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iv India Business Guide-Start-up to Set-up

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No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is sold on the terms and under-standing that: (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, con-sultants and editors, expressly disclaim all and any liability and responsibility to any per-son, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reli-ance, whether wholly or partially, upon the whole or any part of the contents in this pub-lication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor. © 2015 Vaish Associates, Advocates All rights reserved. No part of this work covered by the copyright owners may be repro-duced or copied in any form or by any means (graphic, electronic or mechanical, includ-ing photocopying, recording, recording taping, or information retrieval systems) without the written permission of the publisher and copyright owners. First Edition, 2015 First Print, 2015 ISBN-13: 978-93-5129-536-5 Published by Wolters Kluwer (India) Pvt Ltd Regd. Office: SCF-3, Sector-71, Mohali - 160071, Punjab, (India) CIN-U74899PB2005PTC039211 Printed and bound at Sanat Printers

© 2015 Vaish Associates, Advocates. All rights reserved.

Chapter 1 Introduction v

Dedicated to Mr. O. P. Vaish Senior Advocate

& Founder

Vaish Associates Advocates (1929-2013)


Chapter 1 Introduction vii

2015 Vaish Associates,, Advocates. All rightsgg reserved.

Chapter 1 Introduction ix

About Vaish Associates Advocates Founded by Late Shri. O.P. Vaish, Senior Advocate in 1971, Vaish Associates Advocates is a full service law firm in India having offices in Delhi, Mumbai and Bengaluru. The Firm has been providing legal services and advisory to domestic and international clients for over four decades. Vaish Associates practice areas extends across Direct Tax (Income Tax, Transfer pricing, International Taxation), Indirect Tax (Customs, Central Excise, Service Tax, Central Sales Tax and Value Added Tax), Corporate Practice, Mergers and Acquisitions, Busi-ness Reorganization, Foreign Investment, Strategic Alliance/Joint Ventures, Capital Mar-kets –Domestic and International Offerings, Legal & Secretarial Due Diligence, Regula-tory Compliances, Alternate Dispute Resolution, Real Estate, Special Economic Zones, Banking and Finance, Labour and Employment laws, Competition/ Anti-Trust laws, In-tellectual Property Rights and Information Technology, Litigation, Non Profit Organiza-tions, etc. Vaish Associates Advocates remains committed to provide high quality, solution oriented and client focused legal advisory services. Address: New Delhi Vaish Associates Advocates 1st, 9th & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India) Phone: +91 11 42492525 Email: [email protected] Mumbai Vaish Associates Advocates 106, Peninsula Centre Dr. S. S. Rao Road, Parel Mumbai - 400012 (India) Phone: +91 22 42134101 (Board) Fax: +91 22 42134102 E-mail: [email protected] Bengaluru Vaish Associates Advocates 305, 3rd Floor, Prestige Meridian-II, Building No. 30, M.G. Road, Bengaluru - 560001 (India) Phone: +91 80 40903588/89 Fax: +91 80 40903584 E-mail: [email protected]


x India Business Guide-Start-up to Set-up

From the Editors India Business Guide: Start-up to Set-up is a compendium of laws, rules and regu-lations that govern Indian businesses, which are updated as on November 2015 (unless otherwise specified) and presented in a reader-friendly manner. This publication, pre-pared 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”, “Make in India”, “Invest in India” are the much talked about words 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, es-pecially in the frontier areas of technology, unprecedented blossoming of entrepreneur-ship, 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, foreign investors, analysts and the swelling ranks of entrepreneurs. A practical approach to forming joint ventures, technology transfer, formation of compa-nies, intellectual property rights, investment opportunities in important sectors, etc, has been adopted. The book also dwells upon subjects like investment framework, govern-ance including corporate governance framework, trade and competition policies, over-view 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 accel-erate 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 glob-al practices. This has led to quick and progressive adjustments in the economic and com-mercial 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 flexibil-ity. Yet, the book, in no way, seeks to substitute the expert advice and guidance that must be sought on specific projects and issues that an investor or entrepreneur may be con-fronted with. It serves as a valuable guide to your “India strategy”. India Business Guide: Start-up to Set-up is a consolidation of the body of experience and incisive knowledge accumulated over the years at Vaish Associates Advocates. The sem-inal contributions of the team of professionals and their penchant for looking at every conceivable aspect of enactments governing businesses are commendable. Vinay Vaish Hitender Mehta [email protected] [email protected]


Chapter 1 Introduction xi

Acknowledgements We are thankful to the following key resource person for their significant contribution: Mr. Bomi F. Daruwala, Partner Mr. Vinay Vaish, Partner Mr. Hitender Mehta, Partner Mr. Rupesh Jain, Partner Mr. Hemant Puthran, Partner Mr. V. P. Dalmia, Partner Mr. Shammi Kapoor, Partner Mr. M. M. Sharma, Head, Competition Law Practice Ms. Puneeta Kundra, Principal Associate Mr. Pavit Singh Katoch, Principal Associate Ms. Rakshanda Niyazi, Sr. Associate Ms. Pushya Rakshita Sinha, Sr. Associate Ms. Varnika Sharma, Sr. Associate Ms. Purva Juneja, Sr. Associate Mr. Vishal Kumar, Sr. Associate Mr. Ankit Gupta, Associate Mr. Priyank Rathi, Associate

This acknowledgment would be incomplete without the mention of the support and guid-ance extended by Mr. Ajay Vohra, Senior Advocate.

© 2015 Vaish AAssociates,A Advocates. All rights reserved.

xii India Business Guide-Start-up to Set-up

Contents

Page Foreword ............................................................................................................. vii About Vaish Associates Advocates ................................................................................... ix From the Editors ............................................................................................................... x Acknowledgements ............................................................................................................ xi

Chapter 1 Introduction ............................................................................................................ 1 2 Advantage India ..................................................................................................... 5 3 Constitutional Framework .................................................................................. 14 4 Competition Policy and Law .............................................................................. 21 5 Special Schemes for Export Promotion (SEZs/EOUs /STPs/

EHTPs/ BTPs) ....................................................................................................... 34 6 Foreign Investment in India ................................................................................ 43 7 Establishing Presence in India .......................................................................... 112 8 Tax Laws .............................................................................................................. 129 9 Labour and Industrial Laws ............................................................................. 174 10 Intellectual Property Laws ................................................................................ 191 11 Consumer Protection Law................................................................................. 217 12 Environment Laws ............................................................................................. 221 13 Important Considerations for Expatriates Working in India ....................... 227 14 Important Sectors ............................................................................................... 240 15 Corporate Governance Framework ................................................................. 262 16 Important Websites ............................................................................................ 288

Index ...................................................................................................................... 291


Chapter 1 Introduction 1

Chapter 1 Introduction Start-ups Revolution in India ........................................................................ ¶1-010 India is the seventh largest country in the world spread over a total area of 32,87,263

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 291 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 Aravalli range is the Thar Desert. Further south, geologically, the oldest part of India is the Deccan Plateau flanked on the left and the right by coastal ranges, the Eastern 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.

India’s history dates back to 2500 BC when the first known civilisation settled along the Indus River. India is a secular country where Hinduism co-exists with Islam, Christianity, Buddhism, Jainism, Sikhism, Judaism and Zoroastrianism. India has 22 official languages 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.

Exciting topographical variations, cultural diversity, and the colourful local traditions 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 Constitution defines India as a Sovereign Socialist Secular Democratic Republic with a parliamentary form of Government. India has a bicameral Parliament operating under a Westminster-style Parliamentary system which consists of the Upper House, called the Rajya 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 1 http://knowindia.gov.in/knowindia/state_uts.php


2 India Business Guide-Start-up to Set-up

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 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 State Governments. In case of any conflict of laws, the Union/Federal law prevails. India 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.

Ever since India emerged from the shackles of closed economy in the early 1990s, 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 macroeconomic and structural reforms reduced regulations significantly, improved the business environment, and opened the economy to greater competition. In 2014 India’s GDP already crossed the US$ 2.049 trillion mark1, making the country the ninth2 -largest economy in the world and the third3 largest economy by purchasing power parity. The Indian economy has witnessed a significant economic growth in the recent past, growing by 7.3% in 2015 as against 6.9% in 20144. India is fast becoming a leading international business and financial hub. In the era of 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.

¶1-010 Start-ups Revolution in India India’s phase of revolution has gained pace which has had no parallel in the past. This revolution is driven by Start-ups across segments, with the potential to touch lives of over One Billion Indians, thereby attracting the attention of global investors and competitors, all of them wanting to tap and be a part of this growth story. Foreign investors have started viewing India as a country with excellent potential and have funded many such start-ups. SoftBank Group, Tiger Global, Steadview Capital and Accel Partners US are some of the major players who are looking to tap the potential that India has to offer through these start-ups.

1 http://statisticstimes.com/economy/asian-countries-by-gdp.php 2 http://statisticstimes.com/economy/asian-countries-by-gdp.php 3 http://statisticstimes.com/economy/asian-countries-by-gdp.php 4 http://www.ibef.org/economy/indian-economy-overview


Chapter 1 Introduction 3

In India, everyday there are news of a start-up being launched, startups getting funded, or existing start-ups expanding their portfolios to fuel their hyper growth. The ‘Start Up’ movement is growing vigorously across India and along with major cities, it is spreading in Tier-2 towns as well. Prime Minister of India, Mr. Narender Modi gave a momentum to the “Start-up India, Stand-up India” initiative on India’s Independence Day on 15th August 2015. The Union Finance Minister Mr. Arun Jaitley has said that “the country was witnessing a start-up revolution and to harness the potential of India’s innovators and entrepreneurs, a vibrant financial ecosystem was essential. The Government is trying to bridge the gap between policy and implementation”. Start-ups in India are making the lives better, providing with unlimited options to choose from, at the comfort of our homes and computers or mobiles. India projects a number of 11,500 startups by the year 20201 and with over 7.3 billion invested and 300% growth in the first three quarters of 2015 in itself is a revolution.

Start-ups in India –At a glance Sr. No. Industry/Sector Name 1. Food Hola Chef, Faasos, , Zomato, Box8,

Swiggy, Chayoos 2. Travel OLA, Taxi For Sure, Uber

3. Retail & Fashion Flipkart, Myntra, Snapdeal, Jabong, Zovi, YEPME and ShopClues

4. Real Estate Housing, Homeshikari

5. Hospitality OYO Rooms, ZO Rooms, 6. Health & Wellness Practo, Healthy World

7. Groceries Big Basket, Grofers, Local Banya

8. Education uFaber, Toppr, Purple Squirrel

9. Personal Finance Bank Policy Bazar

10 Digital Classifieds Quikr, Olx

11. Home Services LocalOye, Urban Clap, Zimmber, near.in, UrbanPro, Doormint

12. Jewelry Bluestone, Carat Lane

13. Cars CarDekho, CarTrade, ZoomCar

14. Payment Paytm, Mobikwik, Freecharge

15. Home Decor & Furniture Urban Ladder, Pepperfry, Fab Furnish

16. Weddings Planningwale, Marryinaweek, Wedmegood, Weddingplz

As competition heats up, both with the entry of global players such as Amazon, Uber, Airbnb, Coursera, Foodpanda, OLX, PayU and the emergence of new local players, these startup will continue to evolve, so as to keep themselves in business. We have already seen several acquisitions within the Indian startup ecosystem (i.e., Flipkart's acquisition 1 Available at http://www.nasscom.in/india-fastest-growing-and-3rd-largest-startup-ecosystem-

globally-nasscom-startup-report-2014 last visited on November 17, 2015



of Myntra, Snapdeal's acquisition of Freecharge and OLA's acquisition of Taxi For Sure). Then, there are startups which are redefining the way business is conducted for example Myntra's decision to adopt a mobile only model). Also, there are start-ups which are constantly evolving and upgrading their business models such as OLA expanding its portfolio to deliver food via. It’s Ola café service, Flipkart expanding its portfolio to sell Home Decor & Furniture and Snapdeal expanding its portfolio to sell houses online. Furthermore, there are ideas that are changing lives, making it easier for people and redefining the way business is conducted, an eminent example for this is the partnership between Healthcare booking platform “Practo” and taxi service provider “Uber” to help people reach doctors easily. The list is endless. India is a country of innovation and entrepreneurial skills and has a lot to offer.

2015 Vaish Associates, Advocates. All rights reserved.

Chapter 2 Advantage India 5

Chapter 2 Advantage India Market Place.................................................................................................. ¶2-010 Manufacturing and Service Sectors ............................................................... ¶2-020 Information Communication Technology ..................................................... ¶2-030 Low Cost and Skilled Manpower .................................................................. ¶2-040 Strong Banking and Financial Sector ............................................................ ¶2-050 Reforms in Infrastructure .............................................................................. ¶2-060 Liberalisation of Foreign Investment and Foreign Trade Regulations .......... ¶2-070

¶2-010 Market Place India is the world’s largest democracy and is the third1-largest economy in the world.

It has the third-highest Gross Domestic Product (GDP) in Asia. India is also the third2 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 as follows:

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

fluent in English Competitive wages Cost-effective production facilities Expanding industrial base and intellectual capital Capacity upgradation in infrastructure Continuous liberalisation in the foreign investment framework Acceleration 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 ninth place in global foreign direct investments (FDI) in 2014 and will continue to remain among the top third attractive destinations for international investors during 2015-2017 period, according to the United Nations

1 http://statisticstimes.com/economy/asian-countries-by-gdp.php 2 http://statisticstimes.com/economy/asian-countries-by-gdp.php



Conference on Trade and Development (UNCTAD) in a report on world investment titled, 'World Investment Report 2015’.1

Sectors receiving highest FDI equity inflows are Services Sector (financial and non-financial) followed by Computer Software and Hardware and Telecommunication Sector (radio paging, cellular mobile, basic telephone services). As per statistics from the Department of Industrial Policy & Promotion (DIPP) under the Ministry of Commerce and Industry, cumulative amount of FDI flows into India (from April 2000 to June 2015) are US$ 380,215 million and cumulative amount of FDI equity in flows (from April 2000 to June 2015) are at US$ 258,020 million.2

¶2-020 Manufacturing and Service Sectors

Manufacturing Manufacturing 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 petroleum products for the world market. There has been significant improvement in the performance of different sectors, namely beverages, tobacco, cotton textiles, textile products, basic metals and alloy industries, non-metallic mineral products, transport equipment and other manufacturing industries. Indian manufacturing companies are expected to benefit from global innovation and investments. India expects large investments into both capital spending and Research & Development (R&D) in the years to come.

Services The 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 broad based. Services that currently contribute significantly to India’s GDP include railway passengers, railway freight, franchising, tourism, housing finance, entertainment and media 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 financial services (banking, insurance and real estate) and the construction boom have been some of the key driving segments of the service sector in India.

¶2-030 Information Communication Technology India 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-

1 http://www.ibef.org/economy 2 http://dipp.nic.in/English/Publications/FDI_Statistics/2015/india_FDI_June 2015.pdf



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 economic activity for efficient governance and in developing human resources. In India, there is a growing recognition of the wider possibilities of technology. IT, 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 healthcare to people in isolated and far-flung locations. Broadcasters and TV manufacturers are enhancing the interactive capabilities of their services and equipment. India is adapting to the cutting-edge inventions in science and technology.

Besides establishing indigenous R&D in digital technology, both the Government 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 center-stage.

¶2-040 Low Cost and Skilled Manpower India has made significant progress in the field of elementary education. India’s

average literacy rate is pegged at 72.99% as per census 2011.1 Concerted efforts towards Universalisation of Elementary Education (UEE) have resulted in manifold increase in schools, teachers and students. The Government has attached highest priority for completing this unfinished 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,

1 http://mhrd.gov.in/adult-education



Enhancing accuracy of physically challenged persons, and Strengthening of R&D.

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 in providing quality technical education and training. Higher education and technical 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 significant contribution. Many engineering and other technical colleges and institutes have 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 resource base of well-educated, highly proficient and skilled technical manpower, including IT professionals.

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

and technical education, India has achieved self-reliance in diverse fields. Indian economic 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 of Indian firms have been active in this regard in South-East Asia, Africa and West Asia.

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.

¶2-050 Strong Banking and Financial Sector An extensive financial and banking sector supports the rapidly expanding Indian

economy. India boasts of a broad-based and sophisticated banking network. The sector also has a number of national and State-level financial institutions. These include foreign and institutional investors, investment funds, equipment leasing companies, venture capi-tal funds, etc. All large Indian banks are nationalized. Though the banking industry is currently dominated by public sector banks, numerous private and foreign banks have made inroads in this sector. The finance and banking sector is well regulated under the authority of the Reserve Bank of India (RBI), the central banking institution of the coun-try. Among other things, it supervises and administers exchange control and banking reg-ulations, and administers the monetary policy. The banking sector is also being privatised with several public sector banks being restructure and divestment of Government hold-



ings being carried out. At present, India has 33 public sector banks,1 7 new private sector banks,2 13 old private sector banks,3 43 private foreign banks,4 56 regional rural banks, 4 local area banks,5 1,577 urban cooperative banks (50 scheduled cooperative banks and 1,527 non-scheduled cooperative banks), 32 state cooperative banks and 371 district cen-tral cooperative banks.6

Various public financial institutions have been established in order to catalogue growth 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, has now been privatised), etc. These institutions provide finance to various sectors of the economy, where commercial banks do not lend.

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 207 recognised stock exchanges with over 15,886 securities listed in 2015-2016.8 The Bombay Stock Exchange Limited (BSE) as of date is the biggest bourse in number of listed companies and in terms of equity market capitalisation.9 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 2015-2016 increased by 13.59% to Rs 2,59,938 crore from Rs 2,28,833 crore in 2014-201510. The Indian capital markets are rapidly moving towards a market that is modern in terms of infrastructure as well as application of international best practices such as derivative trading with stock index futures.

¶2-060 Reforms in Infrastructure

Roads Indian roads 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 3.3 million kms which is second largest in the world.11 National highways, that are the prime arterial routes, span about 96,260.72 kms throughout the country, catering to about 40% of the total road-transport demand.12 Recently, reforms have been 1 http://financialservices.gov.in/banking/ListOfCMDsOfPSBs.asp?pageid=1 2 http://financialservices.gov.in/banking/ListofPrivateSectorBanks.asp?pageid=2 3 http://financialservices.gov.in/banking/ListofPrivateSectorBanks.asp?pageid=1 4 https://rbi.org.in/Scripts/AboutUsDisplay.aspx?pg=Foreign.htm 5 http://www.gktoday.in/blog/local-area-banks/ 6 https://rbi.org.in/Scripts/sitemap.aspx 7 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1408513411215.pdf (Pg #118) 8 http://www.bseindia.com/markets/keystatics/Keystat_Companies.aspx?expandable=1 9 http://www.bseindia.com/about/heritage.asp 10 http://www.nseindia.com/products/content/derivatives/equities/fo_businessgrowth.htm 11 http://www.nhai.org/roadnetwork.htm 12 http://www.nhai.org/roadnetwork.htm



initiated to improve and modernise roads. The Golden Quadrilateral Project is making progress. The Golden Quadrilateral which is part of the first phase of the National Highways Development Project (NHDP), has already been completed by June, 2015.1 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.

Railways Indian 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 Howrah, commonly known as the Golden Quadrilateral; and its two diagonals (Delhi-Chennai and Mumbai-Howrah), adding up to a total route length of 10,122 km carries more than 55%2 of revenue earning freight traffic of Indian Railways. The existing trunk routes of Howrah-Delhi on the Eastern Corridor and Mumbai-Delhi on the Western Corridor are highly saturated, line capacity utilization varying between 115% and 150%.3 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 technology. Significant improvement is proposed to be made in the existing carrying capacity by modifying basic design features. The permanent way will be constructed with significantly higher design features that will enable it to withstand heavier loads at higher speeds. Simultaneously, in order to optimize productive use of the right of way, dimensions 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.

Ports Ports are the main gateways for trade. Presently, in India, about 95% of the trade by

quantity and 77% by value takes place through ports.4 There are 12 major ports and about 187 minor and intermediate ports in India.5 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.

1 http://www.nhai.org/gqmain_english.htm 2 http://www.dfccil.gov.in/dfccil_app/Background.jsp 3 http://www.dfccil.gov.in/dfccil_app/Background.jsp 4 http://www.ibef.org/industry/ports-india-shipping.aspx 5 http://shipping.gov.in/index1.php?lang=1&level=0&linkid=16&lid=64



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 kms1. 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.

Indian Airways India’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.

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, 69.6% of the electricity consumed in India is generated by thermal power, 15.2% by hydro- electricity and 2.1% by nuclear power2. India’s high economic development has created a surge in the demand for electricity. The 2012-2017 five year plan set by the Government of India calls for an additional 100,000 MW of generating capacity in which the private sector will play a major role.

Telecom Services Telecom services have been recognised the world over as an important tool for the

socio-economic development of a nation. Hence, telecom infrastructure is treated as a 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 the world. The first and at present the largest operator is the State-owned company Bharat Sanchar Nigam Limited (BSNL), the seventh-largest telecom company in the world in terms of number of subscribers.

1 http://www.cwc.gov.in/main/downloads/Final%20Annual%20Report%202009_10.pdf 2 http://powermin.nic.in/power-sector-glance-all-india



¶2-070 Liberalisation of Foreign Investment and Foreign Trade Regulations

India 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, 20131 through

joint ventures, or wholly owned subsidiaries.

Unincorporated entity: As an office of a foreign entity through liaison office/representative office, project office, and branch office.

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

¶2-080 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.

1 The Companies Act, 1956 has now been replaced with Companies Act, 2013 and has

come into effect from April 1, 2014.



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 of the other country. Such agreements are beneficial for both the countries because they stimulate their business initiatives and, thus, enhance their prosperity.

Many countries have entered into bilateral investment treaties or agreements that encourage capital flows into their own countries, but also provide safe business environment 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 process of being enforced. In addition, agreements have also been finalised and/or being negotiated with a number of other countries.



Chapter 3 Constitutional Framework

Governance Framework ................................................................................ ¶3-010 Hierarchy of Courts for Civil Matters ........................................................... ¶3-020 Alternate Dispute Resolution (ADR) ............................................................ ¶3-030

¶3-010 Governance Framework “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:

Executive Consists of: 1. President; 2. Vice President; & 3. Cabinet Ministers.

Legislature of Parliament

Consists of: 1. Lok Sabha, & 2. Rajya Sabha

Judiciary Consists of: Supreme Court of India

Responsibility: To pass the laws made by the Legislature

Responsibility: To make laws

Responsibility: To solve conflicts between executive and Legislature Other public related matters or conflicts

Government of India (GOI) Central/ Union government

© 2015 Vaish Associates,,, Advocates. All rightsgg reserved.

Chapter 3 Constitutional Framework 15

Transparency, accountability and adherence to the rule of law depends 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.

Legislature In India, the Parliament is the supreme legislative body. As per Art 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 of India.

Executive The 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 powers, though in case of conflict between the two, the Centre’s position prevails.

Judiciary The 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 Manusmriti from 100 AD. These were the influential treatises in India, texts that were 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:



¶3-020 Hierarchy of Courts for Civil Matters

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 appellate jurisdiction of the Supreme Court can be invoked by a certificate granted by the High Court concerned in respect of any judgment, decree, or final order of a High Court, in 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 precedence for lower courts. Under Art 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, 23 High Courts in India.1 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

1 http://indiancourts.nic.in/index.html



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 In some States, there are some lower courts (below the District Courts) called

Munsif’s 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 Rs 2,000.1 However, in some States, civil courts have unlimited pecuniary jurisdiction. Judicial officers in these courts are appointed on the basis of their performance in competitive examinations held by the various States’ Public Service Commissions.

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 to specific kind of disputes. These Tribunals have been set up in India to look into various 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 Companies Act, 20132 are also in the pipeline.

1 Section 18 of The Presidency Small Cause Courts Act, 1882 http:// indianka-

noon.org/doc/997218/ and http://www.manupatrafast.in/ba/fulldisp.aspx?iactid=1496 2 The Companies Act, 1956 has now been replaced with Companies Act, 2013 which has

come into effect from April 1, 2014.



¶3-030 Alternate Dispute Resolution (ADR) An interesting feature of the Indian legal system is the existence of voluntary

agencies called Lok Adalats (Peoples’ Courts). These forums resolve disputes through methods like 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 most efficacious mechanisms to resolve commercial disputes of an international nature. 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 a 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, and 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 cases, on merits.


Chapter 4 Competition Policy and Laws 21

Chapter 4 Competition Policy and Law

Competition Laws in India — An Overview ................................................ ¶4-010 Legislations Governing Competition in India ............................................... ¶4-020 Recent Developments in Competition Law in India .................................... ¶4-030

¶4-010 Competition Laws in India — 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 (MRTP Act) which was primarily designed to restrict the growth of monopolies in the market — with a modern competition law in sync with established competition law principles around the world. As the first step towards this transformation, 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:

i. to prevent practices that have an adverse effect on competition;ii. to promote and sustain competition in the markets;iii. to protect the interests of consumers; andiv. to ensure freedom of trade carried on by other participants in markets in India.These objectives are sought to be achieved by the establishment of the Competition

Commission of India (hereinafter referred to as “CCI”), which was established by the Central Government with effect from October 14, 2003. Accordingly, the CCI is mandated to prohibit anti-competitive agreements and abuse of dominant positions by enterprises and to regulate combinations (ie, mergers, amalgamations, or acquisitions) through a process of inquiry and investigation. However, before the CCI could be fully constituted, public interest litigation was filed in the Supreme Court challenging its constitution. This matter was finally disposed by the court in January 2005 after the Government gave an assurance to amend the Competition Act and create a separate quasi-judicial appellate authority, while leaving the expert regulatory space for the CCI. 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 CCI orders and to determine compensation claims arising out of CCI’s decisions.

© 2015 Vaish Associates,,, Advocates. All rightsgg reserved.


Constitution of the CCI and the Appellate Tribunal The CCI is constituted of a Chairman and not less than two members and not more

than six other members to be appointed by the Central Government. The Competition Appellate Tribunal (COMPAT) consists of a Chairman (who has

been a Judge of the Supreme Court or the Chief Justice of a High Court) and not more than two other members appointed by the Central Government.

The sections relating to prohibition of anti-competitive agreements (s 3) and abuse of dominant positions (s 4) have been enforced with effect from May 20, 2009. The sections relating to the regulation of combinations (s 6) were enforced on June 1, 2011. Moreover, the implementing regulations supplementing the substantive provisions have been put in place to ensure implementation at the procedural level. The Competition Commission of India (General Regulations), 2009 (hereinafter the “General Regulations”) provide general procedural framework for enforcement of the Competition Act, while the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (hereinafter the “Combination Regulations”) provide specific procedural guidance for regulations of combinations.

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 enhancement of efficiency in the market, which are also included in the Directive Principles of State Policy, 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 Monopolies Inquiry 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 MRTP Act.

¶4-020 Legislations Governing Competition in India

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


Chapter 4 Competition Policy and Law 23

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 ofmaintaining 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 ofpreventing or restricting competition in any manner and that tends to bring about manipulation of prices or that affects the flow of supplies of goods and services in the market so as to impose unjustified costs and restrictions on the consumers.

3. Unfair Trade Practice: This refers to a trade practice, where for the purpose ofpromoting the sale or use of any goods or services, any unfair means or deceptive practices including falsely representing the characteristics, performances, uses or benefits of a 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 MRTP Commission stands dissolved and the governing statute, the MRTP Act stands repealed with effect from October 14, 2009. The pending cases are being disposed by the COMPAT and pending investigations or proceedings relating to unfair trade practices referred to in s 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 CCI from the said date.

The Competition Act, 2002 With the liberalisation 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 in sync with international competition law regimes. Acting on the report of the Raghavan Committee, the Government enacted the Competition Act, which replaced 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. A major feature of the Competition Act is that it does not prohibit monopolies or dominant position per se, it only forbids its abuse.

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 anti-competitive activities which disturb the competition equilibrium. The CCI sits and conducts its functions from New Delhi.



The Competition Act seeks to regulate the following important areas:

Anti-competitive agreements (Section 3) An “agreement” under the Competition Act need not be in writing or even legally

enforceable. It includes any arrangement, understanding or action in concert or any informal agreement. Such 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 "appreciable adverse effect on competition" within India, is defined as an “anti-competitive 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. Further, exemptions are available to help exercise of reasonable restrictions on intellectual property rights by their holders. 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 fix prices;ii. agreements to limit production, supply, markets, technical development,

investments or provisions of services;iii. agreements to allocate markets or the source of production or provision of

services through the allocation of, for example, geographical area, type of goodor service or the number of customers; and

iv. bid rigging or collusive bidding.These horizontal agreements are presumed to have an appreciable adverse effect on

competition, which is similar to the per se rule prevalent in the United States and the concept of “object infringement” prevalent in the European Union. Where such a rule applies, the burden of disproving appreciable adverse effect on competition lies on the alleged infringers. “Cartel” is the most pernicious form of horizontal agreement and has been defined as an association of producers, sellers, 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: i. tie-in arrangements;ii. exclusive supply agreements;iii. exclusive distribution agreements;iv. refusal to deal; andv. resale price maintenance.However, such arrangements are common business practices and infringe the law

only if they adversely affect competition. The five above-mentioned inclusive categories of vertical agreement have the potential for foreclosing competition by hindering the entry of new players into the market or driving out existing competitors from 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 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 when any of the parties to the agreement chooses to file a case or when a third party likely to be affected by such agreement (eg, customers or consumers) chooses to challenge the agreement before the CCI. Therefore, it is advisable to have such agreements examined to reduce the possibility of a challenge and possible fines.

Abuse of Dominant Position (Section 4) The Competition Act defines what constitutes a “dominant position”. However, the

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 CCI 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:

i. its own motion;ii. information received from any person, consumer or association or any trade

association; oriii. on a reference received from the Central Government, State Government or a

statutory authorityThe Competition 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:

i. imposition of an unfair or discriminatory condition on the purchase or sale ofgoods or services, or on price in the purchase or sale of goods or services,including predatory pricing;

ii. the limitation or restriction of the production of goods or the provision ofservices or the market thereof;

iii. the limitation or restriction of technical or scientific development relating togoods or services to the prejudice of consumers;

iv. denial of market access in any manner;v. making the conclusion of contracts subject to acceptance by other parties of

supplementary obligations which, by their nature or commercial usage, have noconnection with the subject of such contracts; or

vi. use of its dominant position in one relevant market to enter into or protectanother relevant market.



Implications of enforcement of Section 4 The enforcement of s 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 s 4, unlike that under s 3, an appreciable adverse effect on competition in the relevant market need not be proved. However, any of the six prohibited business practices listed in s 4 is sufficient to bring the dominant enterprise within the ambit of the CCI's scrutiny and instances of such prohibited activities in India are not scarce.

The Competition Act mandates the CCI 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 case of abuse of a dominant position would be brought against such public sector enterprise before the CCI. Even multinational corporations that operate in India and have large market shares in the relevant market are subject to the CCI's scrutiny if they are found to be indulging in any prohibited business practices. The consequences of enquiry by the CCI 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 divisions, which may have serious consequences for the business and investors. Therefore, expert advice may be considered in cases of enterprises with large market shares in any market.

Regulation of combination (Section 6) Under the Competition Act, “combinations” mean: i. acquisition of control, shares, voting rights or assets;ii. acquiring of control by a person over an enterprise where such person has

control over another enterprise engaged in competing businesses; andiii. mergers and amalgamations between or among enterprises when the combining

parties exceed the thresholds, as set out in the Act.The thresholds are clearly specified in terms of assets or turnover in India and

abroad. 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.

The threshold limits as prescribed by the Act are as under:

Thresholds The threshold limits have been defined as follows: i. combined assets of more than Rs 15 billion in India;ii. combined domestic turnover of more than Rs 45 billion in India;iii. combined worldwide assets of more than $750 million (including at least Rs 7.5

billion of assets in India); oriv. combined worldwide turnover of more than $2.25 billion (including at least Rs

22.5 billion turnover in India).



If the merged entity belongs to a group, the threshold limits are as follows: i. combined group assets in India of more than Rs 60 billion;ii. combined group turnover in India of more than Rs 180 billion;iii. combined worldwide assets of the group value of more than $3 billion

(including at least Rs 7.5 billion group assets in India); oriv. combined worldwide group turnover of more than $9 billion (including at least

Rs 22.5 billion group turnover in India).The thresholds refer to the preceding financial year and the following rules apply: i. There are no sector-specific rules for calculating the turnover for determining

the thresholds. “Turnover” includes value of sale of goods or services. It is theoverall turnover which is taken into consideration and not turnover limited tothe relevant product market.

ii. The official exchange rate of the Indian rupee with the US dollar and the euro isannounced daily by the Reserve Bank of India (RBI) as the RBI Reference Rateon its website. It is advisable to follow the reference rate to determinethresholds.

iii. Market shares are not to be taken into account for the threshold test.iv. The value of assets includes the brand value, value of goodwill, or value of

copyright, patent, permitted use, collective mark, registered proprietor,registered trade mark, registered user, homonymous geographical indication,geographical indications, design or layout design or other similar commercialrights. Thus, intangible assets are also included.

Stages Unlike most jurisdictions, there are no well-defined Phase I and Phase II enquiries in

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 CCI, after which the combination is deemed to have been approved. It should be noted that the transaction cannot be consumed as long as either the CCI has not given its approval to the same or the statutory limit of 210 days has expired.

However, the following identifiable steps are prescribed under the Competition Act for merger control.

1. Filing of notice by partiesThe notice, disclosing the details of the proposed combination (includingacquisitions, acquisition of control, mergers and amalgamations) iscompulsorily required to be given to the CCI within 30 days of (i) approval ofthe proposal relating to the merger or amalgamation from the board of directorsof the enterprises concerned; or (ii) execution of any agreement or otherdocument for the acquisition or acquisition of control. The notice isaccompanied by the long summary of the combination (within 2000 words) aswell as a short summary within 500 words. The short summary shall notinclude any confidential information and shall be displayed on the website ofthe CCI while the proposed combination is under review. There is a mandatorywaiting period of a maximum of 210 calendar days from the notice filing date.



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

2. Issue of show cause noticeOn filing the notice, the CCI may either approve the combination or, if it is ofthe prima facie opinion that the combination may result in an appreciableadverse effect on competition within the relevant market in India, issue a showcause notice within 30 days of filing of such notice as to why investigation inrespect of such combination should not be conducted. After issue of the showcause notice, the CCI may also require a report from the Director General of theCCI.

3. Publication of details of combinationOn receipt of the parties' response to the show cause notice and the directorgeneral's report, if the CCI is still of the prima facie opinion that thecombination may result in an appreciable adverse effect on competition withinthe relevant market in India, it may, within seven working days of receipt,direct the publication of details of the combination within 10 working days, in amanner specified by the CCI, to bring the combination into public knowledge.

4. Invitation of comments and objections from the publicWithin 15 working days of publication of the details, the CCI may inviteobjections and comments from members of the public or call for suchinformation from the parties as it deems fit.

5. Passing of orderOn receipt of all information, the CCI may approve the combinationunconditionally or with conditions and modifications, or it may disapprove thecombination. The 'modifications' correspond to 'remedies' in other jurisdictions.The parties who accept the modifications proposed by the CCI shall accept thesame within the time period specified by the CCI.

Penalties under the Competition Act Unlike the erstwhile MRTP Act, the CCI has vast powers in relation to anti-

competitive agreements and abuse of dominant positions. If the CCI 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. a cease and desist order, which directs the parties involved in such agreement or 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;

B. an order which imposes a monetary penalty, as deemed fit but that does not exceed 10% of the average turnover for the last three preceding financial years, 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 CCI may impose on each producer, seller, distributor, trader or service provider included in that cartel a penalty of up to three times its profit for each year of the continuance of



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

C. an order that directs that the agreement must stand modified to the extent and in the manner that may be specified in the order;

D. an order that directs compliance with its orders and directions, including payment of costs;

E. an order that directs the division of an enterprise that is abusing its dominant position to ensure that it can no longer abuse its dominance; and

F. any other order or direction as the CCI deems fit. In addition, any person may apply to the COMPAT 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 any conduct of the enterprise which has been found to be a violation of the Act either by the CCI or the COMPAT, or for losses arising to the said person out of contravention of the orders of the CCI or the COMPAT by the said enterprise:

Execution of CCI orders imposing monetary penalty The CCI has framed exhaustive regulations for recovery of monetary penalty

imposed under the Act. Such procedure may also include a reference to the Income Tax Authority for recovery of the penalty as tax due under the Income Tax law(s).

Consequences of contravention of CCI orders The CCI has vast powers to ensure compliance with its orders and directions,

including those relating to “modifications” for combinations. The first non-compliance instance entails punishment with a fine of up to Rs 100,000 for each day that such noncompliance occurs, subject to a maximum of Rs 100 million. Failure to pay the penalty for non-compliance is to be tried before the Delhi chief metropolitan magistrate on a complaint filed only by the CCI and may entail imprisonment for up to three years or a fine of up to Rs 250 million, or both.

Penalty for failure to comply with CCI directions If a person fails to comply, without reasonable cause, with a CCI direction given

under s 36(2) or (4) or a Director General direction given under s 41(2), such person will be punishable with a fine of up to Rs 1,00,000 for each day during which such failure continues, subject to a maximum of Rs 10 million. Power to impose penalty for non-furnishing of information on combinations if any person or enterprise fails to give notice to the CCI under s 6(2), the CCI 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 Rs 5 million, which may extend to Rs 100 million, as may be determined by the CCI.



Penalty for offences in relation to furnishing of information Without prejudice to s 44, if a person knowingly furnishes false information or

suppresses any material fact or willfully alters or destroys any document that is required to be furnished with the information, such person will be punishable with a fine of up to Rs 10 million, as may be determined by the CCI

Power to impose lesser penalty: leniency scheme for cartel members If the CCI is satisfied that any producer, seller, distributor, trader or service provider

that is involved in a cartel which is alleged to have violated s 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 s 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 CCI until completion of the proceedings before it.

Further, the CCI 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 first come, first served basis under a 'marker system'.

¶4-030 Recent Developments in Competition Law in India The CCI has proved itself to be an effective regulator for preserving competition in

markets in India. It has dealt with the violations of the Competition Act with a heavy hand and has imposed penalties in more than 50 cases of violations of the Competition Act till October 2015. This includes 37 cases of violation of s 3 related mainly to bid-rigging cases, and 15 cases of violation of s 4 of the Competition Act. Further, six cases of violation of s 6 of the Act relating mainly to delayed filings of notices for Combinations have also been penalized.

Salient Features of the Merger Control Regime in India Some of the key features of the combination regime in India are listed below:

• Target Exemption- Under the Competition Act-The Central Government has granted an exemption from the provisions of s 5of the Competition Act to any “target” enterprise, having assets of the value ofmore than Rs 250 crore or turnover of not more than Rs 750 crore whosecontrol, shares, voting rights or assets are being acquired from the definition ofcombinations under s 5 of the Competition Act. The said exemption expires onMarch 4, 2016.

• Pre-merger Consultation - The CCI has provided for voluntary pre-mergerconsultation on a specific request made by the parties. However, the opinionrendered by CCI at such consultation is verbal and non-binding on CCI.

• Shorter Review Period – CCI is mandated to form its prima facie opinionwhether to investigate the proposed combination within 30 days of filing of thenotice under the Competition Act. Further, the maximum time prescribed forscrutiny of any proposed combination by the CCI is 210 days from the date of



filing of the notice after which the merger is deemed to be approved unless rejected earlier. However, under the Combination Regulations, CCI endeavors to pass its order within an even shorter time period of 180 days, as opposed to the 210 days maximum time period as required under the Competition Act.

Exclusions- Under the Combination RegulationsAs mentioned under Regulation 4 read with Schedule-I of the CombinationRegulations, certain categories of transactions are ordinarily not likely to causean appreciable adverse effect on competition within India, and the parties neednot normally file a notice with the Commission. Such transactions are as under.

Acquisitions of less than 25% of the shares or voting rights in theordinary course of business provided no other controlling rights areacquired; [Category 1]Acquisition of additional shares or voting rights not more than 5%provided the acquirer already holds more than 25% but not 50% or moreexcept when it results in transfer from joint to sole control; [Category 1A]Acquisition of shares or voting rights, where the acquirer prior toacquisition has 50% or more shares and voting rights except when itresults in transfer from joint to sole control; [Category 2]Intra-Group acquisition, merger or amalgamation provided thecombination doesn’t result in change from joint to sole control; [Category8 & 9]Acquisitions of shares or voting rights by a securities underwriter or

pursuant to a bonus issue, stock split/consolidation, or rights issue, to theextent of the entitled proportion, provided no control is acquired;[Category 6 & 7]Acquisitions of assets "not directly related to the business activity and notleading to control” except where the assets acquired are substantial for aparticular location or for a particular product or service of the enterprisebeing acquired; [Category 3]Acquisition of shares, control, voting rights or assets by a purchaserapproved by the Commission in accordance with its order under s 31 ofthe Act; [Category 10]

Three types of Notice Formats - The Combination Regulations provide forthree forms of notices to be filed for obtaining approval wherever required.

Form-I (annexed to the Combination Regulations and published on theCCI’s website) - Ordinarily filed for all combinations except for thoseForm-II or Form-III is preferred to be filed.Form II- Preferred in instances where:

For a horizontal combination, if the combined market share of the combiningparties is 15% or more in the relevant market;For a vertical combination, if the combined market share of the combiningparties is 25% or more in the relevant market;



Form III – This Notice Form is to be used by public financialinstitutions, foreign institutional investors, bank or venture capital fund, inrespect of share subscription or financial facility or any acquisition madeby them pursuant to any covenant of a loan agreement or investmentagreement, in pursuant to sub-s (5) of s 6 of the Act.

