price as determined by the company;


in the case of shares of a company not listed on a recognised stock exchange in India, at a price which is not less than the price at which the offer on right basis is made to resident shareholders.

Existing non-resident shareholders are allowed to apply for issue of additional shares/ fully, compulsorily and mandatorily convertible debentures/ fully, compulsorily and mandatorily convertible preference shares over and above their rights share entitlements. The investee company can allot the additional rights share out of unsubscribed portion, subject to the condition that the overall issue of shares to non-residents in the total paid-up capital of the company does not exceed the sectoral cap. The renouncing of the rights issue by a person resident outside India to another person resident outside India would require FIPB/RBI approval. Further, renouncing of the rights issue by a person resident outside India to a person resident in India for a consideration would also require RBI approval.

permission from the RBI. However, bonus shares can be issued to erstwhile OCBs without the RBI approval.

¶6-170 Acquisition of Shares under Scheme of Merger/Demerger/Amalgamation

Mergers/demergers/amalgamations of companies in India are usually governed by an order issued by a competent court, on the basis of the Scheme submitted by the companies undergoing merger/demerger/amalgamation. Once the scheme of merger or amalgamation of two or more Indian companies has been approved by a court in India, the transferee company or new company is allowed to issue shares to the shareholders of the transferor company resident outside India, subject to the conditions that:

the percentage of shareholding of persons resident outside India in the transferee (a)or new company does not exceed the sectoral cap; the transferor company or the transferee or the new company is not engaged in (b)activities which are prohibited under the FDI Policy; and

(c)details of shareholding by persons resident outside India before and after the

stipulated in the Scheme.

¶6-180 Issue of Shares under Employee Stock Option Scheme (ESOPs) Listed Indian companies are allowed to issue shares under the Employees (a)Stock Option Scheme, to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, other than to the citizens of Pakistan. Citizens of Bangladesh can invest with the prior approval of the FIPB. Shares under ESOPs can be issued directly or through a Trust, subject to the condition that:

The scheme has been drawn in terms of relevant regulations issued by (ii)the SEBI, andThe face value of the shares to be allotted under the scheme to the non-(iii)resident employees does not exceed 5% of the paid-up capital of the issuing company.


Unlisted companies have to follow the provisions of the (d) .The Indian company can issue ESOPs to employees who are resident outside India, other than to the citizens of Pakistan. ESOPs can be issued to the citizens of Bangladesh with the prior approval of the FIPB.The issuing company is required to report the details of such issues to the (e)

shares in Form FC-GPR.

¶6-190 Share Swap In cases of investment by way of swap of shares, irrespective of the amount, valuation

of the shares will have to be made by an AD Bank registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country. Approval of the FIPB will also be a prerequisite for investment by swap of shares.

Share Swap

Y (InvestingCompany)

X (InvesteeCompany)

Purchases Shares ofX

Offshore

Onshore

Purchases Shares ofY

¶6-200 Issue of Shares by Indian Companies under FCCB/ADR/GDR Depository Receipts (DRs) are negotiable securities issued outside India by a Depository

bank, on behalf of an Indian company, which represent the local Rupee denominated equity shares of the company held as deposit by a Custodian bank in India. DRs are traded on different Stock Exchanges in the US, Singapore, Luxembourg, London, etc. DRs listed and traded in the US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs). In the Indian context, the inward remittance received by an Indian company issuance of DRs and Foreign Currency Convertible Bonds (FCCBs) are treated as FDI and counted towards FDI.

Guidelines for issue of shares by Indian companies under FCCB/ADR/GDR are given as below:

Indian companies can raise foreign currency resources abroad through the (a)issue of FCCB/DR (ADRs/GDRs), in accordance with the Scheme for issue of

and guidelines issued by the Government of India thereunder from time to time.


A company can issue ADRs/GDRs if it is eligible to issue shares to Persons (b)resident outside India under the FDI Scheme. However, an Indian listed company, which is not eligible to raise funds from the Indian Capital Market including a company which has been restrained from accessing the securities market by the SEBI will not be eligible to issue ADRs/GDRs.Unlisted companies, which have not yet accessed the ADR/GDR route for (c)raising capital in the international market, would require prior or simultaneous listing in the domestic market, while seeking to issue such overseas instruments. Unlisted companies, which have already issued ADRs/GDRs in

within three years of such issue of ADRs/GDRs, whichever is earlier. ADRs/GDRs are issued on the basis of the ratio worked out by the Indian company in consultation with the Lead Manager to the issue. The proceeds so raised have to be kept abroad till actually required in India. Pending repatriation or utilisation of the proceeds, the Indian company can invest the funds in: (i)

by banks who have been rated by Standard and Poor’s, Fitch, IBCA or Moody’s, etc and such rating not being less than the rating stipulated by RBI from time to time for the purpose;Deposits with branch/es of Indian AD Banks outside India; and (ii)Treasury bills and other monetary instruments with a maturity or (iii)unexpired maturity of one year or less.

There are no end-use restrictions except for a ban on deployment/investment (d)of such funds in real estate or the stock market. There is no monetary limit up to which an Indian company can raise ADRs/GDRs.

(e)in the disinvestment process of Public Sector Undertakings/Enterprises and also in the mandatory second-stage offer to the public, in view of their strategic importance.Voting rights on shares issued under the Scheme shall be as per the (f)provisions of and in a manner in which restrictions on voting rights imposed on ADR/GDR issues shall be consistent with the Company Law provisions. Voting rights in the case of banking companies will continue to be in terms of the provisions of the

and the instructions issued by the RBI from time to time, as applicable to all shareholders exercising voting rights. ADR/GDR acquirers are not require to make an open offer under the

unless the holders (i) become entitled to exercise voting rights on the underlying shares, or (ii) exchange such DRs with the underlying shares carrying voting rights.Erstwhile OCBs which are not eligible to invest in India and entities (g)prohibited from buying, selling or dealing in securities by SEBI will not be eligible to subscribe to ADRs/GDRs issued by Indian companies.The pricing of ADR/GDR issues including sponsored ADRs/GDRs should (h)be made at a price determined under the provisions of the Scheme of issue


of and guidelines issued by the

Government of India and directions issued by the RBI, from time to time.

A limited two-way Fungibility scheme has been put in place by the Government of India for ADRs/ GDRs. Under this Scheme, a stock broker in India, registered with SEBI, can purchase shares of an Indian company from the market for conversion into ADRs/GDRs based on instructions received from overseas investors. Re-issuance of ADRs/GDRs would be permitted to the extent of ADRs/ GDRs which have been redeemed into underlying shares and sold in the Indian market.

An Indian company can also sponsor an issue of ADR/GDR. Under this mechanism, the company offers its resident shareholders a choice to submit their shares back to the company so that on the basis of such shares, ADRs/GDRs can be issued abroad. The proceeds of the ADR/GDR issue is remitted back to India and distributed among the resident investors who had offered their Rupee denominated shares for conversion. These proceeds can be kept in Resident Foreign Currency (Domestic) accounts in India by the resident shareholders who have tendered such shares for conversion into ADRs/GDRs.

The Indian company issuing ADRs/GDRs has to furnish to the RBI, full details of such issue within 30 days from the date of closing of the issue. The company should also furnish a quarterly return to the RBI within 15 days of the close of the calendar quarter. The quarterly return has to be submitted till the entire amount raised through ADR/GDR mechanism is either repatriated to India or utilised abroad as per the extant RBI guidelines.

Transfer of Instruments

¶6-210 Investment in Existing SharesSubject to the FDI Policy, non-resident investors can also invest in Indian companies

by purchasing/acquiring existing shares from Indian shareholders or from other non-resident shareholders. General permission has been granted to non-residents/NRIs for acquisition of shares by way of transfer as follows:

Sale/Gift of Shares by a Non-resident to another Non-resident, including (a)NRI: A person resident outside India (other than NRI and erstwhile OCB) may transfer, by way of sale or gift, the shares or convertible debentures to any person resident outside India (including NRIs). Sale/Gift of Share by NRI to NRI:(b) NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI.Gift from Non-resident to Resident:(c) A person resident outside India can transfer any security to a person resident in India by way of gift.Sale of Shares by Non-resident on the Stock Exchange:(d) A person resident outside India can sell the shares and convertible debentures of an Indian


company on a recognised Stock Exchange in India through a stock broker, registered with stock exchange or a merchant banker, registered with SEBI.Sale of Shares by Resident to Non-resident:(e) A person resident in India can transfer by way of sale, shares/convertible debentures (including transfer of

sector (ie Banks, NBFC, Insurance, ARCs, CICs, infrastructure companies in the securities market viz Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc) under private arrangement to a Person resident outside India, subject to the guidelines given in the FDI Policy.Sale of Shares by Non-resident to Resident—Private Arrangement:(f) General permission is also available for transfer of shares / convertible debentures, by way of sale under private arrangement by a person resident outside India to a person resident in India, subject to the guidelines given in the FDI Policy. The above General Permission also covers transfer by a resident to a non-resident (g)of shares/convertible debentures of an Indian company, engaged in an activity earlier covered under the Government route but now falling under Automatic route of RBI, as well as transfer of shares by a non-resident to an Indian company under buyback and/or capital reduction scheme of the company. However, this General Permission is not available in case of transfer of shares/debentures, from a Resident to a Non-resident/Non-resident Indian, of an entity engaged in any

infrastructure companies in the securities market such as Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc).

¶6-220 Pricing Guidelines for Transfer of Shares The pricing guidelines are applicable to transfer of shares, by a person resident in

India to a person resident outside India and vice versa.

Transfer by Resident to Non-resident(a) (ie to incorporated non-resident entity other than erstwhile OCB, foreign national, NRI, FII)

The price of the shares, where the shares of the Indian company are (ii)listed on a recognised stock exchange in India, shall the price at which the preferential allotment of shares can be made under the SEBI guidelines, as applicable, provided the same is determined for

shall be the date of purchase or sale of shares.The price of the shares, where the shares of the Indian company are not (iii)listed on a recognised stock exchange in India, shall the fair value to be determined by a SEBI registered AD Bank or a Chartered

Chartered Accountant.(b) Transfer by Non-resident (ie incorporated non-resident entity, erstwhile

OCB, foreign national, NRI, FII) to ResidentSale of shares by a non-resident to resident shall the minimum price at

which the transfer of shares can be made from a resident to a non-resident as given above.


¶6-230 Requirement of Prior Permission of RBI for Transfer of Capital Instruments

The following instances of transfer of capital instruments from resident to non-(a)residents by way of sale, require prior approval of RBI:

Transfer of capital instruments of an Indian company engaged in (i)

companies, infrastructure companies in the securities market such as Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc).Transactions which attract the provisions of (ii)

.The activity of the Indian company whose capital instruments are being (iii)transferred falls outside the automatic route and the approval of the Government has been obtained for the said transfer. The transfer is to take place at a price which falls outside the pricing (iv)

Transfer of capital instruments where the non-resident acquirer proposes (v)deferment of payment of the amount of consideration, prior approval of the RBI would be required, as hitherto.

(b) The transfer of capital instruments of companies engaged in sectors falling under the Government Route from residents to non-residents by way of sale or otherwise requires Government approval followed by permission from RBI.

(c) A person resident in India, who intends to transfer any capital instrument, by way of gift to a person resident outside India, has to obtain prior approval from RBI.

Reporting Obligations for Transfer of Shares between Resident and Non-resident

The transaction should be reported by submission of form FC-TRS to the AD Bank, within 60 days from the date of receipt/remittance of the amount of consideration. The onus of submission of the form FC-TRS within the given timeframe would be on the resident in India, the transferor or transferee, as the case may be.

¶6-240 Calculation of Total Foreign Investment, ie Direct and Indirect Foreign Investment

Counting the Direct Foreign Investment

All investment directly by a non-resident entity into the Indian company would be counted towards foreign investment.

Counting of Indirect Foreign Investment

The foreign investment through the investing Indian company would not be (a)considered for calculation of the indirect foreign investment in case of Indian companies which are “owned controlled” by resident Indian citizens and/or Indian companies which are owned and controlled by resident Indian citizens.


(b)is owned or controlled by “non-resident entities”, the entire investment by the investing company into the subject Indian company would be considered as indirect foreign investment.

Provided that, as an exception, the indirect foreign investment in only the 100% owned subsidiaries of operating-cum-investing/investing companies, will be limited to the foreign investment in the operating-cum-investing/investing company. This exception is made since the downstream investment of a 100% owned subsidiary of the holding company is akin to investment made by the holding company and the downstream investment should be a mirror image of the holding company. This exception, however, is strictly for those cases where the entire capital of the downstream subsidy is owned by the holding company.

Illustration

(a)

Non-resident

Y (InvestingCompany) Resident

X (InvesteeCompany)

<50%Offshore

Onshore>50%

Investment (any %) willnot be treated as indirect foreigninvestment in Company X

(b)

Non-resident

Y (InvestingCompany) Resident

X (InvesteeCompany)

75%Offshore

Onshore25%

Investment of (a) 26%; (b) 80 %; and (c) 100% by Company Ywill be treated as:(a) indirect foreign investment of 26%; (b) indirect foreigninvestment of 80%; and (c) indirect foreign investment of 75%respectively


¶6-250 Downstream Investment by Indian Companies The guidelines for calculation of total foreign investment, both direct and indirect in

an Indian company, at every stage of investment, including downstream investment, have been detailed in Para 4.1 of FDI Policy (refer to ¶6-240 - Calculation of Total Foreign Investment, ie Direct and Indirect Foreign Investment) which enables determination of total foreign investment in any/all Indian Companies.

Foreign Investment into an Indian Company Engaged only in the Activity of Investing in the Capital of other Indian Company(ies) (regardless of its ownership or control):

Foreign investment into an Indian company, engaged only in the activity of (a)investing in the capital of other Indian company(ies), will require prior Government/FIPB approval, regardless of the amount or extent of foreign investment. Foreign investment into Non-banking Finance Companies (NBFCs), carrying on activities

paragraph 5.2.18 of the FDI Policy). Those companies, which are Core Investment Companies, will have to additionally follow RBI’s regulatory framework for Core Investment Companies.For infusion of foreign investment into an Indian company which does not have (b)any operations and also does not have any downstream investments, Government/FIPB approval would be required, regardless of the amount or extent of foreign investment. Further, as and when such a company commences business(s) or makes downstream investment, it will have to comply with the relevant sectoral conditions on entry route, conditionalities and caps.

Note: Foreign investment into other Indian companies would be in accordance/ compliance with the relevant sectoral conditions on entry route, conditionalities and caps, with regard to the sectors in which such companies are operating.

Downstream Investment by an Indian Company which is Owned and/or Controlled by Non-resident Entity(ies):

Downstream investment by an Indian company, which is owned and/or controlled by non-resident entity(ies), into another Indian company, would be in accordance/compliance with the relevant sectoral conditions on entry route, conditionalities and caps, with regard to the sectors in which the Indian company into which the downstream investment is being made, is operating. Downstream investments by Indian companies will be subject to the following conditions:

Such a company is to notify SIA, DIPP and FIPB of its downstream investment (a)within 30 days of such investment even if capital instruments have not been allotted along with the modality of investment in new/existing ventures (with/without expansion programme);Downstream investment by way of induction of foreign equity in an existing (b)Indian Company is to be duly supported by a resolution of the Board of Directors supporting the said induction as also a Shareholders Agreement if any; Issue/transfer/pricing/valuation of shares shall be in accordance with applicable (c)SEBI/RBI guidelines;


For the purpose of downstream investment, the Indian companies making the (d)downstream investments would have to bring in requisite funds from abroad and not leverage funds from domestic market for such investments. This would, however, not preclude downstream companies, with operations, from raising debt in the domestic market. Downstream investments through internal accruals are permissible, subject to the provisions of the FDI Policy (refer paragraphs 4.6.3 and 4.6.4.1).

¶6-260 Remittance and RepatriationSale proceeds of shares and securities and their remittance is “remittance of asset”

governed by The , under FEMA.AD Bank can allow the remittance of sale proceeds of a security (net of applicable taxes)

to the seller of shares resident outside India, provided the security has been held on repatriation basis, the sale of security has been made in accordance with the prescribed guidelines and

All foreign investments are freely repatriable (net of applicable taxes) except in cases where:

the foreign investment is in a sector like Construction and Development (i)Projects and Defence wherein the foreign investment is subject to a lock-in-period; and

(ii)Dividends are freely repatriable without any restrictions.

Interest on fully, mandatorily and compulsorily convertible debentures is also freely repatriable without any restrictions (net of applicable taxes). The repatriation is governed by the provisions of the

, as amended from time to time.

Escrow Accounts

AD Banks have been given general permission to open Escrow account and Special account of non-resident corporates for open offers/exit offers and delisting of shares. The relevant SEBI (SAST) Regulations or any other applicable SEBI Regulations/provisions of the will be applicable for such accounts. Any other escrow accounts opened under an escrow agreement where a person resident outside India is a party will

Payment of Royalty, etc

RBI has delegated the powers, to make payments for royalty, lumpsum fee for transfer of technology and for use of trademark/brand name in terms of the foreign technology collaboration agreement and trademark agreement entered by the Indian company with its foreign partners, to the AD banks.

Violations and Consequences

FDI is a capital account transaction and thus any violation of FDI regulations are covered by the penal provisions of the FEMA. RBI administers the FEMA and Directorate


of Enforcement under the Ministry of Finance is the authority for the enforcement of FEMA. The Directorate takes up investigation in any contravention of FEMA.

Penalties

If a person violates/contravenes any FDI Regulations, by way of breach/non-adherence/(i)

release, circular, direction or order issued in exercise of the powers under FEMA or Contravenes any conditions subject to which an authorisation is issued by the Government of India/FIPB/RBI, he shall, upon adjudication, be liable to a penalty up

Where a person committing a contravention of any provisions of FEMA or of (ii)any rule, direction or order made there under is a company (company means any

in the ), every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.Any Adjudicating Authority adjudging any contraventions under (i), may, if he (iii)

direct that any currency, security or any other money or property in respect of which

Adjudication and Appeals

A mechanism has been set up for adjudication of any contravention of FEMA and appeal therefrom.

Compounding Proceedings

Under the , there is a prescribed compounding procedure for any person contravening any provisions of the FEMA. The Compounding Authorities are authorized to compound the amount involved in the contravention to the Act made by the person. No contravention shall be compounded

contravention committed after the expiry of a period of three years from the date on which

The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings. The compounding Authority shall pass an order of compounding after affording an opportunity of being heard to all the concerns as expeditiously and not later than 180 days from the date of application made to the Compounding Authority.

The sectoral policies and caps in respect of some of the important sectors are set


as well as other sectors, please refer to the latest press note on Consolidated FDI Policy available on the website: (http://dipp.nic.in/).

S. No. Sector/Activity % of FDICap/Equity

Entry Route

AGRICULTURE

5.2.1 Agriculture & Animal Husbandry

Floriculture, Horticulture, and (a)Cultivation of Vegetables & Mushrooms under controlled conditions;Development and production of seeds (b)and planting material;Animal husbandry (including of (c)breeding of dogs), Pisciculture, Aquaculture under controlled conditions; andservices related to agro and allied (d)sectors.

Note: Besides the above, FDI is not allowed in any other agricultural sector/activity.

100% Automatic

5.2.1.1 Other conditions:

For companies dealing with development of transgenic seeds/vegetables, the following conditions shall apply:

company shall comply with safety requirements in accordance with laws enacted under the Environment (Protection) Act on the genetically

.(iii) The company shall comply with any other Law, Regulation or Policy

(iv) Undertaking of business activities involving the use of genetically engineered cells and material shall be subject to the receipt of approvals from Genetic Engineering Approval Committee (GEAC) and Review Committee on Genetic Manipulation (RCGM).

(v) Import of materials shall be in accordance with National Seeds Policy.



Entry Route

(vi) The term “under controlled conditions” covers the following: “Cultivation under controlled conditions” for the categories

mushrooms, is the practice of cultivation wherein rainfall, temperature, solar radiation, air humidity and culture medium are

through protected cultivation under green houses, net houses, poly houses or any other improved infrastructure facilities where microclimatic conditions are regulated anthropogenically.Development of seeds will be considered to be “under controlled conditions” when seed farms/laboratories use tissue culture or any other micro-propagation techniques for development and multiplication of seeds/planting material. Seed development, in the case of anthuriums, orchids and other ornamental crops in green houses/net houses/poly houses, is also be included in this category.In case of animal husbandry, scope of the term “under controlled conditions” includes:

Rearing of animals under intensive farming systems with stall-feeding. Intensive farming system will require climate systems (ventilation, temperature/humidity management), health care and nutrition, herd registering/pedigree recording, use of machinery, waste management systems.Poultry breeding farms and hatcheries where microclimate is controlled through advanced technologies like incubators, ventilation systems etc.

In the case of pisciculture and aquaculture, “under controlled conditions” includes:

Aquariums

hatched and incubated in an enclosed environment with

5.2.2 Tea Plantation

5.2.2.1 Tea sector including tea plantationsNote: Besides the above, FDI is not allowed in any other plantation sector/activity.

100% Government


(i) Compulsory divestment of 26% equity of the company in favour of an Indian partner/Indian public within a period of 5 years

(ii) Prior approval of the State Government concerned in case of any future land use change.



Entry Route

INDUSTRY

MINING

5.2.3 Mining

5.2.3.1 Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores; the

.

100% Automatic

5.2.3.2 Coal and Lignite

(1) Coal and Lignite mining for captive consumption by power projects, iron and steel and cement units and other eligible activities permitted under and the provisions of .

100% Automatic

(2) Setting up coal processing plants like washeries the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.

100% Automatic

5.2.3.3 Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities

5.2.3.3.1 Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities subject to sectoralregulations and the

.

100% Government

5.2.3.3.2 Other conditions:India has large reserves of beach sand minerals in the coastal stretches around the country. Titanium bearing minerals, viz Ilmenite, rutile and leucoxene, and Zirconium bearing minerals including zircon are some of the beach sand minerals

.Under the , mining and production of minerals

Atomic were included in the list

of industries reserved for the public sector. , issued by the Department of Atomic Energy



Entry Route

laying down the policy for exploitation of beach sand minerals, private participation including Foreign Direct Investment (FDI), was permitted in mining and production of Titanium ores (Ilmenite, Rutile and Leucoxene) and Zirconium minerals (Zircon).

, , the Department of Atomic

. Titanium bearing ores and concentrates (Ilmenite, Rutile and Leucoxene) and Zirconium, its alloys and compounds and minerals/concentrates including Zircon, were removed from the list of “prescribed substances”.(i) FDI for separation of titanium bearing minerals and ores will be subject to

the following additional conditions viz:(a) value addition facilities are set up within India along with transfer of

technology;(b) disposal of tailings during the mineral separation shall be carried out in

accordance with regulations framed by the Atomic Energy Regulatory Board such as and the

.(ii) FDI will not be allowed in mining of “prescribed substances” listed in the

, issued by the Department of Atomic Energy.

: (1) For titanium bearing ores such as Ilmenite, Leucoxene and Rutile, manufacture of titanium dioxide pigment and titanium sponge constitutes value addition. Ilmenite can be processed to produce Synthetic Rutile or Titanium Slag as an intermediate value-added product. (2) The objective is to ensure that the raw material available in the country is utilized for setting up downstream industries and the technology available internationally is available for setting up such industries within the country.Thus, if with the technology transfer, the objective of the FDI Policy can be achieved, the conditions prescribed at (i)(A) above shall be deemed to be

MANUFACTURING5.2.4 Manufacture of items reserved for production in Micro and Small

Enterprises (MSEs)

5.2.4.1 FDI in MSEs will be subject to the sectoral caps, entry routes and other relevant sectoral regulations. Any industrial undertaking which is not a Micro or Small Scale Enterprise, but manufactures items reserved for the MSE sector would require Government route where foreign investment is more than 24% in the capital. Such an undertaking would also require an Industrial License under the

, for such manufacture. The



Entry Route

condition that the Industrial Undertaking shall undertake to export a minimum of 50% of the new or additional annual production of the MSE reserved items to be achieved within a maximum period of three years. The export obligation would be applicable from the date of commencement of commercial production and in accordance with the provisions of Section 11 of the

.

5.2.5 DEFENCE

5.2.5.1 Defence Industry subject to Industrial license under the

1.

26% Government

5.2.5.2 Other conditions:Licence applications will be considered and licences given by the (i)Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, in consultation with Ministry of Defence.

(ii)The management of the applicant company/partnership should be in Indian (iii)hands with majority representation on the Board as well as the Chief

Full particulars of the Directors and the Chief Executives should be (iv)furnished along with the applications.The Government reserves the right to verify the antecedents of the (v)

standing and credentials in the world market. Preference would be given to original equipment manufacturers or design establishments, and companies having a good track record of past supplies to Armed Forces, Space and Atomic energy sections and having an established R&D base.There would be no minimum capitalization for the FDI. A proper (vi)assessment, however, needs to be done by the management of the applicant company depending upon the product and the technology. The licensing authority would satisfy itself about the adequacy of the net worth of the non-resident investor taking into account the category of weapons and equipment that are proposed to be manufactured.There would be a three-year lock-in period for transfer of equity from one (vii)non-resident investor to another non-resident investor (including NRIs & erstwhile OCBs with 60% or more NRI stake) and such transfer would be subject to prior approval of the FIPB and the Government.The Ministry of Defence is not in a position to give purchase guarantee (viii)for products to be manufactured. However, the planned acquisition programme for such equipment and overall requirements would be made available to the extent possible.

1 DIPP had recently released a Discussion paper calling for views/suggestions from the stakeholders to review the extant policy on FDI in Defence sector.



Entry Route

The capacity norms for production will be provided in the licence based on (ix)the application as well as the recommendations of the Ministry of Defence, which will look into existing capacities of similar and allied products.Import of equipment for pre-production activity, including development (x)of prototype by the applicant company, would be permitted.Adequate safety and security procedures would need to be put in place by (xi)the licensee once the licence is granted and production commences. These

The standards and testing procedures for equipment to be produced under (xii)licence from foreign collaborators or from indigenous R&D will have to be provided by the licensee to the Government nominated quality

conduct surveillance and audit of the Quality Assurance Procedures of

Defence on case to case basis, which may involve either individual items, or group of items manufactured by the licensee. Such permission would

Purchase preference and price preference may be given to the Public (xiii)Sector organizations as per guidelines of the Department of Public Enterprises.

(xiv) Arms and ammunition produced by the private manufacturers will be primarily sold to the Ministry of Defence. These items may also be sold to other Government entities under the control of the Ministry of Home Affairs and State Governments with the prior approval of the Ministry of Defence. No such item should be sold within the country to any other person or entity. The export of manufactured items would be subject to policy and guidelines as applicable to Ordnance Factories and Defence Public Sector Undertakings. Non-lethal items would be permitted for sale to persons/entities other than the Central of State Governments with the prior approval of the Ministry of Defence. Licensee would also need to

Violation of these provisions may lead to cancellation of the licence.(xv) Government decision on applications to FIPB for FDI in defence industry

sector will be normally communicated within a time frame of 10 weeks from the date of acknowledgment.

POWER5.2.6 Electric Generation, Transmission, Distribution and Trading

5.2.6.1 (i) Generation and transmission of electric energy produced in-hydro electric, coal/lignite based thermal, oil based thermal and gas based thermal power plants.

(ii) Non-conventional Energy Generation and Distribution.

100% Automatic



Entry Route

(iii) Distribution of electric energy to households, industrial, commercial and other users and

iv) Power Trading Note 1: All the above would be subject to the provisions of the .Note 2: (i) to (iii) above do not include generation, transmission and distribution of electricity produced in atomic power plant/atomic energy, since private investment in this sector/activity is prohibited and is reserved for public sector.

SERVICES SECTOR5.2.7 Civil Aviation Sector5.2.7.1 The Civil Aviation sector includes Airports, Scheduled and Non-scheduled

domestic passenger airlines, Helicopter services/Seaplane services, Ground-handling Services, Maintenance and Repair organizations; Flying training institutes; and Technical training institutions.For the purposes of the Civil Aviation sector:

“Airport” means a landing and taking off area for aircrafts, usually with (i)runways and aircraft maintenance and passenger facilities and includes

Aircraft Act, ;

(ii)intended to be used, either wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds, vessels, piers and other structures thereon or pertaining thereto;“Air transport service” means a service for the transport by air of (iii)persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single

“Air Transport Undertaking” means an undertaking whose business (iv)includes the carriage by air of passengers or cargo for hire or reward. “Aircraft component” means any part, the soundness and correct (v)

continued airworthiness or safety of the aircraft and includes any item of equipment;

(vi)reactions of the air on one or more power-driven rotors on substantially vertical axis;“Scheduled air transport service”, means an air transport service (vii)undertaken between the same two or more places and operated according

by members of the public.



Entry Route

“Non-scheduled Air Transport service” means any service which is not (viii)a scheduled air transport service and will include Chartered and Cargo airlines.“Cargo” airlines would mean such airlines which meet the conditions (ix)as given in the Civil Aviation Requirements issued by the Ministry of Civil Aviation.“Seaplane” means an aeroplane capable normally of taking off from and (x)alighting solely on water;

(xi)

Aviation through the Aeronautical Information Circulars from time to

5.2.7.2 Policy for FDI in Civil Aviation sector

The Policy for FDI in the Civil Aviation Sector would be subject to the Aircraft as amended from time to time, Civil Aviation Requirements, and

.5.2.7.2.1 Airports

100% Automatic

(b) Existing projects 100% Automatic,up to 74%; Governmentroute, beyond 74%

5.2.7.2.2 Air Transport Services(a) Air Transport Services would include Domestic Scheduled Passenger Airlines; Non-scheduled Airlines; Chartered Airlines; Cargo Airlines; helicopter and seaplane services.(b) No foreign airlines would be allowed to participate directly or indirectly in the equity of an Air Transport Undertaking engaged in operating Scheduled, Non-scheduled, and Chartered airlines.(c) Foreign airlines are allowed to participate in the equity of companies operating Cargo airlines, helicopter and seaplane services.

(1) Scheduled Air Transport Service / Domestic Scheduled Passenger Airline

49% FDI (100% for NRIs)

Automatic

(2) Non-scheduled Air Transport Service / Non-scheduled airlines, Chartered airlines, and Cargo airlines.


Automatic,up to 49%; Governmentroute, beyond 49% and up to 74%



Entry Route

(3) Helicopter services/seaplane services requiring DGCA approval.

100% Automatic

5.2.7.2.3 Other services under Civil Aviation sector

(1) Ground-handling Services, sectoral regulations and security clearance.


Automat i c , up to 49%; Government route, beyond 49% and up to 74%

(2) Maintenance and Repair organizations;

Institutions.

100% Automatic

5.2.8 Asset Reconstruction Companies5.2.8.1 “Asset Reconstruction Company” (ARC) means a company registered with

the RBI under section 3 of the (SARFAESI Act).

5.2.8.2 FDI limit 49% of paid-up capital of ARC

Government


Persons resident outside India, other than Foreign Institutional Investors (i)(FIIs), can invest in the capital of Asset Reconstruction Companies (ARCs) registered with RBI only under the Government Route. Such investments have to be strictly in the nature of FDI. Investments by FIIs are not permitted in the equity capital of ARCs.However, FIIs registered with SEBI can invest in the Security Receipts (ii)(SRs) issued by ARCs registered with RBI FIIs can invest up to 49 per cent of each tranche of scheme of SRs, subject to the condition that investment by a single FII in each tranche of SRs shall not exceed 10 per cent of the issue.Any individual investment of more than 10% would be subject to provisions of section 3(3)(f) of

.

5.2.9 Banking – Private sector

5.2.9.1 Banking – Private sector 74%,includinginvestmentby FIIs




Entry Route


(1) This 74% limit will include investments under the Portfolio Investment Scheme (PIS) by FIIs, NRIs and shares acquired prior to September 16, 2003 by erstwhile OCBs, and continue to include IPOs, Private placements, GDR/ADRs and acquisition of shares from existing shareholders.

(2) The aggregate foreign investment in a private bank from all sources will be allowed up to a maximum of 74 per cent of the paid up capital of the Bank. At all times, at least 26 per cent of the paid up capital will have to be held by residents, except in regard to a wholly owned subsidiary of a foreign bank.

(3) The stipulations as above will be applicable to all investments in existing private sector banks also.

(4) The permissible limits under portfolio investment schemes through stock exchanges for FIIs and NRIs will be as follows:

In the case of FIIs, as hitherto, individual FII holding is restricted to 10 (i)per cent of the total paid-up capital, aggregate limit for all FIIs cannot exceed 24 per cent of the total paid-up capital, which can be raised to 49 per cent of the total paid-up capital by the bank concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body.

Thus, the FII investment limit will continue to be within 49 per (a)cent of the total paid-up capital. In the case of NRIs, as hitherto, individual holding is restricted (b)to 5 per cent of the total paid-up capital both on repatriation and nonrepatriation basis and aggregate limit cannot exceed 10 per cent of the total paid-up capital both on repatriation and non-repatriation basis. However, NRI holding can be allowed up to 24 per cent of the total paid-up capital both on repatriation and non-repatriation basis provided the banking company passes a special resolution to that effect in the General Body.Applications for foreign direct investment (FDI route) in private (c)banks having joint venture/subsidiary in insurance sector may be addressed to the RBI for consideration in consultation with the Insurance Regulatory and Development Authority (IRDA) in order to ensure that the 26 per cent limit of foreign shareholding applicable for the insurance sector is not being breached.Transfer of shares under FDI from residents to non-residents will (d)continue to require approval of RBI and Government as per para 4.2.3 above as applicable.The policies and procedures prescribed from time to time by RBI (e)and other institutions such as SEBI, D/o Company Affairs and IRDA on these matters will continue to apply.RBI guidelines relating to acquisition by purchase or otherwise of (f)shares of a private bank, if such acquisition results in any person owning or controlling 5 per cent or more of the paid-up capital of the private bank will apply to non-resident investors as well.



Entry Route

Setting up of a subsidiary by foreign banks:(ii)Foreign banks will be permitted to either have branches or (a)subsidiaries but not both.Foreign banks regulated by banking supervisory authority in the (b)home country and meeting RBIs licensing criteria will be allowed to hold 100 per cent paid-up capital to enable them to set up a wholly owned subsidiary in India.A foreign bank may operate in India through only one of the three (c)channels viz, (i) branches (ii) a wholly owned subsidiary and (iii) a subsidiary with aggregate foreign investment up to a maximum of 74 per cent in a private bank.A foreign bank will be permitted to establish a wholly-owned (d)subsidiary either through conversion of existing branches into a subsidiary or through a fresh banking license. A foreign bank will be permitted to establish a subsidiary through acquisition of shares of an existing private sector bank provided at least 26 per cent of the paid capital of the private sector bank is held by residents at all times consistent with para (i)(b) above.A subsidiary of a foreign bank will be subject to the licensing (e)requirements and conditions broadly consistent with those for new private sector banks.Guidelines for setting up a wholly owned subsidiary of a foreign (f)bank will be issued separately by RBI.All applications by a foreign bank for setting up a subsidiary or (g)for conversion of their existing branches to subsidiary in India will have to be made to the RBI.

At present there is a limit of ten per cent on voting rights in respect (iii)of banking companies, and this should be noted by potential investor.

decisions and appropriate Parliamentary approvals.

5.2.10 Banking – Public Sector

5.2.10.1 Banking – Public Sector,

.

20% (FDI and Portfolio Investment)

Government

5.2.11 Broadcasting

5.2.11.1 Terrestrial Broadcasting FM (FM Radio)

from time to time by Ministry of Information and Broadcasting for grant of permission for setting up of FM Radio Stations.

20% (FDI, NRI & PIO investments and portfolio investment)

Government



Entry Route

5.2.11.2 Cable Network, and other conditions as

Information and Broadcasting.


Government

5.2.11.3 Direct-to-Home such guidelines/

to time by Ministry of Information and Broadcasting.


c o m p o n e n t

Government

5.2.11.4 Headend-in-the-sky (HITS) Broadcasting Service, which refers to the multichannel downlinking and distribution of television programme in C-Band or Ku Band wherein all the pay channels are downlinked at a central facility (HUB/teleport) and again uplinked to a satellite after encryption of channel. At the cable headend these encrypted pay channels are downlinked using a single satellite antenna, transmodulated and sent to the subscribers by using a

network.

5.2.11.4.1 FDI limit in (HITS) Broadcasting Service is such guidelines/terms and

Ministry of Information and Broadcasting.

74% (total direct and indirectforeigninvestment,includingportfolio and FDI)


5.2.11.5 Setting up hardware facilities such as up-linking, HUB etc

(1) Setting up of Up-linking HUB/Teleports 49% (FDI & FII)

Government

(2) Up-linking a Non-news and Current Affairs TV Channel

100% Government

(3) Up-linking a News and Current Affairs TV Channel, the condition that the portfolio investment from FII/NRI shall not be “persons acting in concert” with FDI investors,

.

26% (FDI & FII)

Government



Entry Route

5.2.11.5.1 Other conditions:

(i) All the activities at (1), (2) and (3) above will be further subject to the condition that the Company permitted to uplink the channel shall certify the continued compliance of this requirement through the Company Secretary at the

(ii) FDI for up-linking TV Channels will be subject to compliance with the Up-

time to time.

5.2.12 Commodity Exchanges5.2.12.1 1 Futures trading in commodities are regulated under the

. Commodity Exchanges, like Stock Exchanges, are infrastructure companies in the commodity futures market. With a view to infusing globally acceptable best practices, modern management skills and latest technology, it was decided to allow foreign investment in Commodity Exchanges.

2 For the purposes of this chapter:“Commodity Exchange” is a recognised association under the (i)provisions of the , as amended from time to time, to provide exchange platform for trading in forward contracts in commodities.“Recognised association” means an association to which recognition (ii)for the time being has been granted by the Central Government under Section 6 of the “Association” means any body of individuals, whether incorporated (iii)or not, constituted for the purposes of regulating and controlling the business of the sale or purchase of any goods and commodity derivative.“Forward contract” means a contract for the delivery of goods and (iv)which is not a ready delivery contract.“Commodity derivative” means:(v)

a contract for delivery of goods, which is not a ready delivery contract; ora contract for differences which derives its value from prices or indices of prices of such underlying goods or activities, services,

the Forward Markets Commission by the Central Government, but does not include securities.



Entry Route

5.2.12.2 Policy for FDI in Commodity Exchange 49% (FDI & FII) [Investmentby Regist-ered FII underPortfolioInvestmentScheme(PIS) will be limited to 23% and Investmentunder FDI Scheme will be limited to 26%]

Government


(i) FII purchases shall be restricted to secondary market only and(ii) No non-resident investor/entity, including persons acting in concert, will hold more than 5% of the equity in these companies.

5.2.13 Development of Townships, Housing, Built-up infrastructure and Construction-development projects

5.2.13.1 Townships, housing, built-up infrastructure and construction-development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional-level infrastructure).

100% Automatic

Investment to be made will be subject to the following conditions:(1) Minimum area to be developed under each project would be as under:

In case of development of serviced housing plots, a minimum land (i)area of 10 hectares. In case of construction-development projects, a minimum built-up (ii)area of 50,000 sq. mts. In case of a combination project, any one of the above two conditions (iii)

(2) Minimum capitalisation of US$10 million for wholly owned subsidiaries and US$5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the Company.



Entry Route

5.2.13.2 (3) Original investment cannot be repatriated before a period of three years from completion of minimum capitalisation. Original investment means the entire amount brought in as FDI. The lock-in period of three years will be applied from the date of receipt of each instalment/tranche of FDI or from the date of completion of minimum capitalization, whichever is later. However, the investor may be permitted to exit earlier with prior approval of the Government through the FIPB.

years from the date of obtaining all statutory clearances. The investor/investee company would not be permitted to sell undeveloped plots. For the purpose of these guidelines, “undeveloped plots” will mean where roads, water supply, street lighting, drainage, sewerage, and other conveniences, as applicable under prescribed regulations, have not been made available. It will be necessary that

from the concerned local body/service agency before he would be allowed to dispose of serviced housing plots. (5) The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, by-laws, rules, and other regulations of the State Government/municipal/local body concerned. (6) The investor/investee company shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/by-laws/regulations of the State Government/municipal/local body concerned. (7) The State Government/municipal/local body concerned, which approves the building/development plans, would monitor compliance of the above conditions by the developer. Note:(i) The conditions at (1) to (4) above would not apply to Hotels & Tourism,

Hospitals and SEZ’s.(ii) For investment by NRIs, the conditions at (1) to (4) above would not

apply.(iii) 100% FDI is allowed under the automatic route in development of Special

Economic Zones (SEZ) without the conditionalities at (1) to (4) above. This will be subject to the provisions of

and the SEZ Policy of the Department of Commerce. (iv) FDI is not allowed in Real Estate Business.

5.2.14 Credit Information Companies (CIC)5.2.14.1 Credit Information Companies 49% (FDI &

FII)Government

5.2.14.2 Other Conditions:(1) Foreign investment in Credit Information Companies is subject to the

.



Entry Route

(2) Foreign investment is permitted under the Government route, subject to regulatory clearance from RBI.

(3) Investment by a registered FII under the Portfolio Investment Scheme would be permitted up to 24% only in the CICs listed at the Stock Exchanges, within the overall limit of 49% for foreign investment.

(4) Such FII investment would be permitted subject to the conditions that:No single entity should directly or indirectly hold more than 10% equity.(a)Any acquisition in excess of 1% will have to be reported to RBI as a (b)mandatory requirement; andFIIs investing in CICs shall not seek a representation on the Board (c)of Directors based upon their shareholding.

5.2.15 Industrial Parks – both setting up and already established Industrial Parks

100% Automatic

5.2.15.1 (i) “Industrial Park” is a project in which quality infrastructure in the form of plots of developed land or built-up space or a combination with common facilities, is developed and made available to all the allottee units for the purposes of industrial activity.

(ii) “Infrastructure” refers to facilities required for functioning of units located in the Industrial Park and includes roads (including approach roads),

network, generation and distribution of power, air conditioning.(iii) “Common Facilities” refer to the facilities available for all the units located

in the industrial park, and include facilities of power, roads (including

common testing, telecom services, air conditioning, common facility buildings, industrial canteens, convention/conference halls, parking,

services, training facilities and such other facilities meant for common use of the units located in the Industrial Park.

(iv) “Allocable area” in the Industrial Park means:in the case of plots of developed land: the net site area available for (a)allocation to the units, excluding the area for common facilities.

(b)utilised for providing common facilities.in the case of a combination of developed land and built-up space: (c)

excluding the site area and built-up space, utilised for providing common facilities.

(v) “Industrial Activity” means manufacturing, electricity, gas and water supply, post and telecommunications, software publishing, consultancy and supply, data processing, database activities and distribution of electronic content, other computer-related activities, Research and experimental development on natural sciences and engineering, Business and management consultancy activities and Architectural, engineering and other technical activities



Entry Route

5.2.15.2 FDI in Industrial Parks would not be subject to the conditionalities applicable for construction development projects, etc, spelt out in para 5.2.13 above, provided the Industrial Parks meet with the under-mentioned conditions: (i) it would comprise a minimum of 10 units and no single unit shall occupy more than 50% of the allocable area; (ii) the minimum percentage of the area to be allocated for industrial activity shall not be less than 66% of the total allocable area.

5.2.16 Insurance5.2.16.1 Insurance 26% Automatic

5.2.16.2 Other Conditions:(1) FDI in the Insurance sector, as prescribed in the Insurance Act, 1999, is

allowed under the automatic route. (2) This will be subject to the condition that Companies bringing in FDI shall

obtain necessary license from the Insurance Regulatory & Development Authority for undertaking insurance activities.

5.2.17 Infrastructure Company in the Securities Market

5.2.17.1 Infrastructure companies in Securities Markets, namely, stock exchanges, depositories and clearing corporations, in compliance with SEBI Regulations.

49% (FDI & FII) [FDI limit of 26 per cent and an FII limit of 23% of the paid-up capital]

Government

5.2.17.2 Other Conditions:

5.2.17.2.1 FII can invest only through purchases in the secondary market.

5.2.18 Non-banking Finance Companies (NBFC)

5.2.18.1 Foreign investment in NBFC is allowed under the automatic route in the following activities:

Merchant Banking (i)Underwriting(ii)Portfolio Management Services(iii)Investment Advisory Services (iv)Financial Consultancy (v)Stock Broking (vi)Asset Management (vii)Venture Capital (viii)Custodian Services (ix)Factoring(x)Credit Rating Agencies (xi)Leasing & Finance (xii)

100% Automatic



Entry Route

Housing Finance (xiii)Forex Broking (xiv)Credit Card Business(xv)Money Changing Business (xvi)Micro Credit(xvii)Rural Credit(xviii)

5.2.18.2 Other Conditions:

(1) Investment would be subject to the following minimum capitalization norms:US$0.5 million for foreign capital up to 51% to be brought upfront(i)US$5 million for foreign capital more than 51% and up to 75% to be (ii)brought upfrontUS$50 million for foreign capital more than 75% out of which US$7.5 (iii)million to be brought upfront and the balance in 24 months100% foreign-owned NBFCs with a minimum capitalisation of US$50 (iv)

without any restriction on the number of operating subsidiaries and without bringing in additional capital.

Joint-venture-operating NBFCs that have 75% or less than 75% foreign (v)investment can also set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capitalisation norms mentioned in (i), (ii) and (iii) above and (vi) below.Non-fund-based activities: US$0.5 million to be brought upfront for all (vi)permitted non-fund-based NBFCs irrespective of the level of foreign investment subject to the following condition:

It would not be permissible for such a company to set up any subsidiary for any other activity, nor can it participate in any equity of an NBFC holding/operating company.Note:activities:(a) Investment Advisory Services(b) Financial Consultancy(c) Forex Broking(d) Money Changing Business(e) Credit Rating AgenciesThis will be subject to compliance with the guidelines of RBI.(vii)Note: Credit Card business includes issuance, sales, marketing & design of various payment products such as credit cards, charge cards, debit cards, stored value cards, smart card, value-added cards etc.

(2) The NBFC will have to comply with the guidelines of the the relevant regulator(s), as applicable.



Entry Route

5.2.19 Petroleum & Natural Gas Sector5.2.19.1 Exploration activities of oil and natural gas

of petroleum products, actual trading and marketing of petroleum products, petroleumproduct pipelines, natural gas / LNG pipelines, market study and formulation and Petroleum

the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation

national oil companies.

100% Automatic

5.2.19.2Undertakings (PSUs), without any divestment or dilution of domestic equity in the existing PSUs.

49% Government

5.2.20 Print Media

5.2.20.1 Publishing of Newspaper and periodicals dealing with news and current affairs.

26%(FDI and investmentby NRIs/PIOs/FII)

Government

5.2.20.2 Publication of Indian editions of foreign magazines dealing with news and current affairs.

26%(FDI and investmentby NRIs/PIOs/FII)

Government

5.2.20.2.1 Other Conditions:

(i)periodical publication, brought out on non-daily basis, containing public news or comments on public news. Foreign investment would also be subject to the Guidelines for Publication (ii)of Indian editions of foreign magazines dealing with news and current affairs issued by the Ministry of Information & Broadcasting on 04-12-2008.

5.2.20.3magazines/specialty journals/ periodicals,

compliance with the legal framework, as applicable and guidelines issued in this regard from time to time by Ministry of Information and Broadcasting.

100% Government



Entry Route

5.2.20.4 Publication of facsimile edition of foreign newspapers.

100% Government

5.2.20.4.1 Other Conditions:FDI should be made by the owner of the original foreign newspapers (i)whose facsimile edition is proposed to be brought out in India.Publication of facsimile edition of foreign newspapers can be undertaken (ii)only by an entity incorporated or registered in India under the provisions of the .Publication of facsimile edition of foreign newspaper would also be (iii)subject to the Guidelines for publication of newspapers and periodicals dealing with news and current affairs and publication of facsimile edition of foreign newspapers issued by Ministry of Information & Broadcasting on 31-03-2006, as amended from time to time.

5.2.21 Security Agencies in Private sector5.2.21.1 The regulates the operations

of private security agencies. Under section 6(2) of the above Act, “A company,

under this Act, if, it is not registered in India, or is having a proprietor or a majority shareholder, partner or director, who is not a citizen of India”. As such, under the provisions of this Act:

a foreign company cannot be considered for a license under the Act

director/partnermajority of the shareholders cannot be foreigners, ie foreign shareholding would be restricted to a maximum of 49% under the Government route.

5.2.22 Satellites – Establishment and operation5.2.22.1 Satellites – Establishment and operation,

subject to the sectoral guidelines of Department of Space/ISRO.

74% Government

5.2.23 Telecommunication

Telecommunications, will need to be complied with for all services.5.2.23.1 (i) Telecom services 74% Automat i c ,

up to 49%; Government route, beyond 49% and up to 74%



Entry Route

5.2.23.1.1 Other conditions:(1) General Conditions:

(i)National/International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value-added Services. Both direct and indirect foreign investment in the licensee company (ii)shall be counted for the purpose of FDI ceiling. Foreign Investment shall include investment by Foreign Institutional Investors (FIIs), Non-resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entity. In any case, the “Indian” shareholding will not be less than 26 percent.FDI in the licensee company/Indian promoters/investment companies (iii)including their holding companies shall require approval of the Foreign Investment Promotion Board (FIPB) if it has a bearing on the overall ceiling of 74 percent. While approving the investment proposals, FIPB shall take note that investment is not coming from countries of concern and/or unfriendly entities. The investment approval by FIPB shall envisage the conditionality (iv)that Company would adhere to licence Agreement. FDI shall be subject to laws of India and not the laws of the foreign (v)country/countries.

(2) Security Conditions:(i)

Details of infrastructure/network diagram (technical details of (ii)the network) could be provided on a need basis only to telecom

the licensee company. Clearance from the licensor (Department of Telecommunications) would be required if such information is to be provided to anybody else.

(iii)

place outside India.The licensee company shall take adequate and timely measures (iv)to ensure that the information transacted through a network by the subscribers is secure and protected.

(v)interception of messages, should be resident Indian citizens. The majority Directors on the Board of the company should be Indian (vi)citizens.



Entry Route

The positions of the Chairman, Managing Director, Chief Executive (vii)

foreign nationals, would require to be security vetted by Ministry of Home Affairs (MHA). Security vetting shall be required periodically on yearly basis. In case something adverse is found during the security vetting, the direction of MHA shall be binding on the licensee.The company shall not transfer the following to any person/place (viii)outside India:(a) Any accounting information relating to subscriber (except

for international roaming/billing) (Note: it does not restrict a

(b) User information (except pertaining to foreign subscribers using Indian Operator’s network while roaming).

The company must provide traceable identity of their subscribers. (ix)However, in case of providing service to roaming subscriber of foreign companies, the Indian company shall endeavour to obtain traceable identity of roaming subscribers from the foreign company as a part of its roaming agreement.On request of the licensor or any other agency authorised by the (x)licensor, the telecom service provider should be able to provide the geographical location of any subscriber (BTS location) at a given point of time.The Remote Access (RA) to Network would be provided only to (xi)approved location(s) abroad through approved location(s) in India. The approval for location(s) would be given by the Licensor (DoT) in consultation with the Ministry of Home Affairs.Under no circumstances, should any RA to the suppliers/manufacturers (xii)

any such sensitive sector/data, which the licensor may notify from time to time. The licensee company is not allowed to use remote access facility for (xiii)monitoring of content.Suitable technical device should be made available at Indian end to (xiv)the designated security agency/licensor in which a mirror image of the remote access information is available on line for monitoring purposes.Complete audit trail of the remote access activities pertaining to the (xv)network operated in India should be maintained for a period of six months and provided on request to the licensor or any other agency authorised by the licensor.

The telecom service providers should ensure that necessary (xvi)provision (hardware/software) is available in their equipment for doing the Lawful interception and monitoring from a centralized location.



Entry Route

The telecom service providers should familiarize/train Vigilance (xvii)

respect of relevant operations/features of their systems.It shall be open to the licensor to restrict the Licensee Company (xviii)from operating in any sensitive area from the National Security angle.In order to maintain the privacy of voice and data, monitoring shall (xix)only be upon authorisation by the Union Home Secretary or Home Secretaries of the States/Union Territories.

(xx)their network and other facilities as well as to books of accounts to the security agencies.The aforesaid Security Conditions shall be applicable to all the (xxi)licensee companies operating telecom services covered under this circular irrespective of the level of FDI.Other Service Providers (OSPs), providing services like Call (xxii)Centres, Business Process Outsourcing (BPO), tele-marketing, tele-education, etc, and are registered with DoT as OSP. Such OSPs operate the service using the telecom infrastructure provided by licensed telecom service providers and 100% FDI is permitted for OSPs. As the security conditions are applicable to all licensed telecom service providers, the security conditions mentioned above shall not be separately enforced on OSPs.

(3) The above General Conditions and Security Conditions shall also be applicable to the companies operating telecom service(s) with the FDI cap of 49%.

(4) All the telecom service providers shall submit a compliance report on the aforesaid conditions to the licensor on 1st day of July and January on six-monthly basis.

5.2.23.2 (a) ISP with gateways(b) ISP’s not providing gateways, ie without

gateways (both for satellite and marine cables)Note: The new guidelines of August 24, 2007, Department of Telecommunications, provide for new ISP licenses with FDI up to 74%.

(c) Radio paging(d) End-to-end bandwidth

74% Automat i c , up to 49%; Government route, beyond 49% and up to 74%



Entry Route

5.2.23.3 (a) Infrastructure provider providing dark

Category I). (b) Electronic Mail(c) Voice Mail

Note: Investment in all the above activities is subject to the conditions that such companies will divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world.

100% Automat i c , up to 49%; Government route, beyond 49%

5.2.24 Trading

5.2.24.1 Cash & Carry Wholesale Trading/Wholesale Trading

100% Automatic

5.2.24.1.1 : Cash & carry wholesale trading/wholesale trading, would mean sale of goods/merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers. Wholesale trading would, accordingly, be sales for the purpose of trade, business and profession, as opposed to sales for the purpose of personal consumption. The yardstick to determine whether the sale is wholesale or not would be the type of customers to whom the sale is made and not the size and volume of sales. Wholesale trading would include resale, processing and thereafter sale, bulk imports with ex-port/ex-bonded warehouse business sales and B2B e-Commerce.

5.2.24.1.2 Guidelines for Cash & Carry Wholesale Trading/Wholesale Trading (WT):(a)

under the relevant Acts/Regulations/Rules/Orders of the State Government/Government Body/Government Authority/Local Self Government Body under that State Government should be obtained.Except in case of sales to Government, sales made by the wholesaler (b)would be considered as “cash & carry wholesale trading/wholesale trading” with valid business customers, only when WT are made to the following entities:(I) Entities holding sales tax/VAT registration/service tax/excise duty registration; or

issued by a Government Authority/Government Body/Local Self Government

engaged in a business involving commercial activity; or



Entry Route

(III) Entities holding permits/license, etc, for undertaking retail trade (like tehbazari and similar license for hawkers) from Government Authorities/Local Self Government Bodies; or

society or registration as public trust for their self consumption.Note:conditions.Full records indicating all the details of such sales like name of entity; (c)kind of entity; registration/license/permit, etc; number, amount of sale, etc; should be maintained on a day to day basis.WT of goods would be permitted among companies of the same group. (d)However, such WT to group companies taken together should not exceed 25% of the total turnover of the wholesale venture WT can be undertaken as per normal business practice, including extending (e)credit facilities subject to applicable regulations. A wholesale/cash & carry trader cannot open retail shops to sell to the (f)consumer directly.

5.2.24.2 E-commerce activities 100% Automatic

5.2.24.2.1 E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in Business to Business (B2B) e-commerce and not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.

5.2.24.3 Test marketing of such items for which a company has approval for manufacture, provided such test marketing facility will be for a period of two years, and investment in setting up manufacturing facility commences simultaneously with test marketing.

100% Government

5.2.24.4 Single Brand product trading 51% Government(1) Foreign Investment in Single-brand product trading is aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices.(2) FDI in Single-brand products retail trade would be subject to the following conditions:

(a) Products to be sold should be of a “Single Brand” only.(b) Products should be sold under the same brand internationally, ie products should be sold under the same brand in one or more countries other than India.



Entry Route

(c) “Single-brand” product retailing would cover only products which are branded during manufacturing.

(3) Application seeking permission of the Government for FDI in retail trade of “Single-brand” products would be made to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion. The

proposed to be sold under a “Single Brand”. Any addition to the product/product categories to be sold under “Single Brand” would require a fresh approval of the Government.(4) Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the products proposed to be sold satisfy

approval.

5.2.25 Courier services for carrying packages, parcels and other items which do not come within the ambit of the .

5.2.25.1 100% FDI is allowed under the Government route.

5.2.25.2 This will be subject to existing law, ie and exclusion of activity relating to the distribution of letters.

Note: Minimum capitalization includes share premium received alongwith the face value of the share, only when it is received by the company upon issue of the shares to the non-resident investor. Amount paid by the transferee during post-issue transfer of shares beyond the issue price of the share, cannot be taken into account while calculating minimum capitalization requirement.

Chapter 7 Establishing Presence in India

Entry Option for Foreign InvestorsAs an Incorporated Entity ........................................................................ 7-010As an Unincorporated Entity ................................................................... 7-020

Incorporation of a CompanyIncorporation of Company – Legal perspective ....................................... 7-030Private Company ..................................................................................... 7-040Public Company ...................................................................................... 7-050Memorandum of Association .................................................................. 7-060Articles of Association ............................................................................ 7-070Procedure for Incorporation of Company in India ................................... 7-080

Limited Liability Partnerships in India Introduction ............................................................................................. 7-090Extent of Liability of Partners of LLP ..................................................... 7-100Winding up of a LLP ............................................................................... 7-110 Conversion into LLP ............................................................................... 7-120

Forms of Legal Entity(ies) ....................................................................... 7-130Company Licensed under Section 25 of the Companies Act, 1956 ........ 7-140

in the State in which the Society is proposed to be registered ........... 7-150Trust ......................................................................................................... 7-160Foreign Funding and Applicability of Foreign Contribution Regulation Act, 1976 (FCRA) .......................................................... 7-170

Entry Option for Foreign InvestorsA foreign company planning to set up business operations in India has the following

options:

¶7-010 As an Incorporated Entity By incorporating a company under the Companies Act, 1956 (Companies Act) through:

Joint Ventures, or

87Chapter 7 Establishing Presence in India

Wholly Owned Subsidiaries.Foreign equity in such Indian companies can be up to 100%, depending on the

requirements of the investor, subject to any equity caps prescribed in respect of the area of activities under the Consolidated FDI policy effective from October 1, 2010, issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India (Consolidated FDI Policy).

¶7-020 As an Unincorporated Entity As a foreign company through:

Foreign Exchange

India (RBI)”.

Foreign Exchange Management Act, 1999. The applications will have to be made by such entities in Form FNC and will be considered by RBI under two routes:

(1) Reserve Bank Route: Where the principal business of the foreign entity falls under sectors where 100% FDI is permissible—under the automatic route.

(2) Government Route: Where the principal business of the foreign entity falls under

route.

Applications from entities falling under this category and those from Non-government

by RBI in consultation with the Ministry of Finance, Government of India.

The following additional criteria are also considered by the RBI while sanctioning

(1) Track Record

(2) Net Worth (total of paid-up capital and free reserves, less intangible assets, as

Accountant or any Registered Accounts Practitioner by whatever name).

88

For BO: not less than US$100,000 or its equivalent.(i)For LO: not less than US$50,000 or its equivalent.(ii)

) to the Chief

prescribed documents including:

1.

Country of Registration.Latest Audited Balance Sheet of the applicant entity2. .

Applicants who do not satisfy the eligibility criteria and are subsidiaries of other companies can submit a Letter of Comfort from their parent company, subject to the

antecedents of the promoter, nature and location of activity, sources of funds, etc and also ensure compliance with the Know Your Customer (KYC) norms before forwarding the

.

A LO is suitable for a foreign company, which wishes to set up a representative

the country. The LO generally acts as a channel of communication between the overseas

Permission to set up LOs is initially granted for a period of 3 years which may be extended

Foreign Insurance companies can establish LOs in India only after obtaining approval

and Development (DBOD), RBI.


they have secured a contract from an Indian company to execute a project in (i)India and the project is funded directly by inward remittance from abroad; orthe project is funded by a bilateral or multilateral International Financing (ii)Agency; or the project has been cleared by an appropriate authority; or (iii)a company or entity in India awarding the contract has been granted term loan (iv)

incidental to execution of the project. POs may remit the surplus of the project outside

(e)

including Income Tax, etc.(f)

completion of the Project in India and that any shortfall of funds for meeting any liability in India will be met by inward remittance from abroad.

Inter-project transfer of funds requires prior permission of the concerned regional

Companies incorporated outside India and engaged in manufacturing or trading

should be engaged in the activity in which the parent company is engaged.

restricted and permission has to be obtained from the RBI, each time any new activity is to be

or industrial activity other than that expressly approved by the RBI. BO is permitted to

(i) 1

Rendering professional or consultancy services(ii)(iii)(iv)

parent or overseas group company(v)

in IndiaRendering services in Information Technology and development of software (vi)in India

1 Procurement of goods for export and sale of goods after import are allowed only on wholesale basis.

90

(vii)companies.

(viii)

and any liability of the branch would be the liability of the foreign entity. BOs may remit

Prior permission of the RBI is not required for setting up BOs in Special Economic Zones (SEZs). RBI has given general permission to foreign companies for establishing

permission is subject to the following conditions:

Such units are functioning in those sectors where 100 percent FDI is (i)permitted;Such units comply with Part XI of the Companies Act (sections 592 to 602); and(ii)Such units function on a standalone basis.(iii)

Application for undertaking additional Activities or Additional BOs/LOs

form, duly signed by the authorised signatory of the foreign entity in the home country, to the RBI as explained above. However, the documents mentioned in form FNC need not be resubmitted, if there are no changes to the documents already submitted earlier.

In the event of winding up of business and for remittance of winding up proceeds, the

(i)

(ii)indicating the manner in which the remittable amount has been arrived 1.and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;


2.

adequately provided for;3.

proceeds of exports) has remained unrepatriated to India;

remittance(s); and

in any Court in India are pending and there is no legal impediment to the remittance.

(v) A report from the Registrar of Companies (ROC) regarding compliance with the provisions of the Companies Act, in case of winding up of the BO in India.

of RBI, along with a declaration stating that all the necessary documents submitted by the BO have been scrutinised and found to be in order. If the documents are not found in order

to the RBI, with their observations, for necessary action. All the documents relating to the

Following, inter alia are certain general conditions applicable to all the BOs, LOs and

LO in India.

a LO or a PO or any other place of business.

acquire immovable property in India even for a BO. These entities are allowed to

allowed to establish only LO in India.

92

be utilised for their business in India within three months of maturity. However,

Incorporation of a Company

¶7-030 Incorporation of Company – Legal perspectiveIncorporation of a company in India is governed by the Companies Act. For registration

Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.

¶7-040 Private Company A private company can be formed with minimum two shareholders and with a

minimum paid-up capital of `100,000 (INR one hundred thousand) or such higher paid-up capital, as may be prescribed, and by its Memorandum and Articles of Association. Further, a private company:

restricts the rights to transfer its shares, if any;1.limits the number of its members to 50, not including:2.

persons who are in the employment of the company; and(a)persons who, having been formerly in the employment of the company, (b)were members of the company while in that employment and have continued to be a members after the employment had ceased; and

prohibits any invitation to the public to subscribe for any shares in, or debentures 3.of, the company; andprohibits any invitation or acceptance of deposits from persons other than its 4.members, directors or their relatives.

Formation of a Private Limited Company

A private company can be formed either by:

incorporation of a new company for doing a new business, or1.conversion of the existing business of a sole proprietary concern or partnership 2.

¶7-050 Public Company A public company can be formed with minimum seven shareholders and with a

minimum paid-up capital of `capital, as may be prescribed.

¶7-060 Memorandum of Association An important step in the formation of a company is to prepare a document called

Memorandum of Association (MOA). It is the constitution of the company and it contains


the fundamental conditions on which the company is incorporated. The MOA contains the

to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects, liability of the members and the authorised capital of the company. The main purpose of the memorandum is to state the scope of activities and powers of the company.

¶7-070 Articles of Association The Articles of Association (AOA) of a company contain rules, regulation and by-

laws for the general management of the company.

The AOA are subordinate to the MOA. Therefore, the AOA should not contain any regulation, which is contrary to the provisions of the MOA or the Companies Act. The AOA are binding on the members in relation to the company as well as on the company in its relation to members.

¶7-080 Procedure for Incorporation of Company in India

A. Preliminary Steps

The proposed directors of the company (to be incorporated) have to apply for

the Ministry of Corporate Affairs (MCA).

B. Incorporation-related Activities

The name of a corporation is the symbol of its personal existence. Any suitable name may be selected for registration, subject to the following guidelines:

At least six names, in the order of preference, are to be provided.The names should include, as far as possible, activity as per the main objects of the proposed company.The names should not too closely resemble with the name of any other registered company.

selecting the names. Besides, the names so selected should not violate the provisions of the .The validity of the name approval is for six months within which the company

94

Drafting of MOA and AOA - Charter documents.

1. : It is an application alongwith a statutory declaration by an advocate, attorney or pleader entitled to appear before the High Court or a Company Secretary or Chartered Accountant in whole-time practice in India who is engaged in the formation of the company or by a person who is named as a director or manager or secretary of the company that the requirements of the Companies Act have been complied with in respect of the registration of the company and matters precedent and incidental thereto. Along with e-Form 1, the MOA, AOA, and all other required documentation

2company.

3. : To notify the details of the directors, managing director and manager of the company. Agreements, if any, which the company proposes to enter into with any individual for appointment as its managing director or whole-time

In terms of procedure for incorporation of a company and establishing principal place of business by a foreign company. The circular states that only e-Form 1 shall be approved by the ROC

stamped and signed are presented along with the requisite registration fee, which is scaled according to the share capital of the company, as stated in the MOA.

its existence.

incorporation.

prospectus with the ROC. A public company can only commence its business


E. Issue of Share Capital

After obtaining registration, the company will require funds to carry on its business.

members of the company. The issued capital must not exceed the authorised capital of the company. Thereafter, in case of a private company, the capital is to be raised by way of private arrangement, whereas a Public Limited company can raise funds from the public or by way of private arrangement.

Limited Liability Partnerships in India

¶7-090 Introduction The (LLP Act) has been enacted by the

Government to facilitate formation of LLPs in India. The LLP Act came into force w.e.f. March 31, 2009. Further, the April 1, 2009.

The LLP is a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both tangible and intangible in nature. In an LLP, no partner would be liable on account of the independent or unauthorised actions of other partners or their misconduct. The liabilities of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP.

An LLP shall have at least two partners and shall also have at least two individuals as designated partners, of whom at least one shall be resident in India, ie an LLP can be

must be a resident in India, meaning a person who has stayed in India for a minimum period of 182 days during the immediately preceding one year.

every year. The accounts of LLPs shall also be audited, subject to any class of LLP being exempted from this requirement by the Central Government.

The death or insolvency of the partners does not affect the continued existence of the LLP. Any change in the partners does not affect the existence, rights or liabilities of the LLP.

¶7-100 Extent of Liability of Partners of LLP

in the extent of liability of the partners of an LLP.

Under the scheme of the LLP Act, for the purposes of business of the LLP, the agency relationship exists between the LLP and its partners, but this relationship does not travel to other partners, so that every partner of LLP is, for the purposes of its business, an agent of the LLP but not of the additional partner.

96

An obligation of the LLP, whether contractual or otherwise, is solely the obligation of the LLP, and for such an obligation, a partner, other than the wrongdoing partner(s), cannot be made personally liable. Such an obligation would have to be met out of the property of the LLP alone. This agency relationship is, however, subject to the authority of the partner to act for the LLP in doing a particular act such that where there is no such authority, the LLP is not bound by the act of the partner if the person with whom the partner is dealing

the LLP. Further, a change in the partners will have no effect on the existence, rights or liabilities of the LLP.

The LLP Act is, however, not in any way intended to operate as a restriction or limitation upon the extent of liability of the partners doing the wrongful act. In other words, the partners doing a wrongful act would, under the normal provisions of civil law, be personally liable. Since the agency relationship does not traverse so as to bind the other

¶7-110 Winding up of a LLP

be either voluntary or by an order of the National Company Law Tribunal (the Tribunal)2.

up, continuance for more than six months with less than two partners, acting against

so, is vested at the Tribunal.

¶7-120 Conversion into LLP

LLP. The procedure for such conversion is provided for in the Second, Third and Fourth

means the transfer of the property, assets, interests, rights, privileges, liabilities, obligations

company), as the case may be, should at the time of conversion, become partners of the

would stand transferred to and vested in the LLP. Such conversion shall have the effect of

joint-venture companies that are operating in India since it assures limited liability and

requirements.

2 The Companies Act, 1956 provides for the constitution of a National Company Law Tribunal. The Tribunal has not, so far, been constituted and its functions until it is constituted, would be continued to be discharged by the Company Law Board.


However, the LLP has not yet been recognised as a structure in the latest Consolidated FDI Policy (dated March 31, 2011). The RBI is yet to notify the norms for foreign investment into LLPs.

¶7-130 Forms of Legal Entity(ies)

one of the following forms:

A. a company licensed under section 25 of the Companies Act; B. a society registered under the ;C. a registered trust.

¶7-140 Company Licensed under Section 25 of the Companies Act, 1956 Section 25 of the Companies Act provides that any association which is engaged

in promoting commerce, art, science, religion, charity or any other useful object and

prohibits the payment of any dividend to its members may be granted a licence by the Central Government directing that such an association may be registered as a company

Such companies are eligible for exemptions from Indian Income Tax and from certain regulatory provisions of the Companies Act. Further, all the advantages of incorporation are enjoyed by such companies. The membership rights under section 25 Company can be transferred and such companies are not affected by changes in membership.

Procedure for Incorporation of Section-25 Company

Application for obtaining licence for setting up a Section-25 Company is required

Chennai (depending upon the jurisdiction) for procurement of licence.The aforesaid application is to be accompanied with certain documents such as

has scrutinised all the documents, names and addresses of all members, statement showing details of assets, estimate of future income, etc.

a company is to be given in an English newspaper and a local daily to invite objections from the public, which are to go directly to the RD with a copy to the advertiser.

made thereunder have been duly complied, the RD will grant licence.

98

with the prescribed registration fee.A company under section 25 of the Companies Act is almost the same as a domestic Indian company incorporated under the Companies Act. The compliances are

holding of board and general meetings, etc.

¶7-150 Society registered under Societies Registration Act, 1860 as

registered

, may,

form themselves into a society under the said Act.

The registration of a society under the , provides legal

suits, obtaining income tax approvals, lawful vesting of properties, etc, in the name of the society.

Characteristics of a Society

It has a separate legal entity distinct from its members. It can sue and may also be sued in its own name. No member may, either individually or jointly, claim any ownership rights in the assets of the society during its existence. Upon dissolution, the surplus assets of the society are given to some other society with similar objects. A society has perpetual succession and is not affected in a legal sense by changes in membership or employees.It also has the advantage of limited liability which means that members of

circumstances.

Procedure for Incorporation of Society

In India, societies are governed by a central law as well as State legislations.Minimum seven persons are required for the purpose of registration of the society.

MOA, containing the name and object of society and the names, addresses (i)and occupations of the members.Rules and regulations of the society.(ii)Identity Proof of all members of the society.(iii)

(iv)

case society operates from that premises.


Payment of applicable fees to the Registrar.(v)

¶7-160 Trust A trust is created by annexing an obligation to some property. This obligation, when

accepted by the trustee(s), results in the creation of a trust. The trust has primarily three

After creation of the trust, various registrations and exemptions under the Income Tax Act may be sought.

Procedure for registration of a trust is easy as it can be created only by executing an Instrument of Trust (Trust Deed) and getting the same registered. The registration of Trust

trusts.

Characteristics of a Trust

The obligation (created for forming the trust) must relate exclusively to property, the ownership of which vests with the trustees.

A trust must be created for a lawful purpose.

Trust is, however, subject to certain disabilities such as:

unavailable or unwilling.Possibility of mismanagement due to non-democratic style of governance.No separate existence of its own, ie it is not an independent legal entity. It cannot acquire any immovable property in its name.

be dispensed with by executing a power of attorney in favour of an authorised person. The said authorised person shall have to be present before the Sub-registrar at the time of registration.

The stamp duty is payable on the amount settled by the settler of trust at the rate prevalent in the State where the trust is going to be registered. As far as the timeliness

minimum 2–3 months to register after the process has been initiated. A society may get

¶7-170 Foreign Funding and Applicability of Foreign Contribution Regulation Act, 1976 (FCRA)

or a Trust may draw its funds from within India or from outside India.

The receipt of international funding from a foreign source by any of the aforesaid entities is regulated by the provisions of (FCRA).

100

FCRA is an Act which regulates the acceptance and utilisation of foreign contribution with a view to ensuring that parliamentary institutions, political associations and academic

of national life may function in the manner consistent with the values of the Sovereign Democratic Republic.

2(a) and 2(c), respectively, of FCRA.

A company or a society, registered under the , or a

FCRA and any donation, delivery or transfer of any currency, by any foreign source to such an association would be regarded as foreign contribution. Section 6 of FCRA deals with certain requirements relating to associations and persons receiving foreign contribution.

or social programmes shall not receive foreign contribution unless it is registered with the

the rules made in this behalf under FCRA. Further, such foreign contribution should be

permission, as the case may be. It also requires that once the association is registered, it should give an intimation regarding receipt of foreign contribution to the Central Government within such time and in such a manner, as may be prescribed by the Rules made under FCRA.

It is important to note that in case foreign nationals are nominated on the Board of

the grant of approval for international donor funding. In all the aforesaid forms, payment

prohibited. Any surplus arising out of the venture is to be reinvested for promotion of its objects, within the country.

Tabular Comparison of Main Features of Section-25 Company, Society and Trust

S.No.

Section-25 Company Society Trust

1. Objects:

be the same in case of either of the entities.



2. Formation:

for incorporation are

Registrar of Companies.

minimum two-three

Documents for registration

Registrar of Societies.

time.

Trust is established by executing a trust deed and registering it with the Sub-Registrar. Trust can be registered within


S.No.


3. Minimum number of members:Two–three persons required for incorporation.

Minimum seven persons are required to form a society. If society is of an All-India character, Delhi Government guidelines require a minimum of 8 persons from eight different States.

Minimum two persons required to form a trust.

4. Management:Management vests with the Board of Directors.

Management vests with the Governing Body called by whatever name.

Management vests with the Board of Trustees.

5. Meetings:Board meetings to be held as per Companies Act. At least one Board meeting to be held in every three months and at least four such meetings to be held in a year. Annual General Meeting (AGM) to be held once in a year.

Annual meeting to be held once in a year. Other than the Annual Meeting, society can hold meetings

By-laws of the Society.

The Board of Trustees can hold meetings as prescribed in the Trust Deed.

6. Statutory Filings:

with ROC. Balance Sheet

within 30 days of placing the accounts at AGM. Change of Directors to be intimated to ROC in the prescribed form.

List of Governing Body to

of Societies annually.done.