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

Form-I - Rs 1.5 millionForm-II - Rs 5.0 million

• Request for Confidentiality–Any request for confidentiality of the documentssubmitted during the investigation shall be duly considered having due regardto the procedure laid down in the General Regulations.

• Appointment of independent agencies to oversee modification - TheCombination Regulations provide for appointment of independent agencies tooversee the carrying of modifications suggested by the CCI in cases where theparties have accepted such modifications and their implementation by theparties, in the opinion of CCI, needs supervision. The agencies to be appointedshall have no conflicts of interest. Such agencies may include an accountingfirm, management consultancy, law firm or any other professional organisation,or part thereof, or independent practitioners of repute.

Observations The provisions of the Competition Act relating to anti-competitive agreements and

abuse of dominant position have been in force for six years now; while the provision relating to Combinations have been in force for more than four years now. In the intervening years, the CCI has decided more than 400 cases relating to anti-competitive agreements and abuse of dominance. Similarly, the CCI has given orders in notices filed in more than 300 combinations till date. Till date, no combination has been disapproved by the CCI. Modifications have been ordered in two cases, rest of the notices filed have been approved unconditionally. The evolving body of jurisprudence provides a greater outlook on various aspects related to the modern competition law in India. For example, the jurisprudence relating to the concepts of “agreement/cartels”, “dominant position”, combination review, “enterprise” and “group”, “composite transactions”, etc. is evolving and expanding by the day. As and when decisions are given by the CCI as well as the Appellate forums, jurisprudence shall have greater clarity and certainty.

Important Website: Competition Commission of India : www.cci.gov.in


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

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

Special Economic Zones ............................................................................... ¶5-010 Export Oriented Units ................................................................................... ¶5-020 Software Technology Parks .......................................................................... ¶5-030 Electronics Hardware Technology Parks ...................................................... ¶5-040 Biotechnology Parks ..................................................................................... ¶5-050

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.

¶5-010 Special Economic Zones With 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.

Initially, SEZs in India functioned from 1 November 2000 to 9 February 2006 under the provisions of the Exim Policy/Foreign Trade Policy and fiscal incentives were made available through the provisions of relevant statutes. This system did not lend enough confidence to the investors to commit substantial investment for development of infrastructure 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, the Special Economic Zones



Rules, 2006 (SEZ Rules) were notified on 10 February 2006. Consequently, the SEZ Act came into operation w.e.f. 10 February 2006.

The SEZ Policy provides for simplified procedures and single-window clearance 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 as follows: Simplified procedures for development, operation, and maintenance of the SEZs

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 Simplified compliance procedures and documentation with an emphasis on self

certification.

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 Zonal level deals with approval of units in the SEZs and other related issues.

Each SEZ is headed by a Development Commissioner, who is ex officio chairperson of the UAC.

Once an SEZ has been approved by the BOA and Central Government has notified the area of the SEZ, units are allowed to be set up in that SEZ. All the proposals for setting up of units in the SEZ are approved at the Zonal level by the UAC consisting of Development Commissioner, Customs Authorities and representatives of the State Government.



‘Ease of Doing Business in India’ initiative-Online Filing Facility for SEZ Proposals

Ministry of Commerce and Industry vide Notification No. D.12/25/2012-SEZ (Pt.) dated June 30, 20151 provides for digitization of application/ permissions by SEZ Units/Developers (Phase-II).

The Department of Commerce, Ministry of Commerce and Industry (MoCI), had announced the online filing of SEZ proposals vide Circular F. No. D.12/13/2008-SEZ, dated 21 October 2008. The following online services were being offered through the SEZ online link on the website http://www.sezindia.nic.in/:

Filing of application (Form A) for setting up SEZ. Filing 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 Department.

Online status of requests. For filing of new applications, a physical copy of the complete application form after

due signatures and authentication has to be submitted along with necessary enclosures. In addition to the various applications digitized vide Department’s aforesaid circular

of 28 October, 2014, as a part of “Ease of Doing Business” initiative of Department of Commerce, the following additional transactions are identified by Department of Commerce as important applications made by SEZ units and Developers to Development Commissioner’s office and Department of Commerce for various approvals/ intimations/ reporting.

Accordingly, with effect from 1 July 2015, online submission process for the following transactions has been made part of the SEZ Online System:

For SEZ Developers: 1. Application for change of sector of SEZ (Form C3) 2. Application for addition of land in notified SEZ (Form C4) 3. Application for deletion of land in notified SEZ (Form C5) 4. Application for De-notification of Notified SEZ (Form C6) 5. Application for Form I for CST Exemption 6. Application to lease out space for canteen facilities etc. in processing area 7. Application for approval of list of materials and Services to carry on authorized

operation in SEZ. 8. Receipt & examination of the proposal by DC Office for setting up of SEZ,

Processing the proposal along with site inspection report to DOC for consideration by Board of Approval (BoA).

1 http://sezindia.nic.in/writereaddata/GeneralNotifications/Digitazation% 20of%20application.pdf



For SEZ Units: 1. Application for Issuance of Importer Exporter Code. 2. Application for Issuance of Registration-Cum-Membership Certificate. 3. Application for issuance of Form-I for CST Exemption Further, no manual interface is to be allowed with effect from 1 July 2015 w.r.t.

applications already identified and conveyed vide aforementioned circular of even number dated 28 October 2014 (Phase-I).

Minimum Investment/Net-Worth Criteria for setting up SEZ The minimum investment or net-worth of the promoters, all group companies, and

flagship companies, should be as under: Multi-Product SEZs - Minimum investment of Rs 1,000 crore (Rs 10 billion) or

net-worth of Rs 250 crore (Rs 2.5 billion) Sector-specific SEZs - Minimum investment of Rs 250 crore (Rs 2.5 billion) or

net-worth of Rs 50 crore (Rs 0.5 billion)

Process of setting up of SEZ Setting up of a Special Economic Zone (a)



(b)

Incentives to the SEZs SEZs are deemed to be a foreign territory within the country. The SEZs are

specifically treated as duty-free enclaves for the purposes of trade operations, duties and 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 s 80-IAB of the

Income Tax Act for any consecutive 10 years out of the first 15 years from the date of notification of the SEZ.

Exemption from minimum alternate tax (MAT) under s 115JB of the Income-tax Act. However, with effect from the assessment year 2012-2013, MAT at the rate of18.5% has been imposed on SEZ Developers.

Exemption from dividend distribution tax (DDT) under s 115-O of the Income-tax Act to the SEZ Developers. However, with effect from 1 June 2011, DDT has been imposed at the rate of 15% on the dividend distributed by the SEZ Developers.

(ii) Indirect Taxes Duty-free import/domestic procurement of goods for development, operation

and maintenance of SEZs Exemption 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.



SEZ developers can avail of ECBs for providing infrastructure facilities within SEZ. For (“infrastructure sector”, please refer para I(A)(v)(a) of the RBI Master Circular No. 12/ 2015-16 dated July 1, 2015).

(iv) Miscellaneous

Full freedom in the allocation of space and built-up area to approved SEZ units on commercial basis.

Authorisation to provide utilities and maintenance services, viz, water, electricity, security, restaurants and recreation centers on a commercial basis.

Generation, 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 15 years tax holiday in a phased manner, subject to certain conditions. 100% income

tax exemption under s 10AA of the Income Tax Act, 1961 for the first 5 years, 50% for the next 5 years and thereafter 50% of the ploughed back export profits for the next 5 years. Exemption from minimum alternate tax (MAT) under s 115JB of the Income Tax Act was earlier available to the SEZ Units. However, with effect from the assessment year 2012-2013, MAT at the rate 18.5% has been imposed on SEZ units. (ii) Indirect taxes

Duty-free import/procurement from domestic sources for all their requirement of capital goods, raw materials, office equipment, DG sets, etc, for implementation of their project in the SEZ, without any license

Exemption from CST Exemption/refund 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 warship, Automatic substances, Narcotics and psychotropic substances and hazardous chemicals, Distillation and brewing of alcoholic drinks, and Cigarettes/cigars and manufactured tobacco substitutes.

Sectoral norms, as notified by the Government, applies to foreign investment in services. The cases not covered by automatic route to be considered and approved by the BOA.

Units in SEZs are permitted to issue equity shares to non-residents against import of capital goods subject to valuation done by a Committee consisting of Development Commissioner and appropriate Customs officials.



Units in Special Economic Zones (SEZs) are allowed to raise ECB for their own requirement. However, they cannot transfer or on-lend ECB funds to sister concerns or any unit in the Domestic Tariff Area (DTA).

The period of realisation and repatriation of export proceeds shall be nine months from the date of export for SEZ units.1

SEZ unit may open, hold and maintain a Foreign Currency Account with an AD Category – I bank in India subject to conditions stipulated in Regulation 6(A) of Notification No. FEMA 10/2000-RB dated May 3, 2000 and as amended from time to time.

SEZ Units are permitted to undertake job work abroad and export goods from that country itself subject to the conditions that: a. Processing/manufacturing charges are suitably loaded in the export price

and are borne by the ultimate buyer. b. The exporter has made satisfactory arrangements for realization of full

export proceeds subject to the usual EDF procedure. AD Category – I banks may permit units in DTAs to purchase foreign exchange for

making payment for goods supplied to them by units in SEZs. Export of Services by Special Economic Zones (SEZs) to DTA Unit:

Authorised Dealer Banks are permitted to sell foreign exchange to a unit in the DTA for making payment in foreign exchange to a unit in the SEZ for the services rendered by it (ie SEZ Unit) to a DTA Unit.

“Netting off” of export receivables against import payments by SEZ Units: AD Category-I banks may allow requests received from exporters for “netting off” of export receivables against import payments for SEZ Units subject to the condition that the “netting off” of export receivables against import payments is in respect of the same Indian entity and the overseas buyer/supplier (bilateral netting) and the netting may be done as on the date of balance sheet of the unit in SEZ.

Enhanced limit of Rs 24,000,000 (Indian Rupees Twenty-four million) per annum allowed as managerial remuneration under the Companies Act, 2013.

Obligations of SEZ Units To achieve positive Net Foreign Exchange (NFE), in accordance with the

formula provided under r 53 of SEZ Rules, 2006. To execute Bond-cum-Legal Undertaking and submit to the Development

Commissioner in the prescribed Form-H under SEZ Rules, 2006. To submit Annual Performance Report to the Development Commissioner, in

the prescribed Form-I under SEZ Rules, 2006. To abide by local laws, rules, regulations or bye-laws with regard to the area

planning, sewerage disposal, pollution control and the like.

1 RBI Master Circular No.14/2015-16 dated July 1, 2015 on Export of Goods and Services (as

updated on November 5, 2015).



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.

Conclusion The SEZ scheme has generated tremendous response amongst investors, both in

India and abroad. As on July 9, 2015, there were 416 SEZs which have been formally approved, out of which 330 SEZs have been notified. Further, out of 330 notified SEZs, 202 SEZs are were operational as on March 31, 2015. Nearly 3,900 units/ companies have set up their operations in these operational SEZs by making cumulative investment of Rs 2,88,477 crore. During the financial year 2013-2014, the exports from the operational SEZs stood at Rs 4,94,077 crore, which constituted nearly 30% of India’s total exports.

The facts suggest that the SEZ scheme has generated a large flow of foreign and domestic investment in the development of SEZs.

¶5-020 Export-oriented units The export-oriented unit (EOU) Scheme was introduced in 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 including agro-processing, aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisci-culture, 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 Rs 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 services sector (except R&D, software and IT-enabled services or any other service activity, as may be delegated by the BOA), is approved or rejected by the Unit Approval Committee.

EOUs may import, without payment of duty, all types of goods, including capital goods, as defined in the Policy, required by it for its activities or in connection therewith, 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 and Indian suppliers can claim benefits of deemed exports. In addition, foreign investment up to 100% is allowed, subject to sectoral norms.

¶5-030 Software technology parks 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 (except prohibited goods, namely capital goods, raw materials, consumables, office 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.

For the STP units, the period of realisation and repatriation of export proceeds shall be nine months from the date of export.1

Further, foreign investment up to 100% is allowed, subject to sectoral norms.

¶5-040 Electronics hardware technology parks The Electronics Hardware Technology Parks (EHTPs) 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 (except prohibited goods, namely capital goods, raw materials, consumables, office equipment, 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.


updated on November 5, 2015)



For EHTP units, the period of realisation and repatriation of export proceeds shall be nine months from the date of export.1 Further, foreign investment up to 100% is allowed, subject to sectoral norms.

¶5-050 Biotechnology parks The Biotechnology Parks (BTPs) 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 of goods, including capital goods, as defined in the Foreign Trade Policy, required by it for 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.

For BTP units, the period of realisation and repatriation of export proceeds shall be nine months from the date of export.2


updated on November 5, 2015) 2 RBI Master Circular No.14/2015-16 dated July 1, 2015 on Export of Goods and Services (as

updated on November 5, 2015)


Chapter 6 Foreign Investment in India 43

Chapter 6 Foreign Investment in India

Policy on foreign direct investment ............................................................... ¶6-010 Eligibility for investment in India — Who can invest? ................................. ¶6-020 Entry routes ................................................................................................... ¶6-030 Prohibition on investment in India ................................................................ ¶6-040 Types of instruments eligible for FDI ........................................................... ¶6-050 Entities into which FDI can be made ............................................................ ¶6-060 Issue of instruments ....................................................................................... ¶6-070 Transfer of instruments ................................................................................. ¶6-080 Calculation of total foreign investment, ie., direct and indirect foreign investment ......................................................................................... ¶6-090 Downstream investment by Indian companies .............................................. ¶6-100 Remittance and repatriation .......................................................................... ¶6-110 Sector-specific policy .................................................................................... ¶6-120

¶6-010 Policy on foreign direct investment The 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 Notification No. FEMA 20/2000-RB dated May 3,2000 which contains the Regulations in this regard. This Notification has been amended 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 equity caps are notified from time to time through the annual Consolidated FDI Policy, 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/

© © © 20152015 2015 VaishVaishVaish AssociatesAssociates,Associates, AdvocatesAdvocates.Advocates. AllAllAll rightsrightsrights reservedreserved.reserved.


determined upfront at the time of issue of the instruments. A schematic representation of various types of foreign investment permitted in India is given below:

¶6-020 Eligibility for investment in India — Who can invest? The following persons are permitted to invest in India, subject to the FDI Policy:

Person resident outside India A person resident outside India or a non-resident entity can invest in India. A citizen

of Bangladesh or Pakistan or an entity incorporated in Bangladesh can invest in India, only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space and atomic energy and sectors/activities prohibited for foreign investment.

Foreign institutional investor A registered Foreign Institutional Investor (FII) is eligible to purchase shares and

convertible debentures and warrants 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. An FII/SEBI approved sub accounts of FII may invest in the capital of an Indian company up to a maximum of 10% of the total paid-up share capital of the company (or total paid-up value of each series of convertible debentures issued by the Indian company). The 10% limit would include shares held by SEBI registered FII/ SEBI

Foreign Investments

Foreign Direct Investments

Foreign Portfolio Investments

Foreign Venture Capital Investments

Other investments (G. Sec, NCDs, etc)

Automatic Route

Govt. Route

FIIs/QFI/RFPI

NRIs, PIO

SEBI regd. FVCIs

FIIs/RFPIs

NRIs, PIO, QFI and Long term investors

NRIs, PIO

VCF, IVCUs

Investment on non-repatriable basis

Persons Resident outside India



approved sub accounts of FII under the PIS (by way of purchases made through a registered broker on a recognised stock exchange in India or by way of offer/private placement) as well as shares acquired by SEBI registered FII under the FDI scheme. The aggregate limit for FII investment shall not exceed 24% of the paid – up capital of the company or paid-up value of each series of convertible debentures. 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 which should necessarily be intimated to the Reserve Bank of India immediately as hitherto, along with certificate from the Company Secretary stating that all the relevant provisions of the extant Foreign Exchange Management Act, 1999 regulations and the FDI Policy, as amended from time to time have been complied with.

There are certain sector-specific restrictions and/or ceilings on FII investment in sectors including, inter-alia Asset Reconstruction Companies (ARCs), banking sector, infrastructure companies in Securities Market, Credit Information Companies, Commodity Exchanges, etc.

SEBI registered 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.

SEBI registered 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 individual/aggregate FII investment limits.

FIIs can invest, purchase, hold and transfer Indian Depository Receipts (IDRs) of eligible companies resident outside India and issued in the Indian capital market, subject to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

FIIs can buy, on repatriation basis, dated Government securities/treasury bills, listed non-convertible debentures/bonds, commercial papers issued by Indian companies and units of domestic mutual funds, to be listed NCDs/ bonds only if listing of such NCDs/bonds is committed to be done within 15 days of such investment, Security receipts issued by ARCs and Perpetual Debt Instruments eligible for inclusion in as Tier I capital and Debt capital instruments as upper Tier II Capital issued by banks in India to augment their capital in any manner as per the prevalent/approved market practice.

FIIs can subscribe to (i) the Perpetual Debt Instruments (eligible for inclusion as Tier I capital); however, the total holding by a single FII / sub-account in each issue of Perpetual Debt Instruments (Tier I) shall not exceed 10% of the issue and an aggregate ceiling of 49% of the paid up value of each issue of Perpetual Debt Instruments should be maintained; and (ii) Debt Capital Instruments (eligible for inclusion as upper Tier II capital), subject to the limits stipulated by SEBI for FIIs.



With effect from 7th January 2014, a new framework has been put in place with regard to foreign investors who wish to make portfolio investment in India and the category “foreign portfolio investors” have been introduced in lieu of FIIs, sub accounts and “qualified foreign investor” (“QFI”). An FII who holds a valid certificate of registration shall be deemed to be a foreign portfolio investor till expiry of block of three years for which fees have been paid as per SEBI (FII) Regulations, 1995.

Non-resident Indians Non-resident Indians (NRIs) are allowed to invest in shares and debentures of Indian

companies under the FDI route.

Apart from the FDI route, 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, which should necessarily be intimated to the Reserve Bank of India immediately as hitherto, along with Certificate from the Company Secretary stating that all the relevant provisions of the extant Foreign Exchange Management Act, 1999 regulations and the FDI Policy, as amended from time to time have been complied with.

Non-repatriation basis NRIs can purchase shares, convertible debentures and warrants issued by an Indian company on non-repatriation basis without any limit. Amount of consideration for such purchase shall be paid by way of inward remittance through normal banking channels from abroad or out of funds held in NRE/FCNR(B)/NRO account maintained with the AD Category - I bank All investments by NRIs under Schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations on a non-repatriable basis will deemed to be domestic investment at par with the investments made by residents.

Purchase by NRIs of other securities on repatriation basis: (a) NRIs can purchase on repatriation basis, without limit, Government dated

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.

(b) NRIs resident in Nepal and Bhutan and citizens of Nepal and Bhutan can 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.

Investments by all NRIs in Rupee denominated Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of 24% of each issue and investments by a single NRI should not exceed 5% of each issue. Investment by NRIs in Rupee denominated Debt Capital instruments (Tier II) shall be in accordance with the extant policy for investment by NRIs in other debt instruments.

Foreign venture capital investor A SEBI registered Foreign Venture Capital Investor (FVCI) with specific approval

from the Reserve Bank can invest in Indian Venture Capital Undertaking (IVCU) or Venture Capital Fund (VCF) or in a scheme floated by such VCFs subject to the condition that the domestic VCF is registered with SEBI. These investments by SEBI registered FVCI, would be subject to the respective SEBI regulations and FEMA regulations and sector specific caps of FDI.

FVCIs can purchase equity/equity linked instruments/debt/debt instruments, debentures of an IVCU or of a VCF or in units of schemes/funds set up by a VCF through initial public offer or private placement or by way of private arrangement or purchase from third party. Further, FVCIs would also be allowed to invest in securities on a recognised stock exchange subject to the provisions of the SEBI (FVCI) Regulations, 2000, as amended from time to time.

¶6-030 Entry routes FDI 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, partly paid shares and warrants of an Indian company, through two routes:

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

Pricing guidelines Fresh issue of shares: Price of fresh shares issued to persons resident outside India

under the FDI Scheme, shall be: (i) on the basis of SEBI guidelines in case of listed companies. (ii) not less than the fair value of shares determined by a SEBI registered Merchant

Banker or a Chartered Accountant as per as per any internationally accepted pricing methodology on arm’s length basis.

The pricing guidelines as above are subject to pricing guidelines as enumerated in paragraph above, for exit from FDI with optionality clauses by non-resident investor. The above pricing guidelines are also applicable for issue of shares against payment of lump sum technical know-how fee/royalty due for payment/repayment or conversion of ECB into equity or capitalization of pre incorporation expenses/import payables (with prior approval of Government).



The pricing of the partly paid equity shares shall be determined upfront and 25% of the total consideration amount (including share premium, if any), shall also be received upfront; The balance consideration towards fully paid equity shares shall be received within a period of 12 months.

The time period for receipt of the balance consideration within 12 months shall not be insisted upon where the issue size exceeds rupees five hundred crore and the issuer complies with Regulation 17 of the SEBI (Issue of Capital and Disclosure Requirements (ICDR)) Regulations regarding monitoring agency. Similarly, in case of an unlisted Indian company, the balance consideration amount can be received after 12 months where the issue size exceeds rupees five hundred crores. However, the investee company shall appoint a monitoring agency on the same lines as required in case of a listed Indian company under the SEBI (ICDR) Regulations. Such monitoring agency (AD Category -1 bank) shall report to the investee company as prescribed by the SEBI regulations, ibid, for the listed companies.

The pricing of the warrants and price/ conversion formula shall be determined upfront and 25% of the consideration amount shall also be received upfront. The balance consideration towards fully paid up equity shares shall be received within a period of 18 months. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such warrants, in accordance with the extant FEMA Regulations and pricing guidelines stipulated by RBI from time to time. Thus, investee company shall be free to receive consideration more than the pre-agreed price.

It is clarified that where the liability sought to be converted by the company is denominated in foreign currency as in case of ECB, import of capital goods, etc. it will be in order to apply the exchange rate prevailing on the date of the agreement between the parties concerned for such conversion. Reserve Bank will have no objection if the borrower company wishes to issue equity shares for a rupee amount less than that arrived at as mentioned above by a mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only.

It is further clarified that the principle of calculation of INR equivalent for a liability denominated in foreign currency shall apply, mutatis mutandis, to all cases where any payables/liability by an Indian company such as, lump sum fees/royalties, etc, are permitted to be converted to equity shares or other securities to be issued to a non-resident subject to the conditions stipulated under the respective Regulations.

However, where non-residents (including NRIs) are making investments in an Indian company in compliance with the provisions of the Companies Act, by way of subscription to its Memorandum of Association, such investments may be made at face value subject to their eligibility to invest under the FDI scheme.

There are additional conditions for issue of partly paid shares and warrants, as provided below:

(a) The Indian company whose activity/sector falls under government route would require prior approval of the Foreign Investment Promotion Board (FIPB), Government of India for issue of partly-paid shares/warrants.



(b) The forfeiture of the amount paid upfront on non-payment of call money shall be in accordance with the provisions of the Companies Act, 2013 and Income tax provisions, as applicable.

(c) The company while issuing partly paid shares or warrants shall ensure that the sectoral caps are not breached even after the shares get fully paid-up or warrants get converted into fully paid equity shares. Similarly, the non-resident investors acquiring partly paid shares or convertible debentures or warrants shall ensure that the sectoral caps are not breached even after the shares get fully paid-up or warrants get converted into fully paid equity shares.

(d) The deferment of payment of consideration amount or shortfall in receipt of consideration amount as per applicable pricing guidelines by the foreign investors will not be covered under these guidelines so as to be treated as subscription to partly paid shares and warrants. Thus, the Investee company under these guidelines for issue/transfer of partly-paid shares/warrants, shall require to comply with the requirements under the Companies Act, 2013 for issuance of partly paid shares and warrants;

Issue of shares by SEZs against import of capital goods In this case, the share valuation has to be done by a Committee consisting of

Development Commissioner and the appropriate Customs officials.

Right shares The price of shares offered on rights basis by the Indian company to non-resident

shareholders shall be: (i) In the case of shares of a company listed on a recognised stock exchange in

India, at a price as determined by the company. (ii) 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 the resident shareholders.

Acquisition/transfer of existing shares (private arrangement) The acquisition of existing shares from resident to non-resident (ie, to incorporated

non-resident entity other than erstwhile OCB, foreign national, NRI, FII) would be at a: (i) negotiated price for shares of companies listed on a recognized stock exchange

in India which shall not be less than the price at which the preferential allotment of shares can be made under the SEBI guidelines, as applicable, provided the same is determined for such duration as specified therein, preceding the relevant date, which shall be the date of purchase or sale of shares. The price per share arrived at should be certified by a SEBI registered Merchant Banker or a Chartered Accountant.

(ii) negotiated price for shares of companies which are not listed on a recognised stock exchange in India which shall not be less than the fair value worked out as per any internationally accepted pricing methodology for valuation of shares



on arm’s length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker.

Further, transfer of existing shares by non-resident (ie, by incorporated non-resident entity, erstwhile OCB, foreign national, NRI, FII) to Resident shall not be more than the minimum price at which the transfer of shares can be made from a resident to a non-resident as given above.

The pricing of shares/convertible debentures/preference shares should be decided/determined upfront at the time of issue of the instruments. The price for the convertible instruments can also be a determined based on the conversion formula which has to be determined/fixed upfront, however the price at the time of conversion should not be less than the fair value worked out, at the time of issuance of these instruments, in accordance with the extant FEMA regulations. The pricing guidelines as above are subject to pricing guidelines as enumerated in paragraph above, for exit from FDI with optionality clauses by non-resident investor.

Procedure under automatic route Under 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).

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.

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, namely, shares; fully and mandatorily convertible debentures or fully and mandatorily convertible preference shares, through an AD Category – I 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 bank, remitting the amount, to the Regional office concerned of RBI within 30 days of receipt of inward remittances.



After the issue of shares; fully and mandatorily convertible debentures; or fully and mandatorily convertible preference shares, the Indian company has to file the required documents along with Form FC-GPR with the concerned Regional Office of the RBI, within 30 days of issue of shares to the non-resident investors.

The FIPB would consider proposals with total foreign equity inflow of and below Rs. 5000 crore.

The proposals with total foreign equity inflow of more than Rs. 5000 crore would be placed for consideration of Cabinet Committee on Economic Affairs (CCEA).

The CCEA would also consider the proposals which may be referred to it by the FIPB.

¶6-040 Prohibition on investment in India Foreign investment in any form is prohibited in a company or a partnership firm or a

proprietary concern or any entity, whether incorporated or not (such as, Trusts) which is engaged or proposes to engage in the following activities:

(a) Business of chit fund, or (b) Nidhi company, or (c) Agricultural or plantation activities, or (d) Real estate business, or construction of farm houses, or (e) Trading in Transferable Development Rights (TDRs). However, only NRIs are eligible to subscribe to the chit funds on non-repatriation

basis subject to the following conditions: a. The Registrar of Chits or an officer authorised by the State Government in

accordance with the provisions of the Chit Fund Act in consultation with the State Government concerned, may permit any chit fund to accept subscription from NRIs on non-repatriation basis;

b. The subscription to the chit funds shall be brought in through normal banking channel, including through an account maintained with a bank in India.

The “real estate business” means dealing in land and immovable property with a view to earning profit or earning income therefrom and does not include development of townships, construction of residential/commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships. It is further clarified that partnership firms/proprietorship concerns having investments as per FEMA regulations are not allowed to engage in print media sector.

FDI, in any form, is prohibited where the entity is engaged or proposes to engage in any of the following activities:

(a) Lottery Business including Government/ private lottery, online lotteries, etc. (b) Gambling and Betting including casinos, etc. (c) Chit funds (d) Nidhi company



(e) Trading in Transferable Development Rights (TDRs) (f) Real Estate Business or Construction of Farm Houses (g) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of

tobacco substitutes (h) Activities/sectors not open to private sector investment, eg, (I) Atomic energy

and (II) Railway operations Foreign technology collaboration in any form including licensing for franchise,

trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities.

¶6-050 Types of instruments eligible for FDI (a) Indian companies can issue equity shares; fully, compulsorily and mandatorily

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.

(b) Issue of other types of preference shares such as, non-convertible, optionally 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.

(c) As far as debentures are concerned, only those which are fully and mandatorily convertible into equity, within a specified time would be reckoned as part of equity under the FDI Policy.

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

Prior to December 30, 2013, issue of other types of preference shares such as non-convertible, optionally convertible or partially convertible, were to be in accordance with the guidelines applicable for External Commercial Borrowings (ECBs). On and from December 30, 2013, it has been decided that optionality clauses may henceforth be allowed in equity shares and compulsorily and mandatorily convertible preference shares/debentures to be issued to a person resident outside India under the FDI Scheme. The optionality clause will oblige the buy-back of securities from the investor at the price prevailing/value determined at the time of exercise of the optionality so as to enable the investor to exit without any assured return.

The provision of optionality clause shall be subject to the following conditions: (a) There is a minimum lock-in period of one year or a minimum lock-in period as

prescribed under FDI Regulations, whichever is higher (eg, defence sector where the lock-in period of three years has been prescribed). The lock-in period



shall be effective from the date of allotment of such shares or convertible debentures or as prescribed for defence sector, etc, in Annex B to Schedule 1 of Notification No. FEMA 20 as amended from time to time;

(b) After the lock-in period, as applicable above, the non-resident investor exercising option/right shall be eligible to exit without any assured return, as under: (i) In case of a listed company, the non-resident investor shall be eligible to

exit at the market price prevailing at the recognised stock exchanges; (ii) In case of unlisted company, the non-resident investor shall be eligible to

exit from the investment in equity shares of the investee company at a price as per any internationally accepted pricing methodology on arm’s length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker.

The guiding principle would be that the non-resident investor is not guaranteed any assured exit price at the time of making such investment/agreements and shall exit at the fair price computed as above at the time of exit, subject to lock-in period requirement, as applicable.

¶6-060 Entities into which FDI can be made

I. FDI in an Indian company

FDI in ARCs RFPIs, FIIs, QFIs and long-term investors can buy on repatriation basis Security

receipts issued by ARCs. Further, QFIs can also invest in Security Receipts issued by ARCs provided that the

total holding by an individual QFI in each tranche of scheme of security receipts shall not exceed 10% of the issue and the total holdings of all eligible investors put together shall not exceed 49% of the paid up value of each tranche of scheme of security receipts issued by the ARCs.

Guidelines for establishment of Indian companies/ transfer of ownership or control of Indian companies, from resident Indian citizens to non-resident entities, in sectors under government approval route.

Foreign investment in sectors/activities under government approval route will be subject to government approval where:

(i) An Indian company is being established with foreign investment and is not owned by a resident entity or

(ii) An Indian company is being established with foreign investment and is not controlled by a resident entity or

(iii) The control of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a non-resident entity as a consequence of transfer



of shares and/or fresh issue of shares to non-resident entities through amalgamation, merger/demerger, acquisition, etc. or

(iv) The ownership of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares and/or fresh issue of shares to non-resident entities through amalgamation, merger/demerger, acquisition, etc.

(v) It is clarified that Foreign investment shall include all types of foreign investments, i.e. FDI, investment by FlIs, FP1s, QFIs, NRIs, ADRs, GDRs, Foreign Currency Convertible Bonds (FCCB) and fully, mandatorily and compulsorily convertible preference shares/debentures, regardless of whether the said investments have been made under Schedule 1, 2, 2A, 3, 6 and 8 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations.

(vi) Investment by NRIs under Schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations will be deemed to be domestic investment at par with the investment made by residents.

(vii) A company, trust and partnership firm incorporated outside India and owned and controlled by non-resident Indians will be eligible for investments under Schedule 4 of FEMA (Transfer or issue of Security by Persons Resident Outside India) Regulations and such investment will also be deemed domestic investment at par with the investment made by residents.

II. FDI in a partnership firm or a proprietary concern An NRI or a Person of Indian Origin (PIO) resident outside India can invest by way

of contribution to the capital of a firm or a proprietary concern in India on non-repatriation basis provided that (i) the amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorised Dealers/Authorised banks; (ii) The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business (i.e. dealing in land and immovable property with a view to earning profit or earning income there from) or print media sector; and (iii) Amount invested shall not be eligible for repatriation outside 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 by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India.

Restrictions An NRI or PIO is not allowed to invest in a firm or proprietorship concern engaged

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



immovable property with a view to earning profit or earning income therefrom) or engaged in print media.

III. FDI in trusts FDI in Trusts (other than by SEBI-registered FVCIs in domestic VCF) is not

permitted.

IV. FDI in LLP FDI in limited liability partnerships (LLPs) is permitted, subject to the following

conditions: (a) FDI is permitted under the automatic route in LLPs operating in sectors/

activities where 100% FDI is allowed, through the automatic route and there are no FDI linked performance conditions.

(b) An Indian company or an LLP, having foreign investment, will be permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.

(c) FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008.

¶6-070 Issue of instruments

Conditions for issue of shares to non-resident investor The 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.

Issue of rights/bonus shares An Indian company may issue Rights/Bonus shares to existing non-resident

shareholders, subject to adherence to sectoral cap, reporting requirements, etc. Further, such issue of bonus/rights shares have to be in accordance with other laws/statutes like the Companies Act, 2013, SEBI (Issue of Capital and Disclosure Requirements), Regulations 2009 (in case of listed companies), etc.

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. Companies desiring to issue rights shares to erstwhile OCBs will have to take specific prior permission from the RBI. However, bonus shares can be issued to erstwhile OCBs without the RBI approval.

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:

(a) the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the sectoral cap;

(b) the transferor company or the transferee or the new company is not engaged in activities which are prohibited under the FDI Policy; and

(c) the transferee company shall file a report with the RBI within 30 days providing details of shareholding by persons resident outside India before and after the Scheme, and also furnish confirmation of compliance with the conditions stipulated in the Scheme.

Issue of shares under Employee Stock Option Scheme (ESOPs) An Indian company may issue “ESOPs” and/or “sweat equity shares” to its

employees/directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India, provided that:

(i) The scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act 2013, as the case may be.

(ii) The face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5% of the paid up capital of the issuing company.

(iii) The “ESOPs”/“sweat equity shares” issued to non-resident employees/directors under the applicable rules/regulations are in compliance with the sectoral cap applicable to the said company.

(iv) Issue of “ESOPs”/“sweat equity shares” in a company where foreign investment is under the approval route shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.

Unlisted companies have to follow the provisions of the Companies Act, as applicable. 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. Subject to this, Government approval is not required for issue of ESOPs in sectors under automatic route.

Issue of “ESOPs”/“sweat equity shares” under the applicable rules/regulations to an employee/director who is a citizen of Bangladesh/Pakistan shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India. The issuing company shall furnish to the Regional Office concerned of the Reserve Bank of India under whose jurisdiction the registered office of the company operates, within 30 days from the date of issue of employees’ stock option or sweat equity shares, a return as per the Form-ESOP.

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 a Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country. Approval of the Government will also be a prerequisite for investment by swap of shares for sector under Government approval route. No approval of the Government is required for investment in automatic route sectors by way of swap of shares.

Indian depository receipts IDRs can be issued by non-resident companies in India subject to and under the

terms and conditions of Companies (Issue of Depository Receipts) Rules, 2004 and subsequent amendment made thereto and the SEBI (ICDR) Regulations, 2000, as amended from time to time. These IDRs can be issued in India through Domestic Depository to residents in India as well as SEBI registered FIIs/Registered Foreign Portfolio Investors (RFPIs) and NRIs. In case of raising of funds through issuances of IDRs by financial/banking companies having presence in India, either through a branch or subsidiary, the approval of the sectoral regulator(s) should be obtained before the issuance of IDRs.

a) The FEMA Regulations shall not be applicable to persons resident in India as defined under s 2(v) of FEMA, 1999, for investing in IDRs and subsequent transfer arising out of transaction on a recognised stock exchange in India.

b) RFPIs, FIIs including SEBI approved sub-accounts of the FIIs, registered with SEBI and NRIs may invest, purchase, hold and transfer IDRs of eligible companies resident outside India and issued in the Indian capital market, subject to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. Further, NRIs are allowed to invest in the IDRs out of funds held in their NRE/FCNR (B) account, maintained with an Authorised Dealer/Authorised bank.

c) A limited two way fungibility for IDRs (similar to the limited two way fungibility facility available for ADRs/GDRs) has been introduced which would be subject to the certain terms and conditions. Further, the issuance, redemption and fungibility of IDRs would also be subject to the SEBI (Issue of



Capital and Disclosure Requirements) Regulations, 2009, as amended from time to time as well as other relevant guidelines issued in this regard by the Government, the SEBI and the RBI from time to time.

d) IDRs shall not be redeemable into underlying equity shares before the expiry of one year period from the date of issue of the IDRs.

e) At the time of redemption/conversion of IDRs into underlying shares, the Indian holders (persons resident in India) of IDRs shall comply with the provisions of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 notified vide Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time. Accordingly, the following guidelines shall be followed, on redemption of IDRs: i. Listed Indian companies may either sell or continue to hold the

underlying shares subject to the terms and conditions as per Regulations 6B and 7 of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time.

ii. Indian Mutual Funds, registered with SEBI may either sell or continue to hold the underlying shares subject to the terms and conditions as per Regulation 6C of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time.

iii. Other persons resident in India including resident individuals are allowed to hold the underlying shares only for the purpose of sale within a period of 30 days from the date of conversion of the IDRs into underlying shares.

iv. The FEMA provisions shall not apply to the holding of the underlying shares, on redemption of IDRs by the FIIs including SEBI approved sub-accounts of the FIIs, RFPIs and NRIs.

f) The proceeds of the issue of IDRs shall be immediately repatriated outside India by the eligible companies issuing such IDRs. The IDRs issued should be denominated in Indian Rupees.

Issue of FCCBs and depository receipts (DRs) a) FCCBs/DRs may be issued in accordance with the Scheme for issue of Foreign

Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and DR Scheme 2014, respectively, as per the guidelines issued by the Government of India there under from time to time.

b) DRs are foreign currency denominated instruments issued by a foreign Depository in a permissible jurisdiction against a pool of permissible securities issued or transferred to that foreign depository and deposited with a domestic custodian.

c) In terms of Notification No. FEMA.20/2000-RB dated May 3, 2000 as amended from time to time, a person will be eligible to issue or transfer eligible securities to a foreign depository, for the purpose of converting the securities so



purchased into DRs in terms of Depository Receipts Scheme, 2014 and guidelines issued by the Government of India thereunder from time to time.

d) A person can issue DRs, if it is eligible to issue eligible instruments to person resident outside India under Schedules 1, 2, 2A, 3, 5 and 8 of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

e) The aggregate of eligible securities which may be issued or transferred to foreign depositories, along with eligible securities already held by persons resident outside India, shall not exceed the limit on foreign holding of such eligible securities under the relevant regulations framed under FEMA, 1999.

f) The pricing of eligible securities to be issued or transferred to a foreign depository for the purpose of issuing DRs should not be at a price less than the price applicable to a corresponding mode of issue or transfer of such securities to domestic investors under the relevant regulations framed under FEMA, 1999.

g) The issue of DRs as per DR Scheme 2014 shall be reported to the Reserve Bank by the domestic custodian as per the reporting guidelines for DR Scheme 2014.

Two-way fungibility scheme 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.

Sponsored ADR/GDR issue 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 are 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.

¶6-080 Transfer of instruments a. Non Resident to Non-Resident (Sale/Gift): A person resident outside India

(other than NRI and OCB) may transfer by way of sale or gift, shares or convertible debentures to any person resident outside India (including NRIs but excluding OCBs).

Note: Transfer of shares from or by erstwhile OCBs would require prior approval of the Reserve Bank of India.



b. NRI to NRI (Sale / Gift): NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI.

c. Non-Resident to Resident (Sale/Gift): (i) Gift: A person resident outside India can transfer any security to a person

resident in India by way of gift. (ii) Sale under private arrangement: 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 in case where transfer of shares are under SEBI regulations and where the FEMA pricing guidelines are not met, subject to the following: a. The original and resultant investment comply with the extant FDI

policy/ FEMA regulations; b. The pricing complies with the relevant SEBI regulations (such as

IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition/Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover [SEBI(SAST)] Regulations) and buy back); and

c. A Chartered Accountant certificate to the effect that compliance with relevant SEBI regulations as indicated above is attached to the Form FC-TRS to be filed with the AD bank.

d. Compliance with reporting and other guidelines which have been prescribed.

Note: Transfer of shares from a Non-Resident to Resident other than under SEBI regulations and where the FEMA pricing guidelines are not met would require the prior approval of the Reserve Bank of India.

(iii) Sale of shares/convertible debentures on the Stock Exchange by person resident outside India: 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.

AD Category – I bank may issue bank guarantee, without prior approval of the Reserve Bank, on behalf of a non-resident acquiring shares or convertible debentures of an Indian company through open offers/delisting/exit offers, provided.

a) the transaction is in compliance with the provisions of the SEBI(SAST) Regulations;

b) the guarantee given by the AD Category – I bank is covered by a counter guarantee of a bank of international repute.

It may be noted that the guarantee shall be valid for a tenure co-terminus with the offer period as required under the SEBI (SAST) Regulations. In case of invocation of the guarantee, the AD Category-I bank is required to submit to the Principal Chief General Manager, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai 400001, a report on the circumstances leading to the invocation of the guarantee.