7. Liability of Directors/Members/Trustees:Directors' liability is limited. Directors'

à-vis the company, and they must exercise their

the Company. Different sections under the Companies Act, specify the penalty to be paid in case of default.

Limited liabilities of members of the society, ie members are not personally liable to settle

certain circumstances.

Trustees are liable for any breach of trust.

102

S.No.


8. Legal Status:Separate legal entity, distinct from its members.

Separate legal entity, distinct from its members.

No separate existence.

9. Alteration of objects:Complex procedure as prescribed under the Companies Act.

Simple procedure as given under the Societies Registration Act.

Unable to modify if the settler is unwilling.

10. Dissolution:Companies can be dissolved as per the provisions of the Companies Act. The procedure for dissolution is complex.

Society can be dissolved as per the provisions of the Societies Registration Act.

Trust can be dissolved as per the provisions of the Trust Deed.

Chapter 8 Tax Laws

Income TaxChargeability of Income Tax .................................................................... 8-010Residential Status ..................................................................................... 8-020Scope of Income....................................................................................... 8-030Tax Year.................................................................................................... 8-040Rates of Income Tax................................................................................. 8-050Heads of Income....................................................................................... 8-060

............. 8-070.................................................................. 8-080

Transfer Pricing ........................................................................................ 8-090Withholding Tax ....................................................................................... 8-100Minimum Alternative Tax (MAT) ............................................................ 8-110 Alternate Minimum Tax (AMT)............................................................... 8-120Securities Transaction Tax........................................................................ 8-130Dividend Distribution Tax (DDT)............................................................ 8-140Taxation of Dividends Received from Foreign Subsidiaries.................... 8-150Return of Income...................................................................................... 8-160

......................................... 8-170Assessment and Dispute Resolution ........................................................ 8-180Dispute Resolution Panel ......................................................................... 8-190Appeals: Administrative, Quasi-Judicial and Judicial Hierarchy............. 8-200Advance Ruling........................................................................................ 8-210

.................................................................................. 8-220Corporate Restructuring: Tax Implications .............................................. 8-230Administration.......................................................................................... 8-240

Service TaxTaxation of Service................................................................................... 8-250

................................................................................. 8-260Compliance under Service Tax................................................................. 8-270Provision for Centralised Registration ..................................................... 8-280

........................................................................................ 8-290.................................................................................... 8-300

104

Import of Services .................................................................................... 8-310Advance Ruling........................................................................................ 8-320Administration.......................................................................................... 8-330

Customs DutyChargeability of Customs Duty................................................................ 8-340Levy of Customs ...................................................................................... 8-350

............................................................................................ 8-360Import Duties............................................................................................ 8-370Rate of Duty ............................................................................................. 8-380

............................................................................ 8-390Advance Ruling........................................................................................ 8-400Administration.......................................................................................... 8-410

Central Excise Act...................................................... 8-420

.................................................................... 8-430................................................................................. 8-440............................................................................... 8-450

............................................... 8-460....................................................... 8-470

Liability to Pay Duty is on the Manufacturer........................................... 8-480.................................................................. 8-490

..................................................................... 8-500............................................................................ 8-510

Administration.......................................................................................... 8-520

Central Sales Tax/Value Added TaxCentral Sales Tax...................................................................................... 8-530

............................................................................ 8-540

CENVAT Credit SchemeCredit of Duty Paid on Inputs and Input Services.................................... 8-550Compliances ............................................................................................. 8-560

................................................................ 8-570

Annexure 1

Annexure 2

105Chapter 8 Tax Laws

Income Tax

¶8-010 Chargeability of Income TaxArticle 265 of the Constitution of India provides that “no tax shall be levied or collected except by the authority of law”. Therefore, no tax can be levied or collected in India, unless it is explicitly and clearly authorised by way of legislation. The Income-tax Act, 1961 (ITA) was enacted to provide for levy and collection of tax on income earned by a person.According to the ITA, every person, whose total income exceeds the maximum amount not chargeable to tax, shall be chargeable to income tax at the rate or rates

1

Therefore, before arriving at a conclusion as to the tax implications of a receipt of money, it is imperative to determine whether or not such a receipt amounts to income under the ITA. There will be no incidence of income tax if a receipt of money does not amount to income. For instance, it is important to distinguish a capital receipt from a revenue receipt because, while all revenue receipts are

taxed as income,2 unless otherwise provided for by the statute.3

¶8-020 Residential Status

an individual, etc. A company is regarded as resident in India if it is an Indian

4

and management of its affairs is situated wholly outside India. An individual’s residential status is dependent on the duration of stay in India.A person resident in India is liable to tax on his global income. A non-resident is liable to tax on income which is received or is deemed to be received in India or which accrues or arises or is deemed to accrue or arise to him in India.

¶8-030 Scope of IncomeThe total income of an assessee is determined on the basis of his residential status in India. According to section 5 of the ITA, Indian residents5 are liable to be taxed

The Law and Practice of Income Tax, 2 Padmaraje R Kadambande v CIT, (1992) 195 ITR 877.3 For example, capital gains under section 45 of the ITA.4 A period of 12 months commencing on the 1st day of April.

106

on their global income, whereas non-residents are taxed only on income that has its source in India.6

which deems certain incomes to accrue or arise in India section 9 provides for circumstances when various types of incomes are deemed to accrue or arise in

accruing or arising, whether directly or indirectly, through or from any business connection7 in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situated in India, are deemed to be taxable in India to the extent attributable to Indian operations.

¶8-040 Tax Year

which is the year ending on the 31st day of March each year. The year immediately succeeding the previous year is referred to as the “Assessment Year”. The income of the previous year is taxed in the assessment year. The term “Assessment Year” refers to a period of twelve months commencing on the 1st day of April every year and ending on 31st day of March of the following year.

¶8-050 Rates of Income TaxApplicable tax rates vary depending on the type of entity and the residential status of the taxpayer. For example, income of a resident company is taxed at the rate of 32.44%, whereas a non-resident company is taxed at the rate of 42.02%.

the corresponding Finance Act for the tax rates applicable to the assessment year 2012-2013, please refer to Annexure 1.In computation of the income of a non-resident, the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the country of

6 Income is said to have its source in India if it is “income which accrues or arises in India, is deemed to accrue or arise in India or is received in India”.

ITA. The Supreme Court in the case of CIT v RD Aggarwal, (1965) 56 ITR 20 laid down the

“Business connection means something more than business. It presupposes an element of continuity between the business of the non-resident and his activity in the taxable territory, rather than a stray or isolated transaction”.The ITA was amended by the Finance Act, 2003

“any business activity carried out through a person who, acting on behalf of the nonresident, (a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the

or merchandise from which he regularly delivers goods or merchandise on behalf of the non-

common control, as that non-resident.”


residence of the non-resident are required to be examined, since the ITA provides

the taxpayer.8

to the provisions of the ITA, the non-resident can opt to be taxed with reference to the provisions of the DTAA. Please refer to Annexure 2 for a list of countries (86 in total, as on 31-03-2011) with whom India has signed DTAA (includes both comprehensive and limited agreements).

¶8-060 Heads of Income

Salaries,Income from house property,

Capital gains, andIncome from other sources.

exemptions and deductions are provided under each head of income and the net amount (net of exemptions and deductions) is included in computing a person’s total taxable income. Ad hoc deductions and exemptions are provided for, insofar

than as prescribed can be deducted while computing income under the head “salaries” and “income from house property”.

All expenditure, other than capital or personal expenditure, incurred wholly and exclusively for the purpose of business is allowed as a deduction while computing the business income of an assessee. While this is the general rule,

repairs and insurance for premises, used for the purposes of the business, repair and insurance of machinery, plant and furniture, depreciation of various capital assets etc. The thrust is on taxing net current income and, therefore, receipts or

computing the taxable income of business or profession. However, depreciation is allowed in relation to capital expenditure incurred for obtaining a tangible or intangible asset.Certain additional exemptions, concessions and deductions have been provided to promote certain important industries, services or as the case may be, for the

8 Section 90(2), ITA.

108

Special Provisions in respect of Newly Established Undertakings in Free Trade Zones, 100% EOUs, etc

Deduction in respect of Newly Established Units in Special Economic Zones

by such a unit, in the following manner:

business of the taxpayer in prescribed manner.

The unit should not be formed by splitting up or in the course of reconstruction

The unit should not have been formed by the transfer of a new business of machinery or plant previously used for any purpose.

in Infrastructure Development, etc

the following activities:

Power generation and distribution, power transmission and distribution by laying a new transmission or distribution lines or substantial renovation and modernisation of existing distribution lines. (As per Finance Act, 2011, terminal date for these activities has been extended up to 31-03-2012.)


Development Undertakings

commencement of its operations. The deduction under the above section is also available to an enterprise engaged in the following activities:

It should not manufacture or produce non-priority sector items, as listed in

Manufacture or production should commence within the prescribed time

in Development of Special Economic Zone

year is chargeable to tax under the head “capital gains”. Capital assets may either

110

be in the nature of long-term capital assets or be in the nature of short-term capital assets. A capital asset held by the taxpayer for not more than thirty six months is a short-term capital asset, while other capital assets are long-term capital assets. However, the above-mentioned period of thirty six months stands reduced to twelve months in the case of securities such as shares, debentures, etc. Therefore, equity or preference shares held by a taxpayer will be a long-term capital asset should it be held for a period of twelve months or more.Long-term capital gains are taxed at a lower rate as compared to the normal rate of tax. Capital gains are generally computed by deducting the following amounts from the value of consideration for which the capital asset has been transferred:

all expenditure incurred wholly and exclusively in connection with the

any cost of improvement that may have been incurred by the taxpayer towards the capital asset.

for computing capital gains arising from the transfer of short-term capital assets.

date of acquisition of the asset or April 1, 1981, whichever is later.

¶8-090 Transfer PricingSection 92 of the ITA provides that income arising from an “international transaction” shall be computed having regard to the arm’s length price. The

between two or more “associated enterprises”, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction

Further, two enterprises are considered to be “associated enterprises” if one enterprise holds, directly or indirectly, shares carrying not less than 26% of the voting power in the other enterprise. Further, there are certain other circumstances in which two enterprises are deemed to be “associated enterprises”. The Indian

pricing guidelines and follows transfer pricing policy prevalent in the developed countries. However, transfer pricing regulations are not applicable to transactions where no tax liability arises in India under the provisions of DTAA.9

+ 5% for determining the arm’s length price. The Finance Act, 2011 has amended the ITA to provide that the percentage of variation permitted as the arm’s length range would

9 Vanenburg Group BV v CIT DDIT v Sun Chemicals BV


been extended from 30th September to 30th

Anti-Avoidance Rules

Section 94A has been inserted by the Finance Act, 2011 to deal with transactions 10, which

do not effectively exchange information with India.According to this provision, if a taxpayer enters into a transaction, where one of the

will be allowed under any provision of the ITA unless the taxpayer maintains such other documents and furnishes the information as may be prescribed.

onus will be on the taxpayer to satisfactorily explain the source of such money in

failure to do so, the amount will be deemed to be the income of the taxpayer.

¶8-100 Withholding TaxA person (except individuals in certain cases) is required to withhold tax from

The ITA provides for withholding of taxes from payments made to non-residents, which are chargeable to tax under the ITA. Any person, whether resident or non-

withholding the tax.

Rates of Withholding Tax

The current rates11 for withholding tax for payment to non-residents are as follows:

Interest 20%5%

10

11 Rates mentioned are exclusive of surcharge and education cess.

112

Dividends(Domestic Companies)Royalties 10%Technical Services 10%Any other services Individuals: 30%

Companies: 40%

The above rates are general and applicable in respect of countries with which India does not have a DTAA. If the tax rates, as per the DTAA, are more favourable, the same would apply.

¶8-110 Minimum Alternative Tax (MAT)

loss account of the company is prepared as per the provisions of the CompaniesAct, 1956

and declaring dividends to its shareholders, yet they were not paying any income tax. To bring such companies within the income tax ambit, “Minimum Alternate Tax” was introduced w.e.f. the assessment year 1997-1998.

18.5%12

A new tax credit scheme was introduced by which the MAT paid could be carried

When a company pays tax under the MAT, the tax credit earned by it shall be an amount, which is the difference between the amount payable under the MAT and the regular tax. Regular tax in this case means the tax payable on the basis of normal computation of total income of the company.MAT credit will be allowed to be carried forward for a period of ten13

assessment years immediately succeeding the assessment year in which MAT

to the ten year carry forward limit.In the assessment year when regular tax becomes payable, the difference between the regular tax and the tax computed under the MAT for that year may be set off against the MAT credit available.It may be noted that the credit allowed will not bear any interest.

12 With effect from assessment year 2012-2013 (As per Finance Act, 2011).13


Finance Act, 2011

¶8-120 Alternate Minimum Tax (AMT)A concept similar to minimum alternate tax for companies has also been introduced

with effect from 01-04-2011 for limited liability partnerships. LLPs are now required to

exceeds the tax arrived at as per the other provisions of ITA. Provisions for credit and set off (similar to those applicable to companies in case of MAT) have also been enacted for LLPs.

¶8-130 Securities Transaction Tax

not leviable on the STT.

STT is levied on the value of taxable securities transactions as under:

Transaction equity shares, units of equity oriented mutual funds (delivery based)

Sale of equity shares, units of equity oriented mutual funds (non-deliverybased)

Sale of derivatives

Sale of unit of an equity oriented fund to mutual fund

Rates 0.125% 0.025% 0.17% 0.25%

Paid by Seller Seller Seller

¶8-140 Dividend Distribution Tax (DDT)

by a domestic company by way of dividend shall be chargeable to dividend

chargeable in respect of total income. It is applicable whether the dividend is

DDT is required to be deposited within fourteen days from the date of declaration, distribution or payment of dividend, whichever is earliest. Failure to deposit results in the payment of stipulated interest for every month of delay under section115-P of the ITA.

114

Rate of DDT is 15% plus surcharge and education cess on dividends distributed

liquid mutual funds to all investors.

Finance Act, 2011

on dividends declared, distributed or paid on or after 01-06-2011.

¶8-150 Taxation of Dividends Received from Roreign SubsidiariesDividend received (gross) by an Indian company from its foreign subsidiary(ies) (in

which the recipient Indian company holds a minimum threshold shareholding) has now been taxable at a concessional rate of 15% plus applicable surcharge and cess. Until 31-03-2011, any dividend received from foreign subsidiary(ies) was taxable at the normal rates. This amendment, brought by the Finance Act, 2011passive income lying abroad to boost the economy.

¶8-160 Return of Income

with the income tax authorities (also referred to as the “Revenue”). The return

whether or not it has earned any income.

to furnish a statement of its activities in prescribed form to the income-tax

carrying profession with gross receipts exceeding `Five Hundred Thousand), or business with gross receipts exceeding `6,000,000

account audited by a Chartered Accountant.

¶8-180 Assessment and Dispute ResolutionDetailed provisions exist in the ITA for assessing the income of a taxpayer for any

the taxpayer’s income. The income tax law in India also provides for reopening of assessments in cases where income chargeable to tax had escaped assessment. The Commissioner of Income Tax (CIT) has wide powers to revise an assessment


¶8-190 Dispute Resolution PanelIn order to facilitate expeditious disposal of disputes, a new dispute resolution

before the Dispute Resolution Panel (DRP). The DRP is a panel consisting of three senior

in accordance with the directions of the DRP can be preferred directly before the second appellate authority, the Income Tax Appellate Tribunal. This mechanism is optional and

¶8-200 Appeals: Administrative, Quasi-Judicial and Judicial Hierarchy

aggrieved by an assessment order made by the Revenue may prefer an appeal against the order to a Commissioner of Income Tax (Appeals) [CIT(A)], who

The taxpayer as well as the Revenue has a right to prefer an appeal against the order of the CIT(A) before the Income Tax Appellate Tribunal (ITAT). The order of the ITAT may further be appealed against before the appropriate High Court, if a substantial question of law is involved. The order of the High Court is appealable before the Supreme Court.

¶8-210 Advance Ruling

in long-drawn and expensive litigations against the Revenue and, in the process, face a great deal of uncertainty regarding their tax liability. To address this situation, the ITA provides for advance rulings for certain eligible applicants. The Authority for Advance Rulings (AAR) is required by statute to issue its ruling within six months of receiving an application from an eligible applicant. These rulings are binding on taxpayers as well as the Revenue.

Income-tax Act, 1961

When any business or profession is discontinued in a year, the Revenue has the power to tax the income for the period starting from the 1st day of April of that year up to the date of discontinuance as if such income was that of the immediately

event that a business or profession in India is discontinued. Such intimation is

of the business.

116

Discontinuation of an entity carrying on business has tax consequences. The winding up of the business and distribution of the assets to the constituent members could entail tax liabilities arising from transfer of the assets to the constituent members. In the case of a company, money or assets received by a shareholder on liquidation in lieu of the share capital contributed by him, would result in

vis-à-vis the cost of acquisition of the shares. Further, to the extent the company

would be liable to tax on capital gains on the assets distributed to its partners on

are not, however, liable to tax on the assets so received.

In the case of a company, which goes into liquidation, the liquidator is required to give a notice to the tax authorities of his appointment as such liquidator. The tax

of the company in liquidation.In the case of a private limited company, the undischarged tax liabilities can be recovered from its directors, even after the company is liquidated, unless the director proves that the non-recovery of the taxes from the company cannot be

to wind up a company if there are tax liabilities outstanding against the company or litigation is pending with the tax department till an arrangement is made to the satisfaction of the tax department as regards security for the estimated amounts which the company may be liable to pay.

¶8-230 Corporate Restructuring: Tax ImplicationsThe growing need for restructuring of business enterprises on account of increasing

procedural requirements, has been recognised in the provisions under the ITA.

Amalgamation

Under the ITA, in the case of amalgamation of companies, which is approved by the


The business in which losses have been incurred by the amalgamating company should have carried on for a period of at least three years prior to the date of

The amalgamated company should hold continuously for a minimum period of

The amalgamated company should continue the business of the amalgamating

The amalgamated company should achieve production of at least 50% of the

of four years from the date of amalgamation and should continue to maintain such

issued from a chartered accountant, to the Revenue. The transfer of assets of the amalgamating company to the amalgamated company

pursuant to the amalgamation does not attract any capital gains tax. Similarly, issue of shares of the amalgamated company to the shareholders of amalgamating company in lieu of their shares in the amalgamating company does not attract any capital gains tax. The

amalgamating company to the same extent as the amalgamating company was entitled to

Demerger

by the Court. Provisions exist in the current laws to maintain tax neutrality in respect of the assets transferred by the demerged company to the resulting company through a scheme of demerger. The provisions are broadly on the same lines as those in the case of an

the resulting company. Under the present provisions, however, the condition regarding the continuation of business, holding of the minimum percentage of assets etc., as applicable to an amalgamation, do not apply in the case of a demerger.

Conversion of Proprietorship or Partnership Firm into a Company

¶8-240 Administration

rules, etc., in connection with effective implementation of the provisions of the Act.

118

Service Tax

¶8-250 Taxation of Service

the Finance Act, 1994 (the Finance Act) as a mean to broaden the indirect tax base. It may be noted that there is no separate enactment for service tax till date and it continues to be

rules incorporated under the Service Tax Rules, 1994.

The Finance Act provides for methods of levying service tax, the circumstances in which the levy would arise, the procedures to be followed and allied matters such as

increasing and presently it extends to over 100 services.

The relevant statutes governing the levy of service tax are as follows:

(i)the whole of India except the State of Jammu and Kashmir

(ii)service taxFinance Act, 2007: For the levy of secondary and higher education cess of 1% (iii)on service taxService Tax Rules, 1994(iv)

(v)(vi)(vii)

Rules, 2006(viii)

Service Tax (Registration of Special categories of persons) Rules, 2005(ix)(x)

2007(xi)

Point of Taxation Rules, 2011(xii)Important provisions governing the service tax are discussed in the succeeding

paragraphs:

Levy of service tax

becomes 10.30%.


Taxable services

realisation of the value of taxable service. However w.e.f. 01-04-2011, the liability to pay service tax has been shifted to invoice method ie on raising of invoice (however, this will be applicable w.e.f. 01-06-2011.)

Persons liable to pay service tax

Liability to pay service tax is cast on the service provider. However, in some cases, recipients of services have been made liable (on reverse charge method) to pay service tax under the Finance Act.

Exemption to small service providers

Service tax is exempted up to `

However, the above exemption is not admissible to:taxable services provided by a person under a brand name or trade name, (a)

such a value of taxable services in respect of which service tax shall be (b)paid by the recipient of services (on reverse charge method) under the Finance Act.

from the payment of the whole of the amount of service tax are provided.

videdated March 1, 2011

The value of the goods and materials sold by the service provider to the recipient of the service is exempted from the payment of the service tax, if there is a

the service provider on such goods and materials, but such a service provider has paid the amount equal to such credit availed before the sale of such goods and materials.

services.

120

goods (vide , as amended).

¶8-270 Compliance under Service Tax

exceptions).`900,000

case a recipient is liable to pay service tax (on reverse charge method), he is also required to obtain registration.

¶8-280 Provision for centralised registrationService providers having centralised accounting or centralised billing system who are located in one or more premises, at their option, may register such premises or

empowered to grant centralised registration.

assessee.Filing of half-yearly service tax returns in the Form ST-3. Return for half year

Assessment of service tax on self-assessment basis. Also, provisions have also

¶8-290 CENVAT CreditCredit of central excise and service tax has been extended across goods and services. The CENVAT Credit Rules, 2004 provide inter alia for availment of the

of the Customs Tariff Act, equivalent to the duties of excise. Such credit amount can be utilised towards the payment of service tax by an assessee on their output services.Such credit availed by a manufacturer can also be utilised for discharging their

¶8-300 Export of Services

Export of Service Rules, 2005


are:

(i)

(ii)residual taxable services, barring a few exceptions, when provided in (iii)relation to business or commerce, to a recipient located outside India.

When such services are provided not in relation to business or commerce, the provision of services should be to a recipient located outside India at the time of provision of such services.

in convertible foreign exchange for treating any provision of taxable service as export of service.

In view of the above criteria for determination of export of service, each transaction has to be reviewed separately to ascertain whether it constitutes export of services.

¶8-310 Import of ServicesWhere any taxable service is provided or to be provided by a person who has established a business, orprovided or to be provided, or has his permanent address or usual place of residence,

and is received by a person who has his place of

India, such a service shall be a taxable service in terms of the provisions of section 66A of the Finance Act read with the India and Received in India) Rules, 2006 (Import Rules).Rule 3 of Import Rules prescribes three broad categorises of services which constitute import of services. The categorised are:(i)

(ii)residual taxable services, barring a few exceptions, when provided in (iii)relation to business or commerce, to a recipient located in India.

In view of the above criteria for determination of import of service, each transaction has to be reviewed separately to ascertain whether it constitutes import of services.


in the application regarding the liability to pay service tax in relation to the service proposed to be provided by the applicant.

122

binding ruling on the important issues so that intending investors will have a

and money in legal battles that mostly become long-drawn.

Matters on which an Advance Ruling can be Sought

Advance rulings, concerning service tax matters, can be sought in respect of:

(i)

Principles to be adopted for the purposes of determination of the value of the (ii)

Determination of the liability to pay service tax on a taxable service under the (iii)

(iv)(v)

Persons Eligible to Apply for an Advance Ruling

(i)

(ii)

A [Indian] wholly owned subsidiary of a foreign company, which proposes to (iii)

(iv)A resident falling within any such class or category of persons, as the Central (v)

Act or section 96C of the Finance Act.A resident as an applicant who proposes to import any goods from the Republic (vi)



Customs Duty

¶8-340 Chargeability of Customs Duty

Seventh Schedule to the Constitution of India under the heading “Duties of

enumerated in the Union List. In exercise of its powers, Parliament enacted the Customs Act, 1962 (the Customs Act).Section 12 of the Customs Act, the charging section, provides that duties of

Customs Tariff (CTA), or any other law for the time being in force, on goods imported

into, or exported from India. Customs duties include both import and export duties. However, since export duties contribute only nominal revenue due to emphasis on

the revenue from customs duties.According to section 2(18) of the Customs Act, “export” with its grammatical

India.According to section 2(23) of the Customs Act, “import” with its grammatical variations and cognate expressions means bringing into India from a place outside India.

¶8-350 Levy of Customs

Customs Act, 19621.Customs Tariff Act, 19752.

3.4.

Customs (Advance Ruling) Rules, 20025.6.7.8.9.

as amended from time to time. The taxable event is imported into or exported from India.

¶8-360 Export Duties

duty. The items on which export duty is levied and the rate at which the duty is levied are given in the Customs Tariff Act (CTA). Depending on the prevailing circumstances and export sensitivity, export duties are levied on various items from time to time.

124

¶8-370 Import DutiesImport duties generally consist of the following:

it is levied as a percentage of value as determined under section 14(1) of the Customs

2. Additional Duty of Customs (Countervailing Duty - Excise)

Additional duty of customs is levied under section 3(1) of the CTA to countervail

duty of customs to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article. “Additional Duty” is often referred to as

3. Additional Duty of Customs (Countervailing Duty - Sales tax/VAT)

imported articles shall, in addition, be liable to an additional duty at a rate not exceeding

4. National Calamity Contingent Duty

In terms of section 3 of the CTA read with section 136 of the Finance Act, 2001,

manner as the relevant provisions for levy and collection of the duty of excise on such goods applicable in terms of the Central Excise Act, 1944. Accordingly, in terms of proviso to sub-section (2) of section 3 of the CTA, imported goods shall be charged to additional

RSP is required to be declared under the or the rules made thereunder (now Legal Metrology Act, 2009 and Rules made thereunder

prescribing levy of excise duty on MRP basis, ie, as amended.

5. Safeguard Duty

and the Customs Tariff (Transitional Products form the legal basis for imposition of safeguard duty.


effects of increased imports, subsidised imports or dumped imports and imports from the Peoples’ Republic of China.

6. Anti-dumping Duty

Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 form the legal basis for anti-dumping investigations and for the levy of anti-dumping duties. These laws are based on the Agreement on Anti-dumping which is

General Agreement on Trade and Tariffs (GATT), 1994.

7. Countervailing Duty on Subsidised Articles

Sections 9 of the CTA read with the Collection of Countervailing Duty on Subsidised Articles and for Determination of Injury) Rules, 1995 form the legal basis for anti-subsidy investigations and levy of countervailing

measures. If a country or territory pays any subsidy (directly or indirectly) to its exporters

the amount of such subsidy under section 9 of the Customs Tariff Act. The Customs Tariff

[01-01-95case of subsidised goods.

8. Protective Duties

certain cases. Accordingly, based on the recommendations of the Tariff Commission, 13

interests of the Indian industry, it may levy protective customs duty at a rate recommended

9. Education Cess / Secondary and Higher Education Cess

In addition to the normal customs duties, education cess at the rate of 2%, and

duty or are cleared without payment of duty under prescribed procedure (such as clearance

leviable on anti-dumping duty, safeguard duty and protective duties. Further, certain cesses

126

of customs duties and are then passed on to the agencies in charge of the administration of the concerned commodities.

¶8-380 Rate of Duty14

goods. There are different rates of customs duty prescribed for different tariff

with its trading partner countries wherein preferential rate of duties has been contemplated, the levy of customs duty in such cases shall be governed by the

The CTA consists of XXI sections and 98 chapters. A section is a grouping of a number of chapters which codify a particular class of goods. The section notes

four digit code is called a “heading” and every six digit code is called a “subheading”

number, either at four digit or six digit or eight digit level for a commodity in the

duty leviable as prescribed by the law.

of the headings or sub-headings or chapter notes.


duty liability on the proposed imports into India and proposed exports from India.Advance ruling means the determination, by the Authority, of a question of law

relation to the proposed imports into or exports from India, by the applicant.

14


binding ruling on the important issues so that prospective investors will have a clear indication of their customs duty liability in advance. It assures the applicant

The relevant provisions for obtaining an advance ruling are contained in Chapter Customs Act, 1962. The Customs (Advance Rulings) Rules, 2002

vide as

Persons eligible to apply for Advance Ruling

(i)

(ii)

(iii)


Issues on which Advance Rulings can be Sought

(a)(b)

the principles to be adopted for the purposes of determination of the value of (c)

(d)the CTA and any duty chargeable under any other law for the time being in

(e)CTA and matters relating thereto.

¶8-410 AdministrationCustoms law is administered by the Customs Commissionerates functioning under

Central Excise Act

¶8-420 Chargeability of Central Excise Duty

Schedule to the Constitution of India (the “Union List”) as:

128

or produced in India except alcoholic liquors for human consumption, opium, narcotics, but including medical and toilet preparations containing alcohol,opium or narcotics.

The Seventh Schedule to the Constitution of India indicates bifurcation of powers

Article 246(1) of the Constitution of India confers exclusive powers upon the

List.Article 246(3) of the Constitution of India confers exclusive powers upon the State

List II of the Seventh Schedule to the Constitution of India (the “State List”). Power to impose excise on alcoholic liquors, opium and narcotics is vested with

State excise on liquor are different for each State.

to the Constitution of India (the “Concurrent List”). However, in case of Union

all three lists.In exercise of its powers, the Parliament enacted the Central Excise Act, 1944

inter alia provide for levy, collection and connected procedures with respect to central excise duty

shall be levied and collected, in such a manner as may be prescribed, a duty of

Second Schedule to the Central Excise Tariff Act,

rates, set forth in the said Second Schedule.The central excise duty is on the act of manufacture or production. The duty is collected, on the goods manufactured or produced, at the time of their

¶8-430 Levy of Central Excise Duty

(i)(ii)(iii)(iv)


(v)(vi)

2000(vii)

2008(viii)

(ix)

¶8-440 Levy of Excise Duty

collected in such a manner as may be prescribed a duty of excise to be called the Cenvat

From the above, it can be observed that there are four basic conditions for levy of central excise duty, namely

(i)(ii)(iii)

such manufacture or production must be in India.(iv)

3(1)(a) above, on excisable goods (excluding goods produced or manufactured in Special

manufactured in India, as, and at the rates, set forth in the said Second Schedule shall be levied and collected in such manner as may be prescribed.

¶8-450 Types of Excise Duty

basis. In other words, basic excise duty may be a percentage of the value of the goods or

Additional duty of excise is levied and collected on goods of special importance under section 3(1) of the .

130

Accordingly, there shall be levied and collected in respect of the goods described in the First Schedule which are produced or manufactured in India and on all such goods lying in

were manufactured, stored or produced, or in any premises appurtenant thereto, duties of

3. National Calamity Contingent Duty

Section 136 of the Finance Act, 2001in the Seventh Schedule, being goods manufactured or produced, there shall be levied and collected for the purposes of the Union, by surcharge, a duty of excise, to be called

Schedule.

Act or any other law for the time being in force.

those relating to refunds and exemptions from duties and imposition of penalty) shall, as

relation to the levy and collection of the duties of excise on such goods under the Central

4. Additional Duty on Textile and Textile Articles

Additional duty of excise is levied and collected on textile and textile articles under section 3(1) of the .

5. Duty on Medicinal and Toilet Products

A duty of excise is imposed on medicinal preparations under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955.

6. Additional Duty on Mineral Products

oil) is payable under the Mineral Products (Additional Duties of Excise and Customs) Amendment Act, 1959.

7. Education Cess/Secondary and Higher Education Cess

In addition to the normal central excise duties, education cess at the rate of 2% and

cleared without payment of duty under prescribed procedure, no cess would be leviable.

¶8-460 Registration under the Central Excise Act

read with the Central Excise Rules, 2002:

(i)


First- and second-stage dealers (including manufacturer’s depots and importers) (ii)

Persons holding warehouses for storing non-duty paid goods.(iii)Persons who obtain excisable goods for availing end-use based exemption.(iv)

(v)

the domestic economy. Separate registration is required in respect of separate premises (factory, depot,

godown, etc) except in cases where two or more premises are actually part of the same

line. In the case of textiles, a single registration will do for all the premises listed therein.

¶8-470 Persons Exempted from RegistrationThe following categories of persons are exempted from registration:

exempted.Manufacturers of goods which are exempted on the basis of “value of clearances”

`9,000,000

for getting exempted.

is below `Persons manufacturing excisable goods under the Customs warehousing

stage dealer and depot).

Domestic Tariff Area (DTA), such units would not be eligible to avail exemption from registration.

¶8-480 Liability to Pay Duty is on the ManufacturerThe manufacturer of excisable goods or the person who stores such goods in a

warehouse shall be liable to pay the central excise duty leviable on excisable goods.

132

15

Act. The goods covered under MRP-based valuation are those goods which are governed by the provision of the and (now Legal Metrology Act, 2009

¶8-500 Rate of Central Excise Duty

[ITC (HS)].

number of chapters which codify a particular class of goods. The section notes

four-digit code is called a “heading” and every six-digit code is called a “subheading”

number, either at the four-digit or at the six-digit or at the eight-digit level for

determining the rate of duty leviable as prescribed by the law.

of the headings or sub-headings or chapter notes.Choosing the right heading or sub-heading of the tariff and determining the

of goods.

Exemption from Excise Duty

15 Inserted w.e.f. May 10, 2008.


to grant exemption, full or partial, from payment of duty either generally by issue of a

power is exercisable in public interest.

Small-scale Industry and Excise Exemption

For the purpose of promoting Small Scale Industrial (SSI) units, excise duty exemption has been granted to such units.For the purpose of excise duty, a manufacturing unit shall be eligible to claim exemption as an SSI unit if the turnover of such manufacturing unit is less than ` . Further, turnover of up to `

not require registration until the threshold limit is crossed.However, a person has the option not to avail this exemption. Such a person should intimate his intention of not availing exemption before removing goods on the payment of duty. In such a case, the person can pay normal rate of duty and

Manner of Payment of Excise Duty

The excise duty is to be paid on monthly basis by the 5th day of the succeeding month (6th day of the following month in case of e-payment through internet

of March.

has been made mandatory for assesses who have paid excise duty of `5,000,000

The buyers, on the basis of tax invoice issued by the manufacturers, would be

immediately on receipt of the goods by them.

Advance Ruling

excise duty liability on the proposed imports into India and proposed exports from India.Advance ruling means the determination, by the Authority, of a question of law or

relation to the proposed imports into or exports from India, by the applicant.

binding ruling on the important issues so that prospective investors will have a clear indication of their customs duty liability in advance. It assures the applicant

The Central Excise (Advance Rulings) Rules, 2002 vide, as amended provide for the format to

134

Persons Eligible to Apply for Advance Ruling

(i)

(ii)

(iii)


Issues on which Advance Rulings can be Sought

The matters on which the advance ruling is sought shall be in respect of:

(a)(b)

the principles to be adopted for the purposes of determination of value of the (c)

(d)

admissibility of credit of excise duty paid or deemed to have been paid on the (e)

determination of the liability to pay duties of excise on any goods under the (f)


Central Sales Tax/Value Added Tax

¶8-530 Central Sales Tax

Introduction

The Central Sales Tax Act, 1956 (the CST Act) is an Act of the Parliament to formulate

inter-state trade or commerce. It provides for levy and collection of tax on such inter-state sales of goods. It also formulates principles for determining when sale or purchase of goods


and declares certain goods to be of special importance in inter-state trade and commerce

Principles for Determining Inter-State Sales

Section 3 of the CST Act enunciates the principles when sale or purchase of goods

that sale or purchase of goods shall be deemed to be an inter-State sale or purchase if such sale or purchase either:

(a)is effected by transfer of documents of title to the goods during the movement (b)from one State to another.

It is provided that if the movement of goods commences and terminates in the same State, it shall not be an inter-State transaction merely because in the course of such movement the goods pass through the territory of another State.

It is also provided that where the goods are delivered to a carrier or other bailee for transmission, the movement of goods shall be deemed to commence at the time of such

Thus, for an inter-State sale or purchase material fact is movement of goods from one State to another, as a result of sale. Consequently, the movement of goods should arise from or have a nexus to the sale. Similarly, inter-State sale also materialises when the document of the title to the goods is transferred during the movement of goods from one State to another.

Principles for Determining a Sale Outside the State

Section 4 of the CST Act provides that when a sale or purchase of goods is determined

outside all other states. The said section also provides that sale or purchase shall be deemed

(a)

In the case of unascertained or future goods, at the time of their appropriation (b)to the contract of sale by the seller or by the buyer.

Principles for Determining Sale or Purchase in the Course of Import or Export

Section 5 of the CST Act provides that:

(i)if the sale or purchase either occasions such export or is effected by transfer of documents of the title to the goods after the goods have crossed the custom frontiers of India.

(ii)goods into the territory of India, if the sale or purchase either occasions such import or is effected by a transfer of documents of the title to the goods before the goods have crossed the customs frontiers of India.

136

Liability to Central Sales Tax

Central sales tax is levied on inter-State sales. However, second or subsequent sale in

sales or sales outside the state.

Registration

Compulsory Registration

the CST Act.

Voluntary Registration

A dealer not liable to pay CST, for the reason that he is not effecting inter-State sales, may need to obtain registration under the CST Act if he is effecting inter-State purchases. For this purpose, section 7(2) provides for ‘voluntary registration’ to a dealer if he is holding

¶8-540 Value Added Tax (VAT)

across the world for eliminating a cascading effect associated with the chargeability of sales tax on transaction related to intra-State sales.

whereby it is proposed that in the years to come all the central levies and state levies will

is imposed at each stage of transaction in the production and distribution chain. Presently,

It is a general consumption tax that applies, in principle, to all commercial activities

in the series of sale by the registered dealer with the provision of credit of input tax paid at the previous point of purchase by the state registered dealer. This mechanism ensures tax neutrality regardless of number of transaction involved in the entire chain.