Transfer of shares/convertible debentures from resident to person resident outside India

A person resident in India can transfer by way of sale, shares/convertible debentures (including transfer of subscriber's shares), of an Indian company under private arrangement to a person resident outside India, subject to the following along with pricing, reporting and other guidelines which have been prescribed.

a) where the transfer of shares requires the prior approval of the FIPB as per extant FDI policy provided that: i) the requisite FIPB approval has been obtained; and ii) the transfer of share adheres with the pricing guidelines and

documentation requirements as specified by the Reserve Bank of India from time to time.

b) where SEBI (SAST) guidelines are attracted, subject to adherence with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.

c) where the transfer of shares do not meet the pricing guidelines under FEMA, 1999, provided that: i) the resultant FDI is in compliance with the extant FDI policy and FEMA

regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc), reporting requirements, documentation, etc;

ii) the pricing for the transaction is compliant with specific/explicit, extant and relevant SEBI regulations (such as IPO, book building, block deals, delisting, open/exit offer, substantial acquisition/SEBI(SAST); and

iii) Chartered Accountant Certificate to the effect that compliance with relevant SEBI regulations as indicated above is attached to the Form FC-TRS to be filed with the AD bank.

d) where the investee company is in the financial services sector provided that: i) With effect from October 11, 2013, the requirement of NoC(s) from the

respective regulators/regulators of the investee company as well as the transferor and transferee entities and filing of such NOCs along with the Form FC-TRS with the AD bank has been waived from the perspective of Foreign Exchange Management Act, 1999 and no such NoC(s) need to be filed along with form FC-TRS. However, any 'fit and proper/due diligence' requirement as regards the non-resident investor as stipulated by the respective financial sector regulator shall have to be complied with.

ii) The FDI policy and FEMA Regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc), reporting requirements, documentation, etc, are complied with.

Note: The above general permission also covers transfer by a resident to a non-resident 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



the Reserve Bank, 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 would not be available for the above transactions if they are not meeting the pricing guidelines or in case of transfer of shares/debentures by way of gift from a Resident to a Non-Resident/NRI.

Transfer of shares by resident which requires Government approval The following instances of transfer of shares from residents to non-residents by way

of sale or otherwise requires Government approval: (i) Transfer of shares of companies engaged in sector falling under the

Government Route. (ii) Transfer of shares resulting in foreign investments in the Indian company,

breaching the sectoral cap applicable. Prior permission of the Reserve Bank in certain cases for acquisition/transfer of

security (i) Transfer of shares or convertible debentures from residents to non-residents by

way of sale requires prior approval of Reserve Bank in case where the non-resident acquirer proposes deferment of payment of the amount of consideration. Further, in case approval is granted for the transaction, the same should be reported in Form FC-TRS to the AD Category – I bank, within 60 days from the date of receipt of the full and final amount of consideration.

(ii) A person resident in India, who intends to transfer any security, by way of gift to a person resident outside India, has to obtain prior approval from the Reserve Bank. While forwarding the application to the Reserve Bank for approval for transfer of shares by way of gift, the prescribed documents should be enclosed. The Reserve Bank considers the following factors while processing such applications: a) The proposed transferee is eligible to hold such security under Schedules

1, 4 and 5 of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

b) The gift does not exceed 5% of the paid-up capital of the Indian company/each series of debentures/each mutual fund scheme.

c) The applicable sectoral cap limit in the Indian company is not breached. d) The transferor (donor) and the proposed transferee (donee) are close

relatives as defined in s 6 of the Companies Act, 2013, as amended from time to time.

e) The value of security to be transferred together with any security already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 50,000 per financial year.

f) Such other conditions as stipulated by the Reserve Bank in public interest from time to time.



(iii) Transfer of shares from NRI to NR requires the prior approval of the Reserve Bank of India.

Escrow account for transfer of shares AD Category-I banks have been given general permission to open Escrow account

and Special account of non-resident corporate for open offers/exit offers and delisting of shares. The relevant SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST) Regulations or any other applicable SEBI Regulations/provisions of the Companies Act, as applicable will be applicable. AD Category-I banks have also been permitted to open and maintain, without prior approval of RBI, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/or non-residents, towards payment of share purchase consideration and/or provide Escrow facilities for keeping securities to facilitate FDI transactions subject to the terms and conditions specified by RBI. SEBI authorised Depository Participants have also been permitted to open and maintain, without prior approval of RBI, Escrow accounts for securities subject to the terms and conditions as specified by RBI. In both cases, the Escrow agent shall necessarily be an AD Category-I bank or SEBI.

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. (a) Transfer by resident to non-resident (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 listed on a recognised stock exchange in India, shall not be less than the price at which the preferential allotment of shares can be made under the SEBI guidelines, as applicable, provided the same is determined for such duration as specified therein, preceding the relevant date, which shall be the date of purchase or sale of shares. The price per share arrived at should be certified by a SEBI registered Merchant Banker or a Chartered Accountant.

The price of the shares, where the shares of the Indian company are not listed on a recognised stock exchange in India, shall not be less than the fair value worked out as per any internationally accepted pricing methodology for valuation of shares on arm’s length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker.

(b) Transfer by non-resident (ie, incorporated non-resident entity, erstwhile OCB, foreign national, NRI, FII) to Resident.

Sale of shares by a non-resident to resident shall not be more than the minimum price at which the transfer of shares can be made from a resident to a non-resident as given above.

Transfer of shares by resident which requires Government approval The following instances of transfer of shares from residents to non-residents by way

of sale or otherwise requires Government approval:



(i) Transfer of shares of companies engaged in sector falling under the Government Route.

(ii) Transfer of shares resulting in foreign investments in the Indian company, breaching the sectoral cap applicable.

Requirement of prior permission of RBI for transfer of capital instruments

Transfer of shares or convertible debentures from residents to non-residents by way of sale requires prior approval of Reserve Bank in case where the non-resident acquirer proposes deferment of payment of the amount of consideration. Further, in case approval is granted for the transaction, the same should be reported in Form FC-TRS to the AD Category – I bank, within 60 days from the date of receipt of the full and final amount of consideration.

A person resident in India, who intends to transfer any security, by way of gift to a person resident outside India, has to obtain prior approval from the Reserve Bank. While forwarding the application to the Reserve Bank for approval for transfer of shares by way of gift, the prescribed documents should be enclosed. The Reserve Bank considers the following factors while processing such applications:

a) The proposed transferee is eligible to hold such security under Schedules 1, 4 and 5 of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

b) The gift does not exceed 5% of the paid-up capital of the Indian company/each series of debentures/each mutual fund scheme.

c) The applicable sectoral cap limit in the Indian company is not breached. d) The transferor (donor) and the proposed transferee (donee) are close relatives

as defined in s 2(77) of the Companies Act, 2013, as amended from time to time.

e) The value of security to be transferred together with any security already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 50,000 per financial year.

f) Such other conditions as stipulated by the Reserve Bank in public interest from time to time.

Transfer of shares from NRI to NR requires the prior approval of the Reserve Bank of India.

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.



¶6-090 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 (i) Counting of Direct foreign investment: All investments made directly by non-

resident entities into the Indian company would be counted towards 'Direct foreign investment'.

(ii) Counting of indirect foreign Investment: The entire indirect foreign investment by the investing company into the other Indian Company would be considered for the purpose of computation of indirect foreign investment. However, as an exception, the indirect foreign investment in 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 has been 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 subsidiary is owned by the holding company.

(iii) The methodology for calculation of total foreign investment would apply at every stage of investment in Indian companies and thus in each and every Indian company.

(iv) Additional requirements: (A) The full details about the foreign investment including ownership details,

etc. in Indian company/ies and information about the control of the company/ies would be furnished by the Company/ies to the Government of India at the time of seeking approval.

(B) In any sector/activity, where Government approval is required for foreign investment and in cases where there are any inter-se agreements between/amongst share-holders which have an effect on the appointment of the Board of Directors or on the exercise of voting rights or of creating voting rights disproportionate to shareholding or any incidental matter thereof, such agreements will have to be informed to the approving authority. The approving authority will consider such inter-se agreements for determining ownership and control when considering the case for approval of foreign investment.

(C) In all sectors attracting sectoral caps, the balance equity, i.e, beyond the sectoral foreign investment cap, would specifically be beneficially owned by/held with/in the hands of resident Indian citizens and Indian companies, owned and controlled by resident Indian citizens.



(D) In the I & B sector where the sectoral cap is up to 49%, the company would need to be “owned and controlled” by resident Indian citizens and Indian companies, which are owned and controlled by resident Indian citizens.

For this purpose, the equity held by the largest Indian shareholder would have to be at least 51% of the total equity, excluding the equity held by Public Sector Banks and Public Financial Institutions, as defined in s 4A of the Companies Act, 1956 or s 2(72) of the Companies Act, 2013 as the case may be. The term “largest Indian shareholder", used in this clause, will include any or a combination of the following: (I) In the case of an individual shareholder,

(a) The individual shareholder, (b) A relative of the shareholder within the meaning of Section

2(77) of the Companies Act, 2013. (c) A company/ group of companies in which the individual

shareholder/HUF to which he belongs has management and controlling interest.

(II) In the case of an Indian company, (a) The Indian company (b) A group of Indian companies under the same management

and ownership control. (c) For the purpose of this Clause, “Indian company” shall be a

company which must have a resident Indian or a relative as defined under Section 2(77) of the Companies Act, 2013/ HUF, either singly or in combination holding at least 51% of the shares.

(d) Provided that, in case of a combination of all or any of the entities mentioned in sub-clauses (I) and (II) above, each of the parties shall have entered into a legally binding agreement to act as a single unit in managing the matters of the applicant company.

(E) If a declaration is made by persons as per section 187C of the Indian Companies Act or Section 89 of the Companies Act, 2013 as the case may be about a beneficial interest being held by a non-resident entity, then even though the investment may be made by a resident Indian citizen, the same shall be counted as foreign investment.

The above-mentioned policy and methodology would be applicable for determining the total foreign investment in all sectors, except in sectors where it is specified in a statute or a rule there under. The above methodology of determining direct and indirect foreign investment therefore does not apply to the insurance sector which will continue to be governed by the relevant Regulation.



Illustration

(A)

(B)

¶6-100 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

Non-resident

Y (Investing Company)

Resident

X (Investee Company)

<50% Offshore

Onshore >50%

Investment (any %) will not be treated as indirect foreign investment in Company X

Non-resident

Y (Investing Company)

Resident

X (Investee Company)

75% Offshore

Onshore 25%

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



been detailed in Para 4.1 of the consolidated FDI Policy - Calculation of Total Foreign Investment, i.e., 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):

(a) Foreign investment into an Indian company, engaged only in the activity of 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 approved for FDI, will be subject to the conditions specified in Annex-B of Schedule 1 of FEMA Notification No. 20 dated May 3, 2000 as amended from time to time. Those companies, which are Core Investment Companies, will have to additionally follow RBI’s regulatory framework for Core Investment Companies.

(b) For undertaking activities which are under automatic route and without FDI linked performance conditions, Indian company which does not have any operations and also does not have any downstream investments, will be permitted to have infusion of foreign investment under automatic route. However approval of the Government will be required for such companies for infusion of foreign investment for undertaking activities which are under Government route, 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.

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.

'Control' shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements. For the purposes of Limited Liability Partnership, 'control' will mean right to appoint majority of the designated partners, where such designated partners, with specific exclusion to others, have control over all the policies of the LLP.

A company is considered as 'Owned' by resident Indian citizens if more than 50% of the capital in it is beneficially owned by resident Indian citizens and / or Indian companies, which are ultimately owned and controlled by resident Indian citizens.An LLP will be considered as owned by resident Indian citizens if more than 50% of the investment in such an LLP is contributed by resident Indian citizens and / or entities



which are ultimately owned and controlled by resident Indian citizens and such resident Indian citizens and entities have majority of the profit share.

Note: Downstream investment/s made by a banking company, as defined in clause (c) of Section 5 of the Banking Regulation Act, 1949, incorporated in India, which is owned and/or controlled by non-residents/a non-resident entity/non-resident entities, under Corporate Debt Restructuring (CDR), or other loan restructuring mechanism, or in trading books, or for acquisition of shares due to defaults in loans, shall not count towards indirect foreign investment. However, their 'strategic downstream investment' shall count towards indirect foreign investment. For this purpose, 'strategic downstream investments' would mean investment by these banking companies in their subsidiaries, joint ventures and associates.

Downstream investments by Indian companies will be subject to the following conditions:

a. Such a company/LLP is to notify SIA, DIPP and FIPB of its downstream investment in the form available at http://www.fipbindia.com 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);

b. Downstream investment by way of induction of foreign equity in an existing Indian Company to be duly supported by a resolution of the Board of Directors as also a shareholders agreement, if any;

c. Issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines;

d. For the purpose of downstream investment, the Indian companies/LLPs making the downstream investments would have to bring in requisite funds from abroad and not leverage funds from the domestic market. This would, however, not preclude downstream companies/LLPs, with operations, from raising debt in the domestic market. Downstream investments through internal accruals are permissible, subject to the provisions of paragraphs 3.10.3 and 3.10.4.1 of the Consolidated FDI Policy, 2015. For the purposes of FDI policy, internal accruals will mean as profits transferred to reserve account after payment of taxes.

¶6-110 Remittance and repatriation Sale proceeds of shares and securities and their remittance is “remittance of asset”

governed by the Foreign Exchange Management (Remittance of Assets) Regulations, 2000, 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 NOC/tax clearance certificate from the Income Tax Department has been produced.

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



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

ii. NRIs choose to invest specifically under non-repatriable schemes. 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 Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time.

Payment of royalty, etc. RBI has delegated the powers, to make payments for royalty, lump sum 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.

Remittance on winding-up/liquidation of companies AD Category – I banks have been allowed to remit winding up proceeds of

companies in India, which are under liquidation, subject to payment of applicable taxes. Liquidation may be subject to any order issued by the court winding up the company or the official liquidator in case of voluntary winding up under the provisions of the Companies Act, 2013. AD Category – I banks shall allow the remittance provided the applicant submits:

i. No objection or Tax clearance certificate from Income Tax Department for the remittance.

ii. Auditor's certificate confirming that all liabilities in India have been either fully paid or adequately provided for.

iii. Auditor's certificate to the effect that the winding up is in accordance with the provisions of the Companies Act, 2013.

iv. In case of winding up otherwise than by a court, an auditor's certificate to the effect that there is no legal proceedings pending in any court in India against the applicant or the company under liquidation and there is no legal impediment in permitting the remittance.

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

adherence/non-compliance/contravention of any rule, regulation, notification,



press note, press 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 to thrice the sum involved in such contraventions where such amount is quantifiable, or up to Rs 2 lakh where the amount is not quantifiable, and where such contraventions is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contraventions continues.

ii. Where a person committing a contravention of any provisions of FEMA or of any rule, direction or order made there under is a company (company means anybody corporate and includes a firm or other association of individuals as defined in the Companies Act, 2013), 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.

iii. Any Adjudicating Authority adjudging any contraventions under (i), may, if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government.

Adjudication and appeals A mechanism has been set up for adjudication of any contravention of FEMA and

appeal therefrom.

Compounding proceedings Under the Foreign Exchange (Compounding Proceedings) Rules, 2000, there is a

prescribed compounding procedure for any person contravening any provisions of the FEMA. The Compounding Authorities are authorised to compound the amount involved in the contravention to the Act made by the person. No contravention shall be compounded unless the amount involved in such contravention is quantifiable. Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention. 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.

¶6-120 Sector-specific policy The sectoral policies and caps in respect of some of the important sectors are set out

below. For the current law on sector specific policy and sectoral caps in these sectors as



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

Guidelines for e-filing of applications, filing of amendment applications and instructions to applicants are available at FIPB’s website (http://finmin.nic.in/) and (http://www.fipbindia.com).

Sr. No. Sector/Activity % of FDI Cap/Equity

Entry Route

AGRICULTURE

6.2.1 Agriculture & Animal Husbandry

(a) Floriculture, Horticulture, Apiculture

and Cultivation of Vegetables & Mushrooms under controlled conditions;

(b) Development and production of seeds and planting material;

(c) Animal husbandry (including of breeding of dogs), Pisciculture, Aquaculture under controlled conditions; and

(d) Services related to agro and allied sectors.

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

100% Automatic

6.2.1.1 Other conditions:

The term "under controlled conditions" covers the following: (i) 'Cultivation under controlled conditions' for the categories of

floriculture, horticulture, cultivation of vegetables and mushrooms is the practice of cultivation wherein rainfall,




Entry Route

temperature, solar radiation, air humidity and culture medium are controlled artificially. Control in these parameters may be effected through protected cultivation under green houses, net houses, poly houses or any other improved infrastructure facilities where micro-climatic conditions are regulated anthropogenically.

(ii) In case of Animal Husbandry, scope of the term 'under controlled conditions' covers - (a) 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 as prescribed by the National Livestock Policy, 2013 and in conformity with the existing 'Standard Operating Practices and Minimum Standard Protocol.'

(b) Poultry breeding farms and hatcheries where micro-climate is controlled through advanced technologies like incubators, ventilation systems, etc.

(iii) In the case of pisciculture and aquaculture, scope of the term 'under controlled conditions' covers — (a) Aquariums (b) Hatcheries where eggs are artificially fertilized and fry are

hatched and incubated in an enclosed environment with artificial climate control.

(iv) In the case of apiculture, scope of the term 'under controlled conditions' covers- (a) Production of honey by bee-keeping, except in forest/wild,

in designated spaces with control of temperatures and climatic factors like humidity and artificial feeding during lean seasons.

6.2.2 Tea Plantation

6.2.2.1 i. Tea sector including tea plantations

ii. Coffee plantations iii. Rubber

plantations iv. Cardamom

plantations

100% Automatic




Entry Route

v. Palm oil tree plantations

vi. Olive oil tree plantations

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

6.2.2.2 Other conditions:

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

INDUSTRY

MINING AND PETROLEUM AND NATURAL GAS

6.2.3 Mining

6.2.3.1 Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores; subject to the Mines and Minerals (Development & Regulation) Act, 1957.

100% Automatic

6.2.3.2 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 subject to the provisions of Coal Mines

100% Automatic




Entry Route

(Nationalisation) Act, 1973.

(2) Setting up coal processing plants like washeries subject to 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

6.2.3.3 6.2.3.3.1

Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities subject to sectoral regulations and the Mines and Minerals (Development and Regulation) Act, 1957.

100% Government

6.2.3.3.2 Other conditions:

(i) FDI for separation of titanium bearing minerals & ores will be subject to the following 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 Atomic Energy




Entry Route

(Radiation Protection) Rules, 2004 and the Atomic Energy (Safe Disposal of Radioactive Wastes) Rules, 1987.

(ii) FDI will not be allowed in mining of "prescribed substances" listed in the Notification No. S.O. 61(E), dated 18.01.2006, issued by the Department of Atomic Energy.

Clarification: (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 also made 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 fulfilled.

6.2.4 Petroleum & Natural Gas

6.2.4.1 Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product pipelines, natural gas/ pipelines, LNG Regasification infrastructure, market study and formulation and Petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private

100 % Automatic




Entry Route

participation in exploration of oil and the discovered fields of national oil companies.

6.2.4.2 Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs.

49%

Automatic

6.2.6 DEFENCE

6.2.6.1 Defence Industry subject to Industrial license under the Industries (Development & Regulation) Act, 1951.

49%

Automatic up to 49%. Above 49% under Government route on case to case basis, whichever is likely to result in access to modern and ‘state of art’ technology in the country

6.2.6.2

Other Conditions: (i) Infusion of fresh foreign investment within the permitted

automatic route level, in a company not seeking industrial license, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require Government approval.

(ii) Licence applications will be considered and licences given by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, in consultation with Ministry of Defence and Ministry of External Affairs.

(iii) Foreign investment in the sector is subject to security clearance and guidelines of the Ministry of Defence.

(iv) Investee company should be structured to be self-sufficient in areas of product design and development. The investee/joint venture company along with manufacturing facility, should also have maintenance and life cycle support facility of the product being manufactured in India.




Entry Route

SERVICES SECTOR

6.2.7 Broadcasting

6.2.7.1 Broadcasting Carriage Services

6.2.7.1.1 (1)Teleports (setting up of up-linking HUBs/Teleports); (2) Direct to Home (DTH); (3) Cable Networks (Multi System operators (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability); (4) Mobile TV; (5) Headend-in-the Sky Broadcasting Service (HITS)

100% Automatic up to 49%; Government route beyond 49%

6.2.7.1.2 Cable Networks (Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators (LCOs))

100% Automatic up to 49%; Government route beyond 49%

6.2.7.2 Broadcasting Content Services

6.2.7.2.1 Terrestrial Broadcasting FM (FM Radio) subject to such terms and conditions as specified from time to time by Ministry of Information and Broadcasting for grant of permission for setting up of FM Radio Stations

49% Government




Entry Route

6.2.7.2.2 Up-linking of ‘News & Current Affairs’ TV Channels

49% Government

6.2.7.2.3 Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels

100% Automatic

Conditions

6.2.7.3 6.2.7.4 6.2.7.5 6.2.7.6

FDI for Up-linking/Down-linking TV Channels will be subject to compliance with the relevant Up-linking/Down-linking Policy notified by the Ministry of Information & Broadcasting from time to time.

Foreign investment (FI) in companies engaged in all the aforestated services will be subject to relevant regulations and such terms and conditions, as may be specified from time to time, by the Ministry of Information and Broadcasting.

The foreign investment (FI) limit in companies engaged in the afore stated activities shall include, in addition to FDI, investment by Foreign Institutional Investors (FIIs), Foreign Portfolio Investors (FPIs), Qualified Foreign Investors (QFIs), Non-Resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entities.

Foreign investment in the afore stated broadcasting carriage services will be subject to the following security conditions/terms:

Mandatory Requirement for Key Executives of the Company (i) The majority of Directors on the Board of the Company shall

be Indian citizens. (ii) The Chief Executive Officer (CEO), Chief Officer in-charge of

technical network operations and Chief Security Officer should be resident Indian citizens.

Security Clearance of Personnel (iii) The Company, all Directors on the Board of Directors and

such key executives like Managing Director/Chief Executive Officer, Chief Financial Officer (CFO), Chief Security Officer (CSO), Chief Technical Officer (CTO), Chief Operating Officer (COO), shareholders who individually hold 10% or more paid-up capital in the company and any other category,




Entry Route

as may be specified by the Ministry of Information and Broadcasting from time to time, shall require to be security cleared.

In case of the appointment of Directors on the Board of the Company and such key executives like Managing Director/Chief Executive Officer, Chief Financial Officer (CFO), Chief Security Officer (CSO), Chief Technical Officer (CTO), Chief Operating Officer (COO), etc., as may be specified by the Ministry of Information and Broadcasting from time to time, prior permission of the Ministry of Information and Broadcasting shall have to be obtained. It shall be obligatory on the part of the company to also take prior permission from the Ministry of Information and Broadcasting before effecting any change in the Board of Directors. (iv) The Company shall be required to obtain security clearance of

all foreign personnel likely to be deployed for more than 60 days in a year by way of appointment, contract, and consultancy or in any other capacity for installation, maintenance, operation or any other services prior to their deployment. The security clearance shall be required to be obtained every two years.

Permission vis-à-vis Security Clearance (v) The permission shall be subject to permission holder/licensee

remaining security cleared throughout the currency of permission. In case the security clearance is withdrawn, the permission granted is liable to be terminated forthwith.

(vi) In the event of security clearance of any of the persons associated with the permission holder/licensee or foreign personnel being denied or withdrawn for any reasons whatsoever, the permission holder/licensee will ensure that the concerned person resigns or his services terminated forthwith after receiving such directives from the Government, failing which the permission/license granted shall be revoked and the company shall be disqualified to hold any such Permission/license in future for a period of five years.

Infrastructure/Network/Software related requirement (vii) The officers/officials of the licensee companies dealing with

the lawful interception of services will be resident India citizens.

(viii) Details of infrastructure/network diagram (technical details of the network) could be provided, on a need basis only, to equipment suppliers/manufactures and the affiliate of the




Entry Route

licensee company. Clearance from the licensor would be required if such information is to be provided to anybody else.

(ix) The Company shall not transfer the subscribers’ databases to any person/place outside India unless permitted by relevant law.

(x) The Company must provide traceable identity of their subscribers.

Monitoring, Inspection and Submission of Information (xi) The Company should ensure that necessary provision

(hardware/software) is available in their equipment for doing the lawful interception and monitoring from a centralized location as and when required by Government.

(xii) The company, at its own costs, shall, on demand by the government or its authorized representative, provide the necessary equipment, services and facilities at designated place(s) for continuous monitoring or the broadcasting service by or under supervision of the Government or its authorized representative.

(xiii) The Government of India, Ministry of Information & Broadcasting or its authorized representative shall have the right to inspect the broadcasting facilities. No prior permission/intimation shall be required to exercise the right of Government or its authorized representative to carry out the inspection. The company will, if required by the Government or its authorized representative, provide necessary facilities for continuous monitoring for any particular aspect of the company’s activities and operations. Continuous monitoring, however, will be confined only to security related aspects, including screening of objectionable content.

(xiv) The inspection will ordinarily be carried out by the Government of India, Ministry of Information & Broadcasting or its authorized representative after reasonable notice, except in circumstances where giving such a notice will defeat the very purpose of the inspection.

(xv) The company shall submit such information with respect to its services as may be required by the Government or its authorized representative, in the format as may be required, from time to time.

(xvi) The permission holder/licensee shall be liable to furnish the Government of India or its authorized representative or TRAI or its authorized representative, such reports, accounts,




Entry Route

estimates, returns or such other relevant information and at such periodic intervals or such times as may be required.

(xvii) The service providers should familiarize/train designated officials or the Government or officials of TRAI or its authorized representative(s) in respect of relevant operations/features of their systems.

National Security Conditions (xviii) It shall be open to the licensor to restrict the Licensee

Company from operating in any sensitive area from the National Security angle. The Government of India, Ministry of Information and Broadcasting shall have the right to temporarily suspend the permission of the permission holder/Licensee in public interest or for national security for such period or periods as it may direct. The company shall immediately comply with any directives issued in this regard failing which the permission issued shall be revoked and the company disqualified to hold any such permission in future for a period of five years.

(xix) The company shall not import or utilize any equipment, which are identified as unlawful and/or render network security vulnerable.

Other Conditions (xx) Licensor reserves the right to modify these conditions or

incorporate new conditions considered necessary in the interest of national security and public interest or for proper provision of broadcasting services.

(xxi) Licensee will ensure that broadcasting service installation carried out by it should not become a safety hazard and is not in contravention of any statute, rule or regulation and public policy.

6.2.8 Print Media

6.2.8.1 Publishing of newspaper and periodicals dealing with news and current affairs

26% Government

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

26% Government




Entry Route

6.2.8.2.1 Other Conditions

(i) “Magazine”, for the purpose of these guidelines, will be defined as a periodical publication, brought out on non-daily basis, containing public news or comments on public news.

(ii) Foreign investment would also be subject to the Guidelines for Publication of Indian editions of foreign magazines dealing with news and current affairs issued by the Ministry of Information & Broadcasting on 04-12-2008.

6.2.8.3 Publishing/printing of scientific and technical magazines/specialty journals/ periodicals, subject to 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

6.2.8.4 Publication of facsimile edition of foreign newspapers.

100% Government

6.2.8.4.1 Other Conditions

(i) FDI should be made by the owner of the original foreign newspapers whose facsimile edition is proposed to be brought out in India.

(ii) Publication of facsimile edition of foreign newspapers can be undertaken only by an entity incorporated or registered in India under the provisions of the Companies Act, as applicable.

(iii) Publication of facsimile edition of foreign newspaper would also be 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.

6.2.9 Civil Aviation

6.2.9.1 The Civil Aviation sector includes Airports, Scheduled and Non-scheduled domestic passenger airlines, Helicopter services/Seaplane




Entry Route

services, Ground-handling Services, Maintenance and Repair organizations; Flying training institutes; and Technical training institutions. For the purposes of the Civil Aviation sector: (i) “Airport” means a landing and taking off area for aircrafts,

usually with runways and aircraft maintenance and passenger facilities and includes aerodrome as defined in clause (2) of Section 2 of the Aircraft Act, 1934;

(ii) "Aerodrome" means any definite or limited ground or water area 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;

(iii) "Air transport service" means a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or series of flights.

(iv) "Air Transport Undertaking" means an undertaking whose business includes the carriage by air of passengers or cargo for hire or reward.

(v) "Aircraft component" means any part, the soundness and correct functioning of which, when fitted to an aircraft, is essential to the continued airworthiness or safety of the aircraft and includes any item of equipment;

(vi) "Helicopter" means a heavier-than-air aircraft, supported in flight by the reactions of the air on one or more power-driven rotors on substantially vertical axis;

(vii) "Scheduled air transport service", means an air transport service undertaken between the same two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognizably systematic series, each flight being open to use by members of the public.

(viii) “Non-scheduled Air Transport service” means any service which is not a scheduled air transport service and will include Chartered and Cargo airlines.

(ix) “Cargo” airlines would mean such airlines which meet the conditions as given in the Civil Aviation Requirements issued by the Ministry of Civil Aviation.

(x) "Seaplane" means an aeroplane capable normally of taking off from and alighting solely on water;




Entry Route

(xi) “Ground Handling” means (i) ramp handling, (ii) traffic handling both of which shall include the activities as specified by the Ministry of Civil Aviation through the Aeronautical Information Circulars from time to time, and (iii) any other activity specified by the Central Government to be a part of either ramp handling or traffic handling.

6.2.9.2 Airports

(a) Greenfield projects 100% Automatic

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

6.2.9.3 Air Transport Services

(1) (A) Scheduled Air Transport Service / Domestic Scheduled Passenger Airline (B) Regional Air Transport Service

49% (100% for NRIs)

Automatic

(2) Non-scheduled Air Transport Service /

100% Automatic

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

100% Automatic

6.2.9.3.1 Other Conditions: (a) Air Transport Services would include Domestic Scheduled

Passenger Airlines; Non-Scheduled Air Transport Services, helicopter and seaplane services.

(b) Foreign airlines are allowed to participate in the equity of companies operating Cargo airlines, helicopter and seaplane services, as per the limits and entry routes mentioned above.

(c) Foreign airlines are also allowed to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. Such investment would be subject to the following conditions: (i) It would be made under the Government approval route.




Entry Route

(ii) The 49% limit will subsume FDI and FII/FPI investment. (iii) The investments so made would need to comply with the

relevant regulations of SEBI, such as the Issue of Capital and Disclosure Requirements (ICDR) Regulations/ Substantial Acquisition of Shares and Takeovers (SAST) Regulations, as well as other applicable rules and regulations.

(iv) A Scheduled Operator’s Permit can be granted only to a company: a) that is registered and has its principal place of

business within India; b) the Chairman and at least two-thirds of the Directors

of which are citizens of India; and c) the substantial ownership and effective control of

which is vested in Indian nationals. (v) All foreign nationals likely to be associated with Indian

scheduled and non-scheduled air transport services, as a result of such investment shall be cleared from security view point before deployment; and

(vi) All technical equipment that might be imported into India as a result of such investment shall require clearance from the relevant authority in the Ministry of Civil Aviation.

Note: (i) The FDI limits/entry routes, mentioned at paragraph 6.2.9.3 (1) and 6.2.9.3 (2) above, are applicable in the situation where there is no investment by foreign airlines. (ii) The dispensation for NRIs regarding FDI up to 100% will also

continue in respect of the investment regime specified at para 6.2.9.3.1(c)(ii) above.

(iii) The policy mentioned at para 6.2.9.3.1(c) above is not applicable to M/s Air India Limited.

6.2.9.4 Other services under Civil Aviation sector

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

100% Automatic

(2) Maintenance and Repair organizations; flying training institutes; and technical training Institutions.

100% Automatic




Entry Route

6.2.10 Courier services

Courier services for carrying packages, parcels and other items which do not come within the ambit of the Indian Post Office Act, 1898 and excluding the activity relating to the distribution of letters.

100% Automatic

6.2.11 Construction Development: Townships, Housing, Built-up Infrastructure

6.2.11.1 Construction-development projects (which would include development of townships, construction of residential/ commercial premises, roads or bridges, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure, townships)

100% Automatic

6.2.11.2 Conditions

Each phase of the construction development project would be considered as a separate project for the purposes of FDI policy. Investment will be subject to the following conditions: (A) (i) The investor will be permitted to exit on completion of the

project or after development of trunk infrastructure, i.e. roads, water supply, street lighting, drainage and sewerage.

(ii) Notwithstanding anything contained at (A) (i) above, a foreign investor will be permitted to exit and repatriate foreign investment before the completion of project under automatic route, provided that a lock-in-period of three years, calculated with reference to each tranche of foreign investment has been completed. Further, transfer of stake from one non-resident to another nonresident, without




Entry Route

repatriation of investment will neither be subject to any lock-in period nor to any government approval.

(B) The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid in the building control regulations, bye laws, rules and other regulation of the State Government/ Municiapal/ Local Body concerned.

(C) The Indian investee company will be permitted to sell only developed plots. For the purposes of this policy "developed plots" will mean plots where trunk infrastructure, i.e. roads, water supply, street lighting, drainage and sewerage, have been made available

(D) The Indian 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/bye-laws/regulations of the State Government/Municipal/Local Body concerned.

(E) The State Government/ Municipal/ Local Body concerned, which approves the building/development plans, will monitor compliance of the above conditions by the developer.

Note: (i) It is clarified that FDI is not permitted in an entity which is

engaged or proposes to engage in real estate business, construction of farm houses and trading in transferable development rights (TDRs).

"Real estate business" means dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships. Further, earning of rent/ income on lease of the property, not amounting to transfer, will not amount to real estate business.

(ii) Condition of lock-in period at (A) above will not apply to Hotels &Tourist Resorts, Hospitals, Special Economic Zones (SEZs), Educational Institutions, Old Age Homes and investment by NRIs.

(iii) Completion of the project will be determined as per the local bye-laws/rules and other regulations of State Governments.




Entry Route

(iv) It is clarified that 100% FDI under automatic route is permitted in completed projects for operation and management of townships, malls/ shopping complexes and business centres. Consequent to foreign investment, transfer of ownership and/or control of the investee company from residents to non-residents is also permitted. However, there would be a lock-in-period of three years, calculated with reference to each tranche of FDI, and transfer of immovable property or part thereof is not permitted during this period

(v) "Transfer", in relation to FDI policy on the sector, includes,— (a) the sale, exchange or relinquishment of the asset ; or (b) the extinguishment of any rights therein ; or (c) the compulsory acquisition thereof under any law ; or (d) any transaction involving the allowing of the possession of

any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or

(e) any transaction, by acquiring shares in a company or by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of, any immovable property.

6.2.12 Industrial Parks – new and existing

100% Automatic

6.2.12.1 (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), railway line/ sidings including electrified railway lines and connectivities to the main railway line, water supply and sewerage, common effluent treatment facility, telecom 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 approach roads), railway line/sidings including electrified railway lines and connectivities to the main railway line, water supply and sewerage, common effluent treatment, common testing, telecom services, air conditioning,




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common facility buildings, industrial canteens, convention/conference halls, parking, travel desks, security service, first aid center, ambulance and other safety 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- (a) in the case of plots of developed land- the net site area

available for allocation to the units, excluding the area for common facilities.

(b) in the case of built up space- the floor area and built up space utilized for providing common facilities.

(c) in the case of a combination of developed land and built-up space- the net site and floor area available for allocation to the units excluding the site area and built up space utilized 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; basic and applied R&D on bio-technology, pharmaceutical sciences/life sciences, natural sciences and engineering; business and management consultancy activities; and architectural, engineering and other technical activities.

6.2.12.2 FDI in Industrial Parks would not be subject to the conditionalities applicable for construction development projects etc. spelt out in para 6.2.11 above, provided the Industrial Parks meet with the under-mentioned conditions: (i) it would comprise of 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.

6.2.13 Satellites – Establishment and operation

Satellites – Establishment and operation, subject to the sectoral guidelines of Department of Space/ISRO.

100% Government




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6.2.14 Security Agencies in Private sector

Private Security Agencies

49% Government

6.2.15 Telecom Services

Telecom Services (including Telecom Infrastructure Providers Category-I) All telecom services including Telecom Infrastructure Providers Category-I, viz. Basic, Cellular, United Access Services, Unified License (Access Services), Unified License, National/ International Long Distance, Commercial V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS), All types of ISP licenses, Voice Mail/Audiotex/ UMS, Resale of IPLC, Mobile Number Portability Services, Infrastructure Provider Category-I (providing dark fibre, right of way, duct space, tower) except Other Service Providers.

100% Automatic, up to 49%; Government route, beyond 49%

6.2.15.1 Other conditions

FDI up to 100% with 49% on the automatic route and beyond 49% on the government route subject to observance of licensing and security conditions by licensee as well as investors as notified by the Department of Telecommunications (DoT) from time to time, except




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“Other Service Providers”, which are allowed 100% FDI on the automatic route.

6.2.16 Trading

6.2.16.1 (i) Cash & Carry Wholesale Trading/Wholesale Trading (including sourcing from MSEs)

100% Automatic

6.2.16.1.1 Definition: 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, imply 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.

6.2.16.1.2 Guidelines for Cash & Carry Wholesale Trading/Wholesale Trading (WT):(a) For undertaking WT, requisite licenses/registration/ permits, as specified 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. (b) Except in case of sales to Government, sales made by the

wholesaler 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 (II) Entities holding trade licenses i.e. a license/ registration certificate/membership certificate/registration under Shops and Establishment Act, issued by a Government Authority/ Government Body/Local Self-Government Authority, reflecting that the entity/person holding the license/ registration certificate/ membership certificate, as the case may be, is itself/ himself/herself engaged in a business involving commercial activity; or (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 (IV) Institutions having certificate of incorporation or




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registration as a society or registration as public trust for their self-consumption.

Note: An entity, to whom WT is made, may fulfil any one of the 4 conditions.

(c) Full records indicating all the details of such sales like name of entity, kind of entity, registration/license/permit etc. number, amount of sale etc. should be maintained on a day to day basis.

(d) WT of goods would be permitted among companies of the same group. However, such WT to group companies taken together should not exceed 25% of the total turnover of the wholesale venture.

(e) WT can be undertaken as per normal business practice, including extending credit facilities subject to applicable regulations.

(f) A wholesale/cash and carry trader can undertake single brand retail trading, subject to the conditions mentioned in para 6.2.16.3. An entity undertaking wholesale/cash and carry as well as retail business will be mandated to maintain separate books of accounts for these two arms of the business and duly audited by the statutory auditors. Conditions of the FDI policy for wholesale/cash and carry business and for retail business have to be separately complied with by the respective business arms.

6.2.16.2 E-commerce activities 100% Automatic

6.2.16.2.1 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.

6.2.16.3 Single Brand product trading

100% Automatic up to 49% Government route beyond 49%

(1) Foreign Investment in Single Brand product retail 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 product retail trading would be subject to the following conditions: (a) Products to be sold should be of a ‘Single Brand’ only.




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(b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.

(c) ‘Single Brand’ product-retail trading would cover only products which are branded during manufacturing.

(d) A non-resident entity or entities, whether owner of the brand or otherwise, shall be permitted to undertake ‘single brand’ product retail trading in the country for the specific brand, directly or through a legally tenable agreement with the brand owner for undertaking single brand product retail trading. The onus for ensuring compliance with this condition will rest with the Indian entity carrying out single-brand product retail trading in India. The investing entity shall provide evidence to this effect at the time of seeking approval, including a copy of the licensing/franchise/sub-license agreement, specifically indicating compliance with the above condition. The requisite evidence should be filed with the RBI for the automatic route and SIA/FIPB for cases involving approval.

(e) In respect of proposals involving FDI beyond 51%, sourcing of 30% of the value of goods purchased, will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors. The quantum of domestic sourcing will be self-certified by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts which the company will be required to maintain. This procurement requirement would have to be met annually from the commencement of the business, i.e. opening of the first store. For the purpose of ascertaining the sourcing requirement, the relevant entity would be the company, incorporated in India, which is the recipient of Foreign Investment for the purpose of carrying out single-brand product retail trading.

(f) Subject to the conditions mentioned in this para, a single brand retail trading entity operating through brick and mortar stores, is permitted to undertake retail trading through e-commerce.

(3) Application seeking permission of the Government for FDI exceeding 49% in a company which proposes to undertake single brand retail trading in India would be made to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion. The applications would specifically indicate the product/product categories which are 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. In case of FDI up to 49%, the list of products/product




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categories proposed to be sold except food products would be provided to the RBI. (4) Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the products proposed to be sold satisfy the notified guidelines, before being considered by the FIPB for Government approval. Note:

1. Conditions mentioned at Paras 6.2.16.3 (2)(b) & 6.2.16.3 (2)(d) will not be applicable for undertaking SBRT of Indian brands.

2. An Indian manufacturer is permitted to sell its own branded products in any manner, i.e. wholesale, retail, including through e-commerce platforms.

3. Indian manufacturer would be the investee company, which is the owner of the Indian brand and which manufactures in India, in terms of value, at least 70% of its products in house, and sources, at most 30% from Indian manufacturers.

4. Indian brands should be owned and controlled by resident Indian citizens and/or companies which are owned and controlled by resident Indian citizens.

5. Government may relax sourcing norms for entities undertaking single brand retail trading of products having ‘state of art’ and ‘cutting edge’ technology where local sourcing is not possible.

6.2.16.4 Multi Brand Retail Trading

51% Government

(1) FDI in multi brand retail trading, in all products, will be permitted, subject to the following conditions: (i) Fresh agricultural produce, including fruits, vegetables,

flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded.

(ii) Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100 million.

(iii) At least 50% of total FDI brought in the first tranche of US $ 100 million, shall be invested in 'back-end infrastructure' within three years, where ‘back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse,




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agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure. Subsequent investment in backend infrastructure would be made by the MBRT retailer as needed, depending upon its business requirements.

(iv) At least 30% of the value of procurement of manufactured/processed products purchased shall be sourced from Indian micro, small and medium industries, which have a total investment in plant & machinery not exceeding US $ 2.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. The ‘small industry’ status would be reckoned only at the time of first engagement with the retailer, and such industry shall continue to qualify as a ‘small industry’ for this purpose, even if it outgrows the said investment of US $ 2.00 million during the course of its relationship with the said retailer. Sourcing from agricultural co-operatives and farmers co-operatives would also be considered in this category. The procurement requirement would have to be met, in the first instance, as an average of five years’ total value of the manufactured/processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.

(v) Self-certification by the company, to ensure compliance of the conditions at serial nos. (ii), (iii) and (iv) above, which could be cross-checked, as and when required. Accordingly, the investors shall maintain accounts, duly certified by statutory auditors.

(vi) Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census or any other cities as per the decision of the respective State Governments, and may also cover an area of 10 kms. around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.

(vii) Government will have the first right to procurement of agricultural products.




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(viii) The above policy is an enabling policy only and the State Governments/Union Territories would be free to take their own decisions in regard to implementation of the policy. Therefore, retail sales outlets may be set up in those States/Union Territories which have agreed, or agree in future, to allow FDI in MBRT under this policy. The list of States/Union Territories which have conveyed their agreement is at (2) below. Such agreement, in future, to permit establishment of retail outlets under this policy, would be conveyed to the Government of India through the Department of Industrial Policy & Promotion and additions would be made to the list at (2) below accordingly. The establishment of the retail sales outlets will be in compliance of applicable State/Union Territory laws/ regulations, such as the Shops and Establishments Act, etc.

(ix) Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multi-brand retail trading.

(x) Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the proposed investment satisfies the notified guidelines, before being considered by the FIPB for Government approval.

(2) List of States/Union Territories as mentioned in para 6.2.16.4(1)(viii) above are: 1. Andhra Pradesh 2. Assam 3. Delhi 4. Haryana 5. Himachal Pradesh 6. Jammu & Kashmir 7. Karnataka 8. Maharashtra 9. Manipur 10. Rajasthan 11. Uttarakhand 12. Daman & Diu and Dadra and Nagar Haveli (Union

Territories)




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6.2.16.5 Duty Free Shops 100% Automatic

(1) Duty Free Shops would mean shops set up in custom bonded area at International Airports/International Seaports and Land Custom Stations where there is transit of international passengers.

(2) Foreign investment in Duty Free Shops is subject to compliance of conditions stipulated under the Customs Act, 1962 and other laws, rules and regulations.

(3) Duty Free Shop entity shall not engage into any retail trading activity in the Domestic Tariff Area of the country.

6.2.17 Railway Infrastructure

100% Automatic

Construction, operation and maintenance of the following: (i) Suburban corridor projects through PPP, (ii) High speed train projects, (iii) Dedicated freight lines, (iv) Rolling stock including train sets, and locomotives/coaches manufacturing and maintenance facilities, (v) Railway Electrification, (vi) Signaling systems, (vii) Freight terminals, (viii) Passenger terminals, (ix) Infrastructure in industrial park pertaining to railway line/sidings including electrified railway lines and connectivities to main railway line and (x) Mass Rapid Transport Systems.




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Note: (i) Foreign Direct Investment in the abovementioned activities

open to private sector participation including FDI is subject to sectoral guidelines of Ministry of Railways.

(ii) Proposals involving FDI beyond 49% in sensitive areas from security point of view, will be brought by the Ministry of Railways before the Cabinet Committee on Security (CCS) for consideration on a case to case basis.

6.2.17.9 Pension Sector 49% Automatic up to 26%. Government route beyond 26% and up to 49%,

6.2.17.9.1 Other conditions

1. FDI in the Pension Funds is allowed as per the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013.

2. Foreign Investment in Pension Funds will be subject to the condition that entities bringing in foreign equity investment as per Section 24 of the PFRDA Act shall obtain necessary registration from the Pension Fund Regulatory and Development Authority and comply with other requirements as per the PFRSA Act, 2013 and Rules and Regulations framed under it for so participating in Pension Fund Management activities in India.

3. Wherever such foreign equity investment involves control or ownership by the foreign investor or, transfer of control or ownership of an existing pension fund from resident Indian citizens and/or Indian companies owned controlled by resident Indian citizens to such foreign investing entities as consequence of the investment, including through transfer of shares and or fresh issue of shares to Non-Resident entities through acquisition, amalgamation, merger etc., it would require FIPB approval in consultation with the Department of Financial Services, PFRDA and other entities concerned and the onus of compliance to these conditions will be on investee Indian pension fund company. the meaning of ownership and control would be as per the Foreign Director Investment policy.

FINANCIAL SERVICES

6.2.18

Foreign investment in other financial services, other than those indicated below, would require prior approval of the Government.




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6.2.18.1 Asset Reconstruction Companies

6.2.18.1.1 “Asset Reconstruction Company” (ARC) means a company registered with the RBI under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

FDI limit 100% Automatic up to 49%; Government route beyond 49%


(i) Persons resident outside India can invest in the capital of Asset Reconstruction Companies (ARCs) registered with Reserve Bank, up to 49% on the automatic route, and beyond 49% on the Government route.

(ii) No sponsor may hold more than 50% of the shareholding in an ARC either by way of FDI or by routing it through an FII/FPI controlled by the single sponsor.

(iii) The total shareholding of an individual FII/FPI shall be below 10% of the total paid-up capital.

(iv) FIIs/FPIs can invest in the Security Receipts (SRs) issued by ARCs registered with Reserve Bank. FIIs/FPIs can invest up to 74 per cent of each tranche of scheme of SRs. Such investment should be within the FII/FPI limit on corporate bonds prescribed from time to time, and sectoral caps under extant FDI Regulations should also be complied with.

(v) All investments would be subject to provisions of section 3(3) (f) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

6.2.18.2 Banking – Private sector

6.2.18.2.1 Banking – Private sector

74%, including investment by

FIIs/ FPIs/QFIs up to 49%

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


(1) This 74% limit will include investments under the Portfolio Investment Scheme (PIS) by FIIs, NRIs and shares acquired prior to 16 September 2003 by erstwhile OCBs, and continue to




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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 FIls/FPIs and NRIs will be as follows: (i) In the case of FIls/FPIs, as hitherto, individual FII/FPI

holding is restricted to below 10 per cent of the total paid-up capital, aggregate limit for all FIls/FPIs/QFIs cannot exceed 24 per cent of the total paid-up capital, which can be raised up to sectoral limit of 74 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. (a) In the case of NRIs, as hitherto, individual holding is

restricted to 5 per cent of the total paid-up capital both on repatriation and non-repatriation 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.

(b) Applications for foreign direct investment in private banks having joint venture/subsidiary in insurance sector may be addressed to the Reserve Bank of India (RBI) for consideration in consultation with the Insurance Regulatory and Development Authority of India (IRDAI) in order to ensure that the 49 per cent limit of foreign shareholding applicable for the insurance sector is not being breached.

(c) Transfer of shares under FDI from residents to non-residents will continue to require approval of RBI and Government as applicable.




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(d) The policies and procedures prescribed from time to time by RBI and other institutions such as SEBI, Department of Company Affairs and IRDAI on these matters will continue to apply.

(e) RBI guidelines relating to acquisition by purchase or otherwise of 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.

(ii) Setting up of a subsidiary by foreign banks: (a) Foreign banks will be permitted to either have

branches or subsidiaries but not both. (b) Foreign banks regulated by banking supervisory

authority in the 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.

(c) A foreign bank may operate in India through only one of the three 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.

(d) A foreign bank will be permitted to establish a wholly-owned 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.

(e) A subsidiary of a foreign bank will be subject to the licensing requirements and conditions broadly consistent with those for new private sector banks.

(f) Guidelines for setting up a wholly owned subsidiary of a foreign bank will be issued separately by RBI.

(g) All applications by a foreign bank for setting up a subsidiary or for conversion of their existing branches to subsidiary in India will have to be made to the RBI.




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(iii) At present there is a limit of ten per cent on voting rights in respect of banking companies, and this should be noted by potential investor. Any change in the ceiling can be brought about only after final policy decisions and appropriate Parliamentary approvals.

6.2.18.3 Banking – Public Sector

6.2.18.3.1 Banking – Public Sector, subject to Banking Companies (Acquisition & Transfer of Undertakings) Acts, 1970/80. This ceiling (20%) is also applicable to the State Bank of India and its associate Banks.

20% Government

6.2.18.4 Commodity Exchanges

6.2.18.4.1 1 Futures trading in commodities are regulated under the Forward Contracts (Regulation) Act, 1952. 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,: (i) “Commodity Exchange” is a recognised association under the

provisions of the Forward Contracts (Regulation) Act, 1952, as amended from time to time, to provide exchange platform for trading in forward contracts in commodities.

(ii) “Recognised association” means an association to which recognition for the time being has been granted by the Central Government under Section 6 of the Forward Contracts (Regulation) Act, 1952

(iii) “Association” means any body of individuals, whether incorporated or not, constituted for the purposes of regulating and controlling the business of the sale or purchase of any goods and commodity derivative.

(iv) “Forward contract” means a contract for the delivery of goods and which is not a ready delivery contract.

(v) “Commodity derivative” means:




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a contract for delivery of goods, which is not a ready delivery contract; or

a contract for differences which derives its value from prices or indices of prices of such underlying goods or activities, services, rights, interests and events, as may be notified in consultation with the Forward Markets Commission by the Central Government, but does not include securities.

6.2.18.4.2 Policy for FDI in Commodity Exchange

49% Automatic


(i) FII/FPI 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.

(iii) Foreign investment in commodity exchanges will be subject to the guidelines of the Central Government/Forward Markets Commission (FMC) from time to time.

6.2.18.5 Credit Information Companies (CIC)

6.2.18.5.1 Credit Information Companies

100%

Automatic

6.2.18.5.2 Other Conditions:

(1) Foreign investment in Credit Information Companies is subject to the Credit Information Companies (Regulation) Act, 2005. (2) Foreign investment is permitted, subject to regulatory clearance from RBI. (3) Such FII/FPI investment would be permitted subject to the conditions that: (a) A single entity should directly or indirectly hold more than 10%

equity. (b) Any acquisition in excess of 1% will have to be reported to RBI

as a mandatory requirement; and (c) FIIs/FPIs investing in CICs shall not seek a representation on the

Board of Directors based upon their shareholding.

6.2.18.6 Infrastructure Company in the Securities Market




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

49% Automatic


FII can invest only through purchases in the secondary market. Note: Though Government has made the FII/FPI and FDI limits fungible, notification is awaited from SEBI for relaxation of similar regulations in the SEBI regulations.

6.2.18.7 Insurance

6.2.18.7.1 (i) Insurance Company

(ii) Insurance Brokers

(iii) Third Party Administrators

(iv) Surveyors and Loss Assessors

(v) Other Insurance Intermediaries appointed under the provisions of Insurance Regulatory and Development Authority Act, 1999 (41 of 1999)

49% Automatic up to 26% Government route beyond 26% and up to 49%


(a) No Indian insurance company shall allow the aggregate holdings by way of total foreign investment in its equity shares by foreign investors, including portfolio investors, to exceed forty-nine percent of the paid up equity capital of such Indian insurance company.

(b) Foreign direct investment proposals which take the total foreign investment in the Indian insurance company above 26 percent




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and up to the cap of 49 percent shall be under Government route.

(c) Foreign investment in the sector is subject to compliance of the provisions of the Insurance Act, 1938 and the condition that Companies bringing in FDI shall obtain necessary license from the Insurance Regulatory & Development Authority of India for undertaking insurance activities.

(d) An Indian insurance company shall ensure that its ownership and control remains at all times in the hands of resident Indian entities referred to in Notification No. G.S.R 115 (E), dated 19th February, 2015.

(e) Foreign portfolio investment in an Indian insurance company shall be governed by the provisions contained in sub-regulations (2), (2A), (3) and (8) of regulation 5 of FEMA Regulations, 2000 and provisions of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations.

(f) Any increase of foreign investment of an Indian insurance company shall be in accordance with the pricing guidelines specified by Reserve Bank of India under the FEMA.

(g) The foreign equity investment cap of 49 percent shall apply on the same terms as above to Insurance Brokers, Third Party Administrators, Surveyors and Loss Assessors and Other Insurance Intermediaries appointed under the provisions of the Insurance Regulatory and Development Authority Act,1999 (41 of 1999):

(h) Provided that where an entity like a bank, whose primary business is outside the insurance area, is allowed by the Insurance Regulatory and Development Authority of India to function as an insurance intermediary, the foreign equity investment caps applicable in that sector shall continue to apply, subject to the condition that the revenues of such entities from their primary (i.e. non-insurance related) business must remain above 50 percent of their total revenues in any financial year.

(i) The provisions of paragraphs 6.2.18.2.2(4) (i) (c) & (e), relating to ‘Banking-Private Sector’, shall be applicable in respect of bank promoted insurance companies.

(j) Terms ‘Control’, ‘Equity Share Capital’, ‘Foreign Direct Investment’ (FDI), ‘Foreign Investors’, ‘Foreign Portfolio Investment’, ‘Indian Insurance Company’, ‘Indian Company’, ‘Indian Control of an Indian Insurance Company’, ‘Indian Ownership’, ‘Non-resident Entity’, ‘Public Financial Institution’, ‘Resident Indian Citizen’, ‘Total Foreign




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Investment’ will have the same meaning as provided in Notification No. G.S.R 115 (E), dated 19th February, 2015.

6.2.18.8 Non-banking Finance Companies (NBFC)

6.2.18.8.1 Foreign investment in NBFC is allowed under the automatic route in the following activities: (i) Merchant

Banking (ii) Under Writing (iii) Portfolio

Management Services

(iv) Investment Advisory Services

(v) Financial Consultancy

(vi) Stock Broking (vii) Asset

Management (viii) Venture Capital (ix) Custodian

Services (x) Factoring (xi) Credit Rating

Agencies (xii) Leasing &

Finance (xiii) Housing Finance (xiv) Forex Broking (xv) Credit Card

Business (xvi) Money

Changing Business

(xvii) Micro Credit (xviii) Rural Credit

100% Automatic




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(1) Investment would be subject to the following minimum capitalisation norms: (i) US $ 0.5 million for foreign capital up to 51% to be brought

upfront. (ii) US $ 5 million for foreign capital more than 51% and up to 75%

to be brought upfront. (iii) US $ 50 million for foreign capital more than 75% out of which

US $ 7.5 million to be brought upfront and the balance in 24 months.

(iv) NBFCs (i) having foreign investment more than 75% and up to 100%, and (ii) with a minimum capitalisation of US $ 50 million, can set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital. The minimum capitalisation condition, therefore, shall not apply to downstream subsidiaries.(v)Joint Venture operating NBFCs that have 75% or less than 75% foreign investment can also set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capitalisation norm mentioned in (i), (ii) and (iii) above and (vi) below. (vi) Non- Fund based activities: US $0.5 million to be brought upfront for all 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 it can participate in any equity of an NBFC holding/operating company. Note: The following activities would be classified as Non-fund-based activities: (a) Investment Advisory Services (b) Financial Consultancy (c) Forex Broking (d) Money Changing Business (e) Credit Rating Agencies

(vii) This will be subject to compliance with the guidelines of RBI. Note: (i) 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.




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(ii) Leasing & Finance covers only financial leases and not operating leases. FDI in operating leases is permitted up to 100% on the automatic route.

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

6.2.18.8.3 White labelled ATM operations

100% Automatic

Other Conditions

(i) Any non-bank entity intending to set up WLAs should have a minimum net worth of Rs. 100 crore as per the latest financial year’s audited balance sheet which is to be maintained at all time.

(ii) In case the entity is also engaged in any other 18 NBFC activities, then the foreign investment in the company setting up WLA shall also have to comply with the minimum capitalization norms for foreign investments in NBFC activities as required.

(iii) FDI in the WLAO will be subject to the specific criteria and guidelines issued by RBI vide Circular No. DPSS.CO.PD No. 2298/02.10.002/2011-12 as amended from time to time.

6.2.19 Pharmaceuticals

6.2.19.1 Greenfield 100% Automatic

6.2.19.2 Brownfield 100% Government


I. ‘Non-compete’ clause would not be allowed except in special circumstances with the approval of the Foreign Investment Promotion Board.

II. The prospective investor and the prospective investee are required to provide a certificate along with the FIPB application.

III. Government may incorporate appropriate conditions for FDI in brownfield cases, at the time of granting approval.

Note : i. FDI up to 100% under the automatic route is permitted for

manufacturing of medical devices. The abovementioned conditions, will, therefore, not be applicable to greenfield as well as brownfield projects of this industry.

ii. Medical device means : a) Any instrument, apparatus, appliance, implant, material or

other article, whether used alone or in combination, including the software intended by its manufacturer to be




Entry Route

used specially for human beings or animals for one or more of the specific purposes of :

(aa) Diagnosis, prevention, monitoring, treatment or alleviation of any disease or disorder;

(ab) diagnosis, monitoring, treatment, alleviation of, or assistance for, any injury or handicap;

(ac) investigation, replacement or modification or support of the anatomy or of a physiological process;

(ad) supporting or sustaining life; (ae) disinfection of medical devices; (af) control of conception; and which does not achieve its primary intended action in

or on the human body or animals by any pharmacological or immunological or metabolic means, but which may be assisted in its intended function by such means;

b) an accessory to such an instrument, apparatus, appliance, material or other article;

c) a device which is reagent, reagent product, calibrator, control material, kit, instrument, apparatus, equipment or system whether used alone or in combination thereof intended to be used for examination and providing information for medical or diagnostic purposes by means of in vitro examination of specimens derived from the human body or animals.

iii. The definition of medical device at Note (ii) above would be subject to the amendment in Drugs and Cosmetics Act.

6.2.20 Power Exchange

6.2.20.1 Power exchanges registered under Central Electricity Regulatory Commission (Power Market) Regulations, 2010

49% Automatic


(i) Such foreign investment would be subject to an FDI limit of 26% and an FII/FPI limit of 23% of the paid- up capital.

(ii) FII/RFPI purchases shall be restricted to secondary market only; (iii) No non-resident investor/ entity, including persons acting in

concert, will hold more than 5% of the equity in these companies; and




Entry Route

(iv) The foreign investment would be in compliance with SEBI Regulations; other applicable laws/ regulations; security and other conditionalities.



Chapter 7 Establishing Presence in India

Entry Option for Foreign Investors ............................................................... ¶7-010 Incorporation of Company ............................................................................ ¶7-020 Procedure for Incorporation of Company in India ........................................ ¶7-030 Limited Liability Partnerships in India Introduction ................................................................................................... ¶7-040 Extent of Liability of Partners of LLP ........................................................... ¶7-050 Winding up of an LLP ................................................................................... ¶7-060 Conversion into LLP ..................................................................................... ¶7-070 Setting up a Legal Structure for a Non-profit Entity in India Forms of Legal Entities ................................................................................. ¶7-080

¶7-010 Entry Option for Foreign Investors A foreign company planning to set up business operations in India has the following

options:

As an Incorporated Entity By incorporating a company under the Companies Act, 2013 (Companies Act)

through: ● Joint Ventures, or ● 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 May 12, 2015, issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India (Consolidated FDI Policy).

As an Unincorporated Entity As a foreign company through: ● Liaison Office (LO)/Representative Office (RO) ● Project Office (PO) ● Branch Office (BO)


Chapter 7 Establishing Presence in India 113

Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000, as amended from time to time, along with other specific rules, regulations and circulars notified in this context, consolidated in Master Circular on “Establishment of Liaison/Branch/Project Offices in India by Foreign Entities issued by the Reserve Bank of India (RBI)”.

A body corporate incorporated outside India (including a firm or other association of individuals), desirous of opening an LO/BO in India, has to obtain permission from RBI under provisions of 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 the sectors where 100% FDI is not permissible under the Government/ FIPB approval route.

Applications from entities falling under this category and those from Non-government Organisations/Non-profit Organisations/Government Bodies/Departments, are considered by RBI in consultation with the Ministry of Finance, Government of India.

The following additional criteria are also considered by the RBI while sanctioning LOs/BOs of foreign entities.:

(1) Track Record (i) For Branch Office: A profit-making track record during the immediately-

preceding five financial years in the home country. (ii) For Liaison Office: A profit-making track record during the immediately-

preceding three financial years in the home country. (2) Net Worth (total of paid-up capital and free reserves, less intangible assets, as

per the latest Audited Balance Sheet or Account Statement, certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name).

(i) For BO: not less than US$100,000 or its equivalent. (ii) For LO: not less than US$50,000 or its equivalent. The application in Form FNC for establishing BOs/LOs in India should be forwarded

by the foreign entity through a designated AD Category-I bank (AD bank) to the Chief General Manager-in-charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Fort, Mumbai – 400001, along with the prescribed documents including:

1. English version of the Certificate of Incorporation/Registration or Memorandum and Articles of Association attested by Indian Embassy/Notary Public in the Country of Registration.

2. Latest Audited Balance Sheet of the applicant entity.

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 condition that the parent company satisfies the eligibility criteria as prescribed above. The designated AD bank should exercise due diligence in respect of the applicant’s background, 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 application together with their comments/recommendations to the RBI.

The BO/LOs established with the RBI's approval will be allotted a Unique Identification Number (UIN).

After RBI’s approval, the BO/LOs are also required to obtain a Certificate of Establishment of Place of Business in India from the Registrar of Companies (ROC).

The BOs/LOs shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India.

Liaison Office An LO is suitable for a foreign company, which wishes to set up a representative

office as a first step to explore and understand the business and investment climate in the country. The LO generally acts as a channel of communication between the overseas parent company and its present/ prospective customers in India. The LO can also be set up to establish business contacts or gather market intelligence to promote the products or services of the overseas parent company or to promote export/import from/to India. Permission to set up LOs is initially granted for a period of 3 years which may be extended from time to time by an AD bank. Also, LOs have to submit Annual Activity Certificates from chartered accountants to designated AD bank. The LO cannot undertake any business activity in India nor earn any income in India. Expenses of such offices are met entirely through inward remittances of foreign exchange from the head office outside India.

Foreign Insurance companies can establish LOs in India only after obtaining approval from the Insurance Regulatory and Development Authority. Foreign banks can establish LOs in India only after obtaining approval from the Department of Banking Operations and Development (DBOD), RBI.

Project Office Foreign companies planning to execute specific projects in India can set up

temporary Project/Site Offices in India. RBI has now granted general permission to foreign entities to establish PO provided:

(i) they have secured a contract from an Indian company to execute a project in India and the project is funded directly by inward remittance from abroad; or

(ii) the project is funded by a bilateral or multilateral International Financing Agency; or

(iii) the project has been cleared by an appropriate authority; or (iv) a company or entity in India awarding the contract has been granted term loan

by a public financial institution or a bank in India for the project. In all other cases, an approval from RBI has to be taken for setting up PO in India.

Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. POs may remit the surplus of the project outside India, after meeting the tax liabilities, on its completion. However, AD bank can permit intermittent remittances by PO pending winding up/completion of the project provided they are satisfied with the bona fides of the transaction, subject to the following:



(a) The PO submits an Auditors’/Chartered Accountants’ Certificate to the effect that sufficient provisions have been made to meet the liabilities in India including Income Tax, etc.

(b) An undertaking from the PO that the remittance will not, in any way, affect the 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 office of the RBI under whose jurisdiction the PO is situated.

Branch Office Companies incorporated outside India and engaged in manufacturing or trading

activities are allowed to set up BOs with specific approval of the RBI. Normally, the BO should be engaged in the activity in which the parent company is engaged.

The RBI does not permit a BO to undertake any manufacturing or processing activities in India, directly or indirectly. The range of activities to be undertaken by a BO is also very restricted and permission has to be obtained from the RBI, each time any new activity is to be undertaken. The BO will not expand its activities or undertake any new trading, commercial or industrial activity other than that expressly approved by the RBI. BO is permitted to represent the parent/group companies and undertake the following activities in India:

(i) Export/Import of goods (procurement of goods for export and sale of goods after import are allowed only on wholesale basis).

(ii) Rendering professional or consultancy services. (iii) Carrying out research work, in areas in which the parent company is engaged. (iv) Promoting technical or financial collaborations between Indian companies and

parent or overseas group company. (v) Representing the parent company in India and acting as a buying/selling agent

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

India. (vii) Rendering technical support to the products supplied by parent/group

companies. (viii) Foreign airline/shipping company. Retail trading activities of any nature are not allowed for a BO in India. Profits earned by the BOs are freely remittable from India, subject to payment of

applicable taxes. BOs have to submit Annual Activity Certificates from chartered accountants to designated AD bank. A BO is not a separate legal entity unlike a company and any liability of the BO would be the liability of the foreign entity. BOs may remit their profits, net of applicable Indian taxes, outside India, subject to production of prescribed documents to the satisfaction of the AD Bank through whom the remittance is affected.



Branch Offices in Special Economic Zones RBI has given general permission1 to foreign companies for establishing branch/unit

in Special Economic Zones (SEZs) to undertake manufacturing and service activities. The general permission is subject to the following conditions:

(i) Such units are functioning in those sectors where 100-per cent FDI is permitted;

(ii) Such units comply with Part XI of the Companies Act, 1956 (Section 592 to 602)2; and

(iii) Such units function on a standalone basis.

Application for undertaking additional Activities or Additional BOs/LOs

Requests for undertaking activities in addition to what has been permitted initially by the RBI may be submitted through the designated AD bank to the Chief General Manager-in-charge, RBI, Foreign Exchange Department, Foreign Investment Division, Central Office, Mumbai, justifying the need with comments of the designated AD bank.

Requests for establishing additional BOs/LOs may be submitted through a fresh FNC 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.

● If the number of offices exceeds 4 (i.e. one BO/LO in each zone, viz. East, West, North and South), the applicant has to justify the need for additional office/s.

● The applicant may identify one of its Offices in India as the nodal office, which will coordinate the activities of all Offices in India.

In the event of winding up of business and for remittance of winding up proceeds, the BO shall approach an AD bank with the following documents:

(i) Copy of RBI’s permission/approval from the sectoral regulator(s) for establishing the BO/LO.

(ii) Auditor’s certificate: 1. indicating the manner in which the remittable amount has been arrived

and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;

2. confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc, of the BO have been either fully met or adequately provided for;

3. confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India;

1 Master Circular No. 7/ 2015-16 dated July 1, 2015 on Establishment of Liaison / Branch / Project Offices in India by Foreign Entities (updated as on October 30, 2015)

2 It is advised to check the applicability of corresponding provisions of the Companies Act, 2013



(iii) No objection or tax-clearance certificate from Income tax authority for the remittance/s; and

(iv) Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.

(v) A report from the ROC regarding compliance with the provisions of the Companies Act, in case of winding up of the BO in India.

(vi) Any other document/s, specified by the RBI while granting approval. Closure of such BO has to be reported by the designated AD bank to the Central

Office 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 or cases are not covered under delegated powers, the AD bank may forward the application to the RBI, with their observations, for necessary action. All the documents relating to the BO operations may be retained by the AD bank for verification by the internal auditors of the AD / inspecting officers of the RBI.

General conditions relating to Branch/Liaison/Project Offices The following, are certain general conditions applicable to all the BOs, LOs and POs,

as stipulated by the Master Circular on ‘Establishment of Liaison/Branch/Project Offices in India by Foreign Entities issued by RBI:

Partnership/Proprietary concerns set up abroad are not allowed to establish BO/LO in India. Without prior permission of the RBI, no person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau can establish in India, a BO or a LO or a PO or any other place of business. BOs/LOs/POs are allowed to open non-interest bearing current accounts in India. Such offices are required to approach their AD bank for opening of the accounts. Transfer of assets of LO/BO to subsidiaries or other LO/BO is allowed with the specific approval of the Central Office of the RBI. BOs are permitted to acquire property for their own use and to carry out the permitted/incidental activities but not for leasing or renting out the property. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Hong Kong, Macau, Nepal, Bhutan or China are not allowed to acquire immovable property in India even for a BO/PO. These entities are allowed to lease such property for a period not exceeding five years. Entities from Nepal are allowed to establish only LO in India. Powers relating to transfer of assets of LO/BO/PO have been delegated to AD Category-1 Banks subject to compliance with certain conditions. AD banks can allow term deposit account for a period not exceeding six months in favor of a branch/office of a person resident outside India provided the AD bank is satisfied that the term deposit is out of temporary surplus funds and the branch/office furnishes an undertaking that the maturity proceeds of the term deposit will be utilised for their business in India within three months of



maturity. However, such facility may not be extended to shipping/airline companies.

¶7-020 Incorporation of Company Incorporation of a company in India is governed by the Companies Act. For

registration and incorporation, an application has to be filed with the ROC. 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.

Private Company A private company can be formed with minimum two shareholders and with a

minimum paid-up capital, as may be prescribed, by its Memorandum and Articles of Association. Further, a private company:

1. restricts the rights to transfer its shares, if any; 2. limits the number of its members to 200, not including:

(a) persons who are in the employment of the company; and (b) persons who, having been formerly in the employment of the company,

were members of the company while in that employment and have continued to be a members after the employment had ceased; and

3. prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company; and

4. prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

Formation of a Private Limited Company A private company can be formed either by: 1. incorporation of a new company for doing a new business, or 2. conversion of the existing business of a sole proprietary concern or partnership

firm into a company.

Public Company A public company can be formed with minimum seven shareholders and with a

minimum paid-up capital, as may be prescribed.

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 name, the State in which the registered office is to be situated, main objects of the company 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.



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.

¶7-030 Procedure for Incorporation of Company in India

A. Preliminary Steps ● Obtain Digital Signature Certificate

■ The proposed directors of the company (to be incorporated) have to apply for Digital Signature Certificate (DSC) for online signing of e-Forms.

● Obtain Director Identification Number ■ Every Director/intending director(s) must have a unique identification

number, i.e. Director Identification Number (DIN) as allotted by the authorities under the Ministry of Corporate Affairs (MCA).

B. Incorporation-related Activities

Step I: Approval of Name 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: ● Apply to the ROC by filing e-Form INC-1. ● 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. ● The official guidelines issued by the Central Government should be followed

while selecting the names. Besides, the names so selected should not violate the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950.

● The validity of the name approval is for sixty days within which the company should file the MOA and the AOA (Step II).

Step II: Memorandum and Articles of Association (MOA and AOA) ● Drafting of MOA and AOA - Charter documents.

Step III: Filing of additional e-Forms The company is required to file the following e-forms on the MCA’s online portal

for filing of forms in order to incorporate a company:



1. e-Form INC-7: It is an application along with a statutory declaration by an advocate, a Chartered Accountant, Cost Accountant or a Company Secretary in whole-time practice in India who is engaged in the formation of the company in Form INC-8 and by the subscribers to the MOA and persons named as directors 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 in Form INC-9 and specimen signatures of the subscribers to the MOA in Form INC-10. Along with e-Form INC-7, the MOA, AOA, and all other required documentation necessary for the incorporation of the company has to be filed. As per the new online filing system of the MCA, the stamp duty on MOA, AOA and e-Form INC-7 can be paid online along with the filing of e-Form INC-7.

2. e-Form INC-22: It is a form to notify the complete address of the registered office of the company.

3. e-Form DIR-12: It is a form 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 director or manager, have to be filed along with this form. Further, a company is also required to file a written consent of directors to agree to act as directors in Form DIR-2.

C. Certificate of Incorporation ● The ROC will give the certificate of incorporation in form INC-11 after the

above documents duly stamped and signed are presented along with the requisite registration fee, which is scaled according to the authorized share capital of the company, as stated in the MOA.

● Certificate of incorporation is the birth certificate of the company and is proof of its existence.

D. Issue of Share Capital After obtaining registration, the company will require funds to carry on its business.

The company will at first issue shares to the subscribers to its MOA and then to other members of the company. The issued capital must not exceed the authorised capital of the company. 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

¶7-040 Introduction The Limited Liability Partnership (“LLP”) Act, 2008 (“LLP Act”) has been enacted

by the Government to facilitate formation of LLPs in India. The LLP Act came into force with effect from 31 March, 2009 and the LLP Rules, 2009 came into force with effect from 1 April 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, i.e. an LLP can be formed even without Indian citizens. All that the LLP Act requires is that at least one designated partner must be resident in India, meaning a person who has stayed in India for a minimum period of 182 days during the immediately preceding one year.

An LLP has to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall be filed by every LLP with the ROC 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.

¶7-050 Extent of Liability of Partners of LLP By far, the most important change that the LLP Act seeks to bring about is the

change 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.

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 knows that the partner has no authority or does not believe the person to be a partner of 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 partners, there is no “joint and several” liability.

¶7-060 Winding up of an LLP The grounds for “winding up” are analogous to the winding up of a company and

may be either voluntary or by an order of the National Company Law Tribunal (the Tribunal). Besides the obvious grounds of financial insolvency, decision of the LLP to be wound up, continuance for more than six months with less than two partners, acting



against the sovereignty, integrity or security of India, failure to file Statement of Accounts and Solvency, the power to wind up an LLP, on the ground that “it is just and equitable” to do so, is vested at the Tribunal.

¶7-070 Conversion into LLP A significant feature of the LLP Act is that it permits conversion of existing (a)

partnership firms, (b) private limited company, and (c) unlisted public company into LLP. The procedure for such conversion is provided for in the Second, Third and Fourth Schedules, respectively to the LLP Act. “Conversion,” for the purposes of the LLP Act, means the transfer of the property, assets, interests, rights, privileges, liabilities, obligations and the undertaking of a firm or an eligible company to LLP. For any conversion to take place, the LLP must be, at that time, the mirror image of the firm or the company sought to be converted. In other words, all the partners (of the firm) or shareholders (of the eligible company), as the case may be, should at the time of conversion, become partners of the LLP. Upon conversion, all the assets and liabilities of the predecessor firm or company would stand transferred to and vested in the LLP. Such conversion shall have the effect of dissolution of the predecessor firm or company, as the case may be.

An LLP, thus, offers an attractive alternative to the existing partnership firms and joint-venture companies that are operating in India since it assures limited liability and yet provides organisational flexibility, less onerous compliances and limited disclosure requirements.

LLP has also been recognized as a structure in the latest Consolidated FDI Policy (effective 12 May 2015). However, FDI in LLP is allowed under Government approval route and only in cases where the LLP is operating in sectors/activities where 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.

Setting up a Legal Structure for a Non-profit Entity in India

¶7-080 Forms of Legal Entities A legal entity proposed to be established in India by an overseas entity may take any

one of the following forms: A. a company licensed under Section 8 of the Companies Act; B. a society registered under the Societies Registration Act, 1860; C. a registered trust. The aforesaid forms/options have been explained in the succeeding paragraphs:

A. Company licensed under Section 8 of the Companies Act Section 8 of the Companies Act provides that any association which is engaged in

promoting commerce, art, science, religion, charity or any other useful object and which intends to apply its profits (if any) or other income in promoting its objects 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 with limited liability, without the addition to its name of the word “Limited” or the words “Private Limited” (Section 8 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 8 Company can be transferred and such companies are not affected by changes in membership.

Procedure for Incorporation of Section 8 Company The procedure for incorporation of Section 8 Company is briefly described as under: ● Application for obtaining licence for setting up a Section 8 Company is

required to be submitted to the Regional Director (RD) of MCA in form INC-12 in e-Form RD-1 (depending upon the jurisdiction) for procurement of licence.

● The aforesaid application is to be accompanied with certain documents such as MOA in Form INC-13, AOA, declaration by an Advocate, Chartered Accountant, Cost Accountant or a Company Secretary in practice that the draft MOA and AOA have been drawn up in conformity with the Companies Act and rules framed thereunder, statement showing details of assets, estimate of future income, etc in Form INC-14 and a declaration by each person making the application in Form INC-15.

● Simultaneously, all the documents are also required to be filed with the RD who may suggest some modifications in the aforesaid documents.

● Within a week of submission of an application to the RD, a notice of intention to form 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.

● Once the RD is satisfied that all the requirements of the Companies Act and regulations made thereunder have been duly complied, the RD will grant licence.

● Subsequently, all forms and papers are required to be filed with the ROC for incorporation of the Section 8 company, along with the prescribed registration fee.

● A company under Section 8 of the Companies Act is almost the same as a domestic Indian company incorporated under the Companies Act. The compliances are also, more or less, similar to any other company such as filing of a periodic return, holding of board and general meetings, etc.

B. Society registered under Societies Registration Act, 1860 (as modified in the State in which the Society is proposed to be registered)

Any seven or more persons associated for any literary, scientific, or charitable purpose, or for any such purpose as specified in the Societies Registration Act, 1860, may, by subscribing their names to an MOA, and filing the same with the Registrar of Societies, form themselves into a society under the said Act.

The registration of a society under the Societies Registration Act, 1860, provides legal recognition to the society which is essential for the opening of bank accounts, filing of legal suits, obtaining income tax approvals, lawful vesting of properties, etc, in the name of the society.



Characteristics of a Society ● It is an artificial legal person created to achieve the objects for which it is

formed. ● 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 the society are not personally liable to settle society’s dues, except in specific 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. ● The following documents are required to be filed with the Registrar of

Societies: (i) MOA, containing the name and object of society and the names,

addresses and occupations of the members. (ii) Rules and regulations of the society. (iii) Identity Proof of all members of the society. (iv) No Objection Certificate from the owner of the premises where the

registered office is to be situated, stating that he/she has no objection in case society operates from that premises.

(v) Payment of applicable fees to the Registrar of Societies.

C. 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 parties, author, settler/trustees, and beneficiaries. It is usually created through a trust deed. 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 Deed normally takes one day. There are very few procedural regulations applicable to the 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.



● The obligation must arise out of confidence that is reposed in the trustee(s). Such confidence, in turn, must be accepted for the benefit of the beneficiaries.

● A trust must be created for a lawful purpose. Trust is, however, subject to certain disabilities such as: ● Inability to modify objects/activities in the event where the original settlers are

unavailable or unwilling. ● Possibility of mismanagement due to non-democratic style of governance. ● No separate existence of its own, i.e. it is not an independent legal entity. It

cannot acquire any immovable property in its name. During the process of registration of a trust, the Settler’s physical presence before the

Sub-registrar is mandatory. The Settler’s presence can 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 for establishing the aforesaid entities are concerned, a Section 8 Company shall take a minimum two to three months to register after the process has been initiated. A society may get formed and registered in approximately one month’s time. A trust can be formed in just one week’s time.

Foreign Funding and Applicability of Foreign Contribution Regulation Act, 2010 (FCRA)

Non-profit organisations whether in the form of a Section 8 Company, a Society 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 Foreign Contribution Regulation Act, 2010 (FCRA). 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 and other voluntary organisations as well as individuals working in the important areas of national life may function in the manner consistent with the values of the Sovereign Democratic Republic.

The terms “association” and “foreign contribution” have been defined under Sections 2(a) and 2(c), respectively, of FCRA.

A company or a society, registered under the Societies Registration Act, 1860, or a trust, falls within the definition of the term “association” as defined under Section 2(a) of the 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 11 of FCRA deals with certain requirements relating to persons receiving foreign contribution.

Section 11 provides that any association having definite cultural, economic, educational, religious or social programmes shall not receive foreign contribution unless it is registered with the Central Government or seeks prior approval of the Central Government in accordance with the rules made in this behalf under FCRA. Further, such foreign contribution should be received only through a single designated bank account, specifically opened for the said purpose, and the person is required to specify the same in its application for registration/prior permission, as the case may be. It also requires that



once the association is registered, the bank or authorized persons should give an intimation regarding receipt of foreign contribution to the Central Government within such time and in such form and manner, as may be prescribed by the Rules made under FCRA.

In all the aforesaid forms, payment of dividend / distribution of income to the members by an organisation in any form is 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-8 Company, Society and Trust

S. No.

Particulars Section-8 Company Society Trust

1. Objects

Non-profit activities can be the same in case of either of the entities.



2. Formation

The forms/documents for incorporation are required to be filed with the RD/ROC. Incorporation takes minimum two-three months' time.

Documents for registration to be filed with the Registrar of Societies. Registration takes minimum one month's time.

Trust is established by executing a trust deed and registering it with the Sub-Registrar. Trust can be registered within one week's time.

3. Minimum number of members

Two persons in case of private company and three persons in case of public company are 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.



S. No.


5. Meetings

Board meetings to be held as per Companies Act. At least one board meeting to be held in every six calendar months. 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 as prescribed in the Rules/By-laws of the Society.

The Board of Trustees can hold meetings as prescribed in the Trust Deed.

6. Statutory Filings

Annual Return to be filed with ROC. Balance Sheet to be filed with ROC 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 be filed with the Registrar of Societies annually.

No filing required to be done.

7. Liability of Directors/ Members/ Trustees

Directors' liability is limited. Directors' position is fiduciary vis-à-vis the company, and they must exercise their powers for the benefit of the Company. Different sections under the Companies Act, specify the penalty to be paid in case of default.

Limited liability of members of the society, i.e. members are not personally liable to settle society's dues except in certain circumstances.

Trustees are liable for any breach of trust.

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.



S. No.


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 Indian Trusts Act.