CENVAT Credit SchemeCENVAT

Credit Rules, 2004 (CCR), which deals with availment and utilisation of credit of duties


¶8-550 Credit of Duty Paid on Inputs and Input Services

service provider has to pay excise duty or service tax as per normal procedure on the basis of an assessable value. However, a manufacturer or service provider gets credit of duty paid on inputs, capital goods or, as the case may be, service tax paid on input services. Thus, the manufacturer or the service provider actually

In Case of a Manufacturer:

for generation of electricity or steam for captive use.

Credit, even if these are used as raw materials or as fuel. Similarly any goods used

credit scheme. Motor vehicles and any goods used primarily for personal use or

In Case of a Service Provider:

motor spirit (petrol) are not eligible as “inputs”. Similarly any goods used for

credit scheme. Motor vehicles and any goods used primarily for personal use or

“Input Services” Eligible for CENVAT Credit

by him on input services which are used by him directly or indirectly in or in

accounting, auditing, storage, transport, legal services, etc, which are not directly

credit. However, services used for construction of a building or a civil structure or laying of any foundation for support of capital goods and services used primarily for personal use or consumption of employer have been excluded from the

138

Capital goods (machinery, plant, spare pats of machinery, tools, dies, etc) as

credit is available in the year in which the capital goods received in a factory or in the premises of the provider of output services at any point of time and balance in

respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or provider of output services claims as depreciation under section 32 of the Income-tax Act, 1961. [Rule 4(4) of CCR]

¶8-560 Compliances

furnish annuallyin respect of each of the excisable goods manufactured or to be manufactured, the principal inputs, etc.

furnish within 10 days from the close of each month, to the Superintendent of monthly

the receipt and consumption of each principal input with reference to the quantity

is an indirect tax levy on manufacture, sale and consumption of goods as well as services at

The introduction of goods and services tax will lead to the abolition of taxes such as octroi, Central sales tax, State level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, and eliminate the cascading effects of multiple layers of taxation.

was laid in the budget speech for the year 2007-2008 by the then Finance Minister Mr P


levy, which would be governed by respective States. However, no consensus was reached

by 2012.

140

Annexure 1Rates of Income Tax

I. Individuals

The rates for income tax for individuals for the assessment year 2012-2013 are as follows:

Income Range (`) Tax rate (%)Up to 180,000180,000 – 500,000 10%500,000 – 800,000 20%Above 800,000 30%

`250,000 are exempted from income tax.

`5,00,000 are exempted from tax.Resident women assessees (below 60 years of age) with income up to `190,000are exempted from income tax.

on the amount of income tax.

II. Companies

Company/Tax Tax rate (Inclusive of applicable surcharge and cess)

A. Domestic Company(i) Regular Tax(a) Where total income is more than `10 million 32.44%(b) Where total income is equal to or less than `10 million 30.90%(ii) Minimum Alternate Tax(a) Where total income is more than `10 million 20.01%(b) Where total income is equal to or less than `10 million 19.05%(iii) Dividend Distribution Tax 16.22%

(i) Regular Tax (a) Where total income is more than `10 million 42.02%(b) Where total income is equal to or less than `10 million 41.20%(ii) Minimum Alternate Tax(a) Where total income is more than `10 million 19.44%%(b) Where total income is equal to or less than `10 million 19.05%


Annexure 2

List of countries having Double Taxation avoidance agreement (DTAA) with India – Comprehensive and Limited

Name of the Country Name of the Country Name of the Country1. Afghanistan 30. Japan 59. SAARC2. Armenia 31. Jordan 60. Saudi Arabia3. Australia 61. Serbia4. Austria 33. Kenya 62. Singapore

34. Korea 63. Slovenia35. Kuwait 64. South Africa

65. Spain37. Lebanon38. Libya 67. Sudan39. Malaysia 68. Sweden

11. Canada 40. Malta 69. Swiss Confederation12. China 41. Mauritius 70. Syria13 Cyprus 42. Mongolia

43. Montenegro44. Morocco 73. Thailand45. Myanmar 74. Trinidad and Tobago

18. Finland19. France 77. Uganda

Luxemburg80. United Kingdom

23. Hungary 81. United Mexican states24. Iceland 53. Philippines 82. United States of America25. Indonesia 54. Poland26. Iran 55. Portuguese Republic27. Ireland 56. Qatar 85. Yemen28. Israel 57. Romania29. Italy 58. Russia

Chapter 9 Labour and Industrial Laws

Background ............................................................................................. 9-010

Laws relating to Industrial Relations Industrial Disputes Act, 1947 .................................................................. 9-020Trade Unions Act, 1926 ........................................................................... 9-030

Laws relating to WagesMinimum Wages Act, 1948 ..................................................................... 9-040Payment of Wages Act, 1936 ................................................................... 9-050Payment of Bonus Act, 1965 ................................................................... 9-060

Laws relating to Social SecurityEmployees’ Provident Funds and Miscellaneous Provisions Act, 1952 ........................................................................... 9-070Employees’ State Insurance Act, 1948 .................................................... 9-080Labour Welfare Fund Act (of respective States) ...................................... 9-090Payment of Gratuity Act, 1972 ................................................................ 9-100

Laws relating to Working Hours, Conditions of Service and Employment Factories Act, 1948 .................................................................................. 9-110 Industrial Employment (Standing Orders) Act, 1946 .............................. 9-120Shops and Commercial Establishments Act (of respective States) ......... 9-130Contract Labour (Regulation and Abolition) Act, 1970 .......................... 9-140Employee’s Compensation Act, 1923 (formerly known as The Workmen’s Compensation Act, 1923) .......................................... 9-150Inter-state Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 ....................................................... 9-160Weekly Holiday Act, 1942 ....................................................................... 9-170National and Festival Holidays Act (of respective States) ....................... 9-180

Laws relating to Equality and Empowerment of Women Equal Remuneration Act, 1976 ................................................................ 9-190

..................................................................... 9-200

143Chapter 9 Labour and Industrial Laws

Prohibitive Labour LawsBonded Labour System (Abolition) Act, 1976......................................... 9-210Child Labour (Prohibition & Regulation) Act, 1986 ............................... 9-220

Laws relating to Employment and Training Apprentices Act, 1961 ............................................................................ 9-230

of Vacancies) Act, 1959 ...................................................................... 9-240

¶9-010 Background “Labour” is a subject in the “Concurrent List” under the Constitution of India where

both the Central and State Governments are competent to enact legislations subject, however, to reservation of certain matters for the Central Government. The constitutional status of labour jurisdiction has been explained in the following table:

Union List(Central Government)

Concurrent List(Central as well as State Government)

Entry No. 55Regulation of labour and safety in mines

Entry No. 22Trade unions, industrial and labour disputes

Entry No. 61Industrial disputes concerning Union employees

Entry No. 23Social security and insurance, employment and unemployment

Entry No. 65Union agencies and institutions for “... vocational ... training ...”

Entry No. 24Welfare of labour including conditions of work, provident funds, employers’ invalidity

The Ministry of Labour and Employment seeks to protect and safeguard the interests of workers in general and those who constitute the poor, deprived and disadvantaged sections of the society, in particular, with due regard to creating a healthy work environment for higher production and productivity, and developing and coordinating vocational skill training and employment services. Government’s attention is also focussed on promotion of welfare activities and providing social security to the labour force both in the organised and unorganised sectors, in tandem with the process of liberalisation. These objectives are sought to be achieved through enactment and implementation of various labour laws, which regulate the terms and conditions of service and employment of workers.

The following are the thrust areas of the Government concerning labour laws:

Labour policy and legislation;Safety, health and welfare of labour;Social security of labour;


Policy relating to special target groups such as women and child labour;Industrial relations and enforcement of labour laws in the central sphere;Adjudication of industrial disputes through Central Government Industrial Tribunals-cum-Labour Courts and National Industrial Tribunals;Workers’ education;Labour and employment statistics;Emigration of labour for employment abroad;Employment services and vocational training;Administration of central labour and employment services; andInternational cooperation in labour and employment matters.

India has a number of labour laws that govern almost all the aspects of employment such as payment of wages, minimum wages, payment of bonus, payment of gratuity, contributions to provident fund and pension fund, working conditions, accident compensations, etc. The Government has enacted certain central legislations, viz the Employees Provident Fund and Miscellaneous Provisions Act, Employees State Insurance Act, Payment of Wages Act,

In addition, at the State level, the State Governments usually have a separate Labour Ministry, which seeks to ensure compliance with State labour laws (viz State Shops and Establishments Act, Labour Welfare Fund Act, etc) through its Labour Department, which is generally operational at the district level.

into the following different broad categories:

A. Laws relating to Industrial Relations

Industrial Disputes Act, 19471.Trade Unions Act, 19262.

B. Laws relating to Wages

Minimum Wages Act, 19481.Payment of Wages Act, 19362.Payment of Bonus Act, 19653.

C. Laws relating to Social Security

Employees’ Provident Funds and Miscellaneous Provisions Act, 19521.Employees’ State Insurance Act, 19482.Labour Welfare Fund Act (of respective States)3.Payment of Gratuity Act, 19724.

D. Laws relating to Working Hours, Conditions of Services and Employment

Factories Act, 19481.


Industrial Employment (Standing Orders) Act, 19462.Shops and Commercial Establishments Act (of respective States)3.Contract Labour (Regulation and Abolition) Act, 19704.Employee’s Compensation Act, 19235.Inter-State Migrant Workmen (Regulation of Employment and Conditions of 6.Service) Act, 1979Weekly Holiday Act, 19427.National and Festival Holidays Act (of respective States)8.

E. Laws relating to Equality and Empowerment of Women

Equal Remuneration Act, 19761.2.

F. Prohibitive Labour Laws

Bonded Labour System (Abolition), Act, 19761.Child Labour (Prohibition & Regulation) Act, 19862.

G. Laws relating to Employment and Training

Apprentices Act, 19611.2.

Laws relating to Industrial Relations

¶9-020 Industrial Disputes Act, 1947 The Industrial Disputes Act, 1947 (the ID Act) has been enacted for the investigation

and settlement of industrial disputes in any industrial establishment.

“Industrial dispute” means any dispute or difference between workmen and employers or between workmen and workmen, which is connected with employment or non-employment or the terms of employment or with the conditions of labour. Dismissal of an individual workman is deemed to be an industrial dispute.

The ID Act provides for the constitution of the Works Committee, consisting of employers and workmen, to promote measures for securing and preserving amity and good relations between the employer and the workmen and, to that end, endeavours to resolve any material difference of opinion in respect of such matters.

Conciliation, Courts of Inquiry, Labour Courts, Tribunals, and National Tribunals for settlement of disputes. Another method recognised for settlement of disputes is through arbitration.


also provides for penalties for illegal strikes and lockouts and unfair labour practices and provisions regarding lay off and retrenchment as well as compensation payable thereof.

The ID Act provides that an employer who intends to close down an industrial establishment shall obtain prior permission at least ninety days before the date on which he intends to close down the industrial establishment, giving the reasons thereof.

¶9-030 Trade Unions Act, 1926 The Trade Unions Act, 1926 (the Trade Unions Act) seeks to provide for the registration

of Trade Unions in India and for the protection of the same. Further, the Trade Unions Act

registration, application for registration, provisions to be contained in the rules of a Trade Union, minimum requirement for membership of a Trade Union, rights and liabilities of registered Trade Unions, etc.

Laws relating to Wages

¶9-040 Minimum Wages Act, 1948 The Minimum Wages Act, 1948

minimum rates of wages in certain employments. The minimum wages are prescribed by

In terms of the provisions of the Minimum Wages Act, an employee means (i) any person who is employed for hire or reward to do any work, skilled or unskilled manual or clerical, in a scheduled employment in respect of which minimum rates of wages

otherwise processed for sale for the purposes of the trade or business of that other person; and (iii) an employee declared to be an employee by the appropriate Government.

expressed in terms of money which would, if the terms of the contract of employment

employment or work done in such an employment and includes house rent allowance but does not include:

The value of:(i)(a) any house accommodation or supply of light, water and medical attendance;

or(b) any other amenity or any service excluded by general or special order of the

appropriate Government;Any contribution paid by the employer to any personal fund or provident fund or (ii)under any scheme of social insurance;Any travelling allowance or the value of any travelling concession;(iii)Any sum paid to the person employed to defray special expenses entailed on him (iv)by the nature of his employment; or


Any gratuity payable on discharge. (v)Further, the Minimum Wages Act requires the employer to pay to every employee

engaged in schedule employment wages at a rate not less than minimum rates of wages

¶9-050 Payment of Wages Act, 1936 The Payment of Wages Act, 1936 (the Payment of Wages Act) is an Act to regulate the

payment of wages to certain classes of employed persons. The Payment of Wages Act seeks to ensure that the employers make a timely payment of wages to the employees working in the establishments.

According to the Payment of Wages Act, all wages shall be in current coin or currency notes or in both. It is, however, provided that the employer may, after obtaining the written authorisation of the employed person, pay him the wages either by cheque or by crediting the wages in his bank account.

¶9-060 Payment of Bonus Act, 1965 The Payment of Bonus Act, 1965 (the Bonus Act) provides for the payment of bonus

the basis of production or productivity and is applicable to every establishment in which 20 or more persons are employed and to all employees drawing a remuneration of less than `10,000. Those employees who have worked for less than thirty days are not eligible to receive bonus under the Bonus Act. The Bonus Act provides for the payment of bonus between 8.33% (minimum) to 20% (maximum). However, for the calculation of bonus, a maximum salary of `3,500 is considered.

Laws relating to Social Security

¶9-070 Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

The Employees’ Provident Fund Act, 1952 (the EPF Act) provides for the institution of provident funds, pension funds, and deposit-linked insurance funds for employees and applies to all establishments employing 20 or more persons or class of persons. An establishment to which the EPF Act applies shall continue to be governed by this Act, notwithstanding that the number of persons employed therein at any time falls below 20.

Employees, whose pay exceeds `6,500 per month, are excluded from the scope of the EPF Act. Every employee employed in or in connection with the work of a factory or other establishment is required to become a member of the Provident Fund.

The employee whose salary exceeds ̀ 6,500 per month may also be allowed to become a member of the Provident Fund by the concerned Provident Fund Commissioner, on the joint request in writing of the employee concerned and his employer. In such instances, the contribution payable by the employee and in respect of the employee by the employer is limited to the amount payable on a monthly pay of `6,500.


Contributions to the Provident Fund are to be made at the rate of 12% of the wages by the employers with the employee contributing an equal amount. The employee may voluntarily contribute a higher amount but the employer is not obliged to contribute more than the prescribed amount. Further, the EPF Act contains provisions for transfer of accumulations in case of change of employment.

The Employees’ Family Pension Scheme and Employees’ Deposit-linked Insurance Scheme have been made part of the EPF Act for the purpose of providing family pension

Certain Provisions applicable to Companies

Section 418 of the Companies Act, 1956 provides that all moneys contributed to a Provident Fund constituted by a company for its employees, together with interest accrued thereon, shall be:

(i)Deposited in a special account to be opened in the State Bank of India or a scheduled (ii)bank; orInvested in the securities referred to in clauses (a) to (e) of section 20 of the (iii) IndianTrusts Act, 1882.

“Contribution” means both employee’s and employer’s contribution.

or of the receipt of or accrual of the interest.

Section 419 of the Companies Act, 1956 provides that an employee shall be entitled, on request made in this behalf to the company, or to the trustees referred to in sub-section (4) of section 418, as the case may be, to see the bank’s receipt for any money or security such as referred to in sections 417 and 418.

In terms of power conferred under section 227(4A) of the Companies Act, 1956, the Central Government has issued the Companies (Auditor’s Report) Order, 2003 (CARO), which came into force on July 1, 2003. Clause (ix)(a) of Paragraph 4 of the CARO provides that:

The [Statutory] Auditor has to report, inter alia, on the following:

Is the company regular in depositing undisputed statutory dues, eg Provident Fund, (i)Investor Education and Protection Fund, Employees’ State Insurance, income tax, wealth tax, service tax, sales tax, customs duty, excise duty, cess and any other statutory duties with the appropriate authorities?If not paid regularly, the extent of the arrears of outstanding statutory dues as on the (ii)

the date they became payable, then it shall be indicated in the report. If such non-payment of dues is on account of any dispute, then the amount involved (iii)and for the forum where the dispute is pending should also be mentioned.

The CARO is, however, not applicable to a banking company, an insurance company,


¶9-080 Employees’ State Insurance Act, 1948 The Employees’ State Insurance Act, 1948 (the ESI Act) is a social welfare legislation

maternity and employment injury. In terms of the provisions of the ESI Act, the eligible

dependants of deceased workers and compensation for fatal or other injuries and diseases. It is applicable to establishments where 10 or more persons are employed. All employees, including casual, temporary or contract employees drawing wages less than `15,000 per month, are covered under the ESI Act. This limit has been increased from `10,000 to `15,000 w.e.f. May 1, 2010.

The Government enacted as the Employees’ State Insurance (Amendment) Act, 2010(No. 18 of 2010). All the provisions of the ESI (Amendment) Act, 2010 (except section 18) have come into effect from June 1, 2010. Provisions of section 18 (Powers of the standing Committee) shall be deemed to have come into force with effect from July 3, 2008. The salient features of the ESI (Amendment) Act are as under:

facilitating coverage of smaller factories;;

persons not having own family and whose parents are also not alive;streamlining the procedure for assessment of dues from defaulting employers;providing an Appellate Authority within the ESI Corporation against assessment to avoid unnecessary litigation;

taking premature retirement; treating commuting accidents as employment injury; streamlining the procedure for grant of exemptions; third party participation in commissioning and running of the hospitals;

medical care;

against payment of user charges to facilitate providing of medical care from under utilised ESI Hospitals to the BPL families covered under the Rashtriya Swasthaya Bima Yojana introduced by the Ministry of Labour & Employment w.e.f. 1-4-2008;reducing duration of notice period for extension of the Act to new classes of establishments from six months to one month;empowering State Governments to set up autonomous Corporations for

in the working.The employer should get his factory or establishment registered with the Employees’

it, and obtain the employer’s code number.


in respect of every wage period. The employees are also required to contribute at the rate of 1.75% of their wages.

It is the responsibility of the employer to deposit such contributions (employer’s and employees’) in respect of all employees (including the contract labour) into the ESI account.

Certain Provisions applicable to Companies

Section 417 of the Companies Act, 1956 provides that any money or security deposited with the company by any of its employees, in pursuance of his contract of service, must be

(b) in a special account to be opened in the State Bank of India or in a scheduled bank.

Such money or securities must not be used for any purpose, except as agreed to in the contract of service.

Section 419 of the Companies Act, 1956 provides that an employee shall be entitled, on request made in this behalf to the company, or to the trustees referred to in sub-section (4) of section 418, as the case may be, to see the bank’s receipt for any money or security such as referred to in sections 417 and 418.

In terms of power conferred under section 227(4A) of the Companies Act, 1956, the Central Government has issued the Companies (Auditor’s Report) Order, 2003 (CARO), which came into force on 1 July 2003.

¶9-090 Labour Welfare Fund Act (of respective States)The [State] Labour Welfare Fund Act provides for the constitution of the Labour

Welfare Fund to promote and carry out various activities conducive to the welfare of labour in the State so as to ensure full and appropriate utilisation of the Fund.

¶9-100 Payment of Gratuity Act, 1972 The Payment of Gratuity Act, 1972 (the Gratuity Act) applies to (i) every factory, mine,

meaning of any law, for the time being in force, in relation to shops and establishments in a State, in which 10 or more persons are employed or were employed on any day of the preceding twelve months; and (iii) such other establishments or classes of establishments, in which 10 or more persons are employed or were employed on any day of the preceding

The Gratuity Act provides for a scheme for the payment of gratuity to employees

establishments. The Gratuity Act enforces the payment of “gratuity”, a reward for long


irrespective of his wages, is entitled to receive gratuity upon termination of his employment, on account of (i) superannuation; or (ii) retirement; or (iii) death or disablement due to

be necessary where the termination of employment of any employee is due to death or disablement.

years of service. In the case of DTC Retired Employees v Delhi Transport Corporation2001(4) SCALE 30: (2001) AIR SCW 2005, it was observed that gratuity is essentially a

period.

service, subject to an aggregate amount of Rupees Ten Lakh only. However, if an employee has the right to receive higher gratuity under a contract or under an award, then the employee is entitled to get higher gratuity.

Laws relating to Working Hours, Conditions of Service and Employment

¶9-110 Factories Act, 1948 The Factories Act, 1948 (the Factories Act) lays down provisions for the health, safety,

welfare and service conditions of workmen working in factories. It contains provisions for working hours of adults, employment of young persons, leaves, overtime, etc. It applies to all factories employing more than 10 people and working with the aid of power, or employing 20 people and working without the aid of power. It covers all workers employed in the factory premises or precincts directly or through an agency including a contractor, involved in any manufacture. Some provisions of the Act may vary according to the nature of work of the establishment.

hazardous processes.

¶9-120 Industrial Employment (Standing Orders) Act, 1946 The Industrial Employment (Standing Orders) Act, 1946 (the IESO Act) is applicable

to every industrial establishment wherein 100 or more workmen are employed or were employed on any day of the preceding twelve months. The IESO Act requires every

workmen employed by it. Under the IESO Act, the employer is required to formulate the service rules and get the same approved from the concerned certifying authority (in the Labour Department).

Further, the IESO Act requires display of standing orders in a prominent place for the knowledge of workers.


¶9-130 Shops and Commercial Establishments Act (of respective States)

The Shops and Commercial Establishments Act(s) of the respective States generally contain provisions relating to registration of an establishment, working hours, overtime, leave, privilege leave, notice pay, working conditions for women employees, etc. The provisions of the Shops and Commercial Establishments Act apply to both white collar and blue-collar employees. IT and IT-enabled services have been given relaxations by various State Governments in respect of the observance of certain provisions of their respective Shops and Commercial Establishments Act.

¶9-140 Contract Labour (Regulation and Abolition) Act, 1970 The main objectives of the Contract Labour (Regulations and Abolition) Act, 1970

(the Contract Labour Act) are: (i) to prohibit the employment of contract labour; and (ii) to regulate the working conditions of the contract labour, wherever such employment is not prohibited.

The Contract Labour Act regulates the employment of contract labour in certain establishments and provides for its abolition in certain circumstances. It applies to every

employed on any day of the preceding twelve months as contract labour. The Government

Labour Act applicable to establishments or contractor employing less than 20 workmen.

The Act is not applicable to establishments in which work only of an intermittent or casual nature is performed.

This Act prohibits the employment of contract labour on jobs that are perennial in nature. For such jobs, permanent employees need to be employed.

The Act provides that no contractor shall undertake any work through contract labour, except under and in accordance with a licence issued in that behalf by the licensing

In terms of section 7 of the Contract Labour Act, the principal employer has to make an application in the prescribed form accompanied by the prescribed fee payable to the

¶9-150 Employee’s Compensation Act, 1923 (formerly known as “The Workmen’s Compensation Act, 1923”)

The Employee’s Compensation Act, 1923 (the EC Act) provides for the payment of compensation for injury by accident by certain classes of employers to their employees.

The EC Act aims to provide employees and their dependants compensatory payment in case of accidents arising out of and in the course of employment and causing either death or disablement of workmen.

This Act applies to factories, mines, docks, construction establishments, plantations,

establishments covered by the ESI Act.


The Act provides for payment of compensation by the employer to the employees covered under this Act for injury caused by accident. Generally, companies take insurance policies to cover their liability under the EC Act.

¶9-160 Inter-state Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979

The Inter-state Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 (the ISMW Act) is an Act to regulate the employment of inter-state migrant workmen and to provide for the conditions of service and for matters connected therewith.

migrant workmen are employed or who were employed on any day of the preceding twelve

migrant workmen on any day of the preceding twelve months.

For the purpose of the ISMW Act, an inter-state migrant workman means any person who is recruited by or through a contractor in one state under an agreement or other arrangement for employment in an establishment in another state, whether with or without the knowledge of the principal employer in relation to such an establishment.

¶9-170 Weekly Holiday Act, 1942The Weekly Holiday Act, 1942 (Weekly Holiday Act) provides for the grant of atleast

one weekly off to each person employed in a shop, restaurant or theatre. The Weekly Holiday Act further provides that each shop shall remain closed for at least one full day in

in a conspicuous place in the shop and that such day shall not be altered more often than once in three months.

¶9-180 National and Festival Holidays Act (of respective States)

conditions for granting offs on the said days.

Laws relating to Equality and Empowerment of Women

¶9-190 Equal Remuneration Act, 1976 The Equal Remuneration Act, 1976 provides for the payment of equal remuneration

to men and women workers for the same work and prevents discrimination, on the ground of sex, against women in the matter of employment, recruitment and for matters connected therewith or incidental thereto. This Act applies to virtually every kind of establishment.

Theof women in certain establishments for a certain period before and after childbirth and

bonus, nursing breaks, etc, to women employees.


The applies to (a) a factory, mine or plantation including any such establishment belonging to Government and to every establishment wherein persons are employed for the exhibition of equestrian, acrobatic and other performances; (b) every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or more persons are employed, or were employed on any day of the preceding twelve months.

not apply to the employees who are covered under the Employees’ State Insurance Act, 1948 for certain periods before and after child-birth and for which the ESI Act provides

employees employed in establishments which are not covered by the ESI Act, as also to women employees, employed in establishments covered by the ESI Act, but who are out of its coverage because of the wage-limit.

worker for six weeks immediately following the day of her delivery or miscarriage and two weeks following a tubectomy operation. The maximum period for which a woman shall be

precede the date of her expected delivery.

A pregnant woman is also entitled to request her employer not to give her work of arduous nature or which involves long hours of standing, etc, during the period of one month immediately preceding the date of her expected delivery or any period during the said period of six weeks for which the woman does not avail leave of absence. When a woman absents herself from work in accordance with the provisions of the Maternity

account of such absence.

Prohibitive Labour Laws

¶9-210 Bonded Labour System (Abolition) Act, 1976 The Bonded Labour System (Abolition) Act, 1976 (the Bonded Labour Abolition Act)

is a prohibiting legislation which provides for the abolition of the bonded labour system with a view to prevent the economic and physical exploitation of the weaker sections of the society, and matters connected therewith or incidental thereto.

to mean any labour or service rendered under the bonded labour system.

partly forced, labour under which a debtor enters or has, or is presumed to have, entered into an agreement with the creditor to the effect that:

(i) In consideration of an advance obtained by him or by any of his lineal ascendants or descendants (whether or not such advance is evidenced by the document) and in consideration of the interest, if any, due on such advance; or


(ii) In pursuance of any customary or social obligation; or(iii) In pursuance of any obligation devolving on him by succession; or(iv) For any economic consideration received by him or by any of his lineal

ascendants or descendants; or(v) By reason of his birth in any particular caste or community;

The debtor would render, by himself or through any member of his family, or any person

Section 3 of the Bonded Labour Abolition Act provides that the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument having effect by virtue of any enactment other than this Act.

Section 20 of the Bonded Labour Abolition Act provides that whoever abets any offence punishable under this Act shall, whether or not the offence abetted is committed, be punishable with the same punishment as is provided for the offence which has been abetted. For the purpose of this Act, “abetment” has the meaning assigned to it in the Indian Penal Code.

¶9-220 Child Labour (Prohibition & Regulation) Act, 1986 The Constitution of India incorporates provisions to secure labour protection to

children. It expressly prohibits the employment of a child below the age of 14 years in work in any factory or mine or engagement in any other hazardous employment.

The policy of the Government is to ban the employment of children below the age of 14 years in factories, mines and hazardous employments and to regulate the working condition of children in other industries.

The Indian Government enacted the Child Labour (Prohibition & Regulation) Act, 1986 (the Child Labour Prohibition & Regulation Act), which prohibits the employment of children who have not completed their 14th year in 16 occupations and 65 processes1

like cinder picking, cleaning of ash pits, building operation, manufacturing or handling of

In addition, the Child Labour Prohibition & Regulation Act regulates the working conditions of children in all employments, which are not prohibited under the Act.

establishments employing children to give notice to the local inspector and maintain the prescribed register.

Apart from the Child Labour Prohibition & Regulation Act, there are other legislations which also protect the interest of child labour. For example, the Factories Act, 1948 and the Mines Act, 1952 prohibit the employment of children below the age of 14 years. The Children (Pledging of Labour) Act, 1933, makes an agreement to pledge the labour of children void.

1 As last amended dated September 25, 2008, issued by the Ministry of Labour and Employment (Child Labour Section).


Directions of the Supreme Court on the Issue of Elimination of Child Labour

In a landmark judgment on December 10, 1996, in the case of MC Mehta v State of Tamil NaduIndia gave certain directions on the issue of elimination of child labour. The main features of the judgment are as under:

(ii) Withdrawal of children working in hazardous industry and ensuring their education in appropriate institutions;

(iii) Contribution at the rate of `20,000 per child to be paid by the offending employers of children to a welfare fund to be established for this purpose;

(iv) Employment to one adult member of the family of the child so withdrawn from work and if that is not possible a contribution of `5,000 to the welfare fund to be made by the State Government;

(v) Financial assistance to the families of the children so withdrawn to be paid out of the interest earnings on the corpus of `welfare fund, as long as the child is actually sent to a school; and

(vi) Regulating hours of work for children working in non-hazardous occupations so that their working hours do not exceed six hours per day and education for at least two hours is ensured. The entire expenditure on education is to be borne by the concerned employer.

The implementation of the directions of the Hon’ble Supreme Court is being monitored by the Ministry of Labour and Employment and compliance with the directions has been

2000, July 4, 2001 and December 4, 2003, to the Hon’ble Supreme Court on the basis of

The Government is committed to eliminate child labour in all its forms and is moving in this direction in a targeted manner.

Laws relating to Employment and Training

¶9-230 Apprentices Act, 1961 The Apprentices Act, 1961 (the Apprentice Act) provides for the regulation and control

of training of apprentices to supplement the availability of trained technical employees

engaged as an apprentice, contract for apprenticeship, renewal of contract of apprenticeship, period for apprenticeship, termination of apprenticeship contract, obligation of employers and obligations of apprentices, payment to apprentices, health safety and welfare of apprenticeship, hours of work, overtime, leave and holidays and other conditions of working of apprentice.

The Apprentice Act requires employers to hire apprentices in certain designated trades,


The Government is considering amending the Apprentices Act, 1961, in consultation with all concerned Ministries. One of the proposed amendments relates to reserving 50 per cent of direct recruitment posts for trained Trade, Graduate, Technician and Technician (Vocational) apprentices who have been trained under the Apprentices Act, 1961 in the same establishment.2

Act, 1959 The (the

employment exchanges by the employers. Section 4(1) of the Employment Exchange Act

up any vacancy in any employment in that establishment, vacancies to such employment exchanges as may be prescribed.

Further, section 4(2) of the Employment Exchange Act provides that the appropriate

(ordinarily employing more than 25 employees) or every establishment pertaining to any

in any employment in that establishment, notify vacancies to such employment exchanges as may be prescribed.

Useful Web Links

Ministry of Labour and Employment (www.labour.nic.in)Directorate General of Employment & Training (www.dget.nic.in)Directorate General Factory Advice Service and Labour Institute (www.dgfasli.nic.in)V V Giri National Labour Institute (www.vvgnli.org)Labour Bureau (www.labourbureau.nic.in)Indian Labour Archives (www.indialabourarchives.org)Employees' State Insurance Corporation (www.esicindia.org)

Directorate General Mines Safety (www.dgms.net)

2 As per statement of Minister for Labour and Employment, in a written reply to a question in the Rajya Sabha on March 16, 2011.

Chapter 10 Intellectual Property Laws

Introduction ........................................................................................... 10-010

TrademarksIntroduction to the Trademark laws........................................................ 10-020Well-known Trademark and Trans-border Reputation .......................... 10-030Legal Remedies against Infringement and/or Passing off ..................... 10-040Relief Granted by Courts in Suits for Infringement and Passing off .... 10-050Offences and Penalties ........................................................................... 10-060Procedure of Registration of Trademark in India................................... 10-070Renewal of Registration ......................................................................... 10-080

..................................................................... 10-090Assignment, Transmission and Licensing of Trademarks in India ....... 10-100

PatentsIntroduction to Patent Laws ................................................................... 10-110Procedure for Grant of a Patent in India ................................................ 10-120Filing of Application for Grant of Patent in India by Foreigners .......... 10-130Oppositions regarding Patents ............................................................... 10-140Term of Patent ...................................................................................... 10-150Payment of Renewal Fee ....................................................................... 10-160Restoration of Patent ............................................................................. 10-170Patent of Biological Material ................................................................ 10-180Rights granted by a Patent ..................................................................... 10-190

.............. 10-200Compulsory Licensing .......................................................................... 10-210Infringement of Patent ........................................................................... 10-220

CopyrightIntroduction to Copyright Law .............................................................. 10-230“Work” Protected in India ..................................................................... 10-240Registration of Copyright ...................................................................... 10-250Enforcement of Copyright in India ....................................................... 10-260Protection to Foreign Works in India .................................................... 10-270Licensing and Assignment of Copyright ............................................... 10-280

159Chapter 10 Intellectual Property Laws

Duration/Term of Copyright .................................................................. 10-290

Industrial DesignsIntroduction ........................................................................................... 10-300Registrability of Designs ....................................................................... 10-310Term of Design ...................................................................................... 10-320Process of Registration of Design ......................................................... 10-330Cancellation, Protection and Enforcement of Designs .......................... 10-340

Geographical IndicationsIntroduction ........................................................................................... 10-350Registration of Geographical Indications .............................................. 10-360Duration of Protection ........................................................................... 10-370Infringement of Geographical Indications ............................................ 10-380

Plant VarietiesIntroduction to Plant Laws .................................................................... 10-390Procedure for Registration ..................................................................... 10-400Duration of Protection ........................................................................... 10-410Rights under the Plant Act ..................................................................... 10-420Infringement of Plant Varieties and Farmers’ Rights ............................ 10-430

Layout Designs of Integrated CircuitsIntroduction ........................................................................................... 10-440Registrability of Layout Design ............................................................ 10-450Duration of Protection ........................................................................... 10-460Infringement of Layout Design ............................................................. 10-470Trade Secrets ......................................................................................... 10-480

Enforcement of Intellectual Property Laws in IndiaIntellectual Property Laws Enforcement................................................ 10-490Authorities involved in the Execution of Orders of Courts ................... 10-500Competent Court ................................................................................... 10-510Border Control Measures for Enforcement of IPR ............................... 10-520

Enforcement Rules, 2007 ................................................................. 10-530

Data Protection Laws in IndiaIntroduction ........................................................................................... 10-540Information Technology Act, 2000 ........................................................ 10-550


¶10-010 Introduction With the rapid globalisation and opening up of the Indian economy, “Intellectual

Capital” has become one of the key wealth drivers in the present international trade.

Statutes, enforcement provisions and methods of dispute resolution with respect to

India has laws covering various areas of intellectual property as enumerated herein below:

TrademarksPatentsCopyrights and Related RightsIndustrial DesignsGeographical IndicationsLayout Designs of Integrated CircuitsPlant VarietiesInformation Technology and Cyber Crimes Data Protection

Broadly, the following acts deal with the protection of intellectual property:

1. Trade Marks Act, 1999

3. The Copyright Act, 19574. The Designs Act, 20005.6. The Semiconductor Integrated Circuits Layout Design Act, 20007. The Protection of Plant Varieties and Farmers’ Right Act, 20018. The Information Technology Act, 2000

Trademarks

¶10-020 Introduction to the Trademark LawsIndia’s obligations under the TRIPS Agreement for protection of trademarks, inter alia,

renewal of registration, abolition of compulsory licensing of trademarks, etc.

With the globalisation of trade, brand names, trade names, marks, etc, have attained

procedures for enforcement as were recognised under the TRIPS. In view of the same,


extensive review and consequential amendment of the old Indian Trade and Merchandise Marks Act, 1958 was carried out and the new Trade Marks Act, 1999 was enacted. The said Act of 1999, with subsequent amendments, conforms to the TRIPS and is in accordance with the international systems and practices.

multiclass applications, increasing the term of registration of a trademark to ten years as well as recognition of the concept of well-known marks, etc. The Indian judiciary has been proactive in the protection of trademarks, and it has extended the protection under the trademarks law to Domain Names as demonstrated in landmark cases of Tata Sons Ltd v Manu Kosuri & Ors Yahoo Inc. v Akash Arora,1999 PTC 201.

law principles, and as such provides for infringement as well as passing off actions against violation of trademarks. Section 135 of the Trade Marks Act recognises both infringement as well as passing off actions.

¶10-030 Well-known Trademark and Trans-border Reputation India recognises the concept of the “Well-known Trademark” and the “Principle of

Trans-border Reputation”. A well-known trademark, in relation to any goods or services, means a mark that has become so to the substantial segment of the public, which uses such goods or receives such services such that the use of such a mark in relation to other goods and services is likely to be taken as indicating a connection between the two marks.

Trans-border Reputation concept was recognised and discussed by the Apex Indian Court in the landmark case of NR Dongre v Whirlpool,“WHIRLPOOL” was held to have acquired reputation and goodwill in India. The mark “WHIRLPOOL” was also held to have become associated in the minds of the public with

despite no evidence of actual sale. Hence, the trademark WHIRLPOOL was held to have acquired trans-border reputation which enjoys protection in India, irrespective of its actual user or registration in India.

¶10-040 Legal Remedies against Infringement and/or Passing off Under the Trade Marks Act, both civil and criminal remedies are simultaneously

available against infringement and passing off.

Infringement of trademark is violation of the exclusive rights granted to the registered proprietor of the trademark to use the same. A trademark is said to be infringed by a person, who, not being a permitted user, uses an identical / similar / deceptively similar mark to the registered trademark without the authorisation of the registered proprietor of the trademark. However, it is pertinent to note that the Indian trademark law protects the vested rights of a prior user against a registered proprietor which is based on common law principles.