Chapter 8 Tax Laws 129

Chapter 8 Tax Laws Income tax Chargeability of income tax .......................................................................... ¶8-010 Residential status ........................................................................................... ¶8-020 Scope of income ............................................................................................ ¶8-030 Tax year ......................................................................................................... ¶8-040 Rates of income tax ....................................................................................... ¶8-050 Heads of income ............................................................................................ ¶8-060 Computation of profits and gains from business or profession ..................... ¶8-070 Computation of capital gains ......................................................................... ¶8-080 Transfer pricing ............................................................................................. ¶8-090 Withholding tax ............................................................................................. ¶8-100 Minimum alternative tax (MAT) ................................................................... ¶8-110 Alternate Minimum Tax ................................................................................ ¶8-120 Securities transaction tax ............................................................................... ¶8-130 Dividend distribution tax ............................................................................... ¶8-140 Taxation of dividends received from foreign subsidiaries ............................ ¶8-150 Return of income ........................................................................................... ¶8-160 Books/records to be maintained and audited ................................................. ¶8-170 Assessment and dispute resolution ................................................................ ¶8-180 Dispute resolution panel ................................................................................ ¶8-190 Appeals: Administrative, Quasi-Judicial and Judicial Hierarchy .................. ¶8-200 Advance ruling .............................................................................................. ¶8-210 Closure of business ....................................................................................... ¶8-220 Corporate restructuring: Tax implications ..................................................... ¶8-230 Administration............................................................................................... ¶8-240 Service Tax Taxation of Service ....................................................................................... ¶8-250 Important provisions governing levy of service tax are discussed in the succeeding paragraphs................................................................................... ¶8-260 General exemptions ....................................................................................... ¶8-270 Compliance under Service Tax ..................................................................... ¶8-280

© 2015 0 5015 Vaisha sVaish Associates,ssoc ates,Associates, Advocates.d ocatesAdvocates. AllAll rightsg tsrights reserved.ese edreserved


Provision for centralized registration ............................................................ ¶8-290 CENVAT Credit ............................................................................................ ¶8-300 Export and import of services ....................................................................... ¶8-310 Advance ruling .............................................................................................. ¶8-320 Administration............................................................................................... ¶8-330 Customs Duty Chargeability of Customs Duty ..................................................................... ¶8-340 Levy of customs ............................................................................................ ¶8-350 Export duties ................................................................................................. ¶8-360 Import duties ................................................................................................. ¶8-370 Rate of duty ................................................................................................... ¶8-380 Classification of Goods ................................................................................. ¶8-390 Advance ruling .............................................................................................. ¶8-400 Administration............................................................................................... ¶8-410 Central Excise Act Chargeability of Central Excise Duty ........................................................... ¶8-420 Levy of Central Excise Duty ......................................................................... ¶8-430 Levy of Excise Duty ...................................................................................... ¶8-440 Types of Excise Duty .................................................................................... ¶8-450 Registration under the Central Excise Act .................................................... ¶8-460 Persons Exempted from Registration ............................................................ ¶8-470 Liability to pay duty is on the manufacturer ................................................. ¶8-480 Valuation of excisable goods ........................................................................ ¶8-490 Rate of Central Excise Duty .......................................................................... ¶8-500 Classification of Goods ................................................................................. ¶8-510 Administration............................................................................................... ¶8-520 Central Sales Tax/Value Added Tax Central Sales Tax .......................................................................................... ¶8-530 Value Added Tax .......................................................................................... ¶8-540 CENVAT Credit Scheme Credit of duty paid on inputs and input services ........................................... ¶8-550 Compliances .................................................................................................. ¶8-560 Goods and Services Tax Introduction ................................................................................................... ¶8-570 Expected rates of GST................................................................................... ¶8-580 Integrated GST for interstate transactions ..................................................... ¶8-590



1% Additional tax on supply of goods (ATSG) in interstate supply for two years ....................................................................................................... ¶8-600 Goods and Service Taxes Council ................................................................. ¶8-610 Registration number of assesse ..................................................................... ¶8-620 Value for purpose of GST ............................................................................. ¶8-630 Electronic returns .......................................................................................... ¶8-640 Administration of taxes ................................................................................. ¶8-650

Income tax ¶8-010 Chargeability of income tax

• Article 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 prescribed in the Finance Act. The ITA defines the term “person” to include an individual, an HUF, a company, a firm (including LLP), an AOP or a BOI; a local authority and every other artificial juridical person.

• The ITA provides an inclusive definition of the expression “income”. Therefore, income includes not only those things which this definition explicitly declares, but also all such things as the word signifies according to its natural import.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 taxable under the ITA, unless specifically exempted, a capital receipt cannot be taxed as income,2 unless otherwise provided for by the statute.3

¶8-020 Residential status • Section 6 of the ITA defines the term “resident”, and contains different

criteria to determine the residence of various entities such as a company, a firm and an individual, etc. A company is regarded as resident in India if it is

1 Kanga Palkhivala and Vyas, The Law and Practice of Income Tax, Ninth Edition at

p. 142 2 Padmaraje R. Kadambande v CIT [1992] 195 ITR 877 3 For example, capital gains under s 45 of the ITA



an Indian company; or the place of its effective management1 is in India in the relevant financial year.2 The expression “place of effective management” has been defined to mean a place where key management and commercial decisions that are necessary for the conduct of the busness of an entity as a whole are, in substance made.3 An AOP, a firm or HUF is considered resident in India, except where during that financial year, the control 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 income • The total income of an assessee is determined on the basis of his residential

status in India. According to s 5 of the ITA, Indian residents 4are liable to be taxed on their global income, whereas non-residents are taxed only on income that has its source in India.5

• The scope of s 5 is expanded by the legal fiction contained in s 9, which deems certain incomes to be of Indian source. Section 9 provides for circumstances when various types of incomes are deemed to be Indian sourced and hence are liable to tax in India. It specifically provides that all incomes accruing or arising, whether directly or indirectly, through or from any business connection6 in India, or through or from any property in India, or

1 As substituted by the Finance Act, 2015, w.e.f., 1.4.2016 2 A period of 12 months commencing on the 1st day of April 3 As defined in Explanation to s 6(3) of the ITA 4 Defined in s 6 of the ITA 5 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”. 6 The expression “business connection” as used in this provision was not originally defined

in the ITA. The Supreme Court in the case of R.D. Aggarwal [56 ITR 20] laid down the definition of the term as:

“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, and an inclusive definition of the expression was inserted with effect from April 1, 2004. As per this definition, a business connection includes “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 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.”



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. It has been clarified in the ITA that an asset or capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from assets located in India. Such asset can be said to be deriving its value substantially from assets located in India, where the value of such asset exceeds Rs 10 crores (Indian Rupees Ten Million) and the same represents atleast 51% of the value of all the assets owned by the company/entity1.

¶8-040 Tax year • The financial year in which the income is earned is called the “Previous Year”

and 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 12 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 tax • Applicable 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 30%,2 whereas a non-resident company is taxed at the rate of 40%.3 However, the applicable rates of income tax are amended every financial year by the corresponding Finance Act. For the tax rates applicable to the assessment year 2016-2017, 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 residence of the nonresident are required to be examined, since the ITA provides that its provisions shall be applicable only insofar as they are more beneficial to the taxpayer.4 Thus, if the provisions of the DTAA are more beneficial as compared to the provisions of the ITA, the non-resident can opt to be taxed with reference to the provisions of the DTAA. Please refer Annexure 2 for a list of countries with whom India has signed DTAA.

The only exception where beneficial provisions of DTAA are not available to a non-resident is in case of applicability of General Anti Avoidance Rules5 or non-furnishing of Tax Residency Certificate by the non-resident.6

1 Refer Explanations 5, 6 and 7 in cl (i) of s 9(1) of the ITA 2 exclusive of applicable surcharge and education cess 3 exclusive of applicable surcharge and education cess 4 Section 90(2) of the ITA 5 Section 90(2A) of the ITA 6 Section 90(4) of the ITA



¶8-060 Heads of income • Income liable to tax in the hands of a person under the ITA has been classified

into five mutually exclusive heads of income, namely: »» Salaries, »» Income from house property, »» Profits and gains from business or profession, »» Capital gains, and »» Income from other sources.

• The ITA details the manner of computation for each head of income. Various 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 as salaries and income from house property are concerned. No expenditure other than as prescribed can be deducted while computing income under the head “salaries” and “income from house property”.

¶8-070 Computation of profits and gains from business or profession

• 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, specific deductions are prescribed for certain expenditures like rent, rates, taxes, 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 expenditure of a capital nature are usually not taken into consideration while 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 economic development of a particular geographical area. For instance, profits and gains derived by an assessee from a newly established undertaking set up in Special Economic Zone (SEZs) will not be included in the total income of the taxpayer for ten consecutive financial years from the date of commencement of operations by such an undertaking. A few such provisions have been discussed in further detail below:

Deduction in respect of newly established units in special economic zones

Section 10AA of the ITA makes special provisions in respect of newly established units in Special Economic Zones. A taxpayer setting up such a unit is entitled to exemption from income tax for a period of fifteen years from the year of commencement of operations by such a unit, in the following manner:



100% of profits earned from the export of goods or services for a period of first five years;

50% of such profits for next five years; and 50% of such profits for further five years subject to re-investment of profits in

the business of the taxpayer in prescribed manner; However, certain general conditions must be satisfied before a taxpayer becomes

entitled to this deduction, viz., »» The unit should be set up in a notified Special Economic Zone; »» The unit should not be formed by splitting up or by reconstruction of a business

already in existence; and »» The unit should not have been formed by the transfer of a new business of

machinery or plant previously used for any purpose.

Deductions in respect of profits from industrial undertakings or enterprises engaged in infrastructure development, etc

• Special deduction of 100% of profits earned by a taxpayer derived from certain industrial undertakings or enterprises engaged in certain activities are allowed for 10 consecutive financial years under s 80-IA of the ITA. Such deductions are available for undertakings engaged in the following activities: »» Provision of infrastructure facilities; »» Power generation, transmission and distribution or substantial

renovation and modernization of existing distribution lines; and »» Undertaking set up for a new power unit.

Deductions in respect of profits from industrial undertakings other than infrastructure development undertakings

• Section 80-IB of the ITA provides for deductions of varying magnitude in respect of profits earned by a taxpayer derived from certain industrial undertakings other than infrastructural undertakings set up in specified backward areas/districts. The deductions are available for 10 consecutive financial years from the date of commencement of its operations. The deduction under the above section is also available to an enterprise engaged in the following activities: »» Operation of a ship; »» Hotels; »» Industrial research; »» Production of mineral oil; »» Developing and building housing projects; »» Business of processing, preservation and packaging of fruits or

vegetables or integrated handling, storage and transportation of food grains units;

»» Multiplex theatres; »» Convention centres; and



»» Operating and maintaining a hospital in rural areas. • However, the undertakings must satisfy the following conditions in order to

claim deduction under s 80-IB: »» It should be a new undertaking; »» It should not be formed by the transfer of old plant and machinery; »» It should not manufacture or produce non-priority sector items, as listed

in the eleventh schedule to the ITA; »» Manufacture or production should commence within the prescribed time

limit for various activities; »» It should employ atleast 10 (for power-assisted undertakings) or twenty

(for undertakings operating without the aid of power) workers; »» It must file its return of income on or before the prescribed due date; and »» Tax holiday is also provided in respect of profits of units set up in

certain specified States (s 80-IC) and business of hotels and convention centres in specified areas.

Deduction in respect of profits and gains by an undertaking or enterprise engaged in development of special economic zone

Under s 80-IAB of ITA, deduction of 100% of profits derived by a taxpayer from the business of developing or developing, operating and maintaining a notified special economic zone is available for a period of ten consecutive years out of a period of 15 years commencing from the year of notification of the special economic zone.

¶8-080 Computation of capital gains • Any profit or gain arising from the transfer of a capital asset during a financial

year is chargeable to tax under the head “capital gains”. Capital assets may either 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 36 months stands reduced to twelve months in the case of security of a company listed on a recognised stock exchange and unit of equity oriented mutual funds. Therefore, equity or preference shares which are listed on recognised stock exchange 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

transfer of the capital asset; »» cost of acquisition of the capital asset; and



»» any cost of improvement that may have been incurred by the taxpayer towards the capital asset.

• These costs of acquisition and improvement are taken at their absolute values for computing capital gains arising from the transfer of short-term capital assets. However, indexation benefit is allowed in case of capital gains arising from the transfer of long-term capital assets to neutralise the impact of inflation since the date of acquisition of the asset or April 1, 1981, whichever is later.

¶8-090 Transfer pricing • Section 92 of the ITA provides that income arising from an “international

transaction” shall be computed having regard to the arm’s length price. The expression “international transaction” has been defined to mean a transaction 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 having a bearing on the profits, income, losses or assets of such enterprises. 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 Transfer Pricing guidelines are to a large extent modeled on the OECD’s transfer 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.1

• The Finance Act, 2012 has extended the scope of transfer pricing provisions to specified domestic transactions. In terms of the newly inserted s 92BA of the ITA, the following transactions between two domestic enterprises shall be subject to transfer pricing provisions: (i) any expenditure in respect of which payment has been made or is to be

made to a person referred to in cl (b) of sub-s (2) of s 40A; (ii) any transaction referred to in s 80A; (iii) any transfer of goods or services referred to in sub-s (8) of s 80-IA; (iv) any business transacted between the assessee and other person as

referred to in sub-s (10) of s 80-IA; (v) any transaction, referred to in any other section under Chapter VI-A or s

10AA, to which provisions of sub-s (8) or sub-s (10) of s 80-IA are applicable; or

(vi) any other transaction as may be prescribed. The provisions of domestic transfer pricing have been made applicable

if aggregate amount of all such domestic transactions exceeds Rs 200 million in a year.

• Existing transfer pricing provisions provided arm’s length range of + 3% for determining the arm’s length price. The Finance Act, 2011 has amended the

1 Vanenburg Group B.V. v CIT, 289 ITR 464; DDIT v Sun Chemicals BV, 24 SOT 199



ITA to provide that the percentage of variation permitted as the arm’s length range would be as notified by the Central Government for the various industry sectors.

Anti-Avoidance Rules • Section 94A has been inserted by the Finance Act, 2011 to deal with

transactions undertaken with persons located in the notified countries or jurisdictions1, which do not effectively exchange information with India.

• According to this provision, if a taxpayer enters into a transaction, where one of the parties to the transaction is located in a notified area, transfer pricing regulations will apply to such transaction. No deduction in respect of any payment made to any financial institution located in a notified area will be allowed unless the taxpayer furnishes an authorisation authorising CBDT or any other income tax authority acting on its behalf, to seek relevant information from the financial institution.

• No deduction in respect of any other expenditure or allowance (including depreciation) arising from the transaction with a person located in a notified area will be allowed under any provision of the ITA unless the taxpayer maintains such other documents and furnishes the information as may be prescribed.

• If any sum is received by a taxpayer from a person located in a notified area, the onus will be on the taxpayer to satisfactorily explain the source of such money in the hands of such person or in the hands of the beneficial owner and in case of his failure to do so, the amount will be deemed to be the income of the taxpayer.

• Sub-section (5) of s 94A of the ITA provides that where any person located in a notified area is entitled to receive any sum or income on which tax is deductible under Chapter XVII-B, tax shall be deducted act the highest of the following rates, namely, - rates in force; or - rates specified in the relevant provisions of the ITA; or - rate of 30%

• Vide Notification No. 86/2013 dated 01.11.2013, Cyprus has been notified as a notified jurisdictional area, for the purpose of the aforesaid section. Thus, in terms of the said provision, transactions entered with resident(s) of Cyprus are subject to the provisions of said section.

¶8-100 Withholding tax • A person (except individuals in certain cases) is required to withhold tax from

certain specified payments. Separate provisions exist in respect of tax to be deducted on specific transactions with residents and with non-residents.

• The ITA provides for withholding of taxes from payments made to non-residents, which are chargeable to tax under the ITA. Any person, whether

1 Central Government may notify any country or territory outside India as a notified

jurisdictional area (notified area);



resident or non-resident, making payment to a non-resident would be liable to withhold tax from such payment and deposit the same with the Government within the prescribed time. Moreover, prescribed returns are also required to be filed periodically with the tax authorities. The payee is entitled to adjust the taxes so withheld against his tax liability in India on production of a (tax credit) certificate to be issued by the person withholding the tax.

Rates of withholding tax The current rates1 for withholding tax for payment to non-residents are as follows:

Interest 20% Interest (from a notified Infrastructure Debt Fund) 5% Dividends (Domestic Companies)

Nil

Royalties 10% Technical Services 10% Any other income 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.

However, if the non-resident payee does not have a Permanent Account Number (PAN), the rate of tax withholding shall be 20% or the rates as per the aforesaid table, whichever is higher.

¶8-110 Minimum alternative tax (MAT) • In India, a company, alike other assessees, is liable to pay tax on the income

computed in accordance with the provisions of the ITA. However, the profit and loss account of the company is prepared as per the provisions of the [Indian] Companies Act, 1956. The Government has experienced a large number of cases where the companies, though had profits as per their profit and loss account, were not paying any tax because income computed as the per provisions of the ITA was either nil or was a loss. In such cases, though the companies were showing profits in books 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 on regular basis, w.e.f., the assessment year 1997-1998.

• Thus, in terms of s 115JB of the ITA, a company, is required to pay tax at the rate of 18.5%2 plus applicable surcharge and education cess on its book profits (as declared in the profit and loss account), if the tax on income computed as per the normal provisions of the ITA is less than the aforesaid tax on book profits.

1 Rates mentioned are exclusive of surcharge and education cess 2 With effect from assessment year 2012-2013 (as per the Finance Act, 2011)



• A new tax credit scheme was introduced by which the MAT paid could be carried forward and set off against regular tax payable during the subsequent ten -year period1, subject to certain conditions, viz: »» 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 10* assessment years immediately succeeding the assessment year in which MAT is paid. Unabsorbed MAT credit will be allowed to be accumulated, subject to the 10-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. • Until the financial year 2010-2011, the MAT provisions were not applicable

to SEZ developers and units. However, this benefit has been dispensed with by the Finance Act, 2011. With effect from 01.04.2011, the SEZ developers and units are also required to compute (and pay) MAT on their book profits.

• Finance Act, 2015, w.e.f., 1.04.2016 has specifically excluded from the purview of MAT, any income accruing and/or arising to a foreign company under the heads capital gains arising from transactions in securities or interest, royalty or fees for technical services.

¶8-120 Alternate Minimum Tax • A concept similar to minimum alternate tax for companies has also been

introduced with effect from 01.04.2011 for all assessee, including limited liability partnerships but excluding companies, as companies are governed by MAT provisions. All assessees, other than a company, are required to compute alternate minimum tax (AMT) on their adjusted total income and pay AMT if it 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.

¶8-130 Securities transaction tax • Securities transaction tax (STT) or turnover tax, as is generally known, is a tax

that is leviable on securities transaction carried through a recognized stock exchange in India. STT is leviable on the taxable securities transactions, w.e.f. October 1, 2004. Surcharge is not leviable on the STT.

• Long-term capital gains arising on the sale of shares/securities, which is carried out through the stock exchange and on which STT has been paid, are exempted from tax.

1 Where the tax has been paid under s 115JB(1) of the ITA



¶8-140 Dividend distribution tax • Section 115-O of the ITA provides that any amount declared, distributed or

paid by a domestic company by way of dividend shall be chargeable to dividend distribution tax (DDT). Only a domestic company (not a foreign company) is liable for DDT. Such tax on distributed profit is in addition to income tax chargeable in respect of total income. It is applicable whether the dividend is interim or otherwise and whether such dividend is paid out of the current profits or accumulated profits.

• Rate of DDT is 15% plus surcharge and education cess on dividends distributed by companies and 25% on dividends paid by money market mutual funds and liquid mutual funds to all investors

• With a view to remove the cascading effect of DDT in multi-tier corporate structure, dividend received by any company from its subsidiary which has been subjected to DDT shall be liable to be reduced from the amount of dividend distributed by such recipient shareholder company, subject to DDT.

• Until the financial year 2010-2011, DDT provisions were not applicable to SEZ developers. However, this benefit has been taken away by the Finance Act, 2011 with effect from 01.06.2011. So, even SEZ developers are required to pay DDT on dividends declared, distributed or paid on or after 01.06.2011.

¶8-150 Taxation of dividends received from foreign subsidiaries

Dividend received (gross) by an Indian company from its foreign subsidiary(ies) (in which the recipient Indian company holds a minimum threshold shareholding of 26%) has now been taxable at a concessional rate of 15%1. Until 31.03.2011, any dividend received from foreign subsidiary(ies) was taxable at the normal rates. This amendment, brought by the Finance Act, 2011, is intended to encourage inflow of passive income lying abroad to boost the economy.

Buyback of shares by the Indian company

• The Finance Act, 2013 inserted new Chapter XII-DA consisting of sections 115-QA to 115-QC, w.e.f., 1.06.2013, to provide that tax shall be payable by the company (whose shares are not listed on a recognised stock exchange) on buy back of its own shares at the rate 20% of the “distributed income”.

• For the aforesaid purpose, “distributed income” is to be computed by reducing the amount received by the company on issuance of shares from the consideration paid on buyback. The said additional income tax paid by the company shall be the final tax liability and consequently, the amount/ consideration received by the shareholder(s) would be exempt from tax in their respective hands.

1 Section 115BBD of the ITA.



¶8-160 Return of income • A person having income liable to tax in India is required to file a return of

income with the income tax authorities (also referred to as the “Revenue”). The return of income must be filed before specific due dates prescribed for various kinds of entities for each financial year. Every company, including a foreign company, deriving income from India, is required to file such a return in India.

• Effective from 01.06.2011, the liaison offices of foreign companies are required to furnish a statement of its activities in prescribed form to the income-tax authorities within 60 days from the close of the financial year.

¶8-170 Books/records to be maintained and audited • The ITA requires an assessee carrying on business or profession to maintain

books of accounts if the gross receipts exceed the specified threshold. Every assessee carrying on business with gross receipts exceeding Rs 1,00,00,000 (Indian Rupees Ten Million), or profession with gross receipts exceeding Rs 50,00,000 (INR Five Million) in a financial year is statutorily required to get the books of account audited by a Chartered Accountant and furnish Tax Audit Report.

¶8-180 Assessment and dispute resolution • Detailed provisions exist in the ITA for assessing the income of a taxpayer for

any previous financial year. Normally, the assessment of income is made on the basis of the return of income filed by the assessee. However, there may be cases where the Revenue may call for certain details in order to make a correct assessment of 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 if the order is erroneous or prejudicial to the interest of Revenue.

¶8-190 Dispute resolution panel In order to facilitate expeditious disposal of disputes, a new dispute resolution

mechanism has been introduced. In case of specified assessee (an Indian company, in whose case, a Transfer Pricing adjustment is proposed, and a foreign company), it has been provided that prior to passing of final assessment order, the assessing officer should serve a copy of draft order to the assessee, to enable the assessee to record his objections to the draft order before the Dispute Resolution Panel (DRP). The DRP is a panel consisting of three senior Revenue officers, who have been given the powers to review the objections of the assessee and issue necessary directions to the Revenue officer to pass the assessment order in accordance with such directions. An appeal against the order passed by the Revenue officer in accordance with the directions of the DRP can be preferred directly before the second appellate authority, the Income Tax Appellate Tribunal (ITAT). This mechanism is optional and the assessee may decide not to avail of this resolution mechanism and take the traditional approach and prefer an appeal before



the first appellate authority, the CIT(A) against the assessment order passed by the Revenue officer. The advantage of opting for the DRP route is that there is no demand raised until the final order is passed by the assessing officer after considering the directions of DRP. Also, the assessee can approach the ITAT for stay of demand raised by the assessing officer as per the final order, after filing appeal to the ITAT against such order.

¶8-200 Appeals: Administrative, Quasi-Judicial and Judicial Hierarchy

• The ITA makes detailed provisions for appeals and revisions. Any assessee 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 is a senior revenue officer and a quasi-judicial authority. The assessee can only approach the CIT to seek revision of the order, if it is prejudicial to him.

• The taxpayer as well as the Revenue has a right to prefer an appeal against the order of the CIT(A) before the 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 • With as many as four statutory appellate forums, assessees often find

themselves caught 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.

¶8-220 Closure of business • 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 preceding financial year. The intimation should be given to the Revenue in the event that a business or profession in India is discontinued. Such intimation is required to be given within a period of fifteen days from the date of discontinuance of the business.

• 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 may 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 capital gains in his hands depending upon the amount/value of assets received vis-à-vis the cost of acquisition of the shares. Further, to the



extent the company in liquidation has accumulated profits the amount distributed is liable to dividend distribution tax. In the case of dissolution of a partnership firm or AOP, the firm would be liable to tax on capital gains on the assets distributed to its partners on the basis of the market value of the asset on the date of distribution. The partners are not, however, liable to tax on the assets so received.

• In the case of a partnership firm or an AOP where the business is discontinued or the firm/AOP is dissolved, the members of such AOP at the time of discontinuance/ dissolution and their legal representatives shall be jointly and severally liable for the tax liabilities of such dissolved firm/AOP.

• 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 authorities are empowered to require the liquidator to keep aside a sum, which the authorities consider sufficient to provide for the existing and future tax liabilities 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 attributed to any gross negligence or misfeasance on its part. It may be difficult 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 implications The growing need for restructuring of business enterprises on account of increasing

competition and globalisation, by ensuring preservation of tax benefits and simplifying 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

Court, the benefit of unabsorbed tax allowances of an amalgamating company owning an industrial undertaking or carrying on certain other specified business is available to the amalgamated company without the necessity of obtaining any formal approvals, subject only to fulfillment of the conditions prescribed therein. The conditions which are required to be fulfilled are as under:

»» The book value of the assets of the amalgamating company as on the date of amalgamation should not be less than 75% of the book value of the assets held two years prior to the date of amalgamation;

»» 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 amalgamation;

»» The amalgamated company should hold continuously for a minimum period of five years from the date of amalgamation, at least 75% of the book value of the fixed assets of the amalgamating company;



»» The amalgamated company should continue the business of the amalgamating company for a minimum period of five years from the date of amalgamation;

»» The amalgamated company should achieve production of at least 50% of the installed capacity of the undertaking of the amalgamating company before the end of four years from the date of amalgamation and should continue to maintain such capacity utilisation till the end of five years from the date of amalgamation; and

»» The amalgamated company must furnish a certificate in the prescribed form, to be 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 amalgamated company is also entitled to claim depreciation on the fixed assets of the amalgamating company to the same extent as the amalgamating company was entitled to as if no amalgamation had taken place.

Demerger Demerger in the context of the Indian tax laws signifies a transfer of the division/

undertaking of a company to another company under a scheme of arrangement approved 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 amalgamation. The losses identifiable to the unit/division to be demerged or in the absence of such identifiability, proportionate losses of the demerged company can be availed of by 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 Tax neutrality exists where a sole proprietorship or partnership firm is converted into

a company, subject to fulfillment of some specified conditions.

Conversion of private or unlisted public company into limited liability partnership

Tax neutrality exists where private or unlisted public company (not having gross receipts from business of more than INR 6 million in the preceding three years) is converted into Limited Liability Partnership, subject to fulfillment of specified conditions.

¶8-240 Administration The Income Tax Act is administered by the Central Board of Direct Taxes (CBDT),

Department of Revenue, Ministry of Finance, Government of India. The CBDT, from time to time, comes out with Circulars/Notifications clarifying the provisions of law, framing rules, etc, in connection with effective implementation of the provisions of the ITA.



Service Tax ¶8-250 Taxation of Service

Service tax was introduced for the first time in 1994 through insertion of Chapter V in 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 governed by the provisions of Chapter V of the Finance Act (ss 64 to 100) and the 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 registration, self-assessment, penalty, etc. Initially, the levy of service tax was confined only to three services. Since then, year after year, the scope of service tax gradually increased and extended to over 120 services. The Finance Act, which provides for levy of service tax has been substantially amended by the Finance Act, 2012, w.e.f., 1.07.2012. There has in fact been a paradigm shift in the law relating to levy of service tax, pursuant to the aforesaid amendments. Generally speaking, service tax is now leviable on all services except those mentioned in the negative list and exemption notification.

The relevant statutes governing the levy of service tax are as follows:

(i) Finance Act, 1994 – Chapter V (ss 64 to 100): This chapter extends to the whole of India except the State of Jammu and Kashmir

(ii) Service Tax Rules, 1994 (iii) Point of Taxation Rules, 2011 (iv) Service Tax (Determination of Value) Rules, 2006 (v) Service Tax (Advance Rulings) Rules, 2003 (vi) Place of Provision of Services Rules, 2012 (vii) CENVAT Credit Rules, 2004

¶8-260 Important provisions governing levy of service tax are discussed in the succeeding paragraphs

Levy of service tax • Service tax is levied on all services except those mentioned in the negative list

and exemption notification.

• Presently, the service tax is levied at the rate of 14% on the value of taxable services.

Taxable services Section 66B of the Finance Act is the charging section. The terms “taxable service”

is defined to mean any service on which service tax is leviable under s 66B of the Act.



Hitherto, the liability to pay service tax was on realisation of the value of taxable service. However, with the introduction of Point of Taxation Rules, 2011, w.e.f. 01.06.2011, the liability to pay service tax has been shifted to invoice method, ie, on raising of invoice.

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 partial/ reverse charge method) to pay service tax under the Finance Act.

Exemption to small service providers Service tax is exempted up to Rs 10,00,000 (Indian Rupees One Million), being the

aggregate value of all taxable services provided by a service provider during a financial year. The aggregate taxable value means the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year, but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under s 66 B of the Finance Act or under any other notification. However, the above exemption is not admissible to:

(a) taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; or

(b) such value of taxable services in respect of which service tax shall be paid by the recipient of services (on reverse charge method) under the Finance Act.

¶8-270 General exemptions Other than the threshold exemption to small service providers, certain relevant

exemptions from payment of whole of the amount of service tax are provided by way of Notifications, as under.

• Services provided to the United Nations or specified international organizations.

• Services provided to a developer of Special Economic Zone or a unit in Special Economic Zone. However, under the present provisions (vide Notification No. 12/2013 dated 01.07.2013), specified service received by SEZ unit/ Developer is ab initio exempt when used exclusively used for the authorized operations. For this purpose, the SEZ unit/Developer would need to seek an approval from the Approval Committee, of the list of services as are required for the authorized operations. In relation to the specified services that are not exclusively used for authorized operations, the SEZ unit/ Developer shall be liable to first pay service tax and subsequently claim refund thereof.

• Exemption to taxable service provided to Foreign Diplomatic Missions or Consular Post for official use and also for personal use or for the use of their family members.



• Certain specified taxable services received by an exporter of goods and used for export of goods (vide Notification No. 41/2012-ST dated 29.06.2012).

¶8-280 Compliance under Service Tax • Registration to be obtained from jurisdictional Central Excise authorities.

• Every person who has provided taxable service of value exceeding Rs 9,00,000 (Indian Rupees Nine Hundred Thousand), in the preceding financial year, is required to register with the concerned superintendent of Central Excise in Form ST-1. In case a recipient of service is liable to deposit service tax (under reverse charge method), he is also required to obtain registration.

¶8-290 Provision for centralized registration • Service provider located in one or more premises having centralized accounting

or centralized billing system, may register such premises or office from where such centralized billing or centralized accounting systems are located and thus, hold centralized registration. The Commissioner of Central Excise in whose jurisdiction centralized account or billing office of the assessees exists, is empowered to grant centralized registration.

• Payment of tax is on monthly/quarterly basis, depending upon the category of the assessee.

• Filing of half-yearly service tax returns in Form ST-3. Return for half year ending on 30th day of September and 31st day of March is required to be filed by the 25th day of October and 25th day of April, respectively.

• Assessment of service tax is on self-assessment basis.

¶8-300 CENVAT Credit • Credit under central excise and service tax has been extended across goods and

services. The CENVAT Credit Rules, 2004 provide inter alia for availment of the credit of (i) the service tax paid on input services; (ii) central excise duties paid on inputs/capital goods; and (iii) additional customs duty leviable under s 3 of the Customs Tariff Act, equivalent to the duties of excise. Such credit amount can be utilized towards payment of service tax by an assessee on their output services.

• Such credit can also be availed by a manufacturer and utilised for discharging their liability towards service tax and/or central excise duties.

¶8-310 Export and import of services The Export of Service Rules, 2005 and Taxation of Services (Provided from Outside

India and Received in India) Rules, 2006 (Import of Service Rules) have been superseded



by the Place of Provision of Services Rules, 2012 (PoP Rules). Presently, the PoP Rules govern where a service is provided/deemed to be provided and accordingly determine whether a service qualifies as export/ import of service.

¶8-320 Advance ruling • Advance ruling means the determination, by the Authority, of a question of law

or fact specified in the application regarding the liability to pay service tax in relation to a service proposed to be provided by the applicant.

• Authority for Advance Rulings for Central Excise, Customs and Service Tax is meant to provide binding ruling on the important issues such that intending applicants will have a clear-cut indication of their duty/ tax liability in advance.

Questions on which an advance ruling can be sought 1. Advance rulings, concerning service tax matters, can be sought in respect of:

(i) Classification of any service as a taxable service under Chapter V of the Finance Act;

(ii) Valuation of taxable services for charging service tax: (iii) Principles to be adopted for the purposes of determination of the value of

the taxable service under the Finance Act; (iv) Applicability of notifications issued under the Finance Act; (v) Admissibility of credit of duty or tax in terms of the rules made in this

regard; and (vi) Determination of the liability to pay service tax on a taxable service under

the Finance Act.

Persons eligible to apply for an advance ruling (i) A non-resident setting up a joint venture in India in collaboration with a non-

resident or a resident; (ii) A resident setting up a joint venture in India in collaboration with a non-

resident; (iii) A wholly owned subsidiary Indian company, of which the holding company is

a foreign company, who or which proposes to undertake any business activity in India;

(iv) A joint venture in India; (v) A resident falling within any such class or category of persons, as the Central

Government may, by notification in the official Gazette, specify in this behalf, and which or who, as the case may be, makes application for advance ruling under sub-s (1) of s 96C of the Finance Act.



¶8-330 Administration The service tax law is administered by the Central Excise Commissionerates

functioning under the Central Board of Excise & Customs (CBEC), Department of Revenue, Ministry of Finance, Government of India.

Customs Duty ¶8-340 Chargeability of Customs Duty

• The import and export duty is a Union subject under Entry 83 to List-I of the Seventh Schedule to the Constitution of India under the heading “Duties of Customs including Export Duties”. Article 246(1) of the Constitution confers exclusive powers upon Parliament to make laws with respect to any of matters 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 shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 (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 raising competitiveness of exports, import duties alone constituted major part of the revenue from customs duties.

• According to s 2(18) of the Customs Act, “export” with its grammatical variations and cognate expressions means taking out of India to a place outside India.

• According to s 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 Broadly, the following enactments deal with the matters relating to Customs Duty:

1. Customs Act, 1962

2. Customs Tariff Act, 1975

3. Customs Valuation (Determination of Value of Imported Goods) Rules, 2007

4. Customs Valuation (Determination of Value of Export Goods) Rules, 2007

5. Customs (Advance Ruling) Rules, 2002

6. Customs, Central Excise Duty and Service Tax Drawback Rules, 1995

7. Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995



8. CENVAT Credit Rules, 2004

9. Customs (Compounding of Offences) Rules, 2005

Customs duties are levied on the goods at the rates specified in the Schedule(s) to the CTA as amended from time to time. The taxable event is imported into or exported from India.

¶8-360 Export duties Under the Customs Act, goods exported from India may be subject to the levy of

export duty. The items on which export duty is levied and the rate at which the duty is levied are given in the CTA. Depending on the prevailing circumstances and export sensitivity, export duties are levied on various items from time to time.

¶8-370 Import duties Import duties generally consist of the following:

1. Basic Customs duty

Basic Customs Duty (BCD) is levied under s 12 of the Customs Act. Normally, it is levied as a percentage of value as determined under s 14(1) of the Customs Act. The rates at which BCD is charged vary from item-to-item. BCD may be fixed on ad valorem basis or specific rate basis. In other words, BCD may be a percentage of the value of the goods or at a specific rate.

2. Additional duty of customs (countervailing duty - excise)

Additional duty of customs is levied under s 3(1) of the CTA to countervail excise duty for the time being leviable on a like article if produced or manufactured in India. If such excise duty on a like article is leviable at any percentage of its value, the additional 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 “Countervailing Duty” (CVD).

3. Additional duty of customs (countervailing duty - sales tax/VAT)

Additional duty of Customs is levied under s 3(5) of CTA to countervail sales tax/VAT/local tax or any other charge for the time being leviable on a like article or its sale, purchase or transportation in India. The Central Government, may by notification in the official gazette, direct that the prescribed imported articles shall, in addition to basic customs duty and additional duty under s 3(1) of the CTA, be liable to an additional duty at a rate not exceeding four percent (4%) of the value of the imported articles as specified in that notification.

4. National Calamity Contingent Duty

In terms of s 3 of the CTA read with s 136 of the Finance Act, 2001, imported goods are charged to National Calamity Contingency Duty (NCCD) in the same



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-s (2) of s 3 of the CTA, imported goods shall be charged to additional duty of customs on the basis of MRP/ RSP, if in case of an imported article, the MRP/RSP is required to be declared under the Legal Metrology Act, 2009 and Rules made thereunder notified with effect from 01.03.2011, and such a product is listed under the Notification prescribing levy of excise duty on MRP basis, ie, Notification No.49/2008-CE (N.T.) dated December 24, 2008 as amended.

5. Safeguard duty

Sections 8B, 8C, 9A, 9B and 9C of the CTA read with the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 and the Customs Tariff (Transitional Products Specific Safeguard Duty) Rules, 2002 form the legal basis for imposition of safeguard duty. The Central Government is empowered to impose safeguard duty on specified imported goods if it is satisfied that imports of a particular product, as a result of tariff concessions or other World Trade Organisation (WTO) obligations undertaken by the importing country, increase unexpectedly to an extent that they cause or threaten to cause serious injury to domestic producers of “like or directly competitive products”. The relevant provisions under the CTA seek to provide relief to the domestic producers against injury caused by imports in accordance with the WTO Agreements. These provisions are aimed at offsetting the adverse effects of increased imports, subsidised imports or dumped imports and imports from the Peoples’ Republic of China.

6. Anti-dumping duty

Sections 9A, 9B and 9C of the CTA read with the Customs Tariff (Identification, 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 in pursuance of Article VI of the General Agreement on Trade and Tariffs (GATT), 1994.The domestic industry can seek necessary relief and protection against dumping of goods and articles by exporting companies and firms of any country from any part of the world in terms of the above legal framework.

7. Countervailing duty on subsidised articles

Sections 9 of the CTA read with the Customs Tariff (Identification, Assessment and 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 duty. These laws are in consonance with the WTO agreements on anti-subsidy countervailing measures. If a country or territory pays any subsidy (directly or indirectly) to its exporters for



exporting goods to India, the Central Government can impose countervailing duty up to the amount of such subsidy under s 9 of the Customs Tariff Act. The Customs Tariff (Identification, Assessment and Collection of Countervailing Duty or Subsidized Articles and for Determination of Injury) Rules, 1975 [Customs Notification No. 1/95 (N.T.) dated 1.1.95] provide detailed procedure for determining the injury to domestic industry in case of subsidised goods.

8. Protective duties

Section 6 of the CTA empowers the Central Government to levy protective duties in certain cases. Accordingly, based on the recommendations of the Tariff Commission, 13 if the Central Government is satisfied that an immediate action is necessary to protect the interests of the Indian industry, it may levy protective customs duty at a rate recommended by the Tariff Commission. Such levy has to be levied by way of a Notification in the official gazette and is valid till the date prescribed in the Notification.

9. Education cess/secondary and higher education cess

In addition to the normal customs duties, education cess at the rate of 2%, and secondary and higher education (SHE) cess at the rate of 1%, on aggregate duties of customs (including CVD) is leviable. If goods are fully exempted from duty or are chargeable to Nil duty or are cleared without payment of duty under prescribed procedure (such as clearance under bond), no cess would be leviable. However, no education cess and SHE cess is leviable on anti-dumping duty, safeguard duty and protective duties. Further, certain cesses are leviable on some specified articles of exports like coffee, coir, lac, mica, pan masala, tobacco (unmanufactured), marine products, cashew kernels, black pepper, cardamom, iron ore, oil cakes and meals, animal feed and turmeric. These cesses are collected as parts of customs duties and are then passed on to the agencies in charge of the administration of the concerned commodities.

¶8-380 Rate of duty • Customs duty is leviable based on the ITC (HSN) tariff classification of goods.

There are different rates of customs duty prescribed for different tariff classifications. Item specific rates of duty are given in the relevant Schedule(s) to the CTA. In determining the applicable rate of customs duty for a particular item/class, exemption notification, if any, issued with respect to such item/class should be taken into consideration.

• Further, where India has entered into Bilateral/Multilateral Trade Agreement(s) 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 provisions of such Bilateral/Multilateral Trade Agreement(s). Such preferential rates of customs duty under the Bilateral/Multilateral Trade Agreement(s) are implemented through exemption notification(s) issued by the Government.



¶8-390 Classification of Goods • 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 explain the scope of chapters/headings, etc. The chapters consist of chapter notes, brief description of commodities arranged according to HSN Numbers, which are allotted in the schedules either in four digits or in six digits or in eight digits. Every four digit code is called a “heading” and every six digit code is called a “subheading” and the eight digit code indicates the “specific commodity number”.

• The process of arriving at a particular heading/sub-heading/specific commodity number, either at four digit or six digit or eight digit level for a commodity in the Tariff Schedule is called “classification”. This helps in determining the rate of duty leviable as prescribed by the law.

• Further, classification of goods under a particular tariff heading is governed by a set of General Interpretative Rules, which form an integral part of the CTA. According to these Rules, classification is to be determined according to the terms of the headings or sub-headings or chapter notes.

¶8-400 Advance ruling • Advance rulings enable any non-resident and resident investor to know in

advance the customs 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 fact specified in the application regarding the liability to pay customs duty in relation to the proposed imports into or exports from India, by the applicant.

• Authority for Advance Rulings for Excise and Customs (AAR) is meant to provide 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 of the finality of the customs duty liability.

• The relevant provisions for obtaining an advance ruling are contained in Chapter V-B of the Customs Act, 1962. The Customs (Advance Rulings) Rules, 2002 notified vide Notification No. 55/2002-Customs (N.T.) dated August 23, 2002 as amended provide for the format to be used for filing an application.

Persons eligible to apply for advance ruling (i) A non-resident setting up a joint venture in India in collaboration with a non-

resident or a resident;

(ii) A resident setting up a joint venture in India in collaboration with a non-resident;



(iii) A [Indian] wholly owned subsidiary Indian company, of a foreign company, which the holding company is a foreign company, who or which proposes to undertake any business activity in India;

(iv) A joint venture in India;

(v) A resident falling within any such class or category of persons, as the Central Government may, by notification in the official gazette, specify in this behalf, and which or who, as the case may be, makes application for advance ruling under s 28H(1) of the Customs Act. The notified class of person also includes (i) the limited liability partnership as defined in cl (n) of sub-s (1) of the s 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); or (ii) limited liability partnership which has no company as its partner; or (iii) the sole proprietorship; or (iv) one person company

Issues on which advance rulings can be sought (a) classification of goods under the CTA;

(b) applicability of a notification issued under s 25(1) of the Customs Act having a bearing on the rate of duty;

(c) the principles to be adopted for the purposes of determination of the value of the goods under the provisions of the Customs Act;

(d) applicability of notifications issued in respect of duties under the Customs Act, the CTA and any duty chargeable under any other law for the time being in force in the same manner as duty of customs leviable under the Customs Act;

(e) determination of origin of the goods in terms of the rules notified under the CTA and matters relating thereto.

¶8-410 Administration Customs law is administered by the Customs Commissionerates functioning under

the Central Board of Excise & Customs (CBEC), Department of Revenue, Ministry of Finance, Government of India.

Central Excise Act ¶8-420 Chargeability of Central Excise Duty

• The central excise duty has been mentioned under Entry 84 to List I of the Seventh Schedule to the Constitution of India (the “Union List”) as:

Entry No. 84 –Duties of excise on tobacco and other goods manufactured 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 to make laws, between the Union Government and State Governments.

• Article 246(1) of the Constitution of India confers exclusive powers upon the Parliament to make laws with respect to any of matters enumerated in the Union List.

• Article 246(3) of the Constitution of India confers exclusive powers upon the State Government to make laws for the State with respect to any matter enumerated in 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 Governments under Entry No. 51 of List II of the Seventh Schedule to the Constitution of India and it is called “State Excise”. The Act, Rules and rates for State excise on liquor are different for each State.

• Matters in respect of which both the Union and State Governments can exercise power to make laws are contained in List III of the Seventh Schedule to the Constitution of India (the “Concurrent List”). However, in case of Union Territories, the Union Government can make laws in respect of all the entries in all three lists.

• In exercise of its powers, the Parliament enacted the Central Excise Act, 1944 (the “Central Excise Act”) and Rules thereunder, which inter alia provide for levy, collection and connected procedures with respect to central excise duty (called “CENVAT”).

• Section 3 of the Central Excise Act, the charging section, provides that there shall be levied and collected, in such a manner as may be prescribed, a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods (excluding goods produced or manufactured in Special Economic Zones) specified in the Second Schedule to the Central Excise Tariff Act, 1985 (CETA) which are produced or manufactured in India, as, and at the 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 removal from the factory. Generally, the manufacturer of goods is responsible to pay duty to the Government. The rates at which the central excise duty is to be paid are stipulated in the CETA.

¶8-430 Levy of Central Excise Duty Broadly, the following laws deal with the matters relating to Central Excise Duty:

(i) Central Excise Act, 1944

(ii) Central Excise Tariff Act, 1985

(iii) Additional Duties of Excise (Goods of Special Importance) Act, 1957

(iv) Central Excise Rules, 2002

(v) CENVAT Credit Rules, 2004

(vi) Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000



(vii) Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008

(viii) Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001

(ix) Customs, Central Excise Duties and Service Tax Drawback Rules, 1995

¶8-440 Levy of Excise Duty Section 3(1)(a) of the Central Excise Act provides that there shall be levied and

collected in such a manner as may be prescribed a duty of excise to be called the CENVAT on all excisable goods (excluding goods produced or manufactured in Special Economic Zones) which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the CETA.

From the above, it can be observed that there are four basic conditions for levy of central excise duty, namely

(i) the duty is on goods; the word “goods” has not been defined the Central Excise Act. Article 366(12) of the Constitution of India defines “goods” includes all “material, commodities and articles”. This definition is wide for the purpose of central excise and case law on this is quite well developed.

(ii) the goods must be excisable;

(iii) the goods must be manufactured or produced; the term manufacture is defined under s 2(f) of the Central Excise Act as to include any process (i) incidental or ancillary to the completion of a manufactured product; (ii) which is specified in relation to any goods in the Section or Chapter notes of (the First Schedule) to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or (iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, and the word “manufacturer” shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account;

(iv) such manufacture or production must be in India.

Unless all of these conditions are satisfied, central excise duty cannot be levied.

Further, a special duty of excise, in addition to the duty of excise specified in s 3(1)(a) above, on excisable goods (excluding goods produced or manufactured in Special Economic Zones) specified in the Second Schedule to the CETA which are produced or 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 Excise duties are generally of the following types:

1. Basic excise duty

Basic excise duty is levied under the Central Excise Act. Basic excise duty is levied at the rates specified in the First Schedule to the CETA read with exemption notification, if any. Normally, basic excise duty is levied as a percentage of value as determined under the provisions of the Central Excise Act. The rates at which basic excise duty is charged vary from item to item. Basic excise duty may be fixed on ad valorem basis or specific rate basis. In other words, basic excise duty may be a percentage of the value of the goods or at a specific rate.

2. Additional duty on goods of special importance

Additional duty of excise is levied and collected on goods of special importance under s 3(1) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. 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 stock within the precincts of any factory, warehouse or other premises where the said goods were manufactured, stored or produced, or in any premises appurtenant thereto, duties of excise at the rate or rates specified in the said Schedule.

3. National Calamity Contingent Duty

Section 136 of the Finance Act, 2001 provides that in the case of goods specified in 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 the National Calamity Contingent Duty (the “NCCD”), at the rates specified in the said Schedule.

The NCCD chargeable on the goods specified in the Seventh Schedule shall be in addition to any other duties of excise chargeable on such goods under the Central Excise Act or any other law for the time being in force.

The provisions of the Central Excise Act and the Rules made thereunder (including those relating to refunds and exemptions from duties and imposition of penalty) shall, as far as may be, apply in relation to the levy and collection of the NCCD as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act or Rules, as the case may be.

4. Additional duty on textile and textile articles

Additional duty of excise is levied and collected on textile and textile articles under s 3(1) of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978.



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

Additional duty on mineral products (viz., motor spirit, kerosene, diesel and furnace oil) is payable under the Mineral Products (Additional Duties of Excise and Customs) Act, 1958.

7. Additional excise duty on pan masala and tobacco products

Additional duty of excise by way of surcharge has been imposed under cl 85 of the Finance Act, 2005 w.e.f 01.03.2005.

¶8-460 Registration under the Central Excise Act The following categories of persons require registration under the Central Excise Act

read with the Central Excise Rules, 2002:

(i) Every manufacturer of dutiable excisable goods.

(ii) First- and second-stage dealers (including manufacturer’s depots and importers) desiring to issue CENVAT invoices.

(iii) Persons holding warehouses for storing non-duty paid goods.

(iv) Persons who obtain excisable goods for availing end-use based exemption.

(v) Exporter-manufacturers under rebate/bond procedure; Export Oriented Units (EOUs) and Special Economic Zone (SEZ) units which have interaction with the domestic economy.

(vi) Registered importer issuing CENVATable invoice

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 factory (where processes are interlinked) but are segregated by public road, canal or railway line. In the case of textiles, a single registration will do for all the premises listed therein.

¶8-470 Persons Exempted from Registration The following categories of persons are exempted from registration:

»» Manufacturers of goods which are chargeable to Nil rate of duty or are fully exempted.

»» Manufacturers of goods which are exempted on the basis of “value of clearances” made in a financial year and remain under the exemption limit (SSI). In cases where the value of clearances excluding export turnover in the current financial year exceeds Rs 90,00,000 (Indian Rupees Nine Million), the



assessee has to file a declaration prescribed under Notification No. 36/2001-C.E. (N.T.), dated June 26, 2001 for getting exempted. In other words, no declaration is required to be filed if the value of such clearances is below Rs 90,00,000 (Indian Rupees Nine Million).

»» Persons manufacturing excisable goods under the Customs warehousing procedures provided final products including scrap are exported and no duty drawback is claimed.

»» Wholesale traders or dealers of excisable goods (except first-stage dealer, second-stage dealer and depot).

»» In respect of ready-made garments, the job-worker need not get registered if the Principal manufacturer undertakes to discharge the duty liability.

»» Approved/licensed units in SEZs and 100% EOUs. However, if the SEZ units, or as the case may be, EOUs are having clearances in or procurement from the Domestic Tariff Area (DTA), such units would not be eligible to avail exemption from registration.

¶8-480 Liability to pay duty is on the manufacturer The 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.

¶8-490 Valuation of excisable goods Excise duty is payable on any one of the following criterion:

»» As a percentage of tariff value fixed under s 3(3) of the Central Excise Act;

»» Based on annual production capacity under s 3A1 of the Central Excise Act;

»» As a percentage of the assessable value fixed under s 4 of the Central Excise Act;

»» Based on the Maximum Retail Price (MRP) under s 4A of the Central Excise Act. The goods covered under MRP-based valuation are those goods which are governed by the provision of Legal Metrology Act, 2009 notified w.e.f. 01.03.2011 and Rules framed thereunder;

»» Specific duty based on criteria, viz, weight, measure, volume, etc (viz, cigarettes, sugar, cement clinkers, marble slabs and tiles, etc).

¶8-500 Rate of Central Excise Duty Rates of central excise duty are specified in the First Schedule to the CETA. The

rates of special excise duty are specified in the Second Schedule to the CETA. However, w.e.f. 01.03.2006, all goods have been exempt from Special Excise Duty. The Schedule 1 Inserted w.e.f. May 10, 2008



to the CETA contains unique 8-digit code for all excisable goods. It is aligned with customs tariff and is based on the International Trade Classification Harmonised System of Nomenclature [ITC (HS)].

¶8-510 Classification of Goods • The CETA consists of XX sections and 96 chapters. A section is a grouping of

a number of chapters which codify a particular class of goods. The section notes explain the scope of chapters/headings, etc. The chapters consist of chapter notes, brief description of commodities arranged according to HSN Numbers, which are allotted in the schedules either in four digits or in six digits or in eight digits. Every four-digit code is called a “heading” and every six-digit code is called a “subheading” and the eight-digit code indicates the “specific commodity number”.

• The process of arriving at a particular heading/sub-heading/specific commodity number, either at the four-digit or at the six-digit or at the eight-digit level for a commodity in the Tariff Schedule is called “classification”. This helps in determining the rate of duty leviable as prescribed by the law.

• Further, classification of goods under a particular tariff heading is governed by a set of General Interpretative Rules, which form an integral part of the CETA. According to these Rules, classification is to be determined according to the terms of the headings or sub-headings or chapter notes.

• Choosing the right heading or sub-heading of the tariff and determining the applicable rate for the particular goods is commonly referred to as classification of goods.

Exemption from excise duty • Under s 5A of the Central Excise Act, the Central Government has the power to

grant exemption, full or partial, from payment of duty either generally by issue of a Notification or in a specific case of an exceptional nature, by means of a special order. The 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 Rs 4,00,00,000 (Indian Rupees Forty Million) during the previous financial year. Further, turnover of up to Rs 1,50,00,000 (Indian Rupees Fifteen Million) is fully exempted from excise duty provided CENVAT Credit is not availed on inputs, etc. SSI units do 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 avail credit and such option cannot be withdrawn during the financial year.

Manner of payment of excise duty • The excise duty is to be paid on monthly basis by the fifth day of the

succeeding month (sixth day of the following month in case of e-payment through internet banking) except for the month of March when duty is to be paid by the 31st day of March.

• Electronic payment (e-payment) of excise duty using the internet banking facility has been made mandatory for assesses w.e.f. 1.10.2014.

• The buyers, on the basis of tax invoice issued by the manufacturers, would be allowed to avail CENVAT credit in respect of the duty paid/payable on such goods immediately on receipt of the goods by them.

Advance ruling • Advance rulings enable a non-resident investor to know in advance the central

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 fact specified in the application regarding the liability to pay central excise duty in relation to the proposed imports into or exports from India, by the applicant.

• Authority for Advance Rulings for Excise and Customs (AAR) is meant to provide 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 of the finality of the customs duty liability.

• The Central Excise (Advance Rulings) Rules, 2002 notified vide Notification No. 28/2002-C.E. (N.T.) dated August 23, 2002 as amended provide for the format to be used for filing an application.

Persons eligible to apply for advance ruling (i) A non-resident setting up a joint venture in India in collaboration with a non-

resident or a resident;

(ii) A resident setting up a joint venture in India in collaboration with a non-resident;

(iii) A [Indian] wholly owned subsidiary Indian company, of a foreign company, which the holding company is a foreign company, who or which proposes to undertake any business activity in India;



(iv) A joint venture in India; and

(v) A resident falling within any such class or category of persons, as the Central Government may, by notification in the Official Gazette, specify in this behalf, and which or who, as the case may be, makes application for advance ruling under s 23C of the Central Excise Act. The notified class of person also includes (i) the limited liability partnership as defined in cl (n) of sub-s (1) of the s 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); or (ii) limited liability partnership which has no company as its partner; or (iii) the sole proprietorship; or (iv) one person company;

Issues on which advance rulings can be sought The question on which the advance ruling is sought shall be in respect of:

(a) classification of goods under the CETA;

(b) applicability of a notification issued under s 5A(1) of the Central Excise Act having a bearing on the rate of duty;

(c) the principles to be adopted for the purposes of determination of value of the goods under the provisions of the Central Excise Act;

(d) notifications issued in respect of duties of excise under the Central Excise Act, the CETA and any duty chargeable under any other law for the time being in force in the same manner as duty of excise leviable under the Central Excise Act;

(e) admissibility of credit of excise duty paid or deemed to have been paid on the goods used in or in relation to the manufacture of the excisable goods; and

(f) determination of the liability to pay duties of excise on any goods under the Central Excise Act.

¶8-520 Administration Central excise law is administered by the Central Excise Commissionerates

functioning under the Central Board of Excise & Customs (CBEC), Department of Revenue, Ministry of Finance, Government of India.

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 the principles for determining when sale or purchase of goods takes place in the course of inter-state trade or commerce. It provides for levy and collection of tax on such inter-state sale of goods. It also formulates principles for determining when sale or



purchase of goods takes place outside a state or in the course of import into or export from India. It specifies and declares certain goods to be of special importance in inter-state trade and commerce and specifies in relation to them the restrictions and conditions to which the state sales tax laws shall be subject.

Principals for determining inter-State sales Section 3 of the CST Act enunciates the principles when sale or purchase of goods

can be said to have taken place in the course of inter-State trade or commerce. It provides that sale or purchase of goods shall be deemed to be an inter-state sale or purchase if such sale or purchase either:

(a) occasions the movement of goods from one state to another; or

(b) is effected by transfer of documents of title to the goods during the movement 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 delivery and terminate at the time when delivery is taken from such carrier or bailee.

Thus, for an inter-state sale or purchase, material fact is the 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 materializes when the document of the title to the goods is transferred during the movement of goods from one State to another.

Principals for determining a sale outside the State Section 4 of the CST Act provides that when a sale or purchase of goods is

determined to take place inside a state such sale or purchase shall be deemed to have taken place outside all other states. The said section also provides that sale or purchase shall be deemed to take place inside a state if the goods are within the state:

(a) In the case of specific or ascertained goods, at the time the contract of sale is made; and

(b) In the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer.

Principals for determining sale or purchase in the course of import or export

Section 5 of the CST Act provides that:

(i) Sale or purchase of goods is deemed to take place in the course of export only 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) Sale or purchase of goods is deemed to take place in the course of import of the 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.

Liability to Central Sales Tax Central sales tax is levied on inter-state sales. However, second or subsequent sale in

a continuous chain is exempted subject to certain condition. No tax is payable on export sales or sales outside the state.

Registration

Compulsory registration Every dealer effecting an inter-state sale is liable to pay CST. Such a dealer liable to

pay CST is required to apply for and obtain registration certificate under s 7(1) of 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, s 7(2) provides for ‘voluntary registration’ to a dealer if he is holding a registration certificate under the local sales tax law.

¶8-540 Value Added Tax Proceedings alongside the path of liberalisation and economic reform, the

Government, way back in 2003, has introduced a much simpler and effective tax system in the form of Value Added Tax (VAT) across twenty-nine states and seven union territories in the country. In so far as VAT is concerned, presently, the states are empowered to levy VAT in their respective state jurisdiction. VAT is known across the world for eliminating a cascading effect associated with the chargeability of sales tax on transaction related to intra-state sales. Haryana was the first state to adopt VAT in the year 2003, Uttar Pradesh being the last to transit to VAT system in 2008.

Introduction of VAT has been stated to be a step towards a single Goods and Sales Tax (GST) regime whereby it is proposed that in the years to come all the central levies and state levies will merge into a single levy in the form of GST.

VAT is charged as a percentage of prices at which goods are sold/ transacted and it is imposed at each stage of transaction in the production and distribution chain. Presently, there are different rates of VAT notified for each commodity by the respective state governments and it may vary from 5% to 14.5%, with exemption provided on necessary items.



It is a general consumption tax that applies, in principle, to all commercial activities involving the production and distribution of goods. VAT is known to be a consumption tax because it is borne ultimately by the final consumer. VAT is, as such, levied at every point 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. However, no input tax credit is available in case of purchases made on inter-state basis. Nonetheless, for a seller, in case of inter-state sales, he is entitled to claim set off of input tax credit after partially reversing the same in the state from where such goods have moved.

CENVAT Credit Scheme With effect from September 10, 2004, the Government has notified the CENVAT

Credit Rules, 2004 (CCR), which deals with availment and utilisation of credit of duties and taxes, viz, central excise, service tax, education cess, etc.

¶8-550 Credit of duty paid on inputs and input services • The Scheme of granting credit of duty/tax paid on inputs, capital goods and

input services is commonly known as the CENVAT Credit Scheme. A manufacturer or 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 ends paying the incremental excise duty/service tax (ie, the difference between the excise duty/service tax charged on clearance of final goods or provision of taxable services and the excise duty/service tax paid on inputs/input services).

“Inputs” goods eligible for CENVAT Credit • In case of a manufacturer: The manufacturer is entitled to take credit of

excise duty paid on (a) all goods used in the factory by the manufacturer of the final product; (b) any goods including accessories cleared along with final product, the value of which is included in the value of the final products; and (c) all goods used for generation of electricity or steam for captive use,

Light Diesel Oil (LDO) and motor spirit (petrol) is not available as CENVAT Credit, even if these are used as raw materials or as fuel. Similarly any goods used for construction of a building or civil structure or laying of foundation or making of structures for support of capital goods is outside the purview of CENVAT credit scheme. Motor vehicles and any goods used primarily for personal use or consumption of any employee have been excluded from the definition of inputs [r 2(k)(i) of CCR].



• In case of a service provider: The service provider is entitled to take credit of the inputs used directly for providing output services. However, HSD, LDO and motor spirit (petrol) are not eligible as ‘inputs’. Similarly any goods used for construction of a building or civil structure or laying of foundation or making of structures for support of capital goods is outside the purview of CENVAT credit scheme. Motor vehicles and any goods used primarily for personal use or consumption of any employee have been excluded from the definition of inputs [r 2(k)(ii) of CCR].

‘Input services’ eligible for CENVAT Credit • A manufacturer/service provider will be entitled to credit of service tax paid by

him on input services which are used by him directly or indirectly in or in relation to manufacture of final product/provision of output services. This would include even services which are received prior to commencement of manufacture/ provision of output services. In addition to this, services like advertising, accounting, auditing, storage, transport, legal services, etc, which are not directly related to manufacture/provision of output services but are related to the sale of manufactured goods/provision of output services, would also be permitted for 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 definition of input services [r 2(l) of CCR].

Capital goods eligible for CENVAT Credit • Capital goods (machinery, plant, spare pats of machinery, tools, dies, etc) as

defined in r 2(a) of the CCR, used for manufacture of final product and/or used for providing output taxable services, will be eligible for CENVAT Credit. Capital goods should be used in the factory. Under the CENVAT Credit scheme, 50% 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 subsequent financial year or years [r 4(2) of CCR].

• However, the CENVAT Credit in respect of capital goods shall not be allowed 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 s 32 of the Income-tax Act, 1961 [r 4(4) of CCR].

¶8-560 Compliances • In terms of r 9A(1) of CCR, a manufacturer of final products is required to

furnish annually by 30th April of each financial year, a declaration in Form ER-5, in respect of each of the excisable goods manufactured or to be manufactured, the principal inputs, etc.



• In terms of r 9A(3) of CCR, a manufacturer of final products is required to furnish within 10 days from the close of each month, to the Superintendent of Central Excise, a monthly return in Form ER-6, in respect of information regarding the receipt and consumption of each principal input with reference to the quantity of final products manufactured by him.

• In terms of r 9(7) of CCR, a manufacturer of final products is required to file a monthly return, in Form ER-6, within 10 days from the close of each month to the Superintendent of Central Excise. A manufacturer or service provider cannot avail CENVAT credit after period of one year from issuance on invoice or any other documents referred in r 9(1) of CCR.

Goods and Services Tax ¶8-570 Introduction

It is speculated that Goods and Services Tax will be introduced in India in April 2016. The Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 was introduced in the Lok Sabha on 18.12.2014. The Bill makes enabling provisions for introduction of GST. As per Statement of Objects and Reasons appended to the Bill, the object to have common national market and avoid cascading effect of taxes.

The model of GST proposed to be adopted in India is one of Dual GST, whereby a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of every transaction of supply of goods and services. The taxes which are proposed to be subsumed under GST are as follows:

Subsumed under CGST Subsumed under SGST Central Excise Duty VAT / Sales tax Additional Excise Duties Entertainment tax Excise Duty-Medicinal and Toiletries Preparation Act

Luxury tax

Service Tax Taxes on lottery, betting and gambling Additional Countervailing Duty (CVD) Special Additional Duty of Customs - 4% (SAD)

State Cesses and Surcharges

Surcharges and cesses Entry tax not in lieu of Octroi

Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of alcoholic liquor for human consumption.1 The word used in the Bill is ‘supply’ and not ‘sale’. Thus, stock transfers, branch transfers will also get covered under GST net. ‘Services’ has been defined to mean anything other than goods.2 GST is consumption based tax, ie, tax will be payable in the State in which goods and services are to be consumed.

1 Proposed Article 366(12A) of Constitution of India 2 Proposed Article 366(26A) of Constitution of India



¶8-580 Expected rates of GST The rates of GST are not notified and there are various rates being discussed.

Initially, the rate envisaged was 16% [8% SGST, 8% CGST] and 16% IGST. The Committee of State Finance Ministers has proposed CGST of 12.77% and SGST of 13.91%, ie, 26.68%. This may be on the basis that excise duty rate is 12.5% (currently) and general State VAT rate is about 15%, and thus the aggregate rate is expected to be around 24-27%.

¶8-590 Integrated GST for interstate transactions In case of inter-state supply of goods and services, there will be integrated GST

(IGST) imposed by Government of India.1 IGST will also be imposed on imports.2 The IGST rate, which is expected to be double the CGST rate, is expected to be equal to SGST plus CGST rate. However, IGST rate will be same all over India and will not vary from state to state. Revenue from IGST will be apportioned among Union and States by the Parliament on basis of recommendation of Goods and Service Tax Council (GST Council).3 The advantage of IGST is that the taxes will move along with goods and services, eliminating need for obtaining refund of taxes in case of inter-state transactions.

¶8-600 1% Additional tax on supply of goods (ATSG) in interstate supply for two years

1% tax will be imposed on inter-state supply of goods for two years or such period as may be recommended by GST Council.4 This tax is in lieu of present Central Sales Tax and no set off is available to the dealer for the additional tax.

¶8-610 Goods and Service Taxes Council The GST Council is mainly a recommendatory body on various issues relating to

GST.5 Decision in GST Council be taken with at least 75% of weighted average voting in favour of the decision. The Union Government will have 33.33% voting power and States will have 66.67% voting power.

¶8-620 Registration number of assesse The registration number of dealer is expected to be passed on income tax PAN

number. PAN is a 10-digit number. Further 3 to 5 digits will be added. Thus, each dealer will have 13/15 digit PAN-based registration number and each will have to obtain state wide registration.

1 Proposed Article 269A(1) of Constitution of India 2 Proposed explanation to Article 269A(1) of Constitution of India 3 Proposed Article 269A(2) and Article 270(1A) of Constitution of India 4 Proposed Section 18(1) of Constitution (Amendment) Bill, 2014 5 Proposed Article 279A(1) of Constitution of India



¶8-0630 Value for purpose of GST Provision for valuation is expected to be on same line as per present Central Sales

Tax/State Vat laws. However, it is envisaged that SGST and IGST will be on same ‘value’ and there will be no ‘tax on tax’ as at present, ie, SGST will be payable on ‘net value’ without addition of CGST in the ‘value’.

¶8-640 Electronic returns The returns will be filed by dealer (on monthly basis). The return will contain details

of invoices made on customers with their Tax Registration Numbers and tax paid. The return has to be filed along with payment of taxes.

¶8-650 Administration of taxes CGST and IGST will be administered by the Central Government while SGST will

be administered by respective State Governments. There will be separate returns, separate payment of taxes, separate assessments and may be even separate appeals.



Annexure 1

Rates of Income Tax I. Individuals (Resident as well as Non-resident) The rates for income tax for individuals for the assessment year 2016-17 are as

follows:

Income Range(INR) Tax rate (%) Upto 2,50,000 Nil 2,50,000 - 5,00,000 10% 5,00,000 – 10,00,000 20% Above 10,00,000 30%

»» Where an individual, being resident in India, whose total income/taxable income does not exceed INR 5,00,000 shall be entitled to deduction from the amount of income tax equal to 100% of his income tax or Rs. 2000 whichever is less1.

»» Senior citizens (above 65 years but less than 80 years being resident in India) with income up to INR 300,000 are exempted from income tax.

»» Very senior citizens (80 years or above being resident in India) with income upto INR 5,00,000 are exempted from tax.

»» Surcharge of 12% is applicable in cases with where taxable income is more than INR 1 crore (Ten Million) (Marginal relief applicable).

»» Education cess of 2% and Secondary and higher education cess of 1% is leviable on the amount of income tax and surcharge .

II. Companies

Company/Tax Tax rate (Inclusive of applicable surcharge and

cess) A. Domestic Company

(i) Regular Tax (a) Where total income is equal to or less than INR

10 million 30.90%

(b) Where total income is more than INR 10 million but does not exceed 100 million

33.063%2

(c) Where total income is more than INR 100 million

34.608%3

(ii) Minimum Alternate Tax (a) Where total income is equal to or less than INR

10 million 19.055%

1 Section 87A of the ITA 2 inclusive of surcharge @ 7% - marginal relief applicable & cess 3 inclusive of surcharge @ 12% - marginal relief applicable & cess



Company/Tax Tax rate (Inclusive of applicable surcharge and

cess) (b) Where total income is more than INR 10

million but less than 100 million 20.388%

(b) Where total income is equal to or more than INR 100 million

21.341%

(iii) Dividend Distribution Tax 20.358% B. Foreign Company

(i) Regular Tax (a) Where total income is equal to or less than INR

10 million 41.20%

(b) Where total income is more than INR 10 million but less than 100 million

42.024%1

(c) Where total income is equal to or more than INR 100 million

43.26%2

(ii) Minimum Alternate Tax (inclusive of cess) (a) Where total income is equal to or less than INR

10 million 19.06%

(b) Where total income is more than INR 10 million and less than 100 million

19.436%%

(c) Where total income is equal to or more than INR 100 million

20.007%

1 inclusive of surcharge @ 2% - marginal relief applicable & cess 2 inclusive of surcharge@ 5% - marginal relief applicable & cess



ANNEXURE 2

Name of the Country

Name of the Country Name of the Country

Aden Armenia Australia Austria Albania Afghanistan Bangladesh Belarus Belgium Brazil Bulgaria Bhutan Bostwana Colombia Croatia Canada China Cyprus Czech Republic Denmark Estonia Ethiopia Fiji Finland France Georgia Germany Greece Hungary Iceland Indonesia Iran Israel Ireland Italy Japan Jordan

Kazakhstan Kenya Korea Kuwait Kyrgyz Republic Libya Lithuania Luxembourg Malaysia Malta Mauritius Mongolia Montenegro Morocco Mozambique Myanmar Namibia Nepal Netherlands New Zealand Norway Oman Pakistan Philippines Poland Portuguese

Republic Qatar Romania Russia Saudi Arabia Singapore

Slovenia Serbia South Africa Sudan Spain Sri Lanka Sweden Swiss

Confederation Syria Tanzania Tajikstan Thailand Trinidad and

Tobago Turkey Turkmenistan United Arab

Emirates Uganda United Kingdom United States of

America Ukraine Uzbekistan Vietnam United Mexican

States Yemen Arab

Republic Zambia



Chapter 9 Labour and Industrial Laws

Background ................................................................................................... ¶9-010 Laws relating to Industrial Relations ............................................................. ¶9-020 Laws relating to wages .................................................................................. ¶9-030 Laws relating to social security ..................................................................... ¶9-040 Laws relating to Working Hours, Conditions of Service and Employment .. ¶9-050 Laws relating to Equality and Empowerment of Women ............................. ¶9-060 Prohibitive Labour Laws ............................................................................... ¶9-070 Laws relating to Employment and Training .................................................. ¶9-080

¶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. 55 Regulation of labour and safety in

mines and oil fields

Entry No. 22 Trade unions, industrial and labour

disputes

Entry No. 61 Industrial disputes concerning

Union employees

Entry No. 23 Social security and insurance,

employment and unemployment

Entry No. 65 Union agencies and institutions for

“... vocational ... training ...”

Entry No. 24 Welfare of labour including conditions of

work, provident funds, employers’ invalidity and old-age pension and

maternity benefits

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


Chapter 9 Labour and Industrial Laws 175

environment for higher production and productivity, and developing and coordinating vocational skill training and employment services. Government’s attention is also focused 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; and ● International 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, Minimum Wages Act, Equal Remuneration Act, Maternity Benefits Act, etc.

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.

The various labour legislations enacted by the Central Government can be classified into the following different broad categories:

A. Laws relating to Industrial Relations- 1. Industrial Disputes Act, 1947 2. Trade Unions Act, 1926

B. Laws relating to Wages 1. Minimum Wages Act, 1948 2. Payment of Wages Act, 1936 3. Payment of Bonus Act, 1965



C. Laws relating to Social Security 1. Employees' Provident Funds and Miscellaneous Provisions Act, 1952 2. Employees' State Insurance Act, 1948 3. Labour Welfare Fund Act (of respective States) 4. Payment of Gratuity Act, 1972 5. Employee’s Compensation Act, 1923

D. Laws relating to Working Hours, Conditions of Services and Employment 1. Factories Act, 1948 2. Industrial Employment (Standing Orders) Act, 1946 3. Shops and Commercial Establishments Act (of respective States) 4. Contract Labour (Regulation and Abolition) Act, 1970 5. Inter-State Migrant Workmen (Regulation of Employment and

Conditions of Service) Act, 1979 6. Weekly Holiday Act, 1942 7. National and Festival Holidays Act (of respective States) 1963 8. The Plantation Labour Act, 1951 9. The Mines Act, 1952 10. The Dock Workers (Safety, Health & Welfare) Act, 1986

E. Laws relating to Equality and Empowerment of Women 1. Equal Remuneration Act, 1976 2. Maternity Benefits Act, 1961

F. Prohibitive Labour Laws 1. Bonded Labour System (Abolition), Act, 1976 2. Child Labour (Prohibition & Regulation) Act, 1986 3. The Beedi and Cigar Workers (Conditions of Employment) Act, 1966 4. The Sexual Harassment at the Workplace (Prevention, Prohibition and

Redressal) Act, 2013 G. Laws relating to Employment and Training

1. Apprentices Act, 1961 2. Employment Exchanges (Compulsory Notification of Vacancies) Act,

1959

¶9-020 Laws relating to Industrial Relations

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. The Industrial Disputes Act defines “Industrial dispute” as a 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.

The ID Act provides for the appointment of Conciliation Officers, Board of Conciliation, Courts of Inquiry, Labour Courts, Tribunals, and National Tribunals for settlement of disputes. Another method recognised for settlement of disputes is through arbitration. The Industrial disputes Act provides a legalistic way of settling disputes. The goal of preventive machinery as provided under the Act is to create an environment where the disputes do not arise at all. The ID Act prohibits unfair labour practices which are defined in the Fifth Schedule—strikes and lockouts (except under certain defined conditions and with proper notice). It 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.

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 also in certain respects defines the law relating to registered Trade Unions like mode of 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.

¶9-030 Laws relating to Wages

Minimum Wages Act, 1948 The Minimum Wages Act, 1948 (the Minimum Wages Act) provides for fixing of

minimum rates of wages in certain employments. The minimum wages are prescribed by States through notifications in the State’s Gazette under the Minimum Wages Rules of the specific State.

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 have been fixed; (ii) an outworker, to whom any articles or materials are given out by another person to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted or 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.

The term “wages” has been defined to mean all remuneration capable of being expressed in terms of money which would, if the terms of the contract of employment express or implied were fulfilled, be payable to a person employed in respect of his



employment or work done in such an employment and includes house rent allowance but does not include:

(i) The value of: (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; (ii) Any contribution paid by the employer to any personal fund or provident fund

or under any scheme of social insurance; (iii) Any travelling allowance or the value of any travelling concession; (iv) Any sum paid to the person employed to defray special expenses entailed on

him by the nature of his employment; or (v) Any gratuity payable on discharge. 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 as fixed by a notification without any deduction (other than prescribed deductions, if any).

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 and to prevent unauthorized deductions from the wages.

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.

Payment of Bonus Act, 1965 The Payment of Bonus Act, 1965 (the “Bonus Act”) provides for the payment of

bonus to persons employed in certain establishments in India either on the basis of profits or on 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 Rs 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 Rs 3,500 is considered.

¶9-040 Laws relating to social security

Employees Provident Funds and Miscellaneous Provisions Act, 1952 The Employees Provident Funds and Miscellaneous Provisions 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.

On account of 2014 Amendment to the said Act, The definition of “excluded employee” has been amended whereby the members drawing wages exceeding Rs 15,000 per month have been excluded from the provisions of the PF Scheme. Accordingly, the wage ceiling for an employee to be eligible for the PF Scheme has been increased from Rs 6,500 per month to Rs 15,000 per month. It further provides that 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 2014 Amendment further lays down the following changes: a) New members (joining on or after 1 September 2014) drawing wages above Rs

15,000 per month shall not be eligible to voluntarily contribute to the Pension Scheme.

b) The pensionable salary shall be calculated on the average monthly pay for the contribution period of the last 60 months (earlier 12 months) preceding the date of exit from the membership.

c) The monthly pension for any existing or future member shall not be less than Rs 1,000 for the financial year 2014-2015.

d) The contribution payable under the Insurance Scheme shall also be calculated on a monthly pay of Rs 15,000, instead of Rs 6,500.

e) In the event of death of a member (on or after 1 September 2014), the assurance benefits available under the Insurance Scheme has been increased by twenty percent (20%) in addition to the already admissible benefits.

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.

In terms of power conferred under s 143(11) of the Companies Act, 2013, the Central Government has issued the Companies (Auditor’s Report) Order, 2015 (CARO), which came into force on 10 April, 2015. Clause (vii) (a) of Paragraph 3 provides that:

The [Statutory] Auditor has to report, inter alia, on the following: (i) Is the company regular in depositing undisputed statutory dues, eg, Provident

Fund, 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?

(ii) If not paid regularly, the extent of the arrears of outstanding statutory dues as on the last day of the financial year concerned for a period of more than six months from the date they became payable, then it shall be indicated in the report.

(iii) If such non-payment of dues is on account of any dispute, then the amount involved 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, s 8 company, one person company, small companies and certain class of private companies, as specified under the CARO.

Employees' State Insurance Act, 1948 The Employees' State Insurance Act, 1948 (the ESI Act) is a social welfare

legislation enacted with the objective of providing certain benefits to employees in case of sickness, maternity and employment injury. In terms of the provisions of the ESI Act, the eligible employees will receive medical relief, cash benefits, maternity benefits, pension to 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 Rs 15,000 per month, are covered under the ESI Act. This limit has been increased from Rs 10,000 to Rs 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 s 18) have come into effect from June 1, 2010. The salient features of the ESI (Amendment) Act are as under:

facilitating coverage of smaller factories; enhancing age limit of dependent children for eligibility to dependants benefit; extending medical benefit to dependant minor brother/sister in case of insured 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; continuing medical benefit to insured persons retiring under VRS scheme or 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; opening of medical/ dental/ paramedical/ nursing colleges to improve quality of medical care; making an enabling provision for extending medical care to other beneficiaries 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 administering medical benefit in the States for bringing autonomy and efficiency in the working.



The employer should get his factory or establishment registered with the Employees' State Insurance Corporation (ESIC) within 15 days after the Act becomes applicable to it, and obtain the employer's code number.

The employer is required to contribute at the rate of 4.75% of the wages paid/ payable 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.

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.

Payment of Gratuity Act, 1972 The Payment of Gratuity Act, 1972 (the Gratuity Act) applies to (i) every factory,

mine, oilfield, plantation, port and railway company; (ii) 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 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 twelve months, as the Central Government may, by notification, specify in this behalf.

The Gratuity Act provides for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments. The Gratuity Act enforces the payment of “gratuity”, a reward for long service, as a statutory retiral benefit.

Every employee, who has completed continuous service of five years or more, 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 accident or disease. However, the completion of continuous service of five years shall not be necessary where the termination of employment of any employee is due to death or disablement.

The gratuity is payable even to an employee who resigns after completing at least five years of service.

The gratuity is payable at the rate of fifteen days wages for every year of completed service, subject to an aggregate amount of Rupees ten lacs 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.



¶9-050 Laws relating to Working Hours, Conditions of Service and Employment

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.

Some Major provisions of the Factories Act are explained below: a) Section 11 of the Act provides that every factory shall be kept clean and free

from effluvia arising from any drain, privy or other nuisance. Section 13 of the Act focuses on ventilation and temperature maintenance at workplace. Every factory should work on proper arrangements for adequate ventilation and circulation of fresh air.

b) Section 18 of the Act specifies regarding arrangements for sufficient and pure drinking water for the workers.

c) Section 19 further mentions that in every factory there should be sufficient accommodation for urinals which should be provided at conveniently situated place. It should be kept clean and maintained.

d) Section 21 of the Act provides from proper fencing of machinery. And that any moving part of the machinery or machinery that is dangerous in kind should be properly fenced

e) Further s 45 of the said Act specifies that every factory should have a properly maintained and well equipped first aid box or cupboard with the prescribed contents. For every 150 workers employed at one time, there shall not be less than 1 first aid box in the factory. Also in case where there are more than 500 workers there should be well maintained ambulance room of prescribed size and containing proper facility.

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 Amis to bring uniform terms and conditions of service in various industrial establishments. The IESO Act requires every employer in an industrial establishment to clearly define and publish standing orders with respect to conditions of employment / service rules and to make them known to the workmen employed by it. The Act further specifies that every employer is required to submit to the Certifying Officer five draft copies of the standing orders which he intends to adopt for his establishment.

Further, the IESO Act requires display of standing orders in a prominent place for the knowledge of workers.



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.

Contract Labour (Regulation & Abolition) Act, 1970 The main objectives of the Contract Labour (Regulations & 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 Act defines a “worker” as a workman who shall be deemed to be employed as "contract labour" in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer.

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 establishment or contractor wherein/with whom 20 or more workmen are employed or were employed on any day of the preceding twelve months as contract labour. The Government may, however, by notification in the Official Gazette, make the provisions of the Contract Labour Act applicable to establishments or contractor employing less than 20 workmen.

The Contract Labour Act is not applicable to establishments in which work only of an intermittent or casual nature is performed.

The Contract Labour Act prohibits the employment of contract labour on jobs that are perennial in nature. For such jobs, permanent employees need to be employed.

The Contract Labour 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 officer.

In terms of s 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 registering officer for registration.

The Employee’s Compensation Act, 1923 (formally known as “The Workmen Compensation Act, 1923”)

The Employee’s Compensation Act, 1923 (the EC Act) aims to provide financial protection to workmen and their dependents in case of any accidental injury arising out of or in course of employment and causing either death or disablement of the worker by means of compensation.

This Act applies to factories, mines, docks, construction establishments, plantations, oilfields and other establishments listed in Schedules II and III of the said Act, but excludes 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.

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.

The ISMW Act applies to (i) any establishment in which five or more inter-state migrant workmen are employed or who were employed on any day of the preceding twelve months; and (ii) every contractor who employs or who employed five or more inter-state 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.