Passing off is a common law tort used to enforce unregistered trademark rights. Passing off essentially occurs where the reputation in the trademark of party A is misappropriated by party B, such that party B misrepresents as being the owner of the trademark or having

A, thereby damaging the goodwill of party A. For an action of passing off, registration of a trademark is irrelevant.


Registration of a trademark is not a pre-requisite in order to sustain a civil or criminal action against violation of trademarks in India. In India, a combined civil action for infringement of trademark and passing off can be initiated.

proceedings can be initiated against the infringers. Such enforcement mechanisms are expected to boost the protection of marks in India and reduce infringement and contravention of trademarks.

¶10-050 Relief Granted by Courts in Suits for Infringement and Passing off

The relief which a court may usually grant in a suit for infringement or passing off

infringing goods for destruction and cost of the legal proceedings.

The order of interim injunction may be passed ex parte or after notice. The interim reliefs in the suit may also include order for:

preparation of inventory, etc.

manner which may adversely affect plaintiff’s ability to recover damages, costs

¶10-060 Offences and PenaltiesIn case of a criminal action for infringement or passing off, the offence is punishable

with imprisonment for a term which shall not be less than six months but which may extend `50,000 but may extend to `200,000.


¶10-070 Procedure of Registration of Trademark in IndiaThe procedure for registration of a trademark in India is given below:

Filing of Application

Allotment of Application No.

Issue of Examination Reportby the Trademark Office

No Objection

Objection Raised

Objections removed byevidence, etc

Objections Not Overcome

Application Abandoned

Objections Upheld

Registrationrefused

Hearing before theTribunal arguments and

evidence, etc

Objections Overruled

Publication in theTrademark Journal

4-month period for public objections,if no opposition within four months, theTrademark is proceeded for registration

Issue of Registration Certificate

Renewal fee becomes due and payable every ten years w.e.f. the date of the filing of application

Convention Applications

country or countries that are members of inter-governmental organisations, which accord to

of a trademark made in any of the Convention countries, a priority date can be claimed with regard to the application in India, provided that the application is made within six

Paris Convention on Protection of Industrial Property.

Madrid Protocol

India Parliament has passed the Trade Marks (Amendment) Bill, 2009 for enacting special provisions relating to protection of trademarks through international registration under the Madrid Protocol. As per the Amendment Bill, from the date of the international registration of a trademark where India has been designated or the date of the recording in the register of the International Bureau about the extension of the protection resulting from an international registration of a trademark to India, the protection of the trademark in India shall be the same as if the trademark had been registered in India. The Amendment


Opposition Proceedings

3 monthsmay be extended by a period not exceeding 1 month).

¶10-080 Renewal of RegistrationThe trademark is initially registered for a period of 10 years, which is calculated from the

The registration is required to be renewed within 6 months before the date of expiry of the registration, ie 10 years from the date of the application or subsequent renewals.

The failure in renewing the trademark within the stipulated period of time and a grace period of maximum 1 year, granted for restoration of the trademark, automatically leads to removal of the trademark from the Register of Trademarks.

of the trademark on the ground of any contravention or failure to observe a condition entered on the Register in relation thereto.

of any error or defect in any entry in the Register.

¶10-100 Assignment, Transmission and Licensing of Trademarks in India

“Assignment” means an assignment in writing by an act of the parties concerned. While in case of licensing, the right in the trademark continues to vest with the proprietor, the assignment of the trademark leads to a change in the ownership of the mark. A registered trademark is assignable with or without the goodwill in respect of all or only some of the goods/services for which the mark is registered. India is a member to TRIPS and Article 21 of the TRIPS dealing with Licensing and Assignment mandates that “… the owner of a registered trademark shall have the right to assign the trademark with or without the transfer of the business to which the trademark belongs.” Section 39 of the Trade Marks Act, 1999 allows for the assignment of an unregistered trademark with or without the goodwill of the business concerned.

Indian law contains an embargo on the assignments of trademark, whether registered or unregistered, whereby multiple exclusive rights would be created in more than one person


which would result in deception/confusion. However, the assignment with limitations imposed, such as goods to be sold in different markets, ie within India or for exports are

on a statement of case by the proprietor of a registered trademark who proposes to assign

Patents

¶10-110 Introduction to Patent LawsThe history of Patent law in India starts from 1911 when the Indian Patents and

Designs Act, 1911 was enacted. The present Patents Act, 1970 came into force in the year 1972, amending and consolidating the existing law relating to Patents in India. The PatentsAct, 1970 was again amended by the Patents (Amendment) Act, 2005, wherein product

organisms. After the amendment, the provisions relating to Exclusive Marketing Rights

been introduced. The provisions relating to pre-grant and post-grant opposition have been also introduced.

An invention relating to a product or a process that is new, involving inventive step and capable of industrial application can be patented in India. However, it must not fall into the category of inventions that are non-patentable as provided under Section 3 and 4 of thePatents Act, 1970

¶10-120 Procedure for Grant of a Patent in India

objections raised in the report. The applicant has to comply with the requirements within

examination report are not complied with within the prescribed period of 12 months, then the application is treated to have been abandoned by the applicant. After the removal of


Filing of Application With Provisional Specification Complete Specification Not Filed

Application Abandoned

First Examination Report (FER)

Reply to FER & Refilling of Amended documents

Re-examination and issue of further objections

Complied with All Objections

Order/Decision

Patent granted

Grant publication

Post-grant Opposition

Hearing by Controller

Opposition allowed

Appeal toIPAB

Appeal allowedPatent continuestill 20 yearsPatent ceased

Renewal Fee not paid Renewal Fee Paid

Submission ofreport to

Controller

Demand of Renewal Fees

No Opposition

Constitution of Oppsition Board

Refused Appeal Allowed

Appeal to IPAB Refused

Hearing by ControllerApplication Abandoned

Objections not complied within 12 months

Pre-grant opposition Hearing Opposition allowed/rejected

18 Month’s Publication Request For Examination

With Complete Specification

Opp

ositi

ondi

smis

sed

¶10-130 Filing of Application for Grant of Patent in India by Foreigners

India being a signatory to the Paris Convention for the Protection of IndustrialProperty, 1883 and the Patent Cooperation Treaty (PCT), 1970, a foreign entity can adopt

Where an application for grant of patent in respect of an invention in a Convention

by such applicant or the legal representative or assignee of such person within twelve months from the date on which the basic application was made in the Convention Country, ie the home country. The priority date in such a case is considered as the date of making of the basic application.

¶10-140 Oppositions regarding Patents

Pre-grant Opposition

any person under section 11A of the Patents Act, 1970, within six months from the date of publication of the application,


the representation will be considered only when a request for examination is received within the prescribed period.

Post-grant Opposition

Any interested person

Grounds for Opposition

and

otherwise, available within any local or indigenous community in India or elsewhere.

¶10-150 Term of Patent

¶10-160 Payment of Renewal Fee It is important to note that a patentee has to renew the patent every year by paying the

renewal fee, which can be paid every year or in lump sum.

¶10-170 Restoration of Patent

cessation of patent along with the prescribed fee. After the receipt of the request, the matter


¶10-180 Patent of Biological Material If the invention uses a biological material which is new, it is essential to deposit the

in India in order to supplement the description. If such biological materials are already known, in such a case it is not essential to deposit the same. The IDA in India located at

¶10-190 Rights granted by a Patent If the grant of the patent is for a product, then the patentee has a right to prevent others

from making, using, offering for sale, selling or importing the patented product in India. If the patent is for a process, then the patentee has the right to prevent others from using the process, using the product directly obtained by the process, offering for sale, selling or importing the product in India directly obtained by the process.

What is not Patentable in India?

in the aggregation of the properties of the components thereof or a process for producing

are not patentable in India.

public can inspect the documents and may take the photocopy thereof on the payment of the prescribed fee.

¶10-210 Compulsory Licensing One of the most important aspects of Indian Patents Act, 1970, is compulsory licensing

of three years from the date of the sealing of a patent, any person interested may make an application to the Controller of Patents for grant of compulsory license of the patent,

the reasonable requirements of the public with respect to the patented invention

that the patented invention is not worked in the territory of India. It is further important to note that an application for compulsory licensing may be made

by any person notwithstanding that he is already the holder of a license under the patent.


For the purpose of compulsory licensing, no person can be stopped from alleging that the reasonable requirements of the public with respect to the patented invention are not

reason of any admission made by him, whether in such a licence or by reason of his having accepted such a licence.

available to the public at a reasonable price, may order the patentee to grant a licence upon

Controller of Patents shall take into account following factors:

The measures already taken by the patentee or the licensee to make full use of the

The capacity of the applicant to undertake the risk in providing capital and working

As to the fact whether the applicant has made efforts to obtain a license from the

Establishment of a ground of anti competitive practices adopted by the patentee.

The grant of compulsory license cannot be claimed as a matter of right, as the same

Further judicial recourse is available against any arbitrary or illegal order of the Controller of Patents for grant of compulsory license.

¶10-220 Infringement of Patent Patent infringement proceedings can only be initiated after grant of patent in India but may

include a claim retrospectively from the date of publication of the application for grant of the patent. Infringement of a patent consists of the unauthorised making, importing, using, offering for sale or selling any patented invention within the India. Under the Patents Act, 1970 only a civil action can be initiated in a Court of Law. Further, a suit for infringement can be defended on various grounds including the grounds on which a patent cannot be granted in India and based on such defence, revocation of Patent can also be claimed.

Copyright

¶10-230 Introduction to Copyright Law Indian copyright law is at parity with the international standards as contained in

TRIPS. The Copyright Act, 1957, pursuant to the amendments in the year 1999, fully Berne Convention for Protection of Literary and Artistic Works, 1886 and the


Universal Copyrights Convention, to which India is a party. India is also a party to the Geneva Convention for the Protection of Rights of Producers of Phonograms and is an

¶10-240 “Work” Protected in India Under the Copyright Act, 1957 the term “work” includes an artistic work comprising a

a photograph, a work of architecture or artistic craftsmanship, dramatic work, literary work

In order to keep pace with the global requirement of harmonisation, the CopyrightAct, 1957 has brought the copyright law in India in line with the developments in the

computer software or digital technology. The amended law has also made provisions to protect performer’s rights as envisaged in the Rome Convention.

¶10-250 Registration of Copyright In India, the registration of copyright is not mandatory as the registration is treated as

mere recordal of a fact. The registration does not create or confer any new right and is not a prerequisite for initiating action against infringement. The view has been upheld by the Indian courts in a catena of judgments.

Need for Registration of Copyright

cities. Despite the fact that the registration of copyright is not mandatory in India and is protectable through the International Copyright Order, 1999, it is advisable to register the

courts and by police authorities, and acted upon smoothly by them.

¶10-260 Enforcement of Copyright in India The law of copyright in India not only provides for civil remedies in the form of permanent

and cost of the legal proceedings, etc, but also makes instances of infringement of copyright, a cognisable offence punishable with for a term which shall not be less than six months but

`50,000 but may extend to `200,000. For the second and subsequent offences, there are provisions for enhanced

Copyright Act, 1957 gives power to the

without any intervention of the court.


¶10-270 Protection to Foreign Works in India Copyright of “works” of foreign nationals, whose countries are member of Convention

Countries to which India is a signatory, are protected against any infringement of their “works” in India through the International Copyright Order, 1999. The Indian courts have also been pro-active for the protection of copyright of foreign authors/owners, which includes software, motion pictures including screenplay of motion pictures and databases.

The Government of India is also taking initiative to combat piracy in the software industry, motion pictures and the music industry along with players in the industry through

etc.

¶10-280 Licensing and Assignment of Copyright Copyright in any work, present or future, can only be assigned or licensed in writing

¶10-290 Duration/Term of Copyright In the case of original literary, dramatic, musical and artistic works, the duration of

copyright is the lifetime of the author or artist, and 60 years counted from the year following the death of the author.

publications, anonymous and pseudonymous publications, works of government and works

the year following the date of publication.

Industrial Designs

¶10-300 Introduction The TRIPS provides minimum standards of protection of industrial designs. The

Design(s) Act, 2000, duly adheres to the said minimum standards by providing protection to original and aesthetically appealing designs capable of being applied commercially and is in consonance with the changes in technology and economic advances.

¶10-310 Registrability of Designs

applied to any article, whether in two dimensional or three dimensional or in both forms, can be registered under the Designs Act, 2000. However, functionality aspects of a design are not protected under the Designs Act, 2000, as the same are subject matter of patents.

¶10-320 Term of Design The total period of validity of registration of an Industrial Design under the Designs

Act, 2000 is 15 years. Initially, a design is registered for a period of 10 years, giving the owner of registered design exclusive rights to sell, make or import the articles and initiate


a legal action against infringement. This initial period of 10 years can be further extended by a period of 5 years on the payment of renewal fees.

¶10-330 Process of Registration of Design The process of registration of an industrial design in India can be understood with the

Filling ofApplications

Numbering and Datingof Applications

Examination ofApplication

ApplicationAbandoned

Non-compliance ofObjection(s)

Communication ofObjection(s)

Removal ofObjection(s)

Refusal Hearingif objection(s)is contested

Compliance ofObjection(s) Re-examination

Appeal toHigh Court

Waiving/removalof Objection(s)

Acceptance

In case of allowance ofappeal

Notification in theOfficial Gazette

Issue of Certificate

¶10-340 Cancellation, Protection and Enforcement of Designs Design of an article is not registrable in India, if it:

has been disclosed to the public anywhere in India or in any other country by

comprises or contains scandalous or obscene matter.

The above grounds may also be used for revocation or cancellation of the registration of any design, as well as a defense in an infringement proceeding.

The Designs Act, 2000, only provides for civil remedies. Besides injunction, monetary compensation is recoverable by the proprietor of the design either as contract debt or damages. An action for infringement of design can only be initiated after the registration of the design.

Any foreign entity, interested in protecting any of its Industrial Design in India, must

country.


Geographical Indications

¶10-350 Introduction

reputation that are due to the place of origin. Geographical indications are valuable rights, which if not adequately protected, can be misused by dishonest commercial operators to the detriment of both the consumers and the legitimate users.

The TRIPS prescribes minimum standards of protection of GIs and additional protection for wines and spirits. Articles 22 to 24 of part II section III of the TRIPS prescribe minimum standards of protection to the geographical indications that WTO members must provide. India, in compliance with its obligation under TRIPS, has taken legislative measures by enacting the Geographical Indications of Goods (Registration and Protection) Act, 1999,which came into effect on September 15, 2003 and the Geographical Indications of Goods (Registration and Protection) Rules, 2002.

As per the Geographical Indications of Goods (Registration and Protection) Act, 1999such goods as agricultural goods, natural goods or manufactured goods as originating, or manufactured in the territory of a country, or a region or locality in that territory, where a given quality, reputation or other characteristic of such goods is essentially attributable to its geographical origin and in case where such goods are manufactured goods one of the activities of either the production or of processing or preparation of the goods concerned takes place in such territory, region or locality, as the case may be.

GIs have been used in India for a wide variety of products, such as Basmati Rice, Darjeeling Tea, Kangra Tea, Feni, Alphonso Mango, Alleppey Green Cardamom, Coorg Cardamom, Kanchipuram Silk Saree, Kohlapuri Chappal, etc.

By registering a geographical indication in India, the rights holder can prevent

infringement action by way of a civil suit or criminal complaint. Registration of the GIs in India is not mandatory as an unregistered GI can also be enforced by initiating an action of

of registration is prima facie evidence of its validity and no further proof of the same is required.

¶10-360 Registration of Geographical Indications An application for the registration of a GI is to be made to the Registrar of

Geographical Indications in the form prescribed under the Geographical Indications of Goods (Registration and Protection) Act, 1999 GeographicalIndications (Registration and Protection) Rules, 2002

¶10-370 Duration of Protection A Geographical Indication is registered for a period of ten years and the registration

may be renewed from time to time for a period of 10 years at a time.


¶10-380 Infringement of Geographical Indications The remedies relating to the infringement of Geographical Indications are similar to

the remedies relating to the infringement of Trademark. Similarly, under the GeographicalIndications of Goods (Registration and Protection) Act, 1999Indication will carry a penalty with imprisonment for a term which may not be less than six

`50,000`

Plant Varieties

¶10-390 Introduction to Plant Laws

Protection of Plant Varieties and Farmer’s Rights Act, 2001the recommendations of the International Union for Protection of New Varieties of

development of new varieties of plants and protecting the plant varieties and rights of the farmers and breeders. The Protection of Plant Varieties and Farmers’ Rights Authority has been established and is located at NASC Complex, DPS Marg, Opp. Todapur, New Delhi – 110012, India.

The Plant Act contains elaborate provisions to safeguard the rights of Indian farmers in addition to plant breeder’s rights and researcher’s rights. Presently, the Government

varieties:

“Black gram, Bread wheat, Chickpea, Field pea, Green gram, Kidney

¶10-400 Procedure for Registration Anew variety shall be registered if it conforms to the criteria of novelty, distinctiveness,

uniformity and stability. After an application is made for the registration of the Plant Variety,

in the Journal for public objections, if any. The Registrar registers the application if the application remains unopposed or the opposition is decided in favour of the Applicant.

¶10-410 Duration of Protection The duration of protection of registered varieties is different for different crops, as

given below:


¶10-420 Rights under the Plant Act Under the Plant Act, the researcher has the liberty to conduct experiment with a

registered variety, and the farmer has been given the exclusive right to save, use, sow, re-sow, exchange, share or sell his farm produce including seed or a variety protected under the Plant Act. However, the farmer is not allowed to sell the branded seed of a protected

an exclusive right on the breeder or his successor, agent or licensee to produce, sell, market, distribute, import or export the variety.

¶10-430 Infringement of Plant Varieties and Farmers’ Rights Any person, who produces, sells imports or exports any variety without the

permission of the owner, infringes the rights of owner. Use of a denomination which is similar to a registered denomination and likely to confuse the general public also amounts to infringement. Infringement of any right under the Plant Varieties and Farmers’ Rights attracts both civil and criminal action. A criminal action under the Act entails punishment

`

Layout Designs of Integrated Circuits

¶10-440 Introduction In compliance with the TRIPS Agreement, India has enacted the Semiconductor

Integrated Circuits Layout-Designs Act, 2000 in order to provide protection to layout designs

other circuitry elements and includes lead wires connecting such elements and expressed in any manner in a semiconductor integrated circuit. Under the Semiconductor for Integrated Circuits Layout-Designs Act, 2000as a product having transistors and other circuitry elements which are inseparably formed on a semiconductor material or an insulating material or inside the semiconductor material and designed to perform an electronic circuitry function.

¶10-450 Registrability of Layout Design

any other registered Layout Design cannot be registered as a Layout Design. In order to claim protection for Layout Design, it is mandatory that it should be registered.

¶10-460 Duration of Protection Registration of a Layout Design is valid only for a period of 10 years from the date of

its registration or commercial exploitation in any country, whichever is earlier.

¶10-470 Infringement of Layout Design In addition to the civil remedies available, an infringement of a Layout Design is

considered to be a criminal offence in India. Infringement of a registered layout design has been made punishable under the Semiconductor for Integrated Circuits Layout-Designs


Act, 2000, `up to maximum of `

¶10-480 Trade Secrets At present, there is no particular legislation to protect undisclosed information/trade

secret outside the normal recourse to breach of contract. Under the Indian contract law,

under the ambit of agreements in restraint of profession and trade. The validity of these agreements is tested on the reasonableness of the restrictions imposed. This protection is limited in relation to the protection sought as per Article 39 of the TRIPS. There is also no provision at the moment in India at the national level for data protection with respect to

agencies. International pressure on the Indian Government is rising on the data protection issue and the Government is likely to take concrete steps towards the same soon.

Enforcement of Intellectual Property Laws in India

¶10-490 Intellectual Property Laws EnforcementIndia has a well-established statutory, administrative and judicial framework to

enforcement of IPR. It has always been a concern about slow judicial system involving lengthy and time-consuming procedure of trial in India. However, in recent years, Indian

Rights. It has been observed that by adopting right policies and strategies, IPR can be effectively protected with the help of law enforcement authorities.

For any IPR-related litigation, it is necessary to understand the Indian Judicial system and its psychology. It has been observed that the Indian courts are very active in granting equitable reliefs like injunctions, etc, but are still reluctant in awarding punitive pecuniary damages.

¶10-500 Authorities involved in the Execution of Orders of Courts The Government Authorities including police are bound to execute and enforce the

orders of court, and as such the courts are empowered to direct any government authority to do or not to do or prevent/compel any person to comply with the orders of the court. There are effective methods for the enforcement of the orders of the court, including Contempt

compliance of the order of the court. Execution/compliance of the orders of the court is also done by way of appointment of the Local Commissioner/Receivers by the court. In India, certain State Governments have formed special Intellectual Property Cells, which deal with offences relating to infringement of IPR.

In any civil action for enforcement of Intellectual Property Rights, the following reliefs may be claimed in such suit:


Delivery up of goods/packing material/dies/plates for destruction.Additionally, in case of infringement of Trademark, infringement of Copyright,

Geographical Indication, Plant Variety and Semiconductor Integrated Circuits Layout Design following Criminal action can also be initiated:

Filing of a Criminal Complaint before a Competent Magisterial Court with

infringers.It is interesting to note that in India, wherever provisions have been made for criminal

against known as well as unknown persons. It is also important to note that both civil and criminal remedies, wherever applicable, can be availed simultaneously and both the remedies are coexistent.

¶10-510 Competent Court In India, a suit may be instituted in any court of original jurisdiction, subject to their

pecuniary and territorial jurisdiction. In relation to IPR litigation, the designation of the

Court, directly, if such High Court is having original jurisdiction. The jurisdiction of the High Court can be invoked, subject to the payment of court fees. The structure of court fees payable varies from state to state.

¶10-520 Border Control Measures for Enforcement of IPR The Government of India, under section 11 of the Customs Act, 1962, is empowered

necessary to do so. The provision, inter alia, empowers the government to prohibit the import or export of goods for “the protection of patents, trademarks and copyrights”. The goods imported in contravention of the provisions of the Customs Act or any other laws

empowered to inspect any premises, conveyance, x-ray any person and effect search and

They can also investigate or interrogate any person and arrest him.

Rules, 2007 Intellectual Property Rights (Imported Goods) Enforcement

Rules, 2007. The rules comply with border measures as required by the TRIPS Agreement

under Customs Act are independent to the remedies provided under various statues on


Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, Intellectual Property includes patents, designs, and geographical indications together with trademarks and copyrights.

Upon receipt of the Application, in the prescribed format, the Custom Authorities may register the Complaint and enforce Border Control measure for the protection of the Intellectual Property Rights. It is important to note that this right is not unfettered. Certain provisions have been also made and an elaborate procedure has been laid down for the

Data Protection Laws in India

¶10-540 Introduction Data Protection refers to the set of privacy laws, policies and procedures that aim to

of personal data. Personal data generally refers to the information or data which relate to

The Constitution of India does not patently grant the fundamental right to privacy. However, the courts have read the right to privacy into the other existing fundamental rights,

liberty under Article 21 of the Constitution of India. However, these Fundamental Rights under the Constitution of India are subject to reasonable restrictions given under Article

India presently does not have any express legislation governing data protection or privacy. However, the relevant laws in India dealing with data protection are the InformationTechnology Act, 2000 and the Indian Contract Act, 1872data protection is likely to be introduced in India in the near future.

The Information Technology Act, 2000 deals with the issues relating to payment of

of personal data and violation of contractual terms in respect of personal data.

Under section 43A of the Information Technology Act, 2000, a body corporate who is possessing, dealing or handling any sensitive personal data or information, and is negligent in implementing and maintaining reasonable security practices resulting in wrongful loss or wrongful gain to any person, then such body corporate may be held liable to pay damages

compensation that can be claimed by the affected party in such circumstances.

Under section 72A of the Information Technology Act, 2000, disclosure of information, knowingly and intentionally, without the consent of the person concerned and in breach of the lawful contract has been also made punishable with imprisonment for a term extending

`

As of now, the issue of data protection is generally governed by the contractual relationship between the parties, and the parties are free to enter into contracts to determine

not be transferred out of or to India and mode of handling of the same.


It is to be noted that section 69 of the Act, which is an exception to the general rule of maintenance of privacy and secrecy of the information, provides that where the Government

the sovereignty or integrity of India,defence of India,security of the State,friendly relations with foreign States orpublic order orfor preventing incitement to the commission of any cognisable offence relating to above orfor investigation of any offence,

it may, by order, direct any agency of the appropriate Government to intercept, monitor, or decrypt or cause to be intercepted or monitored or decrypted any information generated, transmitted, received or stored in any computer resource. This section empowers the Government to intercept, monitor or decrypt any information including information of personal nature in any computer resource.

Where the information is such that it ought to be divulged in public interest, the Government may require disclosure of such information. Information relating to anti-national activities which are against national security, breaches of the law or statutory duty or fraud may come under this category.

¶10-550 Information Technology Act, 2000 The Information Technology Act, 2000

act to provide legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication, commonly referred to as “electronic commerce”, which involve the use of alternative to paper-based methods of

the Government agencies.

Grounds on which Government can Interfere with Data

Under section 69 of the IT Act, the Controller, appointed by the Government, can direct a subscriber to extend facilities to decrypt, intercept and monitor information, If

interest of sovereignty or integrity of India, defence of India, security of the State, friendly relations with foreign States or public order or for preventing incitement to the commission of any cognisable offence relating to above or for investigation of any offence, for reasons to be recorded in writing, by order, direct any agency of the Government to intercept any information transmitted through any computer resource. The scope of section 69 of the IT Act includes both interception and monitoring along with decryption for the purpose of investigation of cyber crimes.

Penalty for Damage to Computer, Computer Systems, etc, under the IT Act

Section 43 of the IT Act, imposes a penalty of `10 million, inter alia, for downloading data without consent. The same penalty would be imposed upon a person who, inter alia,


introduces or causes to be introduced any computer contaminant or computer virus into any computer, computer system or computer network.

Tampering with Computer Source Documents as provided for under the IT Act, 2000

Section 65 of the IT Act lays down that whoever knowingly or intentionally conceals, destroys, or alters any computer source code used for a computer, computer programme, computer system or computer network, when the computer source code is required to be kept or maintained by law for the time being in force, shall be punishable with imprisonment

` 200,000, or with both.

Computer Related Offences

for the same. However, the term “hacking” has now been deleted by the introduction of the IT Amendment Act, 2008. The substituted section 66 now reads as “If any person, dishonestly or fraudulently does any act referred to in section 43, he shall be punishable

The section provides that any person who, in pursuance of any of the powers conferred under the IT Act Rules or Regulations made thereunder, has secured access to any electronic record, book, register, correspondence, information, document or other material without the consent of the person concerned, discloses such material to any other person, shall be

which may extend to `100,000, or with both.

Recent Amendments as Introduced by the IT Amendment Act, 2008

A new section 10A has been inserted in the IT Act which deals with the validity of contracts formed through electronic means which lays down that contracts formed through electronic means “shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose”.

The following important sections have been substituted and inserted by the IT Amendment Act, 2008:

1. Section 43A – Compensation for failure to protect data2. Section 66 – Computer Related Offences3. Section 66A – Punishment for sending offensive messages through communication

service, etc4. Section 66B – Punishment for dishonestly receiving stolen computer resource or

communication device5. Section 66C – Punishment for identity theft6. Section 66D – Punishment for cheating by personation by using computer

resource7. Section 66E – Punishment for violation for privacy


8. Section 66F – Punishment for cyber terrorism9. Section 67 – Punishment for publishing or transmitting obscene material in

electronic form10. Section 67A – Punishment for publishing or transmitting of material containing

sexually explicit act, etc, in electronic form11. Section 67B – Punishment for publishing or transmitting of material depicting

children in sexually explicit act, etc, in electronic form12. Section 67C – Preservation and Retention of information by intermediaries13. Section 69 – Powers to issue directions for interception or monitoring or

decryption of any information through any computer resource14. Section 69A – Power to issue directions for blocking for public access of any

information through any computer resource

through any computer resource for cyber security16. Section 72A – Punishment for disclosure of information in breach of lawful

contract17. Section 79 – Exemption from liability of intermediary in certain cases18. Section 84A – Modes or methods for encryption19. Section 84B – Punishment for abetment of offences20. Section 84C – Punishment for attempt to commit offences

Chapter 11 Consumer Protection Law

The Consumer Protection Act, 1986Introduction ........................................................................................... 11-010Background ............................................................................................ 11-020Scope ...................................................................................................... 11-030Consumer Protection Council ............................................................... 11-040Redressal Machinery under the Act........................................................ 11-050

The Consumer Protection Act, 1986

¶11-010 Introduction The Consumer Protection Act, 1986 (the CPA) is an Act that provides for effective

protection of interests of consumers and as such makes provision for the establishment of consumer councils and other authorities that help in settlement of consumer disputes and matters connected therewith.

remedies to make good the loss or damage caused to consumers as a result of unfair trade practices.

¶11-020 Background

have been formulated for the protection of interests of consumers. The key enactments that are aimed at protection of such interests include Sale of Goods Act, 1930, the Dangerous Drugs Act, 1930, the Agricultural Produce (Grading and Marketing) Act, 1937, the Drugsand Cosmetics Act, 1940, the the the the Standards of Weights and Measures Act, 1976, etc.

compensation claimed and granted to the aggrieved consumer.

for quick and easy remedy to consumers under a three-tier quasi-judicial redressal agency


¶11-030 Scope1:

Right against the marketing of goods and services which are hazardous to life and property;

price of goods or services;

services at competitive prices;Right to be heard and to be assured that consumers’ interests will receive due consideration at appropriate forums;Right to seek redressal against unfair trade practices or restrictive trade practices

Right to consumer education; andRight to clean and healthy environment.

Who is a Consumer?

(a) Buys any goods for a consideration which has been paid or promised or partly paid

user of such goods other than the person who buys such goods for a consideration

include a person who obtains such goods for resale or for any commercial purpose; or

person who avails of such services for any commercial purpose.

means of self-employment.

The goods or services must have been purchased or hired or availed of for a consideration which has been paid in full or in part or under a system of deferred

The goods purchased should not be meant for resale or for a commercial purpose. Goods purchased by a dealer in the ordinary course of his business and those which are in the course of his business to supply would be deemed to be for re-sale;

Think Business Think India

¶11-040 Consumer Protection Council2

The interests of consumers are sought to be protected and promoted under the Act interalialevels.

¶11-050 Redressal Machinery under the Act3

The Act provides for the following three-tier quasi-judicial redressal mechanism at

namely:

National Consumer Disputes Redressal Commission (commonly known as National Commission) – It has jurisdiction to entertain complaints where the value

` .

State Consumer Disputes Redressal Commission (commonly known as State Commission) –

`Million) but less than `

District Consumer Disputes Redressal Forum (commonly known as DistrictForum) – It

`Two Million).

Applicability of the Law of Limitation

condoning the delay.

Remedies under the CPA

one or more of the following relief(s):

Removal of defects from the goods;Replacement of the goods;Refund of the price paid;Award of compensation for the loss or injury suffered;


Discontinuance of unfair trade practices or restrictive trade practices or direction not to repeat them;Withdrawal of the hazardous goods from being offered for sale; orAward for adequate costs to parties.

Chapter 12 Environment Laws

Background.................................................................................................... 12-010

Legislations for Environmental Protection in IndiaThe National Green Tribunal Act, 2010......................................................... 12-020The Air (Prevention and Control of Pollution) Act, 1981.............................. 12-030The Water (Prevention and Control of Pollution) Act, 1974 ......................... 12-040The Environment Protection Act, 1986 ......................................................... 12-050Hazardous Wastes Management Regulations ............................................... 12-060

Other Laws Relating to EnvironmentThe Wildlife Protection Act, 1972 ................................................................. 12-070The Forest Conservation Act, 1980 ............................................................... 12-080The Public Liability Insurance Act, 1991 ..................................................... 12-090The Biological Diversity Act, 2002 ............................................................... 12-100The National Environment Appellate Authority Act, 1997 ........................... 12-110 The National Environment Tribunal Act, 1995.............................................. 12-120

¶12-010 BackgroundThe need for protection and conservation of environment and sustainable use of natural

commitments of India. The Constitution under Part IVA (Fundamental Duties) casts a duty on every citizen of India to protect and improve the natural environment including forests, lakes, rivers and wildlife, and to have compassion for living creatures. Further, the Constitution of India under Part IV (Directive Principles of State Policies) stipulates that the State shall endeavour to protect and improve the environment and to safeguard the forests and wildlife of the country.

Several environment protection legislations existed even before Independence of India. However, the true thrust for putting in force a well-developed framework came only after the UN Conference on the Human Environment (Stockholm, 1972). After the Stockholm Conference, the National Council for Environmental Policy and Planning was set up in 1972 within the Department of Science and Technology to establish a regulatory body to look after the environment-related issues. This Council later evolved into a full-

MoEF was established in 1985 which today is the apex administrative body in the country for regulating and ensuring environmental protection and lays down the legal and

187Chapter 12 Environment Laws

regulatory framework for the same. Since the 1970s, a number of environment legislations

the regulatory and administrative core of the sector.

Legislations for Environmental Protection in IndiaSome of the important legislations for environment protection are as follows:

The National Green Tribunal Act, 2010The Air (Prevention and Control of Pollution) Act, 1981The Water (Prevention and Control of Pollution) Act, 1974The Environment Protection Act, 1986The Hazardous Waste Management Regulations, etc.

¶12-020 The National Green Tribunal Act, 2010The National Green Tribunal Act, 2010 (No. 19 of 2010) has been enacted with the

objectives to provide for establishment of a National Green Tribunal for the effective and expeditious disposal of cases relating to environment protection and conservation of forests and other natural resources including enforcement of any legal right relating to environment and giving relief and compensation for damages to persons and property and for matters connected therewith or incidental thereto.

The Act received the assent of the President of India on June 2, 2010. The Act seeks to deal with all environmental laws relating to air and water pollution, the Environment Protection Act, the Forest Conservation Act and the Biodiversity Act. The Act envisages establishment of a National Environment Protection Authority to monitor the implementation of environment laws.

Consequent to enactment of the National Green Tribunal Act, 2010, the NationalEnvironment Tribunal Act, 1995 and the National Environment Appellate Authority Act, 1997 stand repealed. The National Environment Appellate Authority established under section 3(1) of the National Environment Appellate Authority Act, 1997 shall, on the establishment of the National Green Tribunal under the National Green Tribunal Act, 2010,stand dissolved.

¶12-030 The Air (Prevention and Control of Pollution) Act, 1981The Air (Prevention and Control of Pollution) Act, 1981 (the Air Act) is an act to

provide for the prevention, control and abatement of air pollution and for the establishment of Boards at the Central and State levels with a view to carrying out the aforesaid purposes.

To counter the problems associated with air pollution, ambient air quality standards were established under the Air Act. The Air Act seeks to combat air pollution by prohibiting the use of polluting fuels and substances, as well as by regulating appliances that give rise to air pollution. The Air Act empowers the State Government, after consultation with the SPCBs, to declare any area or areas within the State as air pollution control area or areas. Under the Act, establishing or operating any industrial plant in the pollution control


area requires consent from SPCBs. SPCBs are also expected to test the air in air pollution control areas, inspect pollution control equipment, and manufacturing processes.

¶12-040 The Water (Prevention and Control of Pollution) Act, 1974The Water Prevention and Control of Pollution Act, 1974 (the Water Act) has been

enacted to provide for the prevention and control of water pollution and to maintain or restore wholesomeness of water in the country. It further provides for the establishment of Boards for the prevention and control of water pollution with a view to carry out the aforesaid purposes. The Water Act prohibits the discharge of pollutants into water bodies beyond a given standard, and lays down penalties for non-compliance. At the Centre, the Water Act has set up the CPCB which lays down standards for the prevention and control of water pollution. At the State level, SPCBs function under the direction of the CPCB and the State Government.

Further, the Water (Prevention and Control of Pollution) Cess Act was enacted in 1977 to provide for the levy and collection of a cess on water consumed by persons operating and carrying on certain types of industrial activities. This cess is collected with a view to augment the resources of the Central Board and the State Boards for the prevention and control of water pollution constituted under the Water (Prevention and Control of Pollution) Act, 1974. The Act was last amended in 2003.

¶12-050 The Environment Protection Act, 1986The Environment Protection Act, 1986 (the Environment Act) provides for the

protection and improvement of environment. The Environment Protection Act establishes the framework for studying, planning and implementing long-term requirements of environmental safety and laying down a system of speedy and adequate response to situations threatening the environment. It is an umbrella legislation designed to provide a framework for the coordination of central and state authorities established under the Water Act, 1974under Section 2(a) of the Environment Act. It includes water, air and land as well as the interrelationship which exists between water, air and land, and human beings, other living creatures, plants, micro-organisms and property.

Under the Environment Act, the Central Government is empowered to take measures necessary to protect and improve the quality of environment by setting standards for emissions and discharges of pollution in the atmosphere by any person carrying on an industry or activity; regulating the location of industries; management of hazardous wastes, and protection of public health and welfare. From time to time, the Central Government issues

issues guidelines for matters under the Environment Act.

¶12-060 Hazardous Wastes Management Regulations Hazardous waste means any waste which, by reason of any of its physical, chemical,

to cause danger to health or environment, whether alone or when in contact with other wastes or substances.