Weekly Holiday Act, 1942 The Weekly Holiday Act, 1942 provides for the grant of weekly holidays to persons

employed in shops, restaurants and theatres. The Act provides that every shop shall remain entirely closed on one day of the week, which day shall be specified by the shop-keeper in a notice permanently exhibited in a conspicuous place in the shop. Further the state government may require in respect of shops or any specified class of shops that they shall be closed at such hour in the afternoon of one week-day in every week in addition to weekly day off.

The Plantation Labour Act, 1951 The Plantations Labour Act (PLA) seeks to provide for the welfare of labour and to

regulate the conditions of workers in plantations. This Act empowers the State Governments to take all feasible steps to improve the lot of the plantation workers. The passing of PLA has helped in creating conditions for organising the workers and the rise of trade unions.

The Act defines an employer as, the person who has the ultimate control over the affairs of the plantation and where the affairs of the plantation are entrusted to any other person, such other person shall be the employer in relation to that plantation.

Plantation: Any plantation to which this Act applies and includes offices, hospitals, dispensaries, schools and any other premises used for any purposes connected with such plantation.

The Act makes it mandatory for every employer to get their plantation registered within 60 days of its coming into existence.



The Mines Act, 1952 The Mines Act, 1952 (Mines Act) aims to secure safety and health and welfare of

workers working in the mines. “Mine” is defined under the Mines Act as a place where any excavation work is carried on for the searching and obtaining of minerals.

The Mines Act provides that persons working in the mine should not be less than 18 years of age.

The Mines Act lays down provisions for appointment of one chief inspector who would be regulating all the territories in which mining is done and an inspector for every mine who would be sub ordinate to the chief inspector. Moreover, the District Magistrate is also empowered to perform the duties of an inspector subject to the orders of the Central Government. The chief inspector or any of the inspectors may make such inquiry, at any time whether day or night, in order to check whether the law is being abided in the mines or not.

¶9-060 Laws relating to Equality and Empowerment of Women

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.

Maternity Benefit Act, 1961 The Maternity Benefit Act, 1961 (Maternity Benefit Act) regulates the employment

of women in certain establishments for a certain period before and after childbirth and provides for maternity benefits and certain other benefits including maternity leave, wages, bonus, nursing breaks, etc, to women employees.

The Maternity Benefit Act, 1961 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 shops or establishments 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 12 months.

Except for s 5A and 5B, the provisions of the Maternity Benefit Act shall 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 for maternity and other benefits. The coverage under the ESI Act is, however, at present restricted to factories and certain other specified categories of establishments located in specified areas. The Maternity Benefit Act is, therefore, still applicable to women 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.

Under the Maternity Benefit Act, an employer has to give paid leave to a woman 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 entitled to maternity benefit shall be 12 weeks, of which not more than six weeks shall 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 Benefit Act, it shall be unlawful for her employer to discharge or dismiss her during or on account of such absence.

¶9-070 Prohibitive Labour Laws

Bonded Labour System (Abolition) Act, 1976 The Bonded Labour System (Abolition) Act, 1976 ( 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.

Under the Bonded Labour Abolition Act, the term “bonded labour” has been defined to mean any labour or service rendered under the bonded labour system.

The term “bonded labour system” has been defined to mean the system of, forced or 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 dependent on him, labour or service, to the creditor, or for the benefit of the creditor, for a specific period or for an unspecified period, either without wages or for nominal wages.

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.



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 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 pesticides and insecticides, and manufacturing of matches, explosives, fireworks, etc.

In addition, the Child Labour Prohibition & Regulation Act regulates the working conditions of children in all employments, which are not prohibited under the Act. It also fixes the number of hours and the period of work and requires the occupiers of 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.

Directions of the Supreme Court on the Issue of Elimination of Child Labour

In a landmark judgment on 10 December 1996, in the case of MC Mehta v State of Tamil Nadu (1996) 6 SCC 756 [Writ Petition (Civil) No. 465/1986], the Supreme Court of India gave certain directions on the issue of elimination of child labour. The main features of the judgment are as under:

(i) Survey for identification of working children; (ii) Withdrawal of children working in hazardous industry and ensuring their

education in appropriate institutions; (iii) Contribution at the rate of Rs 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 Rs 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 Rs 20,000/25,000 deposited in the 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

1 As last amended vide Notification No. S.O. 2280(E) dated 25 September 2008, issued by the

Ministry of Labour and Employment (Child Labour Section).



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 reported in the form of affidavits on 5 December 1997, 21 December 1999, 4 December 2000, 4 July 2001 and 4 December 2003, to the Hon’ble Supreme Court on the basis of the information received from the State Governments/Union Territories.

The Government is committed to eliminate child labour in all its forms and is moving in this direction in a targeted manner.

Sexual Harassment at Workplace (Prohibition, Prevention and Redressal) Act, 2013

The Sexual Harassment at Workplace (Prohibition, Prevention and Redressal) Act, 2013 (SHW Act) was enacted by the Parliament to provide protection against sexual harassment of women at workplace and prevention and redressal of complaints of sexual harassment and for matters connected therewith.

The SHW Act makes it mandatory for every organization having 10 employees and more to constitute an Internal Complaints Committee (ICC) to entertain complaints that may be made by an aggrieved women.

The SHW Act also incorporates provisions for formation of a Local Complaints Committee (LCC) in every district for entertaining complaints of sexual harassment at workplace from organisations where ICC has not been established due to having less than 10 employees.

The SHW Act provides that an aggrieved women may in writing make a compliant of sexual harassment to the ICC or LCC as the case may be within a period of three months from the date of occurrence of such incident. Further, in a case where the aggrieved woman is unable to make a complaint on account of her physical incapacity or Death, a complaint may be filed inter alia by her relative or legal heirs.

¶9-080 Laws relating to Employment and Training

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 for the industry and matters in connection thereto. It provides for qualification for being 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, as notified by the Government. Accordingly, appointment of apprentices, according to the Apprentice Act, will be obligatory if the company falls under the notified industry.



The Government is considering amending the Apprentices Act, 1961, in consultation with all concerned Ministries. One of the proposed amendments relates to reserving 50% 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

Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959

The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959 (the Employment Exchange Act) provides for the compulsory notification of vacancies to employment exchanges by the employers. Section 4(1) of the Employment Exchange Act makes it obligatory on every establishment in the public sector to notify, before filling up any vacancy in any employment in that establishment, vacancies to such employment exchanges as may be prescribed.

Further, s 4(2) of the Employment Exchange Act provides that the appropriate Government may, by notification in the Official Gazette, require that from such date as may be specified in the notification, the employer in every establishment in the private sector (ordinarily employing more than 25 employees) or every establishment pertaining to any class or category of establishments in the private sector shall, before filling up any vacancy in any employment in that establishment, notify vacancies to such employment exchanges as may be prescribed.

E-Kranti: Ministry of Labour & Employment E-governance initiative The Ministry of Labour & Employment has come up with a unique E-governance

service called “E-kranti” which aims to make government services accessible to the common man in his locality, through Common Service Delivery outlets and ensure efficiency, transparency and reliability at affordable costs. For the purpose of E-governance the ministry has also developed a unified Web Portal called “Shram Suvidha Portal”. This portal integrates four major Organizations under the Ministry of Labour, Thef Chief central Labour Commissioner. The Directorate General of Mines Safety, Employees' Provident Fund Organization and Employees' State Insurance Corporation. The portal facilitates the following:

1. A Unique labour identification number (LIN) for Units to facilitate online registration.

2. Filing of self-certified and simplified Single Online Return by the industry Units.

3. Provides for filing a single consolidated Return online instead of filing separate Returns.

4. Timely redressal of grievances. 5. Transparent Labour inspection scheme through computerised system.

2 As per statement of Minister for Labour and Employment, in a written reply to a question in

the Rajya Sabha on 16 March 2011



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) Employees' Provident Fund Organisation (www.epfindia.com) Directorate General Mines Safety (www.dgms.net) Central Board of Workers' Education (www.labour.nic.in/cbwe) Directorate General Labour Welfare (www.labour.nic.in/dglw)


Chapter 10 Intellectual Property Laws 191

Chapter 10 Intellectual Property Laws

Introduction ........................................................................................ ¶10-010 Trademarks Introduction ........................................................................................ ¶10-020 Procedure of registration of trademark in India ....................................... ¶10-030 Renewal of registration ........................................................................ ¶10-040 Rectification of Trademark ................................................................... ¶10-050 Assignment, Transmission and Licensing of Trademarks in India ............ ¶10-060 Patents Background ......................................................................................... ¶10-070 Procedure for Grant of a Patent in India ................................................. ¶10-080 Filing of Application for Grant of Patent in India by Foreigners ............... ¶10-090 Pre-grant Opposition ............................................................................ ¶10-100 Post-grant Opposition .......................................................................... ¶10-110 Grounds for Opposition ........................................................................ ¶10-120 Term of Patent ..................................................................................... ¶10-130 Payment of Renewal Fee ...................................................................... ¶10-140 Restoration of Patent ............................................................................ ¶10-150 Patent of Biological Material ................................................................ ¶10-160 Rights granted by a Patent .................................................................... ¶10-170 Maintainability of Secrecy by the Indian Patent Office (IPO) .................. ¶10-180 Compulsory Licensing ......................................................................... ¶10-190 Infringement of Patent .......................................................................... ¶10-200 Licensing and Assignment of Patent ...................................................... ¶10-210 Copyright “Work” protected in India.................................................................... ¶10-220 Registration of Copyright ..................................................................... ¶10-230 Need for Registration of Copyright ....................................................... ¶10-240 Enforcement of Copyright in India ........................................................ ¶10-250 Protection to Foreign Works in India ..................................................... ¶10-260



Licensing and Assignment of Copyright ................................................ ¶10-270 Duration/Term of Copyright ................................................................. ¶10-280 Industrial Designs Registrability of Designs ...................................................................... ¶10-290 Term of Design ................................................................................... ¶10-300 Process of Registration of Design .......................................................... ¶10-310 Cancellation, Protection and Enforcement of Designs ............................. ¶10-320 Geographical Indications Registration of Geographical Indications ............................................... ¶10-330 Duration of Protection .......................................................................... ¶10-340 Infringement of Geographical Indications .............................................. ¶10-350 Plant Varieties Procedure for Registration .................................................................... ¶10-360 Duration of Protection .......................................................................... ¶10-370 Rights under the Plant Act .................................................................... ¶10-380 Infringement of Plant Varieties and Farmers’ Rights ............................... ¶10-390 Layout Designs of Integrated Circuits Registerability of Layout-Design .......................................................... ¶10-400 Duration of Protection .......................................................................... ¶10-410 Infringement of Layout-Design ............................................................. ¶10-420 Trade Secrets....................................................................................... ¶10-430 Enforcement of Intellectual Property Laws in India Authorities involved in the Execution of Orders of Courts ....................... ¶10-440 Competent Court ................................................................................. ¶10-450 Border Control Measures for Enforcement of IPR .................................. ¶10-460 Data Protection Laws in India Information Technology Act, 2000 ........................................................ ¶10-470

¶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. Intellectual property rights have become significantly conspicuous on the legal horizon of India both in terms of new statutes and judicial pronouncements. India ratified the agreement for establishing the World Trade Organization (the “WTO”), which contains the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). Indian Statutes, enforcement provisions and methods of dispute resolution with respect to intellectual property (IP) protection are now fully TRIPS-compliant.



India has laws covering various areas of intellectual property as enumerated herein below:

● Trade Marks ● Patents ● Copyrights and Related Rights ● Industrial Designs ● Geographical Indications ● Layout Designs of Integrated Circuits ● Plant Varieties ● Information Technology and Cyber crimes ● Data Protection Broadly, the following acts deal with the protection of intellectual property: 1. Trade Marks Act, 1999 2. The Patents Act, 1970 (as amended in 2005) 3. The Copyright Act, 1957 4. The Designs Act, 2000 5. The Geographical Indications of Goods (Registration and Protection) Act, 1999 6. The Semiconductor Integrated Circuits Layout Design Act, 2000 7. The Protection of Plant Varieties and Farmers’ Right Act, 2001 8. The Information Technology Act, 2000

Trademarks

¶10-020 Introduction India’s obligations under the TRIPS Agreement for protection of trademarks, inter

alia, include protection to distinguishing marks, recognition of service marks, indefinite periodical renewal of registration, abolition of compulsory licensing of trademarks, etc.

With the globalisation of trade, brand names, trade names, marks, etc, have attained an immense value that require uniform minimum standards of protection and efficient procedures for enforcement as were recognised under the TRIPS. In view of the same, extensive review and consequential repeal 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.

The Trade Marks Act provides, inter alia, for registration of service marks, filing of 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 [90 (2001) DLT 659] and Yahoo Inc. v Akash Arora [1999 PTC 201].



India, being a common law country, follows not only the codified law, but also common 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.

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 N. R. Dongre v Whirlpool (1996) 5SCC 714. The Trademark “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 Whirlpool Corporation on account of circulation of the advertisements in the magazines 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.

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 some affiliation/nexus with party 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.

Significantly, infringement of a trademark is a cognizable offence and criminal 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.



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

includes permanent and interim injunction, damages or account of profits, delivery of the 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:

(a) Appointment of a local commissioner, which is akin to an “Anton Pillar Order”, for search, seizure and preservation of infringing goods, account books and preparation of inventory, etc.

(b) Restraining the infringer from disposing of or dealing with the assets in a manner which may adversely affect plaintiff’s ability to recover damages, costs or other pecuniary remedies which may be finally awarded to the plaintiff.

(c) The 'John Doe’ order, known as “Ashok Kumar Orders” are injunction orders passed by a court of law against entities, whose identity is not known at the time of the issuance of the order. These orders are an exception to the general rule which requires the defendant to be identified prior to the filing of a law-suit. The John Doe order, is important in cases of fly-by-night operators who do not operate from a fixed location. It allows the plaintiff to search the premises and deliver up evidence of infringement of the rights of the plaintiff against the unknown infringers.

(d) A ‘Norwich Pharmacal’ order is a court order for the disclosure of information or documents against a third party. It is usually granted against a third party which has been innocently mixed up in wrongdoing, forcing the disclosure of documents or information. In the case of Souza Cruz v N K Jain (1995 PTR 97), the Court directed excise and customs commissioners to disclose the complete export records of infringing cigarettes to Ukraine by the Defendant.

Offences and penalties In 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 to three years and fine which shall not be less than Rs 50,000 (approx. US$ 800) but may extend to Rs 2,00,000 (approx. US$ 3,000).



¶10-030 Procedure of registration of trademark in India The procedure for registration of a trademark in India is given below:

Convention applications In order to fulfill the obligations of any treaty, convention or arrangement with a

country or countries that are members of inter-governmental organisations, which accord to Indian citizens similar privileges as granted to their own citizens, the Central Government notifies such countries to be Convention Countries. In case of an application for registration 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 months of the application having been filed in the Convention country. The Government has notified and extended this privilege of priority to the members who have ratified the Paris Convention on Protection of Industrial Property.

Madrid Protocol After the amendment in the Trade Marks Act in 2010, Chapter IV A was inserted,

which contains the special provisions relating to protection of trademarks through



international registration under the Madrid Protocol. This amendment allows Indian companies to register their trademarks in 89 countries by filing a single application. India has joined the Madrid Protocol with effect from 8th July, 2013. As per the Amendment Act, 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.

One of the major changes brought about by the amendments includes s 23(i) wherein the registration process for a mark is to be completed in a time bound manner "within eighteen months of the filing of the application". This change will challenge every aspect of the registration process within trademark office in India, forcing deadlines at every stage of the registration procedure laid out under the Trade Marks Act and supplemented by the Trade Mark Rules in India.

Classification of goods and services For the purpose of classification of goods and services for registration of trademarks,

India follows the International Classification of Goods and Services (Nice Classification) published by World Intellectual Property Organization (WIPO). For the purpose of classification of the figurative elements of marks, India follows the Vienna Agreement.

Opposition proceedings After advertisement of a trademark in the Trade Marks Journal, (which is available

online at the website of Office of Registrar of Trademarks) an opposition challenging the application for registration can be filed by any person within a period of 4 months.

¶10-040 Renewal of registration The trademark is initially registered for a period of 10 years, which is calculated

from the date of filing of the application and in case of convention application, from the date of priority. 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 one year granted for restoration of the trademark, automatically leads to removal of the trademark from the Register of Trademarks.

¶10-050 Rectification of Trademark An aggrieved person may file an application before the Registrar of Trademarks or to

the Intellectual Property Appellate Board (IPAB) for cancellation or varying the registration of the trademark on the ground of any contravention or failure to observe a condition entered on the Register in relation thereto.

The application for rectification can also be filed for removal of an entry made in Register, without sufficient cause or wrongly remaining on the Register and for correction of any error or defect in any entry in the Register.



¶10-060 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 (Indian) Trade Marks Act, 1999 allows for the assignment of an unregistered trademark with or without the goodwill of the business concerned.

Indian law contains restriction 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 confusion. However, the assignment with limitations imposed, such as goods to be sold in different markets, ie, within India or for exports are valid. The Registrar is authorized to issue a certificate of validity of the proposed assignment on a statement of case by the proprietor of a registered trademark who proposes to assign the mark. The said certificate as to validity is conclusive unless vitiated by fraud. The assignments, wherein exclusive rights are created with respect to different markets within India are also valid.

A trademark is a property which can be transferred by a document for consideration, subject to certain provisions in the relevant Act. An assignment of trademark has to be in writing by acts of the parties concerned. When an assignment of a trademark is made, the assignee must apply to the Registrar of Trade Marks to register his or her title. Until such an application is filed by the Assignee, the assignment shall be ineffective against a person acquiring a conflicting interest in or under the registered trademark without the knowledge of the assignment. Where the validity of an assignment is in dispute, the Registrar of Trade Marks may refuse to register the assignment, unless adjudicated by a competent court.

Patents

¶10-070 Background The 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 Patents Act, 1970 was again amended by the Patents (Amendment) Act, 2005, wherein product patent was extended to all fields of technology including food, drugs, chemicals and micro-organisms. After the amendment, the provisions relating to Exclusive Marketing Rights (EMRs) have been repealed, and a provision for enabling grant of compulsory license has 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 ss 3 and 4 of the (Indian) Patents Act, 1970. In India, a patent application can be filed, either alone or jointly, by true and first inventor or his assignee.

¶10-080 Procedure for Grant of a Patent in India After filing the application for the grant of patent, a request for examination is

required to be made for examination of the application in the Indian Patent Office. After the first examination report is issued, the applicant is given an opportunity to meet the objections raised in the report. The applicant has to comply with the requirements within 12 months from the issuance of the first examination report. If the requirements of the first 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 objections and compliance of requirements, the patent is granted and notified in the Patent Office Journal. The process of the grant of patent in India can also be understood from the following flow chart:



¶10-090 Filing of Application for Grant of Patent in India by Foreigners

India being a signatory to the Paris Convention for the Protection of Industrial Property, 1883 and the Patent Cooperation Treaty (PCT), 1970, a foreign entity can adopt any of the aforesaid treaties for filing of application for grant of patent in India.

Where an application for grant of patent in respect of an invention in a Convention Country has been filed, then similar application can also be filed in India for grant of patent by such applicant or the legal representative or assignee of such person within 12 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.

¶10-100 Pre-grant Opposition A representation for pre-grant opposition can be filed by any person under s 11A of

the Patents Act, 1970 within six months from the date of publication of the application, as amended (the “Patents Act”) or before the grant of patent. The grounds on which the representation can be filed are provided under s 25(1) of the Patents Act. There is no fee for filing representation for pre-grant opposition. Representation for pre-grant opposition can be filed even though no request for examination has been filed. However, the representation will be considered only when a request for examination is received within the prescribed period.

¶10-110 Post-grant Opposition Any interested person can file post-grant opposition within twelve months from the

date of publication of the grant of patent in the official journal of the patent office.

¶10-120 Grounds for Opposition Some of the grounds for filing pre-and post-grant opposition are as under: (a) Patent wrongfully obtained; (b) Prior publication; (c) The invention was publicly known or publicly used in India before the priority

date of that claim; (d) The invention is obvious and does not involve any inventive step; (e) That the subject of any claim is not an invention within the meaning of this Act,

or is not patentable under this Act; (f) Insufficient disclosure of the invention or the method by which it is to be

performed; (g) That in the case of a patent granted on convention application, the application

for patent was not made within twelve months from the date of the first application for protection for the invention made in a convention country or in India;



(h) That the complete specification does not disclose or wrongly mentions the source and geographical origin of biological material used for the invention; and

(i) That the invention was anticipated having regard to the knowledge, oral or otherwise, available within any local or indigenous community in India or elsewhere.

¶10-130 Term of Patent The term of every patent in India is 20 years from the date of filing the patent

application, irrespective of whether it is filed with provisional or complete specification. However, in case of applications filed under the Patent Cooperative Treaty (PCT), the term of 20 years begins from the international filing date.

¶10-140 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.

¶10-150 Restoration of Patent A request for restoration of patent can be filed within eighteen months from the date

of cessation of patent along with the prescribed fee. After the receipt of the request, the matter is notified in the official journal for further processing of the request.

¶10-160 Patent of Biological Material If the invention uses a biological material which is new, it is essential to deposit the

same in the International Depository Authority (IDA) prior to the filing of the application 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 Chandigarh is known as Institute of Microbial Technology (IMTECH).

¶10-170 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.

Before filing an application for grant of patent in India, it is important to note “What is not Patentable in India?” Any invention which is (a) frivolous, (b) obvious, (c) contrary to well established natural laws, (d) contrary to law, (e) morality, (f) injurious to public health, (g) a mere discovery of a scientific principle, (h) the formulation of an abstract theory, (i) a mere discovery of any new property or new use for a known substance or process, machine or apparatus, (j) a substance obtained by a mere admixture resulting only in the aggregation of the properties of the components thereof or a process for producing such substance, (k) a mere arrangement or rearrangement or duplication of known devices, (l) a method of agriculture or horticulture and (m) inventions relating to atomic energy, are not patentable in India.



¶10-180 Maintainability of Secrecy by the Indian Patent Office (IPO)

All patent applications are kept secret up to eighteen months from the date of filing or priority date, whichever is earlier, and thereafter they are published in the Official Journal of the Patent Office published every week. After such publication of the patent application, public can inspect the documents and may take the photocopy thereof on the payment of the prescribed fee.

¶10-190 Compulsory Licensing One of the most important aspects of Indian Patents Act, 1970, is compulsory

licensing of the patent subject to the fulfillment of certain conditions. At any time after the expiration 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, subject to the fulfillment of following conditions, ie,

● the reasonable requirements of the public with respect to the patented invention have not been satisfied;

● that the patented invention is not available to the public at a reasonable price; or ● 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 licence 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 satisfied or that the patented invention is not available to the public at a reasonable price by reason of any admission made by him, whether in such a licence or by reason of his having accepted such a licence.

The Controller, if satisfied that the reasonable requirements of the public with respect to the patented invention have not been satisfied or that the patented invention is not available to the public at a reasonable price, may order the patentee to grant a licence upon such terms as he may deem fit. However, before the grant of a compulsory license, the Controller of Patents shall take into account following factors:

● The nature of invention; ● The time elapsed, since the sealing of the patent; ● The measures already taken by the patentee or the licensee to make full use of

the invention; ● The ability of the applicant to work the invention to the public advantage; ● The capacity of the applicant to undertake the risk in providing capital and

working the invention, if the application for compulsory license is granted; ● As to the fact whether the applicant has made efforts to obtain a license from the

patentee on reasonable terms and conditions; ● National emergency or other circumstances of extreme urgency; ● Public non-commercial use; and



● 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

is subject to the fulfilment of above conditions and discretion of the Controller of Patents. Further judicial recourse is available against any arbitrary or illegal order of the Controller of Patents for grant of compulsory license. In 2012, the Controller of Patents has granted the first compulsory license to Natco Pharma to sell a generic version of the patented cancer drug 'Nexavar' in India. However, the subsequent applications, by BDR Pharmaceuticals for Bristol-Myers Squibb’s Dasatinib and Lee Pharma for AstraZeneca’s Saxagliptin, to sell generic version of these patented drugs were rejected.

The Government of India has while exercising its power under s 66 of the Patents Act, 1970 in the Public Interest, revoked Patent No. 252093, entitled “a synergistic, ayurvedic functional food bioactive composition (Cinata) and a process of preparation thereof” granted to m/s Avesthagen Ltd., on the ground that the aforesaid patent is prejudicial to public.

¶10-200 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 (Indian) 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.

¶10-210 Licensing and Assignment of Patent An assignment in a patent or a share in a patent or a mortgage, license or the creation

of any other interest in a patent is permissible. In the case of patents, assignment is valid only when it is in writing and the agreement is reduced to the form of a document embodying all the terms and conditions governing the rights and obligations of the parties to the agreement. The application for registration is required to be made by the transferee in the prescribed form.

Copyright Indian copyright law is at parity with the international standards as contained in

TRIPS. The (Indian) Copyright Act, 1957, pursuant to the amendments in 1999, 2002 and 2012, fully reflects the 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 active member of the World Intellectual Property Organization (WIPO) and United Nations Educational, Scientific and Cultural Organization (UNESCO).

¶10-220 “Work” protected in India Under the Copyright Act, 1957 the term “work” includes an artistic work comprising

of a painting, a sculpture, a drawing (including a diagram, a map, a chart or plan), an



engraving, a photograph, a work of architecture or artistic craftsmanship, dramatic work, literary work (including computer programmes, tables, compilations and computer databases), musical work (including music as well as graphical notations), sound recording and cinematographic film.

In order to keep pace with the global requirement of harmonization, the Copyright Act, 1957 has brought the copyright law in India in line with the developments in the information technology industry, whether it is in the field of satellite broadcasting or computer software or digital technology. The amended law has also made provisions to protect performer’s rights as envisaged in the Rome Convention.

¶10-230 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.

¶10-240 Need for Registration of Copyright The awareness of Intellectual Property (IP) Laws is considerably low among the

enforcement authorities in India, and most of the IP litigation is confined to metropolitan 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 copyright as the copyright registration certificate is accepted as a “proof of ownership” in courts and by police authorities, and acted upon smoothly by them.

¶10-250 Enforcement of Copyright in India The law of copyright in India not only provides for civil remedies in the form of

permanent injunction, damages or accounts of profits, delivery of the infringing material for destruction and cost of the legal proceedings. etc. but also makes instances of infringement of copyright, a cognizable offence punishable with imprisonment for a term which shall not be less than six months but which may extend to three years with a fine which shall not be less than Rs 50,000 (approx. US$ 800) but may extend to Rs 2,00,000 (approx. US$ 3,000). For the second and subsequent offences, there are provisions for enhanced fine and punishment under the Copyright Act. The (Indian) Copyright Act, 1957 gives power to the police authorities to register the Complaint (First Information Report, ie, FIR) and act on its own to arrest the accused, search the premises of the accused and seize the infringing material without any intervention of the court.

¶10-260 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 screen play of motion pictures and database.



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 their associations and organizations like NASSCOM (National Association of Software and Service Companies), NIAPC (National Initiative Against Piracy and Counterfeiting) etc.

¶10-270 Licensing and Assignment of Copyright Copyright in any work, present or future, can only be assigned or licensed in writing

by the copyright owner or his duly authorised agent.

¶10-280 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.

In the case of cinematograph films, sound recordings, posthumous publications, anonymous and pseudonymous publications, works of government and works of international organisations are protected for a period of 60 years which is counted from the year following the date of publication.

Industrial Designs The TRIPS provides minimum standards of protection of industrial designs. The

Designs 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.

¶10-290 Registrability of Designs Features of shape, configuration, pattern, ornament or composition of lines or colours

applied to any article, whether in two dimensional or three dimensional or in both forms, can be registered under the (Indian) Designs Act, 2000. However, functionality aspects of a design are not protected under the (Indian) Designs Act, 2000, as the same are subject matter of patents.

¶10-300 Term of Design The total period of validity of registration of an Industrial Design under the (Indian)

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.

¶10-310 Process of Registration of Design The process of registration of an industrial design in India can be understood with the

help of following flowchart:



¶10-320 Cancellation, Protection and Enforcement of Designs Design of an article is not registrable in India, if it: ● is not new or original; ● has been disclosed to the public anywhere in India or in any other country by

publication in tangible form or by use in any other way prior to the filing date or priority date of the application;

● is not significantly distinguishable from known designs or combination of known designs; or

● 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 (Indian) 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 register its industrial design by filing an appropriate application within six months from the date of the corresponding convention application, ie, the first application filed in the home country.

Geographical Indications A geographical indication (GI) is an indication, whether in the form of a name or

sign, used on goods that have a specific geographical origin and possesses qualities or a 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 15th September, 2003 and the Geographical Indications of Goods (Registration and Protection) Rules, 2002.

As per the (Indian) Geographical Indications of Goods (Registration and Protection) Act, 1999 “Geographical Indication”, in relation to goods, means an indication which identifies such 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 unauthorized use of the registered geographical indication by others by initiating 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 passing off against the infringer. It is, however, advisable to register the GI as the certificate of registration is prima facie evidence of its validity and no further proof of the same is required.

¶10-330 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 (the GI Act) read with the Geographical Indications (Registration and Protection) Rules, 2002 (the GI Rules).

¶10-340 Duration of Protection A Geographical Indication is registered for a period of 10 years and the registration may be renewed from time to time for a period of 10 years at a time.

¶10-350 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 (Indian) Geographical Indications of Goods (Registration and Protection) Act, 1999, falsification of a Geographical Indication will carry a penalty with imprisonment for a term which may not be less than six months but may extend to three years and with a fine which may



not be less than Rs 50,000 (approx. US$ 800) but may extend to Rs 2,00,000 (approx. US$ 3,000).

Plant Varieties India, having ratified the TRIPS and in order to give effect to it, have enacted the

Protection of Plant Varieties and Farmer’s Rights Act, 2001 (the “Plant Act”) (based on the recommendations of the International Union for Protection of New Varieties of Plants, Geneva). The Plant Act provides for setting up of a Protection of Plant Varieties and Farmers’ Rights Authority (the “Authority”) that shall be responsible for promoting the 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 - 110 012, 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. Till now, the Government of India has notified 102 crops with their genera eligible for registration of varieties.

¶10-360 Procedure for Registration A new 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, the Registrar examines the application to see if it fulfills the criteria for registration of a Plant Variety. On being satisfied, the Registrar accepts the application, resulting in publication 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.

¶10-370 Duration of Protection The duration of protection of registered varieties is different for different crops, as

given below: ● For trees and vines - 18 years; ● For other crops - 15 years; ● For extant varieties - 15 years from the date of notification of that variety.

¶10-380 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 variety. Further, a certificate of registration for a variety issued under the Act shall confer an exclusive right on the breeder or his successor, agent or licensee to produce, sell, market, distribute, import or export the variety.



¶10-390 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 up to two years and a fine of Rs 50,000 (approx. US$ 800).

Layout Designs of Integrated Circuits 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 of integrated circuits. The Act defines “Layout Design” to mean a layout of transistors and other circuitry elements and includes lead wires connecting such elements and expressed in any manner in a semiconductor integrated circuit. Under the (Indian) Semiconductor for Integrated Circuits Layout-Designs Act, 2000, a Semiconductor Integrated Circuit has been defined as 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.

¶10-400 Registerability of Layout-Design A Layout Design which is (a) not original (b) has been commercially exploited in

India or in a convention country or (c) not inherently distinctive or distinguishable from 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.

¶10-410 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.

¶10-420 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 (Indian) Semiconductor for Integrated Circuits Layout-Designs Act, 2000 with imprisonment of up to three years and fine of Rs 50,000 (approx. US$ 800) up to maximum of Rs 10,00,000 (approx. US$ 16,000).

¶10-430 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, restrictive agreements pertaining to confidentiality and trade secrets would usually fall 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 Art 39 of the TRIPS. There is also no



provision at the moment in India at the national level for data protection with respect to confidential and valuable information submitted to the Government or regulatory 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 India has a well-established statutory, administrative and judicial framework to

safeguard Intellectual Property Rights (IPRs), however, it is still facing problems with the 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 courts have shown dynamism and zeal for effective protection of Intellectual Property 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.

¶10-440 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 of Court proceedings, which provides for a fine as well as imprisonment, in case of non-compliance of the order of the court. Execution/ compliance of the orders of the court are 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:

● Permanent Injunction; ● Interim Injunction; ● Damages; ● Accounts and handing over of profits; ● Anton Pillar Order (Appointment of Local Commissioner by the Court for

custody/ sealing of infringing material/accounts); ● 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:

● Registration of First Information Report (FIR); or



● Filing of a Criminal Complaint before a Competent Magisterial Court with application for issue of search and seizure warrants directing the police to raid of the premises of the accused for seizure of the infringing material and arrest of the infringers.

It is interesting to note that in India, wherever provisions have been made for criminal prosecution for violation of any Intellectual Property Rights, a criminal case can be filed 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.

¶10-450 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 lowest court is “District and Sessions Judge”. These cases can also be filed in the High 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.

¶10-460 Border Control Measures for Enforcement of IPR The Government of India under s 11 of the (Indian) Customs Act, 1962 is

empowered to prohibit importation and exportation of goods of specified description, if it deems 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 for the time being in force are liable to be confiscated. In this regard, a customs officer is empowered to inspect any premises, conveyance, x-ray any person and effect search and seize in case where they have reasons to believe that the goods are of contraband nature. They can also investigate or interrogate any person and arrest him.

Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007

India has notified the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007. The rules comply with border measures as required by the TRIPS Agreement empowering the Customs Officers to enforce IPR over the imported products. Actions under Customs Act are independent to the remedies provided under various statues on Intellectual Property. As per r 2(b) of the 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 release of the seized goods upon an application of the importer of the goods.



Data Protection Laws in India Data Protection refers to the set of privacy laws, policies and procedures that aim to

minimise intrusion into one’s privacy caused by the collection, storage and dissemination of personal data. Personal data generally refers to the information or data which relate to a person who can be identified from that information or data whether collected by any Government or any private organization or an agency.

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, ie, freedom of speech and expression under Art 19(1)(a) and right to life and personal liberty under Art 21 of the Constitution of India. However, these Fundamental Rights under the Constitution of India are subject to reasonable restrictions given under Art 19(2) of the Constitution that may be imposed by the State.

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 Information Technology Act, 2000 and the (Indian) Contract Act, 1872. A codified law on the subject of data protection is likely to be introduced in India in the near future.

The (Indian) Information Technology Act, 2000 deals with the issues relating to payment of compensation (Civil) and punishment (Criminal) in case of wrongful disclosure and misuse of personal data and violation of contractual terms in respect of personal data.

Under s 43A of the (Indian) 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 to the person so affected. It is important to note that there is no upper limit specified for the compensation that can be claimed by the affected party in such circumstances.

The Government has notified the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011. The Rules only deals with protection of “Sensitive personal data or information of a person”, which includes such personal information which consists of information relating to:-

● Passwords; ● Financial information such as bank account or credit card or debit card or other

payment instrument details; ● Physical, physiological and mental health condition; ● Sexual orientation; ● Medical records and history; ● Biometric information. The rules provide the reasonable security practices and procedures, which the body

corporate or any person who on behalf of body corporate collects, receives, possess, store, deals or handle information is required to follow while dealing with “Personal sensitive data or information”. In case of any breach, the body corporate or any other person acting on behalf of body corporate, the body corporate may be held liable to pay damages to the person so affected.



Under s 72A of the (Indian) 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 to three years and fine extending to Rs 5,00,000 (approx. US$ 8,000).

It is to be noted that s 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 is satisfied that it is necessary in the interest of:

● the 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 cognizable offence relating

to above or ● for 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.

¶10-470 Information Technology Act, 2000 The Information Technology Act, 2000 (hereinafter referred to as the “IT Act”) is an

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 communication and storage of information to facilitate electronic filing of documents with the Government agencies.

Grounds on which Government can interfere with Data Under s 69 of the IT Act, any person, authorised by the Government or any of its

officer specially authorised by the Government, if satisfied that it is necessary or expedient so to do in the 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 cognizable offence relating to above or for investigation of any offence, for reasons to be recorded in writing, by order, can direct any agency of the 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. The scope of s 69 of the IT Act includes both interception and



monitoring along with decryption for the purpose of investigation of cyber-crimes. The Government has also notified the Information Technology (Procedures and Safeguards for Interception, Monitoring and Decryption of Information) Rules, 2011, under the above section.

The Government has also notified the Information Technology (Procedures and Safeguards for Blocking for Access of Information) Rules, 2011, under s 69A of the IT Act, which deals with the blocking of websites. The Government has blocked the access of various websites.

Penalty for Damage to Computer, Computer Systems, etc. under the IT Act

Section 43 of the IT Act, imposes a penalty without prescribing any upper limit, doing any of the following acts:

1. accesses or secures access to such computer, computer system or computer network;

2. downloads, copies or extracts any data, computer data base or information from such computer, computer system or computer network including information or data held or stored in any removable storage medium;

3. introduces or causes to be introduced any computer contaminant or computer virus into any computer, computer system or computer network;

4. damages or causes to be damaged any computer, computer system or computer network, data, computer data base or any other programmes residing in such computer, computer system or computer network;

5. disrupts or causes disruption of any computer, computer system or computer network;

6. denies or causes the denial of access to any person authorised to access any computer, computer system or computer network by any means; (g) provides any assistance to any person to facilitate access to a computer, computer system or computer network in contravention of the provisions of this Act, rules or regulations made thereunder;

7. charges the services availed of by a person to the account of another person by tampering with or manipulating any computer, computer system, or computer network, he shall be liable to pay damages by way of compensation to the person so affected.

8. destroys, deletes or alters any information residing in a computer resource or diminishes its value or utility or affects it injuriously by any means;

9. steel, conceals, destroys or alters or causes any person to steal, conceal, destroy or alter any computer source code used for a computer resource with an intention to cause damage.

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 up to three years, or with fine which may extend up to Rs 2,00,000 (approx. US$3,000), or with both.

Computer related offences Section 66 provides that if any person, dishonestly or fraudulently does any act

referred to in s 43, he shall be punishable with imprisonment for a term which may extend to three years or with fine which may extend to Rs 5,00,000 (approx. US$ 8,000)) or with both.

Penalty for Breach of Confidentiality and Privacy Section 72 of the IT Act provides for penalty for breach of confidentiality and

privacy. 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 punishable with imprisonment for a term which may extend to two years, or with fine which may extend to Rs 1,00,000, (approx. US$ 3,000) or with both.

Amendments as introduced by the IT Amendment Act, 2008 Section 10A was 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 data. 2. Section 66 – Computer Related Offences 3. Section 66A – Punishment for sending offensive messages through

communication service, etc. 4. Section 66B – Punishment for dishonestly receiving stolen computer resource or

communication device. 5. Section 66C – Punishment for identity theft. 6. Section 66D – Punishment for cheating by personation by using computer

resource. 7. Section 66E – Punishment for violation for privacy. 8. Section 66F – Punishment for cyber terrorism. 9. Section 67 – Punishment for publishing or transmitting obscene material in

electronic form. 10. Section 67A – Punishment for publishing or transmitting of material containing

sexually explicit act, etc, in electronic form. 11. Section 67B – Punishment for publishing or transmitting of material depicting

children in sexually explicit act, etc, in electronic form. 12. Section 67C – Preservation and Retention of information by intermediaries.



13. Section 69 – Powers to issue directions for interception or monitoring or decryption of any information through any computer resource.

14. Section 69A – Power to issue directions for blocking for public access of any information through any computer resource.

15. Section 69B – Power to authorize to monitor and collect traffic data or information through any computer resource for cyber security.

16. Section 72A – Punishment for disclosure of information in breach of lawful contract.

17. Section 79 – Exemption from liability of intermediary in certain cases. 18. Section 84A –Modes or methods for encryption. 19. Section 84B –Punishment for abetment of offences. 20. Section 84C –Punishment for attempt to commit offences.


Chapter 11 Consumer Protection Law 217

Chapter 11 Consumer Protection Law

The Consumer Protection Act, 1986 Introduction ................................................................................................. ¶11-010 Background ................................................................................................. ¶11-020 Scope ........................................................................................................... ¶11-030 Consumer Protection Council ..................................................................... ¶11-040 Redressal Machinery under the Act ............................................................ ¶11-050 Applicability of the Law of Limitation ....................................................... ¶11-060 Remedies under the CPA ............................................................................ ¶11-070

The Consumer Protection Act, 1986

¶11-010 Introduction The Consumer Protection Act, 1986 (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.

The CPA seeks to protect the interests of individual consumers by prescribing specific remedies to make good the loss or damage caused to consumers as a result of unfair trade practices.

¶11-020 Background Unlike the law of torts which is not codified in India, there are certain legislations that

have been formulated for the protection of interests of consumers. Some of the significant enactments that are aimed at protection of such interests of the consumers include the Sale of Goods Act, 1930, the Agricultural Produce (Grading and Marketing) Act, 1937, the Drugs and Cosmetics Act, 1940, the Indian Standards Institution (Certification Marks) Act, 1952, the Food Safety and Standards Act, 2006, the Essential Commodities Act, 1955, the legal Metrology Act, 2009, etc.

These legislations contain regulatory provisions contravention of which, in most cases, attract civil liability. Earlier, the aggrieved consumer had no remedy but to initiate action by way of a civil suit, a lengthy and expensive process which caused undue harassment to the consumers. As a consequence, the cost and time involved was disproportionate to the compensation claimed and granted to the aggrieved consumer.



The CPA provides for quick and easy remedy to consumers under a three-tier quasi-judicial redressal agency at the District, State and National levels. The CPA has been amended from time to time to extend its coverage and scope and to enhance the powers of the redressal machinery.