189Chapter 12 Environment Laws

There are several legislations that directly or indirectly deal with hazardous waste management. The relevant legislations are the Factories Act, 1948, the Public Liability Insurance Act, 1991, the National Environment Tribunal Act, 1995 and rules and

management are discussed below:

Hazardous Wastes (Management, Handling and Transboundary) Rules, 2008,brought out a guide for manufacture, storage and import of hazardous chemicals and for management of hazardous wastes.Biomedical Waste (Management and Handling) Rules, 1998, were formulated along parallel lines, for proper disposal, segregation, transport, etc of infectious wastes.Municipal Solid Wastes (Management and Handling) Rules, 2000, aim at enabling

Other Laws Relating to EnvironmentIn addition, there are many other laws relating to environment, namely:

¶12-070 The Wildlife Protection Act, 1972The Wildlife (Protection) Act, 1972 was enacted with the objective of effectively

protecting the wild life of this country and to control poaching, smuggling and illegal trade in wildlife and its derivatives. The Act was amended in January 2003 and punishment and penalty for offences under the Act have been made more stringent. The Ministry has proposed further amendments in the law by introducing more rigid measures to strengthen

ecologically important protected areas.

¶12-080 The Forest Conservation Act, 1980The Forest Conservation Act, 1980 was enacted to help conserve the country’s forests. It

strictly restricts and regulates the de-reservation of forests or use of forest land for non-forest purposes without the prior approval of Central Government. To this end the Act lays down the pre-requisites for the diversion of forest land for non-forest purposes.

The Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006, recognises the rights of forest-dwelling Scheduled Tribes and other traditional forest dwellers over the forest areas inhabited by them and provides a framework for according the same.

The Indian Forest Act, 1927 consolidates the law relating to forests, the transit of forest-produce and the duty leviable on timber and other forest-produce.

¶12-090 The Public Liability Insurance Act, 1991 The Public Liability Insurance Act, 1991 was enacted with the objectives to provide

for damages to victims of an accident which occurs as a result of handling any hazardous substance. The Act applies to all owners associated with the production or handling of any hazardous chemicals.


¶12-100 The Biological Diversity Act, 2002The Biological Diversity Act, 2002 was born out of India’s attempt to realise the

objectives enshrined in the United Nations Convention on Biological Diversity (CBD) 1992 which recognizes the sovereign rights of states to use their own Biological Resources. The Act aims at the conservation of biological resources and associated knowledge as well as facilitating access to them in a sustainable manner. The National Biodiversity Authority in Chennai has been established for the purposes of implementing the objects of the Act.

¶12-110 The National Environment Appellate Authority Act, 1997The National Environment Appellate Authority (NEAA) was set up by the Ministry of

Environment and Forests to address cases in which environment clearances are required in certain restricted areas. It was established by the National Environment Appellate Authority Act, 1997 to hear appeals with respect to restriction of areas in which any industries, operations or processes or class of industries, operations or processes shall or shall not be carried out, subject to certain safeguards under the Environment (Protection) Act, 1986.

Consequent to enactment of the National Green Tribunal Act, 2010 (section 38), the National Environment Appellate Authority Act, 1997 stands repealed. The National Environment Appellate Authority established under section 3(1) of the National Environment Appellate Authority Act, 1997 shall, on the establishment of the National Green Tribunal under the National Green Tribunal Act, 2010, stand dissolved.

¶12-120 The National Environment Tribunal Act, 1995The National Environment Tribunal was established in 1995 (through the National

Environment Tribunal Act, 1995) to provide for strict liability for damage arising out of accidents caused from the handling of hazardous substances.

Consequent to enactment of the National Green Tribunal Act, 2010, the NationalEnvironment Tribunal Act, 1995 stands repealed.

Useful Web Link

Ministry of Environment & Forests, Government of India (MoEF) (http://envfor.nic.in)

Chapter 13 Important Considerations for Expatriates working in India

Engagement of Foreign PersonnelRegistration Formalities for Foreign Nationals Entering India ............. 13-010Remittance of Salary Abroad ................................................................ 13-020Employment Visa .................................................................................. 13-030Income Tax ............................................................................................ 13-040Applicability of Social Security Schemes to Expatriates Working in India ............................................................ 13-050

Engagement of Foreign Personnel

¶13-010 Registration Formalities for Foreign Nationals Entering India

are as follows:

If the foreigners are entering India on a student, employment, research, or missionary visa, which is valid for more than one hundred and eighty days, they are required to

whose jurisdiction they propose to stay. The registration should be done within fourteen days of their arrival in India.Foreigners visiting India on any other category of long-term visa are not required to register themselves with the FRRO/FRO, if their continuous stay in India during each visit does not exceed one hundred and eighty days. If such a foreigner intends to stay in India for more than one hundred and eighty days during a particular visit, he/she should get registered within one hundred and eighty days of their arrival in India.Certain categories of foreign nationals are exempted from registration, namely:

those visiting India on any short-term visa, ie valid for one hundred and eighty days or less, and

in India and Afghanistani nationals are required to register within seven days of their arrival in India.

the foreign national’s departure.Note:


¶13-020 Remittance of Salary Abroad A foreign national who is an employee of a foreign company and is on deputation to

facility of opening and maintaining foreign currency account with a bank outside India

subsidiary/joint venture in India of the foreign company, by credit to such account, provided that the income tax chargeable under the Income Tax Act, 1961 is paid on the entire salary as accrued in India. [Substituted by the FEM (Foreign Currency Accounts by a person Resident in India) (Amendment) (Second Amendment) Regulations, 2009, w.r.e.f. 30-09-2009]

¶13-030 Employment Visa Foreigners coming to India for taking up employment should apply for an Employment

Visa which is issued by Indian missions abroad. The Employment Visa is granted to foreign 1:

by a company/organization/industry/undertaking in India on contract or employment basis.

available. Employment Visa shall also not be granted for routine, ordinary or secretarial/clerical jobs.

organization engaged for execution of some project in India.The foreign national being sponsored for an Employment Visa in any sector should draw a salary in excess of US$25,000 per annum. However, this condition will not

Commission in India. The Employment Visa is issued from the country of origin or from the country of

domicile of the foreigner provided the period of permanent residence of the applicant in that particular country is more than 2 years.

The validity of Employment Visa differs on case to case basis, depending upon the nature of work performed by the foreign national. Generally, the Employment Visa is granted with validity up to two years or the term of assignment, whichever is less, with multiple entry facility.

The foreign national must furnish the following documents along with the visa

professional expertise etc.

1 “FAQs relating to work related Visas issued by India”, Ministry of Home Affairs, Government of India Website, http://www.mha.nic.in/pdfs/work_visa_faq.pdf, Accessed on April 16, 2011.

193Chapter 13 Important Considerations for Expatriates working in India

The Companies Act, 1956 also stipulates the above conditions in case of appointment of managerial persons in companies to which Schedule XIII is applicable.

Companies Act, 1956, that a person being a non-resident in India shall enter India only after obtaining a proper employment visa from the concerned Indian mission abroad and shall furnish, along with

the terms and conditions of such person’s appointment.

¶13-040 Income Tax The total income of an assessee is determined on the basis of his residential status in

India. According to section 5 of ITA, Indian residents are liable to be taxed on their worldwide income, whereas non-residents are taxed only on income that has its source in India.2

deems certain incomes to be earned in India. section 9 provides for circumstances when various types of incomes are deemed to be earned in India and hence liable to be taxed

or indirectly, through or from any business connection3 in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situated in India, or income earned from services rendered in India, or interest or royalty income or fees for technical services earned in India are deemed to be taxable in India to the extent attributable to Indian operations.

Residential Status

individual, etc.

2 Income is said to have its source in India if it is “income which accrues or arises in India; is deemed to accrue or arise in India, or is received in India”.

ITA. The Supreme Court in the case of CIT v RD Aggarwal & Co., 56 ITR 20 laid down

“Business connection means something more than business. It presupposes an element of continuity between the business of the non-resident and his activity in the taxable territory, rather than a stray or isolated transaction”.The ITA was amended by the Finance Act, 2003

“anybusiness activity carried out through a person who, acting on behalf of the non-resident, (a) has and habitually exercises in India an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or (c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident.”


Tax Liability to be determined according to the Residential Status

The tax liability of a person having different residential status has been explained in the following table:

Status Indian Income Foreign IncomeResident Taxable TaxableResident but not Ordinary Resident Taxable Not taxableNon-resident Taxable Not taxable

It must be borne in mind that in transactions covered by a Double Taxation Avoidance Agreement

4. Therefore, the incidence and quantum of one’s tax liability, in a cross-border scenario, must always be determined in the light of the provisions

5.

Rates of Income Tax for Individuals

Individual, not being women, up to 60 years of age

Income Range in Rupees Tax rate (%)

Up to `180,000 Nil

`180,000 – `500,000 10%

`500,000 – `800,000 20%Above 800,000 30%

Individuals, being women below the age of 60 years

Up to `190,000 Nil

`190,001 – `500,000 10%

`500,001 – `800,000 20%

Above `800,000 30%

Individual above the age of 60 years but below the age of 80 years

Up to `250,000 Nil

`250,001 – 500,000 10%

`500,001 – `800,000 20%

Above `800,000 30%

March 31, 2011.

195Chapter 13 Important Considerations for Expatriates working in India

Individuals above the age of 80 years

Up to `500,000 Nil

`500,001 – `800,000 20%

Above `800,000 30%

Notes:

`250,000 are exempt from income-tax.

`500,000 are exempted from tax.

`190,000 are exempt from income tax.Education cess of 2% and Secondary and higher education cess of 1% is leviable on the amount of income tax.

Exempted Categories

Salary from the United Nations Organisation is not taxable. Further, remuneration received by foreign nationals as diplomatic personnel, consular personnel, trade commissioners and staff of a foreign mission is exempt from income tax.Remuneration for the services rendered by foreign nationals in India is not taxable if:

to tax in India.

¶13-050 Applicability of Social Security Schemes6 to Expatriates Working in India

Employees Provident Fund and Miscellaneous Provisions Act, 1952 7.

with which India has entered into a social security agreement and being

country, by virtue of the eligibility gained or going to gain, under the said agreement;

7


passport, working for an establishment in India to which the Act applies.

an international worker as under:“an international worker, who is contributing to a social security programme of his/her country of origin, either as a citizen or resident, with whom India has entered into a social security agreement on a reciprocity basis and enjoying the

agreement.”

employee.

However, in case the expatriates are from such countries with which India has entered into Social Security Agreements and are making contributions towards social security in their home countries, such expatriates would not be required to

An International Worker may withdraw the full amount of accumulations in the fund on retirement from services at any time after the attainment of 58 years or on retirement

09-2010

Compliance Requirements

of the above Schemes for International Workers Fund Commissioner indicating the nationality of each and every international worker. If there is no international worker employed in the establishment, the

required information in respect of the international workers.

Chapter 14 Important Sectors

Introduction ............................................................................................ 14-010

Industrial Sectors Automotive ............................................................................................ 14-020Biotechnology ....................................................................................... 14-030Food Processing .................................................................................... 14-040Gems and Jewellery ............................................................................... 14-050Oil and Gas ............................................................................................ 14-060Pharmaceuticals ..................................................................................... 14-070Real Estate ............................................................................................. 14-080

Infrastructure Civil Aviation ........................................................................................ 14-090Education ............................................................................................... 14-100Ports ....................................................................................................... 14-110 Power ..................................................................................................... 14-120Roads and Highways ............................................................................. 14-130Special Economic Zones ....................................................................... 14-140Telecommunications .............................................................................. 14-150

Service Sector Financial Sector ..................................................................................... 14-160Banking Sector ...................................................................................... 14-170Capital Market ....................................................................................... 14-180Insurance Sector .................................................................................... 14-190Venture Capital ...................................................................................... 14-200Electronics and Information Technology .............................................. 14-210Export Promotion Schemes ................................................................... 14-220Knowledge Process Outsourcing (KPO) ............................................... 14-230Media and Entertainment ...................................................................... 14-240Retail Sector .......................................................................................... 14-250Tourism .................................................................................................. 14-260


¶14-010 IntroductionThe important sectors of the Indian economy have been divided into the following

broad categories:

A. Industrial Sectors

Automotive1.Biotechnology2.Food Processing3.Gems and Jewellery4.Oil and Gas5.Pharmaceuticals6.Real Estate7.

B. Infrastructure

Civil Aviation1.Education2.Ports3.Power4.Roads and Highways5.Special Economic Zones (SEZs)6.Telecommunications7.

C. Service Sector

Financial Sector1.Banking Sector2.Capital Market3.Insurance Sector4.Venture Capital5.Electronics and Information Technology (IT/ITeS)6.Export Promotion Schemes7.Knowledge Process Outsourcing (KPO)8.Media and Entertainment9.Retail Sector10.Tourism11.

It may be noted that there are various other important sectors, which may call for elaboration under this chapter. The selection of important sectors in this chapter, which is by no means exhaustive, has been made after considering the relative importance of each sector in the growth of the Indian economy.

199Chapter 14 Important Sectors

Industrial Sectors

¶14-020 AutomotiveThe Automotive sector occupies a prominent place in the Indian economy. The

objective of the Auto Policy of the Government of India is to promote integrated, phased, enduring and self-sustained growth of the Indian automotive industry. As a result, continuous economic liberalisation over the years by the Government of India has made India one of the prime business destinations for many global automotive players. Due to its forward and backward integration with several key segments of the economy, the automotive industry has a strong multiplier effect and has become one of the important drivers of economic

role by producing a wide variety of vehicles, viz passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles, etc.

Automotive Components Segment

India has seen major growth in the automotive components segment. The arrival of world-renowned auto component manufacturers from countries like Japan, Korea, Europe

role in the global automotive supply chain in the near future.

India holds huge potential in the automotive/auto-component sector owing to its technological advantages, cost competitiveness and low-cost manpower advantages. India has a well-developed, globally competitive auto ancillary industry and world-class automobile testing and R&D centres. India is amongst the lowest-cost producers of steel in the world.

The Indian marketplace for the automotive sector is huge, which is supported by the fact that:

India has become the seventh-largest vehicle-producing country (in producing passenger cars and commercial vehicles) in the world. Set to become sixth-largest passsenger-vehicle manufacturer in world in 2011-2012.India manufactures the largest number of tractors in the world.India is the world’s second-largest manufacturer of two-wheelers, with the world’s largest manufacturer Hero Honda Motors Limited being located in India.

India is the fourth-largest passenger cars’ market in Asia.

Useful Web LinksDepartment of Heavy Industries (http://dhi.nic.in/)Society for Indian Automobile Manufacturers (http://www.siam.in/)Automotive Component Manufacturers’ Association of India (http://acmainfo.com/)


¶14-030 BiotechnologyThe biotechnology sector is among the fast-growing knowledge-based sectors with

India emerging as a biotechnology hub. The Indian biotech sector is ranked fourth in terms of volume and thirteenth in terms of value. The Government of India is in the process of setting up a National Biotechnology Regulatory Authority, to stimulate public and private investment in biotechnology. The Biotechnology Regulatory Authority of India would modulate the research, import, manufacture and use of organisms and biotechnology products.

India has many comparative advantages in terms of knowledge, skills, R&D facilities and costs in the biotech sector. India is emerging as a promising and potential global player

practices conforming to best global norms. The following areas offer tremendous scope for potential investment in the biotechnology space:

Agriculture and plant biotechnologyAnimal biotechnologyAquaculture and marine biotechnologyBio-fuelsBio-informaticsBio-pesticidesEnvironmental biotechnologyHealthcareHuman genetics and genome analysisMedicinal and aromatic plantsMicrobial and industrial biotechnologySeri biotechnologyStem cell biologySoftware support

Useful Web Links

Department of Biotechnology (http://dbtindia.nic.in/)Association of Biotechnology-led Enterprises (http://www.ableindia.org/)

¶14-040 Food Processing India is one of the largest food producers in the world. The food-processing sector in

India is one of the largest sectors in terms of production, consumption, export and growth

reliefs and incentives, to encourage commercialisation and value-addition to agricultural produce; to minimise pre-/post-harvest wastage; and to generate employment and augment

selection, implementation and development, industry-led capacity building and upgradation


of standards, development of more food parks, skill development, investment and providing a policy environment which stimulates growth.

The food processing sector offers the following major advantages:

Diverse agro-climatic conditions and a large and diverse raw materials’ base, suitable for food-processing companiesScope for investment in infrastructure, packaging and marketing activities, supply-chain networks/distribution networksRapid urbanisation, increased literacy, changing life style, rising per capita income—leading to rapid growth and new opportunities in the food and beverages sector

Low production cost The food processing sector offers ample avenues for investment opportunities in the

following areas (indicative):

Agricultural infrastructure, supply-chain aggregation, logistics and cold-chain infrastructureAnimal products, meat and dairyFruit and vegetable productsFisheries and seafoodGrains and cerealsPackaged/convenience goods/ready-to-eat foodMega food parksFood processing machinery/packaging machinery

Useful Web Link

Ministry of Food Processing Industries (http://mofpi.nic.in/)

¶14-050 Gems and Jewellery Gems and jewellery is another important emerging sector in the Indian economy.

Ranked among the fastest-growing sectors, it is also a major foreign exchange earner for India. India is regarded as the diamond polishing capital of the world. Under the new

of the gems and jewellery industry such as allowing duty drawback on gold jewellery exports, establishment of diamond bourses, etc. The Government has also formulated new rules to facilitate faster export and import clearances of gems and jewellery.

The gems and jewellery sector offers the following major advantages:

Gems and jewellery hubManufacturing excellenceLow production costsRich tradition/heritage of craftsmanship with a high level of skills


Global distribution network for promotion and marketingThe gems and jewellery sector offers ample avenues for investment opportunities in

the following areas (indicative):

Gemstone processing (cutting and polishing)Jewellery manufacturing and retailingMarket for branded jewellery

Useful Web Link

Gem and Jewellery Export Promotion Council (http://www.gjepc.org/gjepc/)

¶14-060 Oil and Gas

forward linkages with the entire economy. This sector caters to India’s growing energy needs. Hence, there exists an imminent need for wider and more intensive exploration for

initiatives were taken by the Government including inter alia, accelerating efforts to explore

sharing, action to formulate a policy on shale gas exploration, etc.

The oil and gas sector offers the following advantages:

Petroleum products are the single-largest merchandise exports from IndiaImproved Oil Recovery (IOR)/Enhanced Oil Recovery (EOR) techniquesCrude oil production from the deepwater production facilitiesScope for investment in technology

End-user market and infrastructure developmentSetting up oil and gas courses at universities and training institutesOpportunities for world-class service providers

Useful Web Link

Ministry of Petroleum and Natural Gas (http://petroleum.nic.in/)

¶14-070 PharmaceuticalsIndia is today recognised as one of the leading global players in pharmaceuticals. The

strength of the industry is in developing cost-effective technologies in the shortest possible time for drug intermediates and bulk activities without compromising on quality. So much so, India is internationally recognised as amongst the lowest-cost producers of drugs. An


increasing number of Indian pharmaceutical companies have been getting international regulatory approvals for their plants from agencies like USFDA (USA), MHRA (UK), TGA (Australia), MCC (South Africa), Health Canada, etc. India has the largest number of USFDA-approved plants for generic manufacture. A number of in-house R&D units

come up in the pharmaceutical sector. Many plants have received highest quality approvals from USFDA, EDQM, MHRA, etc.

The Government of India plans to set up a `3,000 crore venture capital fund for developing India as a drug discovery and pharma innovation hub. The Government is also proposing to set up a few pharma parks in the country in association with State governments. A “Pharma Vision 2020” has also been prepared by the Government of India in order to make India one of the leading destinations for innovation and drug discovery.

The pharmaceutical sector offers the following major advantages:

Rich biodiversityGrowing biotechnology industryFast-growing healthcare industryStrong manufacturing baseCost competitivenessAvailability of trained pool of scientists and professionalsAppetite for world-class network of laboratories and R&D infrastructureStrong marketing and distribution networkStrong process development skillsPotential ground for clinical trialsStrong Indian medicine systems of Ayurveda, Homoeopathy, Unani, Siddha and Herbal medicines

Useful Web Links

Ministry of Chemicals and Fertilizers (http://www.chemicals.nic.in/)Department of Pharmaceuticals (http://pharmaceuticals.gov.in/)

¶14-080 Real Estate India’s favourable demographic and economic scenario makes it an attractive

destination for the real-estate investors. The propellants for the real-estate sector include:

Growth of India’s middle class, creating demand for housingStrong demographic impetus: India has the second-largest population in the world

Expansion of the organised retail sector

According to news reports, recently a high-level task force (constituted by the


Ministry of Housing and Urban Poverty Alleviation) has recommended setting up of a “Real Estate Regulator” and a dedicated institutional framework to look into the issue of providing affordable houses to the people. The regulator could serve as a single window for overseeing and monitoring the affordable housing agenda and promote policy reforms such as stamp duty and registration and protect consumer from real estate frauds. Besides, it can coordinate digitisation of land records, the task force underlined. The recommendation

towns beyond the reach of the common man.

Of late, the real estate sector has also been selectively deregulated and liberalised. There exists a great scope for investment in the real-estate sector:

Residential complexes

Commercial space for organised retailingHotels and hospitality sectorSpecial Economic ZonesReal Estate Mutual FundsReal Estate Investment Trusts (REITs)

Useful Web Links

Confederation of Real Estate Developers’ Association of India (http://www.credai.com/)Ministry of Housing and Urban Poverty Alleviation (http://www.mhupa.gov.in)

Infrastructure ¶14-090 Civil Aviation

There has been a phenomenal growth in the Civil Aviation sector in recent years. India is now at the ninth position in the world aviation market from twelfth in 2006. The growth in the number of passengers carried in the period January 2010 to June 2010 was 18.9 percent compared to the corresponding period in 2009.

transformations during the recent period (particularly, during the Tenth Five-year-plan

The Government has considerably disengaged itself from commercial operations of airlines.There has been an increased participation of the private sector in order to bridge

Restructuring of existing airports at Delhi, Mumbai, Chennai and Kolkata through long-term lease, in order to make them world class, is under way.Emphasis has been laid on improvement/ upgradation in airport infrastructure, domestic passenger services and cargo transport services.


Increased use of sophisticated security systems to ensure better security at the airports for the safety of passengers.

The regulatory functions are the responsibility of the Directorate General of Civil Aviation (DGCA) and Bureau of Civil Aviation Security (BCAS). Infrastructural facilities are provided by the Airports Authority of India (AAI). It manages 125 airports, including 11 international airports (at Delhi, Mumbai, Kolkata, Chennai, Thiruvananthapuram, Bengaluru, Hyderabad, Ahmedabad, Goa, Amritsar and Guwahati), 8 customs airports, 81

Useful Web Links

Ministry of Civil Aviation (http://civilaviation.nic.in/)Directorate General of Civil Aviation (http://www.dgca.gov.in/)

¶14-100 EducationEducation holds the key to economic growth and social transformation. Though the

major indicators of socio-economic development, viz the growth rate of the economy, birth rate, death rate, infant mortality rate (IMR) and literacy rate, are all interconnected, the literacy rate has been the major determinant of the rise or fall in the other indicators. There is enough evidence in India to show that a high literacy rate, especially in the case of women, correlates with low birth rate, low IMR and increase in the rate of life expectancy. The recognition of this fact has created awareness on the need to focus upon literacy and elementary education programmes, not simply as a matter of social justice but more to foster economic growth, social well-being and social stability.

to play a positive and interventionist role in correcting social and regional imbalances, empowering women and in securing a rightful place for the disadvantaged and the minorities. At the national level, there is the commitment under the National Common Minimum Programme (NCMP) for increasing public expenditure on education to 6% of GDP and for universalising elementary education. There is also an obligation, under the Constitution’s 86th amendment, for making available free and compulsory education to all children in the age group of 6–14 years. The Model Rules under the Right of Children to Free and Compulsory Education Act have been prepared and circulated/sent to State Governments to adopt/adapt the same while making their own rules. The National Council for Teachers Education (NCTE) has, vide

Bilateral educational relations have been promoted by institutes like the United States Educational Foundation in India (USEFI), Shastri Indo-Canadian Institute (SICI) and American Institute of Indian Studies by offering fellowships for research on different subjects.

Useful Web Link

Ministry of Education (http://www.education.nic.in/)


¶14-110 PortsIndia has a long coastline of about 7,517 kms, spread on the western and eastern

shelves of the mainland and also along the islands. It is an important natural resource for the country’s trade. Approximately 95% of the country’s trade, by volume, and 70% by

all over the world and is ranked 16th among the maritime countries. India has around 13 major ports and 187 minor ports. Ports provide an interface between the ocean transport

a large number of ports for investment in order to boost port development in India. Further, the Government has also approved the Land Policy for Major Ports, 2010 to improve the

ultimate customers.

The following areas of the port sector offer tremendous potential for investment:

Ports’ infrastructure and managementModernisation of portsCargo handling at ports

Useful Web Links

Indian ports Association (http://ipa.nic.in)Ministry of Shipping (http://shipping.nic.in/)

¶14-120 Power The power sector is high on India’s priority as it offers tremendous potential for

investing companies, based on the sheer size of the market and the returns available on investment capital. In the past few years, there has been a considerable growth in power

the growth in actual power generation over the few years.

The Government of India has an ambitious mission of “Power for all by 2012”. This mission would require that India’s installed generation capacity should be at least 200,000 MWs by 2012. As per the Central Electricity Authority, the total installed capacity as on 31-12-2010 was 169,748.86 MWs.

According to the Central Electricity Authority’s sixteenth electric power survey, the peak demand is expected to increase by a staggering 77% to 157,107 MWs by 2012. Similarly, the energy requirement is also expected to increase by 274% to 975,222 MWs by 2012. It is estimated that a capacity addition of over 100,000 MW units by 2012 is

investment required in capacity creation, along with necessary investments in transmission and distribution segments are estimated at US$200 billion. This magnitude of investment invariably calls for public–private partnerships in the sector.


Latest Developments in Power Sector

Hydro projectsThe potential for hydro electric in terms of installed capacity in India is estimated to be about 148,700 MWs out of which a capacity of 30,164 MWs (20.3%) has been developed and 13,616 MWs (9.2%) of capacity is under construction.There are twenty seven hydro power schemes of total capacity 248 MWs under various stages of planning whereas 136 sites (in range of 50 MWs) have

Captive powerAt present, CPP accounts only for 15%, ie 22,100 MWs, of total combined capacity. The Government plans to bring further 5,000 MWs into the mainstream.“Open Access” and “Group Captive” allowed under recent policy initiatives.

Ultra Mega Power Projects (UMPPs)Sixteen projects with an individual capacity of 4,000 MWs, requiring an investment of approximately US$3.26 billion (`15,000 crore), each have been

Nuclear PowerIn the post-Indo-US agreement period, there is a huge scope for public–private partnership in this sector.

National Grid ProgrammeThe program envisages addition of over 60,000 kms of transmission network in a phased manner by 2012 with an estimated investment of about US$15.18 billion. Of this, about US$4.33 billion is ought to be mobilised through private participation.

The “Power Distribution” segment offers the following opportunities:

Privatisation of discomsParticipation under the franchise model

TradingThe “Power Pools” system has been established to facilitate trading opportunities for licences.

Renewables10,464 MWs (21.6%) of India’s wind-power potential at about 48,500 MWs being generated Untapped bio-power potential of 834.5 MWs out of 16,881 MW’s potentialUntapped cogeneration-bagasse-based potential of 1,302 MWs out of 5,000 MW’s potential


The Government has taken various initiatives to encourage this sector, viz:

100% foreign equity participation is allowed under the automatic approval route in all segments of the industry (except atomic energy).Generation and distribution power projects of any type and size are allowed.The Electricity Act, 2003 allows trading in power and provides for further deregulation.A renewable licence period of thirty years has been set.Return on equity up to 16% is assured at 68.5% PLF for thermal power plants. Similar incentives are provided for hydroelectric power projects.Concessional import duty for import of equipment.

Finance Act, 2011 under section 80-IA(4)(iv), the terminal date has been extended for a further period of 1 year ie 31-3-2012.

Useful Web Links

Ministry of Power, Government of India (http://powermin.nic.in/)Central Electricity Authority (http://www.cea.nic.in/)Ministry of New and Renewable Energy (http://www.mnre.gov.in/)

¶14-130 Roads and Highways India has one of the largest road networks in the world, aggregating to 3.34 million kms.

The country’s road network consists of Expressways, National Highways, State Highways, Major District Roads, Other District Roads and Village Roads with the following length distribution:

Total Road Network 3,340,000 million kms

National Highways / Expressways 65,569 kms

State Highways 130,000 kms

Major District, Rural and Urban roads 3,140,000 kms

(Source: http://morth.nic.in/)

As per the present estimate of the Government, the road network carries nearly 65%

to 10 percent per annum while the vehicle population growth is at the rate of 12% per annum. The rapid expansion and strengthening of the road network is needed to provide

consumer awareness in recent times have led to an active involvement by the private sector in the roads development segment.


To encourage participation of the private sector, the Department of Road Transport and Highways has laid down comprehensive policy guidelines for private-sector participation in the highway sector. The Government has also announced several incentives such as tax exemptions and duty-free import of road-building equipments and machinery to encourage private sector participation in the highway sector.

The following investor-friendly provisions have been listed with a view to attracting private investments and for facilitating public–private partnership in National Highways:

Foreign Direct Investment (FDI) up to 100% is allowed in the road sector.

Model Concession Agreement (MCA) standardisation.Viability Gap Funding up to 40% of project cost, based on competitive bidding for each project.100% tax exemption for 5 years and 30% relief for next 5 years, which may be availed of in 20 years.Retention of toll by concessionaires for BOT (Toll) projects.Duty-free import of high capacity and modern road-construction equipments.Strong dispute-resolution mechanism.Robust institutional and legal set-up comfort to the investors.Revenue sharing in the form of negative grant and concession fee.Protection of the concessionaire from the risks of additional Tollway and competing roads.Concession period allowed up to 30 years.Government will carry out all preparatory work including land acquisition and utility removal. Right of way (ROW) to be made available to concessionaires free from all encumbrances.

The roads and highway segment of the infrastructure sector offers investment opportunities in the following areas:

Roads, bridges and bypassesConsultancy servicesMajor highway contracts under International Competitive Bidding (ICB)Collaborations for equipment manufactureEquipment leasingDesign engineeringNew technologyNew management techniques

Useful Web Links

Ministry of Road Transport & Highways, Government of India (http://morth.nic.in/)National Highways Authority of India (http://www.nhai.org/)


¶14-140 Special Economic Zones The Government of India announced the introduction of Special Economic Zones in

April 2000 to achieve the following objectives:

Generation of additional economic activityPromotion of export of goods and servicesPromotion of investments from domestic and foreign sourcesCreation of employment opportunitiesDevelopment of infrastructure facilities

The SEZ policy provides for the development of these zones in the Government, private or joint sector. This offers equal opportunity to both Indian and international private developers.

A fact sheet on SEZs as on December 31-12-2010

Number of Formalapprovals

580

(As on 31st December 2010)372 (out of 580) + (7 Central Govt. + 12 State/Pvt. SEZs)

Number of validIn-Principle Approvals

155

Operational SEZs(As on 30th Sept. 2010)

122(Out of this 16 are multi-product SEZs, remaining are

IT/ITeS, Engineering, electronic hardware, textiles,

SEZs)

Units approved in SEZs(As on 30th Sept. 2010) 3,139

Land for SEZs44,281 Ha

Formally Approved 68,422 Ha

INVESTMENT(As on 30th Sept. 2010)

Incrementalinvestment

Total Investment

Act`161,742.99 cr. `161,742.99 cr.

State/ Pvt. SEZs set upbefore 2006

`5,581.20 cr. `7,337.51 cr.

Central Government SEZs

`4,788.71 cr. `7,067.91 cr.

Total `172,112.90 cr. `176,148.41 cr.


EMPLOYMENT(As on 30th Sept. 2010)

IncrementalEmployment

Total Employment

Act352,349 persons 352,349 persons

State/ Pvt. SEZs set up before 2006

50,612 persons 63,080 persons

Central Government SEZs

83,159 persons 2,05,395 persons

Total 486,120 persons 620, 824 persons

Exports in 2008-2009 `99,689 Crore(Growth of 50% over 2007-2008)

Exports in 2009-2010 `220,711.39 crore(Growth of 121.40% over 2008-2009)

Exports in 2010-2011 `139,841.07 crore(Growth of 55.8% over the corresponding period of 2009-

2010)

The policy on SEZs has been discussed in detail under Chapter 5 of this book.

¶14-150 Telecommunications

India has the second-largest wireless network in the world. The Indian Telecommunications network with 621 million connections (as on March 2010) is the third-largest in the world. Handsets are being sold at a price, which are within the reach of the common man, which, in turn, has made India one of the most sought-after telecom-manufacturing destinations. The rapid growth in the telecommunication sector can be attributed to the various proactive and positive policy measures taken by the Government as well as the dynamic and entrepreneurial spirit of the various telecom service providers both in the private and the public sector. Some of measures and incentives are as follows:

No industrial license required for setting up manufacturing units for telecom equipment.;Payments for royalty, lumpsum fee for transfer of technology and payments for use of trademark/brand name are on the automatic route.Full repatriation of dividend income and capital invested in the telecom sector.FDI is presently permitted in telecom sector up to 74% (For FDI up to 49% – under automatic route; and for FDI beyond 49% but up to 74% – under Government approval route).

The much-awaited mobile number portability was launched on November 25, 2010 in Haryana and has been made available to subscribers across the country from January 20, 2011.


The Government plans to formulate a new and comprehensive National Telecom Policy, 2011. The Policy would endeavour to evolve a clear and transparent regime covering licensing, spectrum allocation, tariffs/pricing, linkage with roll-out performance, spectrum sharing, trading and mergers and acquisition.

The Telecom Regulatory Authority of India (TRAI) was established under the TRAI. The goals and objectives of TRAI are focussed towards providing a regulatory

framework that facilitates achievement of the objectives of the New Telecom Policy (NTP), .

There exist tremendous investment opportunities in the following areas:

Telecom equipment/components manufacturing and exportSetting up a national long-distance bandwidth capacityTelecom and value-added services, etc

Useful Web Links

Department of Telecommunications (http://www.dot.gov.in/)Telecom Regulatory Authority of India (TRAI) (http://www.trai.gov.in/)Telecommunications Consultants India Ltd. (http://www.tcil-india.com/)

Service Sector ¶14-160 Financial Sector

Financial sector reforms have long been regarded as an integral part of the overall policy reforms in India. India has recognised that these reforms are imperative for

and for the overall macroeconomic stability. The reforms have been driven by a thrust towards liberalisation and several initiatives such as liberalisation in the interest rate and reserve requirements have been taken on this front. At the same time, the Government has emphasised on stronger regulation aimed at strengthening prudential norms, transparency and supervision to mitigate the prospects of systemic risks.

¶14-170 Banking Sector The Indian banking sector has demonstrated tremendous resilience in the recessionary

times. The risk management systems of Indian public sector banks have been robust

deregulation has opened new opportunities for banks to increase revenue by diversifying into investment banking, insurance, credit cards, depository services, mortgage, securitisation, etc. The competition has increased within the banking sector (with the emergence of new

international capital markets.


¶14-180 Capital Market The age-old Indian capital markets are known for their resilience and vibrancy. The

famous Bombay Stock Exchange is over hundred years old. In terms of the volume of transactions and technological advancements, the National Stock Exchange and the Bombay Stock Exchange are regarded amongst the leading stock exchanges in the world. In fact, induction of new-age technologies in the capital markets and screen-based trading has brought a revolution in the Indian capital markets. The process of capital market reforms started in 1992 with the objective to remove direct Government control and replacing it by a regulatory framework based on transparency and disclosure. The giant step was taken in 1992 when the Securities and Exchange Board of India (SEBI) was elevated to a full-

investors by securing orderly conduct of the Indian capital markets. As a consequence, there has been a marked improvement in the capital market discipline, attitudinal shift towards a transparent system of disclosures, and last but not the least, improved corporate governance amongst the listed companies.

¶14-190 Insurance Sector There exists a huge scope of investment in the insurance sector in India. India has an

enormous middle class with the capacity to buy life, health and disability and pension plan products. Further, insurance is considered as one of the important tax-saving alternatives. With the enactment of the (theIRDA Act), the insurance sector has been opened up for competition from Indian private insurance companies. As per the provisions of the IRDA Act, the Insurance Regulatory and Development Authority was established in April 2000 to protect the interests of holders of insurance policies and to regulate, promote and ensure orderly growth of the insurance industry.

¶14-200 Venture Capital India is the most sought-after destination for venture capital and private equity today,

owing to various factors such as fast-growing knowledge-based industries, favourable investment opportunities, cost-competitive workforce, vibrant stock markets and supportive regulatory environment. The sectors that attract a largest chunk of the venture capital are IT and ITeS, banking, PSUs (where the divestment has taken place), entertainment and media, biotechnology, pharmaceuticals, contract manufacturing and retail, etc.

Useful Web Links

Reserve Bank of India (http://www.rbi.org.in/)Securities and Exchange Board of India (http://www.sebi.gov.in/)Insurance Regulatory and Development Authority (http://www.irdaindia.org/)


¶14-210 Electronics and Information Technology The Electronics and Information Technology sector has constantly been one of

the fastest-growing sectors in terms of production, domestic consumption and exports. With complete delicensing of the electronics industry (the exception being aerospace and defence electronics) along with the liberalisation in foreign investment and foreign trade policies, the Electronics and Information Technology sector is not only attracting attention as a sizeable market but is also attracting attention as a potential production base for international companies. The Government is striving to bring greater transparency in

On the information-technology-enabled services (ITeS) front, the Business Process Outsourcing (BPO) sector has built a strong reputation for its high standards of service quality and information security, which has been acknowledged globally. There is no reservation for public-sector enterprises in the electronics and information technology industry and private-sector investment is welcome in every area.

In general, all electronics and information technology products are freely importable, with the exception of some defence-related items. Likewise, all electronics and information technology products, in general, are freely exportable, with the exception of a small negative list.The electronics and information technology industry can be set up anywhere in the country, subject to clearance from the authorities responsible for control of environmental pollution and local zoning and land use regulations.Large- and medium-scale industries exempted from licensing are only required to

with the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Ministry of Commerce & Industry, Government of India, and obtain an acknowledgement. After the commencement of commercial production,

scale industries are required to register with the District Industries Centre (DIC). Import of second-hand capital goods is allowed.

¶14-220 Export Promotion Schemes Special schemes are available for setting up Export Oriented Units for the Electronics

and Information Technology sector. These schemes are:

Special Economic Zones (SEZ) SchemeExport Oriented Unit (EOU) SchemeSoftware Technology Park (STP) SchemeElectronics Hardware Technology Park (EHTP) SchemeExport Promotion Capital Goods (EPCG) SchemeDuty Exemption and Remission Scheme

The schemes on SEZs, EOUs, STPIs and EHTPs have been discussed at length under Chapter 5.


Useful Web Links

Department of Information Technology (http://www.mit.gov.in/)National Association of Software and Service Companies (http://www.nasscom.in/)Special Economic Zones (http://sezindia.nic.in/)

¶14-230 Knowledge Process Outsourcing (KPO) The success of outsourcing the Business Process Operations sector in India has led

to the emergence of the Knowledge Process Outsourcing (KPO) sector in India. KPO can

that require specialised domain-based expertise. The KPO entity delivers high value to organisations by providing domain-based processes and business expertise rather than just process expertise. The KPO processes demand advanced analytical and specialised

on the value chain as compared to BPOs and involve processes that demand advanced information search, analytical, interpretation and technical skills as well as some judgment and decision-making processes.

The Indian KPO sector offers the following major advantages to the investors:

Cost competitiveness;

Locational advantages, etc.The following areas offer tremendous potential for investment in KPO services:

Animation and design

Business support services (research and skill-based)Data research and analysisDatabase managementEquity research and analysisInsurance-related servicese-Learning solutionsIntellectual property researchLegal servicesMarket researchMedical services (viz medical transcription)Network managementResearch and developmentSoftware designing and content development


Technical analysisTraining and consultancy

¶14-240 Media and Entertainment With the rapid and drastic advancements in technology, the Media and Entertainment

sector has emerged as one of the fastest-growing sectors of the economy. The various subconstituents of this sector include advertising, animation, gaming, etc. Last few years have witnessed an exponential growth in the number of private television channels and FM-radio operators, which are providing quality entertainment and information services across the country.

entrepreneurs and a supportive sectoral policy of the Government. While allowing foreign investments in this sector, India has been mindful of the sensitivities involved, especially in the news segment (both print and electronic media) and has endeavoured to strike a balance between the need for foreign investments and technologies and adopting a cautious approach on the content.

Useful Web Links

Ministry of Information and Broadcasting (http://mib.nic.in/)Ministry of Communications and Information Technology (http://www.mit.gov.in/)Department of Telecommunication (http://www.dot.gov.in/)

¶14-250 Retail Sector The attitudinal shift of the Indian consumers in terms of “Choice Preferences”, “Value

for Money” and the emergence of organised retail formats have transformed the face of the Retail sector in India. The Indian retail industry has by far been fragmented through the owner-run “Mom and Pop stores”. In the last few years, Indians have gone through a dramatic transformation in lifestyle by moving from traditional spending on food, groceries and clothing to lifestyle products that deliver better quality and taste. Modern

the bandwagon in an attempt to tap greater opportunities. In fact, this has resulted in the emergence of many medium- and large-sized Indian retail chains.

The Indian retail sector has the following major advantages:

Demography dynamics – approximately 60% of Indian population is below 30 years of age.Double income-earning families – there have been increasing instances, where both husband and wife are earning members of the family, which has eventually resulted in the rise in spending power. Availability of plastic money – increased use of credit cards has contributed

Rapid urbanisation – increased urbanisation has led to higher-customer-density areas, thus enabling retailers to use lesser number of stores to target the same


number of customers. Aggregation of demand that occurs due to urbanisation helps a retailer in reaping the economies of scale.Supply chain infrastructure – Supply chain infrastructure in terms of cold chain and logistics.Rural retail – The Indian retail sector offers opportunities for exploration and investment in rural areas, with corporates and entrepreneurs having made a foray in the past. India’s large rural population has caught the eye of retailers looking for new areas of growth.Wholesale trading – Wholesale trading also holds a huge potential for growth. These new-format cash-and-carry stores attract large volumes from a sizeable number of retailers who do not have to maintain relationships with multiple suppliers for all their needs.

The following sectors of retail industry offer tremendous potential for investment:

Fast-moving Consumer Goods (FMCG) segmentTextiles and clothing

PharmacyDurables, footwear and leatherWatches and jewellery

Fastest-growing Retail Formats

Some of the formats that offer good growth potential are:

Department storesDiscount storesConvenience stores and e-RetailingHypermarketsSpeciality and supermarkets

Popular formats of retailing are as follows:

Format Description Value PropositionBranded Stores Exclusive showrooms either

owned or franchised by a manufacturer

Complete range available for a

quality. Generally high-priced products focussed at customers with a taste for branded products and with greater spending capacity

Conveniencestores

Small self-service formats located in crowded urban areas

Convenient locationsReasonably priced productsExtended operating hours


Format Description Value PropositionDepartmentstores

Large stores having a wide variety of products, organised into different sections/departments such as clothing, house-wares, furniture, footwear, appliances, toys, etc

One-stop-shop format, catering to varied consumer needs

Discount stores Stores offering discounts on the retail price through selling high volumes and reaping economies of scale

Low prices

Hyper Mart Larger than a supermarket, sometimes with a warehouse appearance and generally located in quieter parts of the city

Low prices, vast choice available including services such as cafeterias, eating outlets, etc

Shopping Malls An enclosure having different formats of in-store retailers, all under one roof

A variety of shops available. Food outlets and cinema halls are common features in such formats

Specialty stores carry most of the available brands under one roof

Greater choice for the consumers. Comparison between different brands is possible

Supermarkets Extremely large self-service retail outlets

One-stop big-sized shop catering to varied consumer needs

¶14-260 Tourism Tourism has been pivotal in social progress as well as an important vehicle of

widening socioeconomic and cultural connectivity throughout human history. A wide array of interests, viz entertainment, sports, religion, culture, adventure, education, health and business, etc, drive the tourism sector. With the advancement in transport and communication and improvement in general economic well-being, there has been a parallel increase in the demand for tourism.

The following areas of tourism industry offer tremendous potential for investment:

Hotel industryService apartmentsAdventure tourismMedical/health tourismConvention centresWildlife tourismHighway tourismAmusement parks


Recent Initiatives in Tourism

Rural Tourism To showcase rural life, art, culture and heritage at rural locations in villages and to

between tourists and local population for a mutually enriching experience, the Government of India decided to develop and promote rural tourism. The Ministry of Tourism has partnered with the UNDP for Endogenous Rural Tourism as pilot projects for capacity building. The Ministry also extends the scheme of Capacity Building for Service Providers (CBS) to other rural sites beyond those covered under partnership with the UNDP.

Medical Tourism Medical tourism has gained momentum over the last few years. Medical tourism in

India is a budding concept, whereby people from all over the world can visit the country for their medicinal and relaxation requirements. The reason for India being a favourable destination is because of its excellent health infrastructure and technology and low-cost but worldclass medical treatment. A new category of medical visa has been introduced

treatment. The Government has decided that there should be a fast-track clearance for the medical patients at the airports. The Government has been endeavouring to promote Indian healthcare services and invite investments into India.

Curative and preventive servicesHealth insuranceHospital managementInfrastructure facilities, like hospitals and diagnostic centresTraining and education (doctors, nurses, technicians, etc)

Adventure Tourism

tourism products in India. As a basic minimum standard for adventure tourism activities, a set of guidelines on safety and quality norms on adventure tourism have been formulated to cover land, air and water-based activities including mountaineering, trekking, hang gliding, paragliding, bungee jumping, river-rafting, etc.

Wellness Tourism India is a globally renowned wellness destination. The potential of wellness systems,

developed through centuries of wisdom of this ancient civilization, is yet to be fully tapped. This is being done by positioning India as a centre of Ayurveda, Yoga, Siddha, Naturopathy, etc, together with the spiritual philosophy that has been the integral part of the Indian way of life, for ages.


Useful Web Links

Ministry of Tourism and Culture (http://tourism.nic.in/)Incredible India (http://www.incredibleindia.org/)Ministry of Health and Family Welfare (http://www.mohfw.nic.in/)

Note:different resources at different points of time. For accurate information, it is advised to refer the concerned Ministry/Department/Authority’s website or any other direct source of information.

Chapter 15 Corporate Governance Framework

Corporate Governance MechanismIntroduction ........................................................................................... 15-010Regulatory Framework on Corporate Governance ............................... 15-020Efforts towards Enhancement of Corporate Governance in India—An Organic Perspective ........................................................ 15-030

Legal Framework of Corporate Governance in IndiaThe Companies Act, 1956 (the Companies Act) ................................... 15-040The Listing Agreement .......................................................................... 15-050

Corporate Governance Mechanism

¶15-010 Introduction In this chapter, the Corporate Governance mechanism has been dealt with in the

context of the statutory framework in India.

Ever since India’s biggest-ever corporate fraud and governance failure was unearthed at Satyam Computer Services Limited, the concerns about good Corporate Governance have increased phenomenally.

Internationally, there has been a great deal of debate going on for quite some time.

The Organisation for Economic Cooperation and Development (OECD), which, in 1999, published its Principles of Corporate Governance, gives a very comprehensive

“a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and shareholders, and should facilitate effective monitoring,


Generally, Corporate Governance refers to practices by which organisations are controlled, directed and governed. The fundamental concern of Corporate Governance is to ensure the conditions whereby organisation’s directors and managers act in the interest of the organisation and its stakeholders and to ensure the means by which managers are held accountable to capital providers for the use of assets. To achieve the objectives of ensuring fair corporate governance, the Government of India has put in place a statutory framework.

¶15-020 Regulatory Framework on Corporate Governance The Indian statutory framework has, by and large, been in consonance with the

international best practices of corporate governance. Broadly speaking, companies in India

Companies Act, 19561.the companies. However, the new Companies Bill is on the anvil and likely to be introduced in the Monsoon session (2011) of the Parliament.Securities and Exchange Board of India (SEBI) Guidelines2.authority having jurisdiction over listed companies and which issues regulations, rules and guidelines to companies to ensure protection of investors.Standard Listing Agreement of Stock Exchanges3.listed in the stock exchanges.Accounting Standards issued by the Institute of Chartered Accountants of India 4.(ICAI)

¶15-030 Efforts towards Enhancement of Corporate Governance in India—An Organic Perspective

CII: The Basic Minimal Code for Corporate Governance proposed by the Desirable Corporate Governance—A

, April 1998.SEBI: Kumar Mangalam Birla CommitteeBased on these recommendations, Clause 49 was inserted in 2000 into the standard Listing Agreement, which is applicable to all listed companies.DCA1: Report on achieving Corporate Governance through excellence by the Department of Company Affairs (DCA), November 20, 2000.RBI: Report of the Advisory Group on Corporate Governance: Standing Committee on International Financial Standards and Codes – Comparison of the status of Corporate Governance in India vis-à-vis the internationally recognised best standards, March 24, 2001.RBI: Report of the Consultative Group of Directors of Banks/Financial Institutions– To review the supervisory role of the Boards of Banks and Financial Institutions and obtain feedback on the functioning of the board vis-à-vis compliance,transparency, disclosures, audit committee, etc, April 2002.

1 Now, Ministry of Corporate Affairs (MCA).

223Chapter 15 Corporate Governance Framework

MCA: Naresh Chandra Committee Report – Following the collapse of Enron and the passing of the Sarbanes-Oxley Act in July 2002, the then DCA formed a high-level committee in August 2002 to undertake a wide-ranging examination of corporate auditing and independent directors. The Committee analysed and recommended changes in areas such as statutory auditor company relationship,

companies, December 2002.SEBI: Narayan Murthy Committee Report – In late 2002, the SEBI, in its effort to enhance governance standards, formed a new committee to evaluate the adequacy of existing Corporate Governance practices and further improve these practices. The Committee was constituted to study the role of independent directors, related parties, risk management, directorship and director compensation, codes of conduct

(February 8, 2003), the SEBI issued a revised version of Clause 49, which was to come into effect initially from April 1, 2005. However, since a large number of companies were not fully prepared to comply with such stringent requirements, the date for ensuring compliance was extended to December 31, 2005. Hence, detailed Corporate Governance requirements (by insertion and revision of Clause 49) came into force from January 1, 2006. Thereafter, this clause has been subject to amendments, from time to time.Clause 49 of the Listing Agreement is said to owe its genesis to the Cadbury Committee Report from which it drew broad principles and its subsequent revisions to the Sarbanes-Oxley Act of 2002.Corporate Governance Voluntary Guidelines 2009 issued by the Ministry of Corporate Affairs, Government of India in December 2009 (refer www.mca.gov.in)

Legal Framework of Corporate Governance in India

¶15-040 The Companies Act, 1956 (the Companies Act)

Section 192A: Requires certain resolutions to be approved and passed by the shareholders through postal ballots.Section 217(2AA): Directors’ Responsibility Statement to be included in the Directors’ Report.Section 292A: Constitution of Audit Committee.Section 299: Every director to make disclosure, at the Board meeting, of the nature of his concern or interest in a contract or arrangement (present or proposed) entered by or on behalf of the company.Schedule XIII: Ceiling on remuneration that can be drawn by a director.

¶15-050 The Listing Agreement Clause 49 of the Listing Agreement has been a bold initiative towards strengthening

corporate governance amongst the listed companies. This clause intends to put a check


over the activities of companies in order to save the interest of the shareholders.

1. Board of Directors

The Board of Directors shall comprise of such number of minimum independent directors, as prescribed. In case where the Chairman of the Board is a non-executive director, at least one-third of the Board shall comprise of independent directors and where the Chairman of the Board is an executive director, at least half of the Board shall comprise of independent directors. A relative of a promoter or an executive director shall not be regarded as an independent director.

2. Audit Committee

The Audit Committee to be set up shall comprise of minimum three directors as members, two-thirds of which shall be independent.

3. Subsidiary Companies

An independent director on the Board of Directors of the holding company shall be a director on the Board of Directors of a material non-listed Indian subsidiary company. Furthermore, the Audit Committee of the listed holding company shall also

4. Disclosure Requirements

remuneration of directors, etc, to ensure transparency.

internal control systems.

6. Report and Compliance

A separate section in the annual report on compliance with Corporate Governance,

CEO, company to disclose compliance with non-mandatory requirements in annual reports.

The compliance requirements prescribed under Clause 49 of the Listing Agreement have been elaborated in the Annexure attached to this chapter.


Annexure

Compliances under Clause 49 of the Listing Agreement

S. No. Clause/Sub-clause

Compliance

1. Clause 49(I) (A) Composition of Board

Non-executive Director

Not less than 50% of the total number of Directors.Chairman

If Chairman is a non-executive director, at least one-third of the Board should be independent directors.If Chairman is an executive director, at least half of the Board should comprise of independent directors.Provided that where the non-executive Chairman

is a promoter of the company or is related partly to any promoter or person occupying management positions at the Board level or at one level below the Board, at least one-half of the Board of the company shall consist of independent directors.

(B) Non-executive directors’ compensation and disclosures

by the Board of Directors and shall require previous approval of shareholders in the general meeting.

However, requirement of obtaining prior approval of shareholders shall not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 1956.

(C) Other provisions as to Board and Committees

Board to meet at least four times in a year, maximum time gap between two meetings being that of four months.A director shall not be a member in more than 10

committees across all companies in which he is a director.Mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place.



Compliance

Note:

For the purpose of considering the number (i)of committees, only public companies to be considered.For the purpose of reckoning the limit for (ii)

and Shareholders’ Grievance Committee to be considered.

180 days of such vacation.(D) Code of Conduct

The Board shall lay down a code of conduct for all Board members and senior management and post the same on the website of the company.All Board members and senior management

an annual basis. The Annual Report of the Company shall contain a declaration to this effect signed by the CEO.

2 Clause 49(II) Audit Committee

Composition of Audit Committee

1.independent directors.

2.literate and at least one member shall have accounting

Chairman shall be an independent director who 3.shall be present at AGM of the company to answer shareholder’s queries.Company Secretary shall act as the secretary to the 4.committee.

Meeting of Audit Committee

Shall meet at least four times in a year, maximum time gap between two meetings being that of four months.



Compliance

. Quorum

members of the Audit Committee whichever is greater, but there should be a minimum of 2 independent members present.

3. Clause 49(III) Subsidiary Companies

At least 1 independent director of a holding company shall be director of material non-listed Indiansubsidiary company.The Audit Committee of the listed holding company

the investments made by the unlisted subsidiary company.The minutes of the Board meeting of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company.

4. Clause 49(IV) Disclosures

(A) Basis of related party transactions -

A statement in summary form of transactions (i)with related parties in the ordinary course of business.Details of material individual transactions with (ii)related parties, which are not in the normal course of business, shall be placed before the Audit Committee.Details of material individual transactions with (iii)related parties or others, which are not on an arm’s length basis, should be placed before the Audit Committee.

(B) Board Disclosures – Risk Management

The Company shall lay down procedures to inform Board members about the risk assessment and minimisation procedures.(C) Proceeds from Public Issues, Rights Issues,

Preferential Issues, etc

When money is raised through an issue (public issues, rights issues, preferential issues etc), it shall disclose to

major category as a part of their quarterly declaration of



Compliance

The company shall prepare a statement of funds utilised for purposes other than those stated in the offer

Committee. Such disclosure shall be made only till such time that the full money raised through the issue has been fully spent.

(D) Remuneration of Directors

All pecuniary relationship or transactions of the (i)non-executive directors vis-à-vis the company shall be disclosed in the annual report.The following disclosures on the remuneration (ii)of directors shall be made in the section on the

(a) All elements of remuneration package of individual directors summarised under major

options, pension, etc.

incentives, along with the performance criteria.

(c) Service contracts, notice period, severance fees.

(d) Stock option details, if any – and whether issued at a discount as well as the period over which accrued and over which exercisable.

Company shall publish the criteria of making (iii)payments to non-executive directors in its annual report. Alternatively it may be published on the company’s website and reference drawn thereto in the annual reportThe company shall disclose the number of shares (iv)and convertible instruments held by non-executive directors in the annual report.Non-executive directors shall be required to disclose (v)their shareholding in the listed company in which they are proposed to be appointed as directors, prior to their appointment. These details should be disclosed in the notice to the general meeting called for appointment of such director.



Compliance

(E) Management

As part of the directors’ report or as an addition (i)thereto, a Management Discussion and Analysis report should form part of the Annual Report to the shareholders.Senior management to disclose to the Board (ii)

transactions, where they have personal interest that

at large.(F) Shareholders

In case of the appointment of a new director or re-(i)appointment of a director the shareholders must be

Disclosure of relationships between directors inter se shall be made in the Annual Report, notice of appointment of a director, prospectus and letter of offer for issuances and any related

company is listed.Quarterly results and presentations made by the (ii)company to analysts shall be put on company’s web site, or shall be sent in such a form so as to enable the stock exchange on which the company is listed to put it on its own website. A board committee under the chairmanship of a non-(iii)

look into the redressal of shareholders’ and investors’ complaints. This Committee shall be designated as

The Board of the company shall delegate the power (iv)

the Registrar and share transfer agents.

5. Clause 49(V)

The CEO, ie the Managing Director or Manager appointed and the CFO, ie, the whole-time Finance Director or any

that function shall certify to the Board with respect to matters as given under listing agreement.



Compliance

6. Clause 49(VI) Report on Corporate Governance

There shall be a separate section on Corporate (i)Governance in the Annual Reports of company, with a detailed compliance report on Corporate Governance. Non-compliance of any mandatory requirement of this clause with reasons thereof and the extent to which the non-mandatory requirements have been adopted

The companies shall submit a quarterly compliance (ii)report to the stock exchanges within 15 days from the close of quarter. The report shall be signed either

7. Clause 49(VII) Compliance

Practising Company Secretaries regarding compliance of conditions of corporate governance and annex the

annually to all the shareholders of the company.

company.

Important Websites

Government and Regulatory Websites

S.No.

Subject Matter Concerned Ministry/Department of the

Govt. of India

Website Address

1. Industrial Entrepreneur Memorandum for delicensed industries

Department of Industrial Policy & Promotion

http://dipp.gov.in

2. Approval for industrial licence/carry-on-businesslicence


http://dipp.gov.in

3. Approval for technology transfer:

Automatic route(i)

Government(ii)approval (PAB)

Reserve Bank of India, Department of Industrial Policy & Promotion

http://www.rbi.org.in http://dipp.gov.in

4.collaboration:

Automatic route(i)

Government(ii)approval (FIPB)

Reserve Bank of India, Department of Economic Affairs

http://www.rbi.org.in

5. Approval of industrial parks:

Automatic route(i)

Non-automatic(ii)route (empowered committee)


http://dipp.gov.in

6. Registration as a

of commencement of business

Ministry of Company Affairs

http://mca.gov.in


S.No.


Govt. of India

Website Address

7. Limited liability partnerships

Ministry of Company Affairs

http://llp.gov.in

8. Matters relating to the FDI policy and its promotion and facilitation as also promotion and facilitation of investment by Non-resident Indians (NRIs)


http://dipp.gov.in

9. Matters relating to foreign exchange

Reserve Bank of India http://www.rbi.org.in

10. Matters relating to taxation

Department of Revenue

11. Matters relating to direct taxation

Central Board of Direct Taxes

http://incometaxindia.gov.in

12. Matters relating to excise and customs

Central Board of Excise & Customs

http://www.cbec.gov.in

13. Matters relating to industrial relations

Ministry of Labour http://labour.nic.in

14. Import of goods Directorate General of Foreign Trade

http://dgft.delhi.nic.in

15. Matters relating to environment and forest clearance

Ministry of Environment and Forests

http://envfor.nic.in

16. Overseas investment by Indians

Ministry of Overseas Affairs

http://iic.nic.in

17. Allotment of land/shed in industrial areas, acquisition of land, change in land use, approval of a building plan, release of water connection, etc

Departments concerned of State Governments

A link for website address of the state/UT is given at

www.dipp.gov.in

233Important Websites

S.No.


Govt. of India

Website Address

18. Foreign Investment Promotion Board

Department of Economic Affairs, Ministry of Finance

19. Regulate securities market in India

Securities and Exchange Board of India

http://www.sebi.gov.in/

20. Regulatetelecommunicationservices

Telecom Regulatory Authority of India

http://www.trai.gov.in/

21. Responsible for protecting the interests of the policy holders and regulate, promote and ensure orderly growth of the insurance industry

Insurance Regulatory and Development Authority

http://www.irdaindia.org/

22. Responsible for development and promotion of tourism

Ministry of Tourism http://tourism.nic.in/

23. Responsible for policy formulation, planning, development export promotion and trade regulation in the textile sector

Ministry of Textiles http://texmin.nic.in/

24. Responsible for planning and development of the iron and steel industry

Ministry of Steel http://steel.nic.in/

25. Responsible for formulating and administering policies for road transport, national highways and transport research

Department of Road Transport and Highways, Ministry of Shipping, Road Transport and Highways

http://morth.nic.in/

26. Oversees the maritime shipping industry and the country's ports

Department of Shipping, Ministry of Shipping, Road Transport and Highways

http://shipping.gov.in/


S.No.


Govt. of India

Website Address

27. Responsible for issuing “cease and desist” orders and impose penalties on isolation thereof

CompetitionCommission of India

http://www.cci.gov.in/

28. Responsible for overseeing electricity production and the development of infrastructure in India,

Ministry of Power http://www.powermin.nic.in/

29. Responsible for survey and exploration of all minerals, other than natural gases, petroleum and atomic minerals

Ministry of Mines http://mines.nic.in/

30. Responsible for international co-

and broadcasting and interacting with its foreign counterparts

Ministry of Information and Broadcasting

http://www.mib.nic.in/

31. Responsible for exploration and production of oil and natural gas

Ministry of Petroleum and Natural Gas

http://petroleum.nic.in/

32. Responsible for formulation of national policies and programmes for the development and regulation of civil aviation

Ministry of Civil Aviation

http://civilaviation.nic.in/

33. Responsible for policy matters relating to Information Technology, electronics, and Internet

Department of InformationTechnology, Ministry of Communications and Information Technology

http://www.mit.gov.in/

235Important Websites

S.No.


Govt. of India

Website Address

34. Responsible for policy, licensing and coordination matters relating to telegraphs, telephones, wireless, data, facsimile and telematic services and other like forms of communication

Department of Telecommunications, Ministry of Communications and Information Technology

http://www.dot.gov.in/

35. Responsible for regulating diplomatic relations

Ministry of External Affairs

http://meaindia.nic.in/

36. Responsible to protect and safeguard interests of workers

Ministry of Labour and Employment

http://labour.nic.in/

37. Details of visa requirements and procedure

Ministry of External Affairs

http://india.gov.in/overseas/passport.php

Applicability of the Income-tax Act 236

Index

This is an index by subject-matter to the text. All references are to Paragraph Numbers.

Para A

Additional Duties of Excise (Goods of Special Importance) Act, 1957 section 3(1)..................................... 8-450

ADRs/GDRs ADR/GDR Issues, reporting of....... 6-200 limited two-way fungibility

scheme............................................ 6-200 Resident Foreign Currency

(Domestic) accounts ....................... 6-200 sponsored ADR/GDR issue ............ 6-200 Agreement on Trade Related Aspects of

Intellectual Property Rights (TRIPS) ............................. 10-010

Air (Prevention and Control of Pollution) Act, 1981 (the Air Act) ................................. 12-030

article 21, licensing and assignment mandates....................................... 10-100

article 39, protection of trade secrets ........................................... 10-480

articles 22 to 24 of part II section III...................................... 10-350

minimum standards of protection of GIs........................... 10-350

Airports Authority of India (AAI) ...... 14-090 Alternate Dispute Resolution (ADR) Indian Council of Arbitration

(ICA) .............................................. 3-040 Lok Adalats (Peoples’ Courts)........ 3-040 International Centre for Alternate

Dispute Resolution (ICADR) ......... 3-040 Alternate Minimum Tax (AMT) requirement for LLPs ..................... 8-120 American Depository

Receipts (ADRs)............................. 6-200 Anti-Avoidance Rules section 94A, Finance Act, 2011...... 8-090 Apprentices Act, 1961(the

Apprentice Act) apprentices, appointment of............ 9-230

ParaArbitration and Conciliation

Act, 1996........................................ 3-040 Atomic Energy (Radiation Protection)

Rules, 2004..................................... 6-270 Atomic Energy (Safe Disposal of

Radioactive Wastes) Rules, 1987..................................... 6-270

Atomic Energy Act, 1962 prescribed substances ..................... 6-270 Authority for Advance

Rulings (AAR) ............................... 8-210 Authority for Advance Rulings for

Excise and Customs (AAR) ........... 8-400 Authority for Advance Rulings for

Excise and Customs ....................... 8-320 Automotive sector auto policy of the government of

India ..............................................14-010 automotive components

segment .........................................14-010 B

Banking Companies (Acquisition & Transfer of Undertakings) Acts, 1970/80........................................... 6-270

Banking Regulation Act, 1949 voting rights .................................. 6-200 Banking Sector, ..................................14-170 Bharat Sanchar Nigam

Limited (BSNL) ............................. 2-130 Bilateral Investment Promotion and

Protection Agreement (BIPA) ........ 2-150 Bilateral/Multilateral Trade

Agreement(s).................................. 8-380Biological Diversity Act, 2002............12-100 Biomedical Waste (Management and

Handling) Rules, 1998...................12-060 Biotechnology Parks (BTPs) Scheme. ITC (HS), prohibited import and

export items.................................... 5-120 Biotechnology Parks BTP units........................................ 5-120

Index 237

ParaBiotechnology Regulatory

Authority of India ......................... 14-030 Biotechnology sector potential investment areas ............ 14-030 Bombay Stock Exchange

Limited (BSE) ................... 2-060, 14-180 Bonded Labour System (Abolition)

Act, 1976 (the Bonded Labour Abolition Act). See also Child Labour (Prohibition & Regulation) Act, 1986

section 3.......................................... 9-210 section 20........................................ 9-210 Books of accounts, maintained and

audited ............................................ 8-170 Business Process Outsourcing

(BPO) sector ................................. 14-210Business to Business (B2B)

e-Commerce ................................... 6-270 C

Capital assets ........................................ 8-080 Capital gains ......................................... 8-080 Capital instruments, transfer of prior RBI permission ...................... 6-230 Capital market..................................... 14-180 Cash & Carry Wholesale

Trading/Wholesale Trading (WT) ................................. 6-270

Central Excise (Advance Rulings) Rules, 2002

Notification No. 28/2002-C.E. (N.T.), dated August 23, 2002 ........ 8-510

Central Excise Act, 1944 (the Central Excise Act). See also Central Value Added Tax (CENVAT)

maximum retail price (MRP) under section 4A....................................... 8-490

registration under............................ 8-460 persons exempted ........................... 8-470 section 3(1)(a)................................. 8-440 section 3(3) ..................................... 8-490 section 3A....................................... 8-490 section 5A....................................... 8-510 Notification No. 36/2001-C.E.

(N.T.), dated June 26, 2001 ............ 8-470 section 4.......................................... 8-490 Central Excise Commissionerates......... 8-330

ParaCentral Excise Duty administration................................. 8-520 chargeability of............................... 8-420 levy of ............................................ 8-430 rate of ............................................. 8-500 Central Excise Rules, 2002................... 8-460 Central Excise Tariff Act, 1985 (CETA) first schedule .................................. 8-500 second schedule................... 8-420, 8-500 Central Pollution Control Board

(CPCB)..........................................12-010 Central Sales Tax (CST) course of import or export,

determining principles.................... 8-530 inter-State sales, determining

principles........................................ 8-530 liability to ....................................... 8-530 registration ..................................... 8-530 compulsory registration ............ 8-530 voluntary registration ................ 8-530 sale outside the State, determining

principles........................................ 8-530 Central Sales Tax Act, 1956 (the CST Act) section 3 ......................................... 8-530 section 5 ......................................... 8-530 section 7(2)..................................... 8-530 Central Value Added Tax (CENVAT).

See also Central Excise Act, 1944 Credit................................... 8-290, 8-540 capital goods eligible ................ 8-550 input services eligible ............... 8-550 scheme ...................................... 8-550 CENVAT Credit Rules,

2004 (CCR) .............. 8-260, 8-290, 8-540 rule 2(k)(i) ...................................... 8-550 rule 2(k)(ii) ..................................... 8-550 rule 2(l)........................................... 8-550 rule 4(2).......................................... 8-550 rule 4(4).......................................... 8-550 rule 9(7).......................................... 8-560 rule 9A(1)....................................... 8-560 rule 9A(3)....................................... 8-560 Child Labour (Prohibition &

Regulation) Act, 1986 (the Child Labour Prohibition & Regulation Act), See also Bonded Labour System (Abolition) Act, 1976. .......9-220.


ParaChild Labour, elimination of Supreme Court directions ............... 9-220 Children (Pledging of Labour) Act,

1933................................................ 9-220 Civil Aviation major developments...................... 14-090 regulatory functions and

Infrastructural facilities................. 14-090 Coal Mines (Nationalisation)

Act, 1973 ........................................ 6-270 Commissioner of Central Excise .......... 8-280 Commissioner of Income Tax (CIT) ...... 8-180 Commissioner of Income Tax

(Appeals) [CIT(A)]......................... 8-200 Companies (Auditor’s Report)

Order, 2003 (CARO) clause (ix)(a) of paragraph 4........... 9-070 [statutory] auditor ........................... 9-070 Companies (Issue of Depository

Receipts) Rules, 2004..................... 6-030 Companies Act, 1956.

See also Corporate Governance in India.

clauses (a) to (e) of section 20 of the Indian Trusts Act, 1882 ............ 9-070

domestic VCF, setting up of ........... 6-050 employment visa........................... 13-030 incorporating an entity.................... 2-140 incorporation, procedure for ........... 7-140 issuing ESOPs to employees .......... 6-180 part IV, sections 108A to 108G ...... 4-060 schedule XIII ................................ 15-040 SEBI (SAST) Regulations .............. 6-260 section 192A................................. 15-040 section 217(2AA) ......................... 15-040 section 227(4A) ................... 9-070, 9-080 section 25, non-profit entity,

legal structure ................................. 7-140 section 292A................................. 15-040 section 299.................................... 15-040 section 418...................................... 9-070 section 419...................................... 9-080 sections 417 and 418 ...................... 9-080 sub-section (4) ................................ 9-070 voting rights on shares.................... 6-200 Competition (Amendment)

Act, 2009 ........................................ 4-030

ParaCompetition Act, 2002 (Competition

Act). See also Monopolistic and Restrictive Trade Practices Act, 1969 (MRTP Act)

abuse of dominant position (section 4)....................................... 4-040

competitive neutrality ............... 4-040 enforcement of .......................... 4-040 Act for merger control.................... 4-040 filing of notice........................... 4-040 invitation of comments and

objections from the public ........ 4-040 passing of order......................... 4-040 publication of details of

combination .............................. 4-040 show cause notice, issue of ....... 4-040 amended thresholds ........................ 4-060 anti-competitive agreements

(section 3)....................................... 4-040 enforcement of .......................... 4-040 Clause (a) of section 54 of the Act,

target enterprise .............................. 4-060 commission directions, failure to

comply penalties............................. 4-050 section 36(2) or (4) ................... 4-050 section 6(2) ............................... 4-050 under section 41(2) ................... 4-050 commission orders, contravention

of .................................................... 4-050 non-compliance instance........... 4-050 Competition Appellate Tribunal..... 4-010 competition law jurisprudence ....... 4-060 Competition Policy and

Law(Raghavan Committee) ........... 4-040 furnishing false information,

penalties for.................................... 4-050 Gazette notifications....................... 4-060 imposing monetary penalty ............ 4-050 leniency scheme for

cartel members ............................... 4-050 lesser penalty ............................ 4-050 marker system........................... 4-050 making false statement,

penalties for.................................... 4-050 maximum waiting period................ 4-040 penalties under ............................... 4-050 cease and desist order ............... 4-050

Index 239

Para monetary penalty....................... 4-050 prima facie opinion......................... 4-040 Regulation of combination

(Section 6) ...................................... 4-040 section 20(3) of the Act .................. 4-060 section 5 of the Act......................... 4-060 sub-section (3) of section 1 and

sections 5, 6, 20, 29, 30 and 31....... 4-060 threshold limits ............................... 4-040 Competition Appellate Tribunal's

(COMPAT) pending Monopolies Act cases,

disposal of ...................................... 4-060 Competition Commission of India

(Competition Commission /Commission/CCI)

draft merger Regulations ................ 4-060 confidentiality of the documents,

Request for ..................................... 4-060 filing fee ......................................... 4-060 Form I............................................. 4-060 Form II............................................ 4-060 Form III .......................................... 4-060 independent agencies,

appointment of................................ 4-060 notice formats ................................. 4-060 shorter review period ...................... 4-060 target enterprises under acquisition,

exemption for ................................. 4-060 voluntary pre-merger consultation ..... 4-060 Constitution of India article 19(1)(a) .............................. 10-540 article 19(2) .................................. 10-540 article 21 ....................................... 10-540 article 246(1) ....................... 8-340, 8-420 article 246(3) .................................. 8-420 article 265, income tax.................... 8-010 article 74(1) .................................... 3-030 entry 83 to list-I of the seventh

schedule.......................................... 8-340 entry 84 to list I of the seventh

Schedule ......................................... 8-420 list III of the Seventh Schedule ...... 8-420 Part IV (directive principles of state

policies) ........................................ 12-010 Part IVA (fundamental duties) ..... 12-010

Para State Excise, entry no. 51 of list II

of the seventh schedule .................. 8-420 Consumer Protection Act, 1986 (the CPA) Law of Limitation,

applicability of ..............................11-050 remedies ........................................11-050 section 2(d)....................................11-030 section 6, basic rights of

consumers......................................11-030 section 9, redressal machinery.......11-050 sections 4 to 8................................11-040 three-tier quasi-judicial redressal

agency ...........................................11-020 Consumer Protection Council..............11-040 Contract Labour (Regulations &

Abolition) Act, 1970 (the Contract Labour Act)

contract labour, employment of...... 9-140 section 7 ......................................... 9-140 Copyright duration/term of.............................10-290 licensing and assignment of ..........10-280 need for registration ......................10-250 of “works” of foreign nationals,

Protection to ..................................10-270 registration of ................................10-250 Core Investment Companies................. 6-250 Corporate Governance in India.

See also Companies Act, 1956 advisory group on Corporate

Governance: Standing Committee on International Financial Standards and Codes .....................15-030

CII: The Basic Minimal Code for Corporate Governance...................15-030

clause 49 of the listing agreement ......................................15-030

Consultative Group of Directors of Banks/Financial Institutions..........15-030

Corporate Governance Voluntary Guidelines 2009 ............................15-030

Department of Company Affairs (DCA) ...........................................15-030

enhancement efforts ......................15-030 Listing Agreement, clause 49........15-050 Audit Committee .....................15-050 Board of Directors ...................15-050 CEO/CFO Certification ...........15-050


Para disclosure requirements........... 15-050 report and compliance............. 15-050 subsidiary companies .............. 15-050 mechanism.................................... 15-010 Narayan Murthy Committee

Report ........................................... 15-030 Naresh Chandra Committee

Report ........................................... 15-030 Regulatory Framework ................. 15-020 SEBI ............................................. 15-030 Credit Information Companies

(Regulations) Act, 2005....... 6-110, 6-270 Customs (Advance Rulings) Rules, 2002 Notification No. 55/2002-Customs

(N.T.), dated August 23, 2002 ........ 8-400 Customs Act, 1962 (the Customs Act) Chapter V-B ................................... 8-400 section 12........................................ 8-340 section 2(18) ................................... 8-340 section 2(23) ................................... 8-340 section 25(1) ................................... 8-400 Customs Duty ............................ 8-340, 8-350 additional duty of customs

(countervailing duty-excise) (CVD)......8-370 administration................................. 8-410 advance rulings............................... 8-400 anti-dumping duty .......................... 8-370 basic customs duty (BCD).............. 8-370 chargeability of............................... 8-340 education cess / secondary and

higher education cess...................... 8-370 export duties ................................... 8-360 goods, classification of ................... 8-390 import duties................................... 8-370 levy of customs............................... 8-350 protective duties.............................. 8-370 rate of duty...................................... 8-380 safeguard duty ................................ 8-370 subsidised articles, countervailing

duty on............................................ 8-370 Customs Tariff (Identification and

Assessment of Safeguard Duty) Rules, 1997..................................... 8-370

Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 .............................8-370

ParaCustoms Tariff (Identification,

Assessment and Collection of Countervailing Duty or Subsidized Articles and for Determination of Injury) Rules, 1975......................... 8-370

Customs Tariff (Transitional Products Specific Safeguard Duty) Rules, 2002................................................ 8-370

Customs Tariff Act (CTA), 1975 ........................ 8-340, 8-360

section 3(1)..................................... 8-370 section 6 ......................................... 8-370 sections 8B, 8C, 9A, 9B and 9C ....... 8-370 sections 9A, 9B and 9C.................. 8-370 XXI sections and 98 chapters......... 8-390

DDedicated Freight Corridors ................. 2-080 Definitions allocable area.................................. 6-270 anti-competitive agreement ............ 4-040 arbitration ....................................... 3-040 asset reconstruction company

(ARC)............................................. 6-270 assignment.....................................10-100 associated enterprises ..................... 8-090 association...................................... 6-270 bonded labour................................. 9-210 bonded labour system..................... 9-210 cartel............................................... 4-040 combinations .................................. 4-040 commodity derivative..................... 6-270 commodity exchange...................... 6-270 common facilities ........................... 6-270 conciliation..................................... 3-040 consumer .......................................11-030 contribution .................................... 9-070 cultivation under controlled

conditions ....................................... 6-270 customs duties ................................ 8-340 data protection...............................10-540 employee ........................................ 9-040 excluded employee........................13-050 forward contract ............................. 6-270 geographical indication .................10-350 gratuity ........................................... 9-040 hazardous waste ............................12-060 horizontal agreements .................... 4-040

Index 241

Para HSN numbers ................................. 8-390 income ............................................ 8-010 industrial activity............................ 6-270 industrial dispute ............................ 9-020 Industrial Park ................................ 6-270 Infrastructure .................................. 6-270 Infringement of trademark............ 10-040 international transaction ................. 8-090 International Worker .................... 13-050 inter-state migrant workman........... 9-050 labour.............................................. 9-010 layout design................................. 10-440 mediation ........................................ 3-040 negotiation ...................................... 3-040 passing off .................................... 10-040 personal data................................. 10-540 recognised association .................... 6-270 registered trademark ..................... 10-100 registration of a trademark............ 10-040 turnover .......................................... 4-040 under controlled conditions ............ 6-270 vertical agreements ......................... 4-040 wages ................................... 9-030, 9-040 well-known trademark.................. 10-030 Department of Banking Operations and

Development (DBOD), RBI ........... 7-020 Department of Commerce, Ministry of

Commerce and Industry (MoCI) .... 5-030 Department of Road Transport and

Highways...................................... 14-130 Department of Scientific & Industrial

Research (DSIR)........................... 14-070 Depository Receipts (DRs) ................... 6-200 Directive Principles of State Policy ...... 4-020 Dispute Resolution Panel (DRP) .......... 8-190 District Consumer Disputes Redressal

Forum ........................................... 11-050 Dividend distribution tax (DDT) section 115-O of the ITA................ 8-140 Double Taxation Avoidance Agreement

(DTAA) .......................................... 8-050 foreign national............................. 13-040

EEducation bilateral educational relations ....... 14-100 Right of Children to Free and

Compulsory Education Act .......... 14-100

ParaElectricity Act, 2003............................14-120 Electronics and Information

Technology sector .........................14-210 Electronics Hardware Technology

Parks (EHTPs) Scheme EHTP unit ...................................... 5-110 Emblems and Names (Prevention of

Improper Use) Act, 1950................ 7-080 Employee’s Compensation Act, 1923

(the EC Act) ................................... 9-150 Employees Deposit-linked Insurance

Scheme........................................... 9-070 Employees Provident Fund Act (EPF

Act), 1952 international workers.....................13-050 Provident Fund, contributions to .... 9-070 Employees' State Insurance (Amendment)

Act, 2010 (No.18 of 2010) section 18 ....................................... 9-080 salient features................................ 9-080 Rashtriya Swasthaya Bima

Yojana....................................... 9-080 Employees' State Insurance

Corporation (ESIC) ........................ 9-080 Employees’ Family Pension

Scheme........................................... 9-070 Employment Exchanges (Compulsory

Notification of Vacancies) Act, 1959 (the Employment Exchange Act)

section 4(1)..................................... 9-240 section 4(2)..................................... 9-240 Environment Protection Act, 1986 (the

Environment Act)..........................12-110 section 2(a) ....................................12-050 Environmental Laws............................12-010 Equal Remuneration Act, 1976............. 9-190 Excisable goods classification of .............................. 8-510 valuation of..................................... 8-490 Excise Duty advance ruling ................................ 8-510 issues sought ............................. 8-510 persons eligible to apply ........... 8-510 exemption from .............................. 8-510 small-scale industry .................. 8-510 levy of ............................................ 8-440


Para manner of payment ......................... 8-510 electronic payment

(e-payment) ............................... 8-510 types ............................................... 8-450 additional duty of excise ........... 8-450 basic excise duty ....................... 8-450 education cess/secondary and

higher education cess ................ 8-450 mineral products, additional

duty on ...................................... 8-450 National Calamity Contingent

Duty (NCCD)............................ 8-450 textile and textile articles,

additional duty on...................... 8-450 Exclusive Marketing Rights

(EMRs) ......................................... 10-110 Export of Service Rules, 2005 (Export

Rules) rule 3............................................... 8-300 Export Promotion Schemes ................ 14-220 Export Oriented Unit (EOU) Scheme minimum investment ...................... 5-090 domestic tariff area (DTA) to

EOUs, supply from ................... 5-090 ITC (HS), prohibited import and

export items............................... 5-090 purpose of ....................................... 5-090

FFactories Act, 1948 (the Factories Act) working hours................................. 9-110 FCCB/ADR/GDR guidelines issue of shares by Indian companies6-200 Financial sector................................... 14-160 Food processing 11th five-year-plan strategy.......... 14-040 advantages .................................... 14-040 investment opportunities,

areas of ......................................... 14-040 Foreign Contribution Regulation Act,

1976 (FCRA). See also Societies Registration Act, 1860......... 7-130, 7-150

foreign funding and applicability.... 7-170 sections 2(a) and 2(c)...................... 7-170 section 6.......................................... 7-170 section-25 company, society and

trust................................................. 7-170

ParaForeign Currency Convertible Bonds

and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 ................................. 6-200

Foreign Direct Investment (FDI) asset reconstruction companies

(ARC)............................................. 6-110 credit information companies

(CICs)............................................. 6-110 eligible investment instruments...... 6-100 FEMA Regulations ................... 6-100 employee stock option scheme,

issue of shares ................................ 6-180 existing shares, investment in......... 6-210 acquisition of shares by way of

transfer, non-residents/NRIs ..... 6-210 Form FC-GPR ................................ 6-080 in trusts........................................... 6-130 investment routes ........................... 6-060 automatic route ......................... 6-070 entry routes ............................... 6-070 equity shares, issue of ............... 6-080 external commercial borrowings

(ECBs) ...................................... 6-080 FIPB/Government of India,

approval of ................................ 6-080 government Route..................... 6-080 MSE (Micro and Small

Enterprise) ................................ 6-080 investment, eligibility for ............... 6-020 person resident outside India or

a non-resident entity.................. 6-020 investments..................................... 6-010 issue of Instruments........................ 6-150 issue of Shares to Non-resident

Investor ..................................... 6-150 pricing guidelines...................... 6-150 issue of shares under

FCCB/ADR/GDR .......................... 6-200 know your customer

(KYC) report .................................. 6-080 mergers/demergers/amalgamations,

acquisition of shares ....................... 6-170 micro and small enterprise (MSE)........ 6-110 partnership firm or a proprietary

concern ........................................... 6-120 by non-residents other than

NRIs/PIOs................................. 6-120

Index 243

Para non-repatriation basis ................ 6-120 restrictions................................. 6-130 with repatriation benefits........... 6-120 preference shares, types of.............. 6-100 prohibited investments.................... 6-090 Public Sector banks ........................ 6-110 registered FII .................................. 6-030 sectoral cap / statutory

ceiling........................................ 6-030 remittance and repatriation ............. 6-260 adjudication and appeals ........... 6-260 compounding authorities........... 6-260 escrow accounts ........................ 6-260 payment of royalty .................... 6-260 penalties .................................... 6-260 violations and consequences ..... 6-260 rights/bonus shares, issue of ........... 6-160 FIPB/RBI approval ................... 6-160 sectoral policy / sectoral

equity caps...................................... 6-010 securities market and commodity

exchanges, infrastructure companies....................................... 6-110

Share Swap ..................................... 6-190 shares / convertible debentures /

preference shares, pricing of........... 6-010 Foreign Direct Investment

(FDI) policy.................................... 6-010 Foreign Exchange (Compounding

Proceedings) Rules, 2000 ............... 6-260 Foreign Exchange Management

(Establishment in India of Branch or Office or other Place of Business) Regulations, 2000 .......... 7-020

Foreign Exchange Management (Remittance of Assets) Regulations, 2000................................................ 6-260

Foreign Exchange Management Act (FEMA), 1999

Notification No. FEMA 20/2000-RB dated May 3, 2000.................... 6-010

rights/bonus shares, issue of ........... 6-160 Foreign Exchange Management Act,

1999................................................ 7-020 Foreign Institutional Investor (FII) ....... 6-030 debt instruments, purchase of ......... 6-030 exchange-traded derivative

contracts ......................................... 6-030

Para perpetual debt instruments.............. 6-030 SEBI Regulations ........................... 6-030 sector-specific restrictions and/or

ceilings ........................................... 6-030 Foreign investment into Non-banking

Finance Companies (NBFCs)......... 6-250 Foreign Investment Promotion Board

(FIPB), Department of Economic Affairs (DEA), Ministry of Finance ................................ 6-090, 6-270

Foreign investors. See also Incorporation of a foreign company.

AD category-I bank (AD bank)...... 7-020 articles of association (AOA) ......... 7-070 BOs, LOs and POs, general

conditions applicable...................... 7-020 Branch Office (BO) .............................. 7-020 annual activity certificates ........ 7-020 foreign entities, LOs/BOs............... 7-020 auditor’s certificate ................... 7-020 form FNC.................................. 7-020 undertaking additional activities,

application for........................... 7-020 Government route........................... 7-020 incorporated entity.......................... 7-010 incorporation of company .............. 7-030 know your customer

(KYC) norms.................................. 7-020 liaison office (LO).......................... 7-020 memorandum of association (MOA)... 7-060 private company ............................. 7-040 private limited company................. 7-040 project office (PO).......................... 7-020 public company .............................. 7-050 Reserve Bank Route ....................... 7-020 unincorporated entity...................... 7-020 Foreign Nationals entering India employment visa ...........................13-030 income tax .....................................13-040 rates of income tax ........................13-040 compliance requirements .........13-050 exempted categories.................13-040 registration formalities ..................13-010 exemptions...............................13-010 remittance of salary abroad ...........13-020 residential status ............................13-040


Para social security schemes to

expatriates, applicability of........... 13-050 tax liability.................................... 13-040 Foreign Venture Capital Investor

(FVCI) domestic VCF................................. 6-050 SEBI-registered FVCI .................... 6-050 Foreigners' Regional Registration

Office (FRRO) registration........... 13-010 Forest Conservation Act, 1980 ........... 12-080 Form ER-6 ............................................ 8-560 Forward Contracts (Regulation) Act, 1952 section 6.......................................... 6-270 Free Trade Agreements (FTAs) ............ 2-150

GGems and jewellery advantages .................................... 14-050 investment opportunities,

areas of ......................................... 14-050 General Agreement on Trade and

Tariffs (GATT), 1994 article VI......................................... 8-370 Genetic Engineering Approval

Committee (GEAC)........................ 6-270 Geographical indication (GI) .............. 10-350 infringement of ............................. 10-380 Registrar of Geographical

Indications .................................... 10-360 registration of ............................... 10-360 application for ......................... 10-360 duration of............................... 10-370Geographical Indications of Goods

(Registration and Protection) Act, 1999.............................................. 10-350

GI, falsification of ........................ 10-380Geographical Indications of Goods

(Registration and Prot Persons eligible to apply ection) Rules, 2002.............................................. 10-350

Global Depository Receipts (GDRs)..... 6-200 Golden Quadrilateral Project,

roadways......................................... 2-070 Golden Quadrilateral, railways ............. 2-080 Goods and Sales Tax (GST) comprehensive value-added tax

(VAT) on goods and services ......... 8-570 Constitutional Amendment Bill,

March 2011 .................................... 8-570

ParaGrant of patent in India Post-grant opposition.....................10-140 pre- and post-grant opposition,

grounds for filing...........................10-140 insufficient disclosure of the

invention ..................................10-140 invention .................... 10-130, 10-180 patent granted on convention

application ...............................10-140 pre-grant opposition ......................10-140 process of ......................................10-120 invention ..................................10-190 patent cooperative treaty (PCT).... 10-150 renewal by the patentee............10-160 restoration of............................10-170 rights of....................................10-190 term of patent...........................10-150 what is not patentable

in India? ...................................10-190 H

Hazardous Wastes (Management, Handling and Transboundary) Rules, 2008....................................12-060

Hazardous Wastes Management Regulations....................................12-060

IIncome Tax advance ruling ................................ 8-210 assessment year .............................. 8-040 business closure.............................. 8-220 business enterprises,

restructuring of ............................... 8-230 amalgamation of companies ..... 8-230 demerger ................................... 8-230 proprietorship or partnership

firm into a company, conversion of ............................ 8-230

transfer of assets........................ 8-230 business or profession, computation of

profits and gains...................................... 8-070 capital gains, computation of.......... 8-080 chargeability of............................... 8-010 discontinuation of an entity

carrying on business....................... 8-220 heads of income.............................. 8-060 income of an assessee..................... 8-030 previous year .................................. 8-040

Index 245

Para rates of ............................................ 8-050 applicable tax rates.................... 8-050 residential status ............................. 8-020 tax year ........................................... 8-040 undischarged tax liabilities, private

limited company............................. 8-220 Income Tax Appellate Tribunal

(ITAT) ............................................ 8-200 Income-tax Act, 1961 (ITA) ................. 8-010 Ad hoc deductions and

exemptions ..................................... 8-060 administration................................. 8-240 assessment and dispute

resolution........................................ 8-190 Central Board of Direct Taxes

(CBDT), Department of Revenue, Ministry of Finance, Government of India ........................................... 8-240

heads of income.............................. 8-060 section 10AA.................................. 8-070 newly established units

in sez ......................................... 8-070 section 5 and section 9, foreign

national assessee........................... 13-040 section 5 of the ITA........................ 8-030 section 6 of the ITA........................ 8-020 section 6, foreign nationals’

residential status ........................... 13-040 section 80-IA, ................................ 8-070 special deduction of 100% of

profits ........................................ 8-070 section 80-IAB ............................... 8-070 section 80-IB .................................. 8-070 deductions in respect of profits

from industrial undertakings ..... 8-070 section 92, Transfer Pricing............ 8-090 sections 10A and 10B..................... 8-070 special provisions for Free

Trade Zones, 100% EOUs, etc .. 8-070 Incorporation of a foreign company. See alsoForeign investors. in India, procedure for .................... 7-080 additional e-Forms, filing of ..... 7-080 approval of name....................... 7-080 certificate of commencement of

business..................................... 7-080 certificate of incorporation........ 7-080

Para digital signature certificate

(DSC)........................................ 7-080 director identification number

(DIN) ........................................ 7-080 e-Form 1 ................................... 7-080 e-Form 18 ................................. 7-080 e-Form 32 ................................. 7-080 memorandum and articles of

association (MOA & AOA) ...... 7-080 share capital, issue of ................ 7-080 India capital markets ............................... 2-060 competent court .............................10-510 competition laws ............................ 4-010 complaint (first information report,

ie FIR) ...........................................10-260 copyright enforcement...................10-260 data protection laws.......................10-540 department of industrial policy &

promotion (DIPP)........................... 2-010 digital IT and telecommunications..... 2-040 digital techniques ...................... 2-040 R&D in digital technology........ 2-040 economic powers, regulating

concentration of.............................. 4-020 economy, salient features of........... 2-010 execution of orders of courts .........10-500 contempt of court proceedings.10-500 FDI equity inflows ......................... 2-010 financial and banking sector........... 2-060 Reserve Bank of India (RBI) .... 2-060 foreign investment.......................... 2-140 types of ..................................... 6-010 foreign trade regulations................. 2-140 global foreign direct investments ... 2-010 gross domestic product (GDP) ....... 2-010 higher education sector.................. 2-050 infrastructural reforms airways...................................... 2-110 electricity sector........................ 2-120 inland waterways ...................... 2-100 ports .......................................... 2-090 railways..................................... 2-080 roadways and expressways ....... 2-070 state electricity boards

(SEBs)....................................... 2-120 Telecom services ...................... 2-130


Para Intellectual Property Laws,

enforcement of.............................. 10-490 intellectual property acts .......................................... 10-010 laws ......................................... 10-010 International and Regional Trade

Agreements..................................... 2-150 manufacturing................................. 2-020 non-profit entity, legal structure ..... 7-130 public financial institutions ............ 2-060 purchasing power parity (PPP) ....... 2-010 registration of GIs......................... 10-350 service sector .................................. 2-030 SEZs ............................................... 5-010 technical education system ............. 2-050 technical expertise .......................... 2-050Indian companies, downstream

investment. See Total Foreign Investment, calculation of............... 6-240

owned and/or controlled by non-resident entity(ies) .......................... 6-250

foreign investment .......................... 6-250 Indian copyright law ........................... 10-230 Indian Depository Receipts (IDRs)....... 6-030 Indian Design(s) Act, 2000................. 10-300 action for infringement

of design ....................................... 10-350 Indian Forest Act, 1927 ...................... 12-080Indian Patent Office (IPO) patent applications, secrecy of...... 10-200 Patent Office Journal .................... 10-120 Indian Patents and Designs

Act, 1911 ...................................... 10-110 Indian Post Office Act, 1898 ................ 6-270 Indian retail industry investment areas ........................... 14-250 major advantages .......................... 14-250 Mom and Pop stores ..................... 14-250 retail formats................................. 14-250 Indian Technical and Economic

Cooperation programmes ............... 2-050 Indian Trade and Merchandise Marks

Act, 1958 ...................................... 10-020 Indian Transfer Pricing guidelines........ 8-090 (Indian) Contract Act, 1872 ................ 10-550 (Indian) Copyright Act, 1957 work.............................................. 10-240

Para(Indian) Information Technology Act, 2000 section 43A....................................10-540 section 69 ......................................10-540 section 72A....................................10-540 Industrial Designs cancellation, protection and

enforcement of ..............................10-340 registrability of ..............................10-310 registration, process of ..................10-330 registration, validity of ..................10-320 Industrial Disputes Act, 1947(ID Act) strikes and lockouts ........................ 9-020 unfair labour practices .................... 9-020 Industrial Employment (Standing Orders)

Act, 1946 (the IESO Act).................... 9-120 Industrial Entrepreneurs’ Memorandum

(IEM).............................................14-210 Industrial Policy Statement, 1991 Atomic Energy (Control of Production

and Use) Order, 1953............................. 6-270 Notification No. S.O. 61(E),

dated 18-01-2006 ...................... 6-270 Resolution No. 8/1(1)/97-

PSU/1422, dated 6 October 1998 .......................................... 6-270

Industrial Property, 1883 .....................10-130 Industrial Relations laws ................................................ 9-020 Industries (Development & Regulation)

Act 1951................... 4-020, 6-270, 6-090 investment by a person resident

outside India ................................... 6-110 Information Technology Act, 2000 (IT Act) electronic commerce .....................10-550 section 10A, validity of contracts ..... 10-550 section 43, penalty for damage to

computer, computer systems, etc ..... 10-550 section 65, tampering with

computer source documents ..........10-550 section 66, computer related

offences .........................................10-550 section 69, Government

interference with data ....................10-550 section 72, penalty for breach of

confidentiality and privacy............10-550 Information Technology Act, 2000 .....10-540 Information-technology-enabled

services (ITeS) ..............................14-210

Index 247

ParaInfringement and Passing off offences and penalties................... 10-060 Infringement and Passing off suits, relief granted by Courts....... 10-050 Anton Pillar Order................... 10-050 restraining the infringer........... 10-050 Inland Waterways Authority of India

(IWAI)............................................ 2-100 Insurance Act, 1999 .............................. 6-270 Insurance Regulatory and Development

Authority Act, 1999 (the IRDA Act) ............................. 14-190

Insurance Sector.................................. 14-190 Integrated Circuits, Layout Designs of duration of protection ................... 10-460 infringement of ............................. 10-470 registrability of ............................. 10-450 Intellectual Capital.............................. 10-010 Intellectual Property (IP) Laws International Copyright

Order, 1999................................... 10-250 IP litigation ................................... 10-250 IPR-related litigation .................... 10-490 proof of ownership ....................... 10-250 intellectual property (IP) protection acts................................................ 10-010 Intellectual Property Appellate Board

(IPAB) .......................................... 10-090 Intellectual Property Rights (Imported

Goods) Enforcement Rules, 2007................................... 10-530

rule 2(b) ........................................ 10-530 Intellectual property rights (IPR) ........ 10-010 civil action for enforcement of ..... 10-500 litigation .................................. 10-510 District and Sessions Judge..... 10-510 Section 11 of the (Indian) Customs

Act, 1962 ...................................... 10-520 International Classification of Goods

and Services (Nice Classification)..................... 10-070

International Depository Authority (IDA) Institute of Microbial Technology

(IMTECH).................................... 10-180 Inter-state Migrant Workmen (Regulation

of Employment and Conditions of Service) Act, 1979 (the ISMW Act)

inter-state migrant workman........... 9-160

ParaIT Amendment Act, 2008....................10-550

KKnowledge Process Outsourcing (KPO) investment areas ............................14-230 major advantages...........................14-230

LLabour jurisdiction constitutional status of.................... 9-010 Labour laws Central Government ....................... 9-010 Labour legislations Central Government ....................... 9-010 Labour Welfare Fund Act (The [State]

Labour Welfare Fund Act) ............. 9-090 Legal entity........................................... 7-130 Legal Metrology Act, 2009 .................. 8-370 Legal Services Authorities Act, 1987... 3-040 Limited Liability Partnership Act, 2008

(LLP Act) conversion ...................................... 7-120 second, third and fourth schedules . 7-120 Limited Liability Partnerships (LLP) in

India conversion into ............................... 7-120 extent of Liability of partners ......... 7-100 winding up...................................... 7-110 Long-term capital gains ........................ 8-080

MMajor Port Trusts Act, 1963 ................. 2-090 Maternity Benefit Act, 1961 (Maternity

Benefit Act) pregnant woman, entitlement to ..... 9-200 Media and Entertainment.....................14-240 Micro, Small and Medium Enterprises

Development Act, 2006.................. 6-110 Mineral Products (Additional Duties of

Excise and Customs) Amendment Act, 1959........................................ 8-450

Mines and Minerals (Development & Regulation) Act, 1957 .................... 6-270

Minimum Alternative Tax (MAT) MAT credit..................................... 8-110 section 115JB of the ITA................ 8-110 Minimum threshold shareholding......... 8-150 Minimum Wages Act, 1948 (the

Minimum Wages Act) Minimum Wages Rules .................. 9-040


Para minimum wages ............................. 9-040 Ministry of Corporate Affairs (MCA) General Circular No. 6/2011, dated

March 08, 2011............................... 7-080 online portal for filing of forms ...... 7-080 Ministry of Environment and Forests

(MoEF) ......................................... 12-010 Ministry of Labour and Employment labour laws employment aspects .................. 9-010 workers’ interest ............................. 9-010 healthy work environment......... 9-010 social security............................ 9-010Ministry of Tourism capacity building for service

providers (CBS)............................ 14-260 Monopolies and Restrictive Trade

Practices Act, 1969......................... 4-010 Monopolies and Restrictive Trade

Practices Commission .................... 4-030 Monopolies Inquiry Commission

Report, 1965 ................................... 4-020 Monopolistic and Restrictive Trade

Practices Act, 1969 (MRTP Act). See also Competition Act, 2002

section 36A(1)(x)............................ 4-030Monopolistic Trade Practice ................. 4-030 Multi-product SEZs .............................. 5-040 Municipal Solid Wastes (Management

and Handling) Rules, 2000 ........... 12-060 N

National and Festival Holidays Act ...... 9-180 National Biotechnology Regulatory

Authority ...................................... 14-030 National Calamity Contingency Duty

(NCCD) MRP/RSP ....................................... 8-370 section 3 of the CTA with section

136 of the Finance Act, 2001.......... 8-370 section 3(5) ..................................... 8-370 sub-section (2) of section 3 of the

CTA................................................ 8-370 National Common Minimum

Programme (NCMP) .................... 14-100 National Company Law Tribunal

(NCLT)................................ 3-040, 7-110 National Consumer Disputes Redressal

Commission.................................. 11-050

ParaNational Council for Teachers

Education (NCTE) ........................14-100 National Environment Appellate

Authority (NEAA) ........................12-110 National Environment Appellate

Authority Act, 1997 ......................12-110 section 3(1)....................................12-020 National Environment Tribunal...........12-120 National Environment Tribunal Act,

1995...............................................12-120 National Green Tribunal Act, 2010 (No.

19 of 2010) ....................................12-020 National Highways Development

Project (NHDP).............................. 2-070 National Policy on Education ..............14-100 National Seeds Policy........................... 6-270 National Stock Exchange of India

Limited (NSE)................................ 2-070 Non-banking Finance Companies

(NBFC) holding/operating company............ 6-270 minimum capitalisation condition .. 6-270 para 4.6.4(iii)(b)........................ 6-270 Non-resident Indians (NRIs),

investment basis exchange traded derivative

contracts ......................................... 6-040 non-repatriation basis ..................... 6-040 perpetual debt instruments.............. 6-040 repatriation basis ............................ 6-040

OOil and gas sector advantages .....................................14-060

PPatent Cooperation Treaty

(PCT), 1970...................................10-130 Patent infringement proceedings ...................................10-220 Patent laws...........................................10-110 Patents (Amendment) Act, 2005..........10-110 Patents Act, 1970 compulsory licensing.....................10-210 controller of patents .................10-210 grant of.....................................10-210 section 11A....................................10-140 section 25(1)..................................10-140 section 3 and 4...............................10-110

Index 249

Para suit for infringement ..................... 10-220 Payment of Bonus Act, 1965 (the

Bonus Act)...................................... 9-060 Payment of Wages Act, 1936 (the

Payment of Wages Act).................. 9-050 Pharmaceuticals advantages .................................... 14-070 Pharma Vision 2020 ..................... 14-070 Plant laws............................................ 10-390 Plant Variety and farmers’ rights,

infringement of ............................. 10-430 criminal action......................... 10-430 duration of protection ................... 10-410 registration procedure ................... 10-400 Portfolio Investment Scheme (PIS) ...... 6-030 Ports initiatives ...................................... 14-120 investment areas ........................... 14-110 latest developments ...................... 14-120 National Maritime Development

Programme ................................... 14-110 Power sector power for all by 2012 ................... 14-120 Principle of Trans-border

Reputation .................................... 10-030 Principles of Corporate

Governance................................... 15-010Private Security Agencies (Regulation)

Act, 2005 ........................................ 6-270 Protection of Plant Varieties and

Farmer’s Rights Act, 2001 (the Plant Act)

Protection of Plant Varieties and Farmers’ Rights Authority............ 10-390

rights under................................... 10-420 Public Liability Insurance Act, 1991 .......12-090 Public Sector Undertakings (PSUs) ...... 2-120

RRBI Reference Rate .............................. 4-040 Real Estate investment areas ........................... 14-080 propellants for............................... 14-080 real estate regulator....................... 14-080Remittance of asset ............................... 6-260 Reserve Bank of India (RBI) ................ 4-040 Restrictive Trade Practice ..................... 4-030

ParaReturn of income/ Revenue .................. 8-160 Review Committee on Genetic

Manipulation (RCGM)................... 6-270 Roads and Highways investment areas ............................14-130 public–private partnership.............14-130 right of way (ROW) ......................14-130

SScheduled Tribes and Other Traditional

Forest Dwellers (Recognition of Forest Rights) Act, 2006 ...............12-080

SEBI (Acquisition of Shares and Takeovers) Regulations, 1997........ 6-200

capital instruments, transfer of ....... 2-220 SEBI (Venture Capital Fund)

Regulations, 1996........................... 6-050 Sector-specific FDI policy agriculture & animal husbandry ..... 6-270 Air Transport Services ................... 6-270 asset reconstruction companies ...... 6-270 banking – public sector .................. 6-270 cable network ................................. 6-270 civil aviation sector ........................ 6-270 commodity exchanges .................... 6-270 credit information

companies (CIC) ............................ 6-270 defence industry ............................. 6-270 direct-to-home ................................ 6-270 e-commerce activities..................... 6-270 electric generation, transmission,

distribution and trading .................. 6-270 headend-in-the-sky (HITS)

broadcasting service ....................... 6-270 industrial parks ............................... 6-270 insurance ........................................ 6-270 manufacturing ................................ 6-270 mining ............................................ 6-270 non-banking finance companies

(NBFC) .......................................... 6-270 petroleum & natural gas sector....... 6-270 print media ..................................... 6-270 satellites – establishment and

operation......................................... 6-270 security agencies in

private sector .................................. 6-270 single-brand product trading .......... 6-270 tea plantation .................................. 6-270


Para telecommunication ......................... 6-270 terrestrial broadcasting FM............. 6-270 trading............................................. 6-270 Sector-specific SEZs............................. 5-040 Securities and Exchange Board of India

(SEBI)........................................... 14-180 Securities Transaction Tax (STT) or

turnover tax .................................... 8-130 Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act, 2002

section 3(3)(f) ................................. 6-270 Semiconductor Integrated Circuits

Layout-Designs Act, 2000............ 10-440 Service Tax administration................................. 8-330 advance ruling ................................ 8-320 persons eligible to apply............ 8-320 service tax matters..................... 8-320 centralised registration, Provision

for ................................................... 8-280 compliance under............................ 8-270 export of services............................ 8-300 general exemptions......................... 8-260 diplomatic missions for official

use of taxable services............... 8-260 Notification 17/2011 dated

March 1, 2011 ........................... 8-260 Notification No. 41/2007-ST

dated October 6, 2007 ............... 8-260 import of services ........................... 8-310 levy of service tax........................... 8-250 liability to pay service tax............... 8-250 small service providers, exemption

to..................................................... 8-250 statutes governing the levy of ......... 8-250 taxable services............................... 8-250 taxation of service........................... 8-250 value of taxable service .................. 8-250 Service Tax Rules, 1994 ....................... 8-250SEZ Developers dividend distribution tax (DDT),

exemption ....................................... 5-060 FEMA/FDI/ECB ............................ 5-060 100% Foreign Direct Investment ....5-060 external commercial borrowing

(ECB) ........................................ 5-060

Para minimum-land requirements ..... 5-060 Income Tax Act.............................. 5-060 section 115JB............................ 5-060 section 80-IAB.......................... 5-060 indirect taxes .................................. 5-060 major incentives to ......................... 5-060 direct taxes ................................ 5-060 minimum alternate tax (MAT),

exemption....................................... 5-060 SEZ Proposals online filing facility........................ 5-030 SEZ Units Direct Taxes ................................... 5-060 FEMA/ FDI related ........................ 5-060 external commercial borrowings

(ECBs) ...................................... 5-060 sectoral norms........................... 5-060 Indirect Taxes................................. 5-060 major incentives ............................. 5-060 obligations of.................................. 5-070 Shops and Commercial Establishments

Act(s).............................................. 9-130 Short-term capital assets ....................... 8-080 Societies Registration

Act, 1860, See also Foreign Contribution Regulation Act, 1976 (FCRA) ............................... 7-130, 7-150

Society registration of a ............................. 7-150 characteristics of............................. 7-150 procedure for incorporation............ 7-150 Software Technology Park of India

(STPI)............................................. 5-100 Software Technology Parks duty-free custom bonded area ........ 5-100 STP unit.......................................... 5-100 Software Technology Parks (STP)

Scheme........................................... 5-100 Special Economic Zones (SEZ) administrative set-up ...................... 5-020 board of approval (BOA).......... 5-020 development commissioner ...... 5-020 salient features .......................... 5-010 SEZ policy, objectives of.......... 5-010 unit approval

committee (UAC) ..................... 5-020

Index 251

Para branch offices for foreign investors .... 7-020 central act for special economic

zones............................................... 5-010 exim policy/foreign trade policy..... 5-010 incentives to.................................... 5-010 minimum investment/net-worth

criteria............................................. 5-040 minimum regulatory regime ........... 5-010 objectives...................................... 14-140 setting up, process of ...................... 5-050 single-window clearance

mechanism...................................... 5-010 Special Economic Zones Act, 2005

(SEZ Act) ....................................... 5-010 Special Economic Zones Rules, 2006

(SEZ Rules) form-H............................................ 5-070 form-I ............................................. 5-070 rule 53, net foreign exchange

(NFE).............................................. 5-070 Standards of Weights and Measures

Act, 1976 ........................................ 8-370 State Consumer Disputes Redressal

Commission.................................. 11-050 State Pollution Control

Boards (SPCBs)............................ 12-010 T

Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (Import Rules)

Rule 3 ............................................. 8-310 Telecom Regulatory Authority of India

(TRAI).......................................... 14-150 Telecommunication investment areas ........................... 14-150 measures and incentives ............... 14-150 The [State] Labour Welfare Fund Act labour welfare fund,

constitution of................................. 9-090 The Employees' State Insurance Act,

1948 (the ESI Act) employer contribution .................... 9-080 The Finance Act, 2011.......................... 8-090 minimum alternative tax (MAT) .... 8-110 section 136, national calamity

contingent duty (NCCD) ................ 8-450 The Government of India governance structure....................... 3-010

Para judiciary ......................................... 3-040 Courts for Civil Matters,

hierarchy of............................... 3-040 District Courts........................... 3-040 High Courts............................... 3-040 Lower Courts ............................ 3-040 Special Courts or Tribunals ...... 3-040 The Supreme Court................... 3-040 legislature, cardinal functions of .... 3-020 members of parliament................... 3-030 President......................................... 3-030 State Legislature............................. 3-030 The Parliament ............................... 3-020The Hazari Committee Report, 1966.... 4-020 The Mahalanobis Committee Report.... 4-020 The Payment of Gratuity Act, 1972 (the

Gratuity Act) gratuity ........................................... 9-100 Total Foreign Investment, calculation of direct foreign investment,

counting of ..................................... 6-240 indirect foreign investment,

counting of ..................................... 6-240 Tourism industry adventure tourism..........................14-260 medical tourism.............................14-260 rural tourism..................................14-260 wellness tourism............................14-260Trade Marks (Amendment)

Bill, 2009.......................................10-070 Trade Marks Act, 1999 civil and criminal remedies ...........10-040 Trade Marks Journal............................10-070 Trade Secrets breach of contract ..........................10-480 Indian contract law........................10-480 Trade Unions Act, 1926 (Trade

Unions Act) .................................... 9-030 Trademark “WHIRLPOOL”................10-030 Trademark Infringement of..............................10-040 interim injunction, order of ...........10-050 interim reliefs in a suit...................10-050 passing off .....................................10-040 registration of ................................10-040 Trademark in India assignment, transmission and

licensing of....................................10-100


Para rectification of .............................. 10-090 registration procedure ................... 10-070 convention applications........... 10-070 goods and services,

classification of ....................... 10-070 Madrid protocol ...................... 10-070 opposition proceedings ........... 10-070 registration renewal ...................... 10-080 Trademark laws .................................. 10-020 TRAI Act, 1997 .................................. 14-150 Trans-border Reputation concept........ 10-030 Transfer of Shares................................. 4-060 between resident and non-resident,

reporting obligations....................... 6-230 pricing guidelines ........................... 6-220 by non-resident to resident ........ 6-220 by resident to non-resident ........ 6-220 Transfer Pricing .................................... 8-090 Transfer Pricing Certificate .................. 8-090TRIPS Agreement for protection of

trademarks .................................... 10-020 Trust characteristics of............................. 7-160 procedure for registration ............... 7-160

Para instrument of trust (trust deed)...... 7-160 stamp duty................................. 7-160

UUnfair Trade Practice ........................... 4-030 United Nations Convention on Biological

Diversity (CBD) 1992.....................12-100 Universalisation of Elementary

Education (UEE) ............................ 2-050 V

Value Added Tax (VAT)...................... 8-540 Venture Capital....................................14-200

WWater (Prevention and Control of

Pollution) Cess Act .......................12-040 Water Prevention and Control of Pollution

Act, 1974 (the Water Act) .................. 12-040 Weekly Holiday Act, 1942 (Weekly

Holiday Act)................................... 9-170 Wholesale price index .......................... 4-060 Wildlife (Protection) Act, 1972 ...........12-070 Withholding Tax rates of............................................ 8-100

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