¶11-030 Scope Broadly speaking, the CPA seeks to protect the following basic rights of consumers: ● Right against the marketing of goods and services which are hazardous to life

and property; ● Right to be informed about the quality, quantity, potency, purity, standard and

price of goods or services; ● Right to choice, wherever possible through access, to a variety of goods and

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

or unscrupulous exploitation of consumers; ● Right to consumer education; and ● Right to clean and healthy environment.

Who is a consumer? Section 2(d) of the CPA defines "consumer" as a person who:

“(a) Buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for a consideration paid or promised or partly paid or partly promised, or under any system of deferred payment, when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose;

or

(b) Hires or avails of any services for consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for a consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purpose. It may, however, be noted that "commercial purpose" does not include use by a person of goods bought and services exclusively for the purposes of earning his livelihood by means of self-employment.”


Chapter 11 Consumer Protection Law 219

From the above definition, it can be observed that: ● 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 payment, i.e., in respect of hire-purchase transactions;

● 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;

● In addition to the purchaser(s) of goods, or hirer(s) or user(s) of services, any beneficiary of such services, a user of goods/services with the approval of the purchaser or hirer or user would also be deemed to be a "consumer" under the Act.

¶11-040 Consumer Protection Council The interests of consumers are sought to be protected and promoted under the Act inter

alia by establishment of Consumer Protection Councils at the District, State and National levels.

¶11-050 Redressal Machinery under the Act The Act provides for a three-tier quasi-judicial redressal mechanism at the District,

State and National levels for redressal of consumer disputes and grievances, namely:

National Consumer Disputes Redressal Commission (commonly known as National Commission)

It has jurisdiction to entertain complaints where the value of goods/services complained against and the compensation, if any claimed, exceeds Rs10,000,000 (Indian Rupees 10 Million).

State Consumer Disputes Redressal Commission (commonly known as State Commission)

It has jurisdiction to entertain complaints where the value of goods/services complained against and the compensation, if any claimed, exceeds Rs 2,000,000 (Indian Rupees 2 Million) but less than Rs 10,000,000 (Indian Rupees 10 Million).

District Consumer Disputes Redressal Forum (commonly known as District Forum)

It has jurisdiction to entertain complaints where the value of goods/services complained against and the compensation, if any claimed, is less than Rs 2,000,000 (Indian Rupees Two Million).

¶11-060 Applicability of the Law of Limitation The District Forum, the State Commission and/or the National Commission shall not

admit a complaint unless it is filed within two years from the date on which the cause of action has arisen. However, where the complainant satisfies the Forum/Commission, as the



case may be, that he has sufficient cause for not filing the complaint within two years, such a complaint may be entertained by such Forum/ Commission after recording the reasons for condoning the delay.

¶11-070 Remedies under the CPA Depending on the facts and circumstances, the redressal forums may issue orders for

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; ● Withdrawal of the hazardous goods from being offered for sale; or ● Award for adequate costs to parties. ● Removal of defects or deficiencies in the services;

Discontinuance of unfair trade practices or restrictive trade practices or direction not to repeat them;


Chapter 12 Environment Laws 221

Chapter 12 Environment Laws Background ................................................................................................. ¶12-010 The National Green Tribunal Act, 2010 ...................................................... ¶12-020 The Air (Prevention and Control of Pollution) Act, 1981 .......................... ¶12-030 The Water (Prevention and Control of Pollution) Act, 1974 ...................... ¶12-040 The Environment Protection Act, 1986 ....................................................... ¶12-050 Hazardous Wastes Management Regulations ............................................. ¶12-060 Other Laws Relating to Environment The Wildlife Protection Act, 1972 .............................................................. ¶12-070 The Forest Conservation Act, 1980 ............................................................. ¶12-080 Public Liability Insurance Act, 1991 ........................................................... ¶12-090 The Biological Diversity Act, 2002 ............................................................ ¶12-100 Coastal Regulation Zone Notification ......................................................... ¶12-110

¶12-010 Background The need for protection and conservation of environment and sustainable use of

natural resources is reflected in the constitutional framework of India and also in the international commitments of India. The Constitution under Part IVA (Art 51A-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 (Art 48A-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-fledged Ministry of Environment and Forests (MoEF).

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 regulatory framework for the same. Since the 1970s, a number of environment legislations have been put in place. The MoEF and the pollution control boards (“CPCB”, ie, Central Pollution Control Board and “SPCBs”, ie, State Pollution Control Boards) together form the regulatory and administrative core of the sector.



Some of the important legislations for environment protection are as follows: ● The National Green Tribunal Act, 2010 ● The Air (Prevention and Control of Pollution) Act, 1981 ● The Water (Prevention and Control of Pollution) Act, 1974 ● The Environment Protection Act, 1986 ● The Hazardous Waste Management Regulations, etc. These important environment legislations have been briefly explained in the

succeeding paragraphs.

¶12-020 The National Green Tribunal Act, 2010 The National Green Tribunal Act, 2010 (No. 19 of 2010) (NGT Act) has been

enacted with the objectives to provide for establishment of a National Green Tribunal (NGT) 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, and was enforced by the Central Government vide Notification no. S.O. 2569(E) dated October 18, 2010, with effect from October 18, 2010. The Act envisages establishment of NGT in order to deal with all environmental laws relating to air and water pollution, the Environment Protection Act, the Forest Conservation Act and the Biodiversity Act as have been set out in Schedule I of the NGT Act.

Consequent to enforcement of the National Green Tribunal Act, 2010, the National Environment Tribunal Act, 1995 and the National Environment Appellate Authority Act, 1997 stand repealed. The National Environment Appellate Authority established under s 3(1) of the National Environment Appellate Authority Act, 1997stands dissolved, in view of the establishment of the National Green Tribunal under the National Green Tribunal Act, 2010 vide Notification no. S.O. 2570(E) dated October 18, 2010.

¶12-030 The Air (Prevention and Control of Pollution) Act, 1981

The 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 Sate 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, 1974

The 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, 1986 The 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, 1974 and the Air Act. The term “environment” is understood in a very wide term under s 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 notifications under the Environment Act for the protection of ecologically-sensitive areas or issues guidelines for matters under the Environment Act.

In case of any non-compliance or contravention of the Environment Act, or of the rules or directions under the said Act, the violator will be punishable with imprisonment up to five years or with fine up to Rs 1,00,000, or with both. In case of continuation of such violation, an additional fine of up to Rs 5,000 for every day during which such failure or contravention continues after the conviction for the first such failure or contravention, will be levied. Further, if the violation continues beyond a period of one year after the date of conviction, the offender shall be punishable with imprisonment for a term which may extend to seven years.



¶12-060 Hazardous Wastes Management Regulations Hazardous waste means any waste which, by reason of any of its physical, chemical,

reactive, toxic, flammable, explosive or corrosive characteristics, causes danger or is likely to cause danger to health or environment, whether alone or when in contact with other wastes or substances.

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 notifications under the Environmental Act. Some of the rules dealing with hazardous waste 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 municipalities to dispose municipal solid waste in a scientific manner.

In view of the short-comings and overlapping of some categories causing inconvenience in implementation of the Biomedical Waste (Management and Handling) Rules, 1998 as well as the Municipal Solid Wastes (Management and Handling) Rules, 2000, the Ministry of Environment, Forest and Climate Change has formulated the draft Bio-Medical Waste (Management & Handling) Rules, 2015 (Draft BMW Rules) and the draft Solid Waste Management Rules, 2015 (Draft SWM Rules) and sought comments on the draft Rules.

The Draft BMW Rules are to replace the Biomedical Waste (Management and Handling) Rules, 1998, and the Draft SWM Rules are to replace the Municipal Solid Waste (Management and Handling) Rules, 2000. The objective of the Draft BMW Rules is to enable the prescribed authorities to implement the rules more effectively, thereby, reducing the biomedical waste generation and also for its proper treatment and disposal and to ensure environmentally sound management of these wastes, and the Draft SWM Rules aim at dealing with the management of solid waste including it segregation at source, transportation of waste, treatment and final disposal.

● E - Waste (Management and Handling) Rules, 2011 have been notified on May 1, 2011 and came into effect from May 1, 2012, with primary objective to reduce the use of hazardous substances in electrical and electronic equipment by specifying threshold for use of hazardous material and to channelize the e-waste generated in the country for environmentally sound recycling. The Rules apply to every producer, consumer or bulk consumer, collection centre, dismantler and recycler of e-waste involved in the manufacture, sale, purchase and processing of electrical and electronic equipment or components as detailed in the Rules.

● Batteries (Management & Handling) Rules, 2001 deal with the proper and effective management and handling of lead acid batteries waste. The Act requires all manufacturers, assemblers, re-conditioners, importers, dealers,



auctioneers, bulk consumers, consumers, involved in manufacture, processing, sale, purchase and use of batteries or components thereof, to comply with the provisions of Batteries (Management & Handling) Rules, 2001.

Other Laws Relating to Environment In addition, there are many other laws relating to environment, namely –

¶12-070 The Wildlife Protection Act, 1972 The Wild Life (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 the Act. The objective is to provide protection to the listed endangered flora and fauna and ecologically important protected areas.

¶12-080 The Forest Conservation Act, 1980 The 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 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, 2002 The 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 recognises 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 Coastal Regulation Zone Notification The Ministry of Environment and Forests had issued the Coastal Regulation Zone

Notification vide Notification no. S O. 19(E), dated January 06, 2011 with an objective to ensure livelihood security to the fishing communities and other local communities living in the coastal areas, to conserve and protect coastal stretches and to promote development in a sustainable manner based on scientific principles, taking into account the dangers of natural hazards in the coastal areas and sea level rise due to global warming.

Useful Web Link: 1. Ministry of Environment & Forests, Government of India (MoEF) :

http://envfor.nic.in 2. National Green Tribunal (NGT): http://www.greentribunal.gov.in/


Chapter 13 Important Considerations for Expatriates Working in India 227

Chapter 13 Important Considerations for Expatriates Working in India

Engagement of Foreign Personnel .............................................................. ¶13-010

¶13-010 Engagement of Foreign Personnel Registration Formalities for Foreign Nationals entering India

The requirements for the foreigners to register with the Foreigners’ Regional Registration Office (FRRO)/ Foreigners’ Registration Office (FRO) are as follows:

(i) If the foreigners are entering India on a student, medical, employment, research, or missionary visa, which is valid for more than 180 days, they are required to register themselves with the FRRO/FRO , under whose jurisdiction they propose to stay. The registration should be done within 14 days of their arrival in India.

(ii) 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 180 days. If such a foreigner intends to stay in India for more than 180 days during a particular visit, he/she should get registered within 180 days of their arrival in India.

(iii) Certain categories of foreign nationals are exempted from registration, namely- (a) those visiting India on any short-term visa, ie valid for 180 days or less,

and (b) children below 16 years of age (irrespective of the type of visa).

(iv) Registration is also required in the case of visa less than180 days and if there is special endorsement “for registration required”.1

(v) Pakistani nationals are required to register within twenty four hours of their arrival in India and Afghanistani nationals are required to register within 14 days of their arrival in India except those Afghan nationals who enter India on a visa valid for 30 days or less provided the Afghan national concerned gives his/her local address in India to the Indian Mission/FRRO/FRO. The Afghan nationals who are issued visas with ‘ Exemption from police reporting’ are exempt from Police reporting as well as Exit permission provided they leave within the Visa validity period.

1 http://boi.gov.in/content/general-instructions-registration-foreigners


228 India Business Guide-Start-up to Set-up 2(vi) The Registration Certificate is required to be surrendered to the authorities

prior to the foreign national’s departure. Note: It is advisable to check the latest requirement with respect to any specific issue

with the concerned Government office/website.

Remittance of Salary Abroad A foreign national who is an employee of a foreign company and is on deputation to

the office/branch/subsidiary/joint venture of such a foreign company in India can avail the facility of opening and maintaining foreign currency account with a bank outside India and receive the whole salary payable to him for the services rendered to the office/branch/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 that accrued in India. [Substituted by the FEMA (Foreign Currency Accounts by a person Resident in India) (Amendment) (Second Amendment) Regulations, 2009, w.r.e.f. 30-09-2009.] - For the purpose of this, the expression ‘company’ shall include a ‘Limited Liability Partnership’ as defined under The Limited Liability Partnership Act, 2008”.3

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 nationals subject to fulfillment of the following conditions4:

(i) The applicant is a highly skilled and/or qualified professional, engaged or appointed by a company/ organization/ industry/ undertaking in India on contract or employment basis.

(ii) Employment visa shall not be granted for jobs for which qualified Indians are available. Employment visa shall also not be granted for routine, ordinary or secretarial/ clerical jobs.

(iii) The foreign national seeks to visit India for employment in a company/ firm/ organization registered in India or for employment in a foreign company/ firm/ organization engaged for execution of some project in India.

(iv) 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 apply to: (a) Ethnic cooks, (b) Language teachers (other than English language teachers)/ translators and (c) Staff working for the concerned Embassy/ High Commission in India.

(v) The foreign national must comply with all legal requirements like payment of tax, etc.

(vi) 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.

(vii) The validity of Employment visa differs from case to case depending upon the nature of work performed by the foreign national. Generally, the Employment

2 Point (a) of Page 1 of http://boi.gov.in/sites/default/files/ForeigD-FRRO_version223.6.11.pdf 3 https://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=9470 4 http://www.mha.nic.in/pdfs/work_visa_faq.pdf). Accessed on 16 November 2015.



visa is granted with validity up to 2 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 application form: (a) recent photographs, (b) profile of the company, like the registration of the company under the Companies Act, proof of registration of the firm in the State Industries Department or the Export Promotion Council concerned, or any recognised promotional body in the field of industry and trade etc.5 (c) proof of employment, ie appointment/ contract letter, (d) details of principal employer and terms and conditions of employment, (e) documentary proof of his educational qualifications and professional expertise etc,. The Companies Act, 2013 6also stipulates the above conditions in case of appointment of managerial persons in companies to which Schedule V is applicable.

Proviso to Part I of Schedule V to the Companies Act, 2013 specifically mentions 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 visa application form, a profile of the company, the details of principal employer, and the terms and conditions of such person's appointment.

Income Tax The total income of an assessee is determined on the basis of his residential status in

India. According to Section 5 of the Income Tax Act, 1961 (“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.7

The scope of Section 5 is expanded by the legal fiction contained in Section 9, which 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 in India. It specifically provides that all incomes accruing or arising, whether directly or indirectly, through or from any business connection8 in India, or through or from any

5 mha.nic.in/sites/upload_files/mha/files/pdf/work_visa_faq.pdf (serial no. vi) 6 The Companies Act, 1956 has now been replaced with Companies Act, 2013 which has come

into effect from April 1, 2014. 7 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”. 8 The expression “business connection” as used in this provision was not originally defined in

the ITA. The Supreme Court in the case of RD Aggarwal [56 ITR 20] laid down the definition of the term as: “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, and an inclusive definition of the expression was inserted, w.e.f. 1 April 2004 (Section 9(1) Explanation 2))As per this definition, a business connection includes “any business 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.” Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business:



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 Section 6 of the ITA defines the term “resident” and contains different criteria to

determine the residential status of various entities such as a company, a firm and an individual, etc.

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:

Provided further that where such broker, general commission agent or any other works mainly or wholly on behalf of a non- resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non -resident and other non -residents which are controlled by the principal non- resident or have a controlling interest in the principal non -resident or are subject to the same common control as the principal non -resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status.

Individual

Has been in India for more than 182 days in a financial year; or Having been in India for more than 60 days in a financial year, has been

in India for more than 365 days in the preceding four years.

NR

Resident

Has been NR in India in 9 out of 10 preceding years; or Having been in India for 729 days or less in the preceding 7 years

ROR

RNOR

Basic Conditions

RNOR Conditions

NO

YES

YES

NO



It must be borne in mind that in transactions covered by a Double Taxation Avoidance Agreement (DTAA), the ITA provides that its provisions shall be applicable only insofar as they are more beneficial to the taxpayer9. 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 of the relevant DTAA, if any.10

List of countries with whom India has singed DTAA are:

1 India-Albania 2 India-Armenia 3 India-Australia 4 India-Austria 5 India-Bangladesh 6 India-Belarus 7 India-Belgium 8 India-Bhutan 9 India-Botswana

10 India-Brazil 11 India-Bulgaria 12 India-Canada 13 India-China 14 India-Colombia 15 India-Croatia 16 India-Cyprus 17 India-Czech Republic 18 India-Denmark 19 India-Estonia 20 India-Ethiopia 21 India-Fiji 22 India-Finland 23 India-France 24 India-Georgia 25 India-Germany

9 Section 90(2), ITA 10 Currently, India has signed 91 Double Taxation Avoidance Agreements (DTAAs) and 17

TIEAs (Tax Information Exchange Agreements) entered into with several countries uptil November 2015, as updated by Income tax authority.

Source: https://www.cchtaxonline.com/web/guest/comprehensive-agreements and https://www.cchtaxonline.com/web/guest/tiea.




26 India-Greece 27 India-Hashemite Kingdom of Jordan 28 India-Hungary 29 India-Iceland 30 India-Indonesia 31 India-Ireland 32 India-Israel 33 India-Italy 34 India-Japan 35 India-Kazakstan 36 India-Kenya 37 India-Korea 38 India-Kuwait 39 India-Kyrgyz Republic 40 India-Latvia 41 India-Libya 42 India-Lithuania 43 India-Luxembourg 44 India-Malaysia 45 India-Malta 46 India-Mauritius 47 India-Mongolia 48 India-Montenegro 49 India-Morocco 50 India-Mozambique 51 India-Myanmar 52 India-Namibia 53 India-Nepal 54 India-Netherlands 55 India-New Zealand 56 India-Norway 57 India-Oman 58 India-Oriental Republic of Uruguay




59 India-Philippines 60 India-Poland 61 India-Portuguese Republic 62 India-Qatar 63 India-Romania 64 India-Russia 65 India-Saudia Arabia 66 India-Serbia 67 India-Singapore 68 India-Slovenia 69 India-South Africa 70 India-Spain 71 India-Srilanka 72 India-Sudan 73 India-Sweden 74 India-Swiss Confederation 75 India-Syrian Arab Republic 76 India-Tajikistan 77 India-Tanzania 78 India-Thailand 79 India-Trinidad and Tobago 80 India-Turkey 81 India-Turkmenistan 82 India-UAE 83 India-UAR (Egypt) 84 India-Uganda 85 India-UK 86 India-Ukraine 87 India-United Mexican States 88 India-USA 89 India-Uzbekistan 90 India-Vietnam 91 India-Zambia



Rates of Income Tax for Individuals The rates of income tax for individuals for the Assessment Year 2016-17 (i.e.,

Financial Year 2015-16) are as follows: I. Individual resident aged below 60 years (i.e. born on or after 1st April

1956)

Income Slabs Tax Rates Education Cess Secondary and

Higher Education Cess

Where the taxable income does not exceed Rs. 2,50,000/-.

-Nil- -Nil- -Nil-

Where the taxable income exceeds Rs. 2,50,000/- but does not exceed Rs. 5,00,000/-.

10% of (total income minus Rs. 2,50,000) [*] Less (in case of Resident Individuals only): Tax credit u/s 87A – 10%of taxable income upto a maximum of Rs. 2000/-

2% of Income Tax 1% of Income Tax


Rs. 25,000/- + 20% of the amount by which the taxable income exceeds Rs. 5,00,000/-.


Where the taxable income exceeds Rs. 10,00,000/-.



Surcharge : 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable) Education Cess : 3% of the total of Income Tax and Surcharge.



II. Individual resident who is of the age of 60 years or above at any time during the year but below the age of 80 years, i.e., born during 1st April 1936 to 31st March, 1956

Income Slabs Tax Rates

Education Cess Secondary and

Higher education Cess


-Nil- -Nil- -Nil-

Where the taxable income exceeds Rs. 3,00,000/- but does not exceed Rs. 5,00,000/-

10% of the amount by which the taxable income exceeds Rs. 3,00,000/-. Less : Tax Credit u/s 87A - 10% of taxable income upto a maximum of Rs. 2000/-.

2% of Income Tax

1% of Income Tax



2% of Income Tax

1% of Income Tax

Where the taxable income exceeds Rs. 10,00,000/-


2% of Income Tax

1% of Income Tax

Surcharge: 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess: 3% of the total of Income Tax and Surcharge.



III. Individual resident who is of the age of 80 years or above at any time during the year i.e. born before 1st April 1936)




-Nil- -Nil- -Nil-


20% of the amount by which the taxable income exceeds Rs. 5,00,000/-.


Where the taxable income exceeds Rs. 10,00,000/-



Surcharge : 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Total Education Cess : 3% of the total of Income Tax and Surcharge IV. Non Resident Individual irrespective of age




-Nil- -Nil- -Nil-

Where the taxable income exceeds

10% of amount by which the taxable income exceeds Rs. 2,50,000/-.






Rs 2,50,000/- but does not exceed Rs. 5,00,000/-.




Where the taxable income exceeds Rs. 10,00,000/-.



Surcharge: 10% of the Income Tax, where taxable income is more than Rs.1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess: 3% of the total of Income Tax and Surcharge. Note: Please note that the tax rates for resident females are the same as mentioned

above.

Exempted Categories ● Salary from the United Nations Organisation is not taxable.11 Further,

remuneration received by foreign nationals as diplomatic personnel, consular personnel, trade commissioners and staff of a foreign mission is exempt from income tax.12

● Remuneration for the services rendered by foreign nationals in India is not taxable if13: (1) the foreign enterprise is not engaged in any trade or business in India; (2) the period of stay of such an employee does not exceed ninety days; and

11 Section 2 of the United Nations (Privileges and Immunities) Act, 1947 grants exemptions

from income tax to salaries and emoluments paid by the United Nations to its officials. Besides, salary, any pension covered under the United Nations (Privileges and Immunities) Act 1947 and received from United Nations is also exempt from tax.

12 Section 10(6)(ii) of the ITA 13 Section 10(6)(vi) of the ITA.



(3) such remuneration is not deducted from the income of the employer chargeable to tax in India.

Applicability of Social Security Schemes14 to Expatriates working in India

● Effective on 1st October 2008, the Government of India (Ministry of Labour and Employment) has extended the applicability of the Employees’ Provident Fund Scheme (EPFS) and the Employees Pension Scheme (EPS), notified under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act), to international workers through notifications.15

According to the said notifications “International Worker” means: (a) an Indian employee having worked or going to work in a foreign country with

which India has entered into a social security agreement and being eligible to avail the benefits under a social security programme of that country, by virtue of the eligibility gained or going to gain, under the said agreement;

(b) an employee other than an Indian employee, holding other than an Indian passport, working for an establishment in India to which the Act applies.

● The notifications further define the term “excluded employee” with reference to 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 status of a detached worker for the period and terms, as specified in such an agreement.”

● Pursuant to the above notifications, every international worker employed with an establishment in India to whom the EPF Act applies (the EPF Act applies to an establishment employing 20 or more employees) would be required to become a member of the Employees Provident Fund, unless he/she qualifies as an excluded employee.

● International workers working in India with an establishment to which the EPF Act applies are required to contribute 12% of their salary (which includes basic pay, dearness allowance, retaining allowance and cash value of food concessions) under the EPF Act.

● 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 make contribution under the EPF Act.

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 on account of permanent or total incapacity to work due to bodily or mental infirmity (substituted by Ministry of Labour & Employment’s Notification No. G.S.R 148, dated 03-09-2010).

14 Employees Provident Fund and Employees Pension Scheme 15 Notification Nos. G.S.R. 705(E) and 706(E), both dated 1 October 2008



Compliance requirements ● Every employer in India, to whom the EPF Act applies, is required to file a

consolidated return in a prescribed form within fifteen days of the commencement of the above Schemes for International Workers with the jurisdictional Provident Fund Commissioner indicating the nationality of each and every international worker. If there is no international worker employed in the establishment, the employer shall file a nil return.

● In addition, the employers are required to file monthly Provident Fund returns in the prescribed form within fifteen days of the close of the month, giving the required information in respect of the international workers.



Chapter 14 Important Sectors Introduction ................................................................................................. ¶14-010 Industrial Sectors ......................................................................................... ¶14-020 Infrastructure ............................................................................................... ¶14-030 Service Sector.............................................................................................. ¶14-040

¶14-010 Introduction The important sectors of the Indian economy have been divided into the following

broad categories: A. Industrial Sec tors

1. Automotive 2. Biotechnology 3. Food Processing 4. Gems and Jewellery 5. Oil and Gas 6. Pharmaceuticals 7. Real Estate

B. Infrastructure 1. Civil Aviation 2. Education 3. Ports 4. Power 5. Roads and Highways 6. Special Economic Zones (SEZs) 7. Telecommunications

C. Service Sector 1. Financial Sector 2. Banking Sector 3. Capital Market 4. Insurance Sector 5. Venture Capital 6. Electronics and Information Technology (IT/ITeS)


Chapter 14 Important Sectors 241

7. Export Promotion Schemes 8. Knowledge Process Outsourcing (KPO) 9. Media and Entertainment 10. Retail Sector 11. Tourism

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.

¶14-020 Industrial Sectors

Automotive The Automotive sector occupies a prominent place in the Indian economy. It plays a

pivotal role in the country’s economic and industrial growth. 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 growth and industrial development. The Indian automotive industry ably fulfils this catalytic role by producing a wide variety of vehicles, viz passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles, etc. Indian Automotive Industry today is the largest industry showing commendable growth over the years and has been significantly making pivotal contribution to overall industrial development of the country. Presently, India is the world's largest manufacturer of tractors, second largest manufacturer of two wheelers, and fifth largest manufacturer of commercial vehicles. It is the fourth largest passenger car market in Asia and the home to the largest motor cycle manufacturer.

Automotive Components Segment India has witnessed major growth in the automotive components segment. The

arrival of world-renowned auto component manufacturers from countries like Japan, Korea, Europe and US speaks about the significance of the Indian marketplace. India is emerging as one of the key auto-component manufacturing centers in Asia and is slated to play a significant 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.



● 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 fifth-largest manufacturer of commercial vehicles. ● India is the fourth-largest passenger cars’ market in Asia.

Useful Web Links

● Department 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/)

Biotechnology The 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 products of modern biotechnology.

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 in this field owing to a large pool of skilled and cost-competitive manpower, well-developed and integrated scientific infrastructure, diverse biological resources and manufacturing practices conforming to best global norms. The following areas offer tremendous scope for potential investment in the biotechnology space:

● Agriculture and plant biotechnology ● Animal biotechnology ● Aquaculture and marine biotechnology ● Bio-fuels ● Bio-informatics ● Bio-pesticides ● Environmental biotechnology ● Healthcare ● Human genetics and genome analysis ● Medicinal and aromatic plants ● Microbial and industrial biotechnology ● Seri biotechnology ● Stem cell biology ● Software support



Useful Web Links

● Department of Biotechnology (http://dbtindia.nic.in/) ● Association of Biotechnology-Led Enterprises (http://www.ableindia.org/)

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 prospects. The Government has accorded high priority to this sector, with a number of fiscal reliefs and incentives, to encourage commercialisation and value-addition to agricultural produce; to minimise pre-/post-harvest wastage; and to generate employment and augment export growth. Further, the 12th five-year-plan strategy envisages inter alia, better project selection, implementation and development, industry-led capacity building and upgradation of standards, development of more mega 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 companies ● Scope for investment in infrastructure, packaging and marketing activities, and

supply chain networks/distribution networks ● Rapid urbanisation, increased literacy, changing life style, rising per capita

income—leading to rapid growth and new opportunities in the food and beverages sector

● A significant proportion of household expenditure by Indians on food items ● 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

infrastructure ● Animal products, meat and dairy ● Fruit and vegetable products ● Fisheries and seafood ● Grains and cereals ● Packaged/convenience goods/ready-to-eat food ● Mega food parks ● Food processing machinery/packaging machinery

Useful Web Link

Ministry of Food Processing Industries (http://mofpi.nic.in/)

Gems and Jewellery Gems and jewellery is another important emerging sector in the Indian economy

contributing about 6-7% of the country’s GDP. 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 Foreign Trade Policy (2009-2014) specific measures have been announced for the growth 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 hub ● Manufacturing excellence ● Low production costs ● Rich tradition/heritage of craftsmanship with a high level of skills ● Global distribution network for promotion and marketing The gems and jewellery sector offers ample avenues for investment opportunities in

the following areas (indicative): ● Gemstone processing (cutting and polishing) ● Jewellery manufacturing and retailing ● Market for branded jewellery ● Jewellery certification

Useful Web Link

● Gem and Jewellery Export Promotion Council (http://www.gjepc.org/gjepc/)

Oil and Gas The Indian oil and gas sector is one of the core industries in India and has very

significant 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 new finds, more efficient and effective recovery, a more rational and optimally balanced global price regime as against the rather wide upward fluctuations of recent times, and a spirit of equitable common benefit in global energy cooperation. The oil and gas sector offers the following advantages:

● Petroleum products are the single-largest merchandise exports from India ● Improved Oil Recovery (IOR)/Enhanced Oil Recovery (EOR) techniques ● Crude oil production from the deepwater production facilities ● Scope for investment in technology ● Extended oil field acquisition activities ● Capacity enhancement of refineries ● End-user market and infrastructure development ● Setting up oil and gas courses at universities and training institutes ● Opportunities for world-class service providers



Useful Web Link

● Ministry of Petroleum and Natural Gas (http://petroleum.nic.in/)

Pharmaceuticals India is today recognised as one of the leading global players in pharmaceuticals.

The Pharmaceuticals Industry is one of the largest and most advanced sectors in the world, acting as a source for numerous drugs, medicines and their intermediates. Being an intense knowledge-driven industry, it offers innumerable business opportunities for the investors/ corporates the world over. 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 holding recognition of the Department of Scientific & Industrial Research (DSIR) have 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 Rs. 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 Government of India in its 12th Five-Year Plan document had set an aim to achieve a compound annual growth rate of 18 per cent for the pharma sector

The pharmaceutical sector offers the following major advantages: ● Rich biodiversity ● Growing biotechnology industry ● Fast-growing healthcare industry ● Strong manufacturing base ● Cost competitiveness ● Availability of trained pool of scientists and professionals ● Appetite for world-class network of laboratories and R&D infrastructure ● Strong marketing and distribution network ● Strong process development skills ● Potential ground for clinical trials ● Strong 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/)



Real Estate India’s favorable 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 housing ● Strong demographic impetus: India has the second-largest population in the

world ● Rising FDI levels, increasing commercial space requirements by foreign firms ● Expansion of the organised retail sector ● Easy availability of finance 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 assumes significance as high prices have put housing projects in the metros and emerging 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 ● Office/industrial complexes ● Commercial space for organised retailing ● Hotels and hospitality sector ● Special Economic Zones ● Real Estate Mutual Funds ● Real 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)

¶14-030 Infrastructure

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. India today has total of 449 airports and airstrips and the Civil Aviation ministry has proposed to construct another seven Airports in its 12th five year plan.



The civil aviation sector in India has undergone some significant developments/transformations during the recent period (particularly, during the Tenth Five-year-plan period). The major developments in this field are:

● 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 the resource gap as well as to bring greater efficiency.

● 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 94 civil airports, including 11 international airports (at Delhi, Mumbai, Kolkata, Chennai, Thiruvananthapuram, Bengaluru, Hyderabad, Ahmedabad, Goa, Amritsar and Guwahati) and 28 civil enclaves at defence airfields.

Useful Web Links

● Ministry of Civil Aviation (http://civilaviation.nic.in/) ● Directorate General of Civil Aviation (http://www.dgca.gov.in/)

Education Education 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.

The National Policy on Education, formulated in 1986 and modified in 1992, aims 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 to14 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 Notification dated 23 August 2010,



laid down the minimum qualifications for a person to be appointed as a teacher in schools.

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/)

Ports India 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 value is moved through maritime transport. India is among the 20 leading merchant fleets 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 and land-based transport. In the initial years, the traffic was being handled mostly at major ports. However, over the years, non-major ports have also witnessed growth in traffic. The Government has prepared the National Maritime Development Programme and identified 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 efficiency of the major ports and encourage the private enterprise in functioning of the major ports with a view to provide efficient and economic end to end solutions to the ultimate customers.

The following areas of the port sector offer tremendous potential for investment: ● Ports’ infrastructure and management ● Modernisation of ports ● Cargo handling at ports ● Traffic handling at ports

Useful Web Links

● Indian ports Association (http://ipa.nic.in) ● Ministry of Shipping (http://shipping.nic.in/)

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 plants, based on renewable sources of energy. There has been a significant improvement in the growth in actual power generation over the few years.

India’s electricity sector has an installed capacity of 278.734 GW as of 30 September 2015. During the year 2014-15, the per capita electricity generation in India was clocked at 1,010 kWh with total electricity consumption of 938.823 billion or 746 kWh per capita electricity consumption



The 12th Five Year Plan of the Planning Commission has stated that an amount of Rs 15,01,666 crore (at current price level) has been projected for Electricity Generation from conventional sources.

Latest developments in power sector ● Hydro projects

■ 68%, ie 101,454 MWs of potential capacity, is still not developed.

■ Seventy-seven schemes with a cumulative total of 33,000 MW have been identified.

● Captive power ■ At present, CPP accounts only for 15%, ie 22,100 MWs, of total

combined capacity. ■ The Government plans to bring further 5,000 MW into the mainstream.

■ “Open Access” and “Group Captive” allowed under recent policy initiatives.

● Ultra Mega Power Projects (UMPPs) ■ Seven projects with an individual capacity of 4,000 MWs, requiring an

investment of approximately US$3.26 billion (INR 15,000 crore), each have been identified.

● Nuclear Power ■ In the post-Indo-US agreement period, there is a huge scope for public—

private partnership in this sector. ● National Grid Programme

■ The 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: ■ Rural electrification

■ Privatisation of discoms

■ Participation under the franchise model ● Trading

■ The “Power Pools” system has been established to facilitate trading opportunities for licences.

● Renewables ■ Existing untapped wind energy potential of 48,500 MWs

■ Untapped bio-power potential of 52,000 MWs ■ Untapped cogeneration-bagasse-based potential of 5,000 MWs



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. The Government allows a five-year tax holiday for power-generating projects with

an additional five years in which a deduction of 30% taxable profits is allowed. 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/)

Roads and Highways India has the second largest road networks in the world, aggregating to 4,245,429

kilometers. 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 4,245,429 kilometers National Highways / Expressways 92,851 kms State Highways 154,522 kms Major District, Rural and Urban roads 2,577,396kms

Source: http://morth.nic.in/ As per the present estimate of the Government, the road network carries nearly 65%

of freight and 85% of passenger traffic. Traffic on the roads is growing at a rate of 7 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 for both present and future traffic and for improved accessibility to the hinterland. Further, the requirement of galloping resources and the concern for managerial efficiency and 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. ● Simplified policies with transparent procurement procedures. ● 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 bypasses ● Consultancy services ● Major highway contracts under International Competitive Bidding (ICB) ● Collaborations for equipment manufacture ● Equipment leasing ● Design engineering ● New technology ● New management techniques

Useful Web Links

● Department of Road Transport & Highways, Government of India (http://morth.nic.in/)

● National Highways Authority of India (http://www.nhai.org/)

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 activity



● Promotion of export of goods and services ● Promotion of investments from domestic and foreign sources ● Creation of employment opportunities ● Development 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.

The policy on SEZs has been discussed in detail under Chapter 5 of this Guide.

Telecommunications Indian telecom continues to register a significant growth in the current fiscal year.

Today, 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 upto 74% (For FDI upto 49% under

automatic route; and for FDI beyond 49% but upto 74% under Government approval route).

The much-awaited mobile number portability was launched on 25 November 2010 in Haryana and has been made available to subscribers across the country from 20 January 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 Act, 1997. 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) 1999.

There exist tremendous investment opportunities in the following areas: ● Telecom equipment/components manufacturing and export ● Setting up a national long-distance bandwidth capacity ● Telecom 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/)

¶14-040 Service Sector

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 increasing the efficiency of resource mobilisation and allocation in the real economy and for the overall macroeconomic stability. The reforms have been driven by a thrust towards liberalization 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 emphasized on stronger regulation aimed at strengthening prudential norms, transparency and supervision to mitigate the prospects of systemic risks.

Banking Sector The Indian banking sector has demonstrated tremendous resilience in the

recessionary times. The Indian banking system consists of 26 public sector banks, 20 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions. The Indian banking sector’s assets reached US$ 1.8 trillion in FY14 from US$ 1.3 trillion in FY10, with 70 per cent of it being accounted by the public sector. The risk management systems of Indian public sector banks have been robust enough to deal with the largest-ever global financial crisis which began somewhere in the second half of 2008. The financial health of the commercial banks has improved manifolds with respect to capital adequacy, profitability, asset quality and risk management. Further, 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 private banks and foreign banks) as well as from other segments of the financial sector such as mutual funds, non-banking finance companies, post offices and local as well as international capital markets.

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-fledged capital-market regulator.



Ever since, SEBI has taken a series of initiatives to enhance the confidence of the 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.

Insurance Sector The insurance industry of India consists of 53 insurance companies of which 24 are

in life insurance business and 29 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. There persists 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 Insurance Regulatory and Development Authority Act, 1999 (the IRDA 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.

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

● Ministry of Finance, Government of India (http://finmin.nic.in/) ● 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/)

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 policies and procedures to enhance investors’ confidence.

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 file information in the prescribed Industrial Entrepreneurs’ Memorandum (IEM) 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, Part B of the IEM is required to be filed. No further approval is required. Small-scale industries are required to register with the District Industries Centre (DIC).

● Import of second-hand capital goods is allowed.

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) Scheme ● Export-oriented Unit (EOU) Scheme ● Software Technology Park (STP) Scheme ● Electronics Hardware Technology Park (EHTP) Scheme ● Export Promotion Capital Goods (EPCG) Scheme ● Duty 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/)

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 be simply defined as an offshore outsourcing of knowledge-intensive business processes 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 specialized



skill of knowledge workers who have domain experience. KPOs are significantly higher 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 judgement and decision-making processes.

The Indian KPO sector offers the following major advantages to the investors: ● Cost competitiveness; ● Operational efficiencies; ● Availability of competitive and qualified English-speaking workforce; ● Locational advantages, etc. The following areas offer tremendous potential for investment in KPO services: ● Animation and design ● Banking and financial products/services ● Business support services (research and skill-based) ● Data research and analysis ● Database management ● Equity research and analysis ● Insurance-related services ● e-Learning solutions ● Intellectual property research ● Legal services ● Market research ● Medical services (viz medical transcription) ● Network management ● Research and development ● Software designing and content development ● Technical analysis ● Training and consultancy

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 sub-constituents 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.

The boom in the broadcasting industry is reflective of the dynamism of Indian 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/)

Retail Sector The Indian retail sector accounts for over 10 per cent of the country’s Gross

Domestic Product (GDP) and around 8 per cent of the employment. India is the world’s fifth-largest global destination in the retail space. 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 retailing satisfies rising demand for such goods and services with many players entering 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 significantly to the increased spending capacity of Indian consumers.

● Rapid urbanization - increased urbanization 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) segment ● Textiles and clothing ● Furniture and fixtures ● Pharmacy ● Durables, footwear & leather ● Watches & jewellery

Fastest-growing retail formats Some of the formats that offer good growth potential are: ● Department stores ● Discount stores ● Convenience stores and e-Retailing ● Hypermarkets ● Speciality and supermarkets Popular formats of retailing are as follows:

Format Description Value Proposition Branded Stores Exclusive showrooms either

owned or franchised by a manufacturer

Complete range available for a given brand, certified product quality. Generally high-priced products focused at customers with a taste for branded products and with greater spending capacity

Convenience stores

Small self-service formats located in crowded urban areas

Convenient locations Reasonably priced

products Extended operating hours

Department stores

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



Format Description Value Proposition 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 Focus on specific consumer needs, 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

Tourism Tourism has been pivotal in social progress as well as an important vehicle of

widening socioeconomic and cultural connectivity throughout human history. Indian tourism and hospitality industry has emerged as one of the key drivers of growth among the services sector in India. Tourism in India is a potential game changer. It is a sun rise industry, an employment generator, a significant source of foreign exchange for the country and an economic activity that helps local and host communities. 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 industry ● Service apartments ● Adventure tourism ● Medical/health tourism ● Convention centres ● Wildlife tourism ● Highway tourism ● Amusement parks

Recent Initiatives in Tourism

Rural Tourism To showcase rural life, art, culture and heritage at rural locations in villages and to

benefit the local community economically and socially as well as to enable interaction



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 which can be given for a specific purpose to foreign tourists coming to India for medical 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.

The following specific sectors offer tremendous investment opportunities: ● Curative and preventive services ● Health insurance ● Hospital management ● Infrastructure facilities, like hospitals and diagnostic centres ● Training and education (doctors, nurses, technicians, etc)

Adventure Tourism Development of adventure tourism is a part of the policy for the diversification of

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: The facts and figures provided under this Chapter are indicative and taken from 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

Introduction ................................................................................................. ¶15-010 Regulatory Framework on Corporate Governance ..................................... ¶15-020 Key Legal Framework for Corporate Governance in India ......................... ¶15-030

¶15-010 Introduction In this chapter, the Corporate Governance mechanism has been explained in the

context of the statutory framework in India. Ever since India’s biggest-ever corporate fraud and governance failure 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 famous Cadbury Committee defined “Corporate Governance” in its Report (Financial Aspects of Corporate Governance, published in 1992) as “the system by which companies are directed and controlled”.

The Organisation for Economic Cooperation and Development (OECD), which, in 1999, published its Principles of Corporate Governance gives a very comprehensive definition of corporate governance, as under:

“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, thereby encouraging firms to use recourses more efficiently.”

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.


Chapter 15 Corporate Governance Framework 263

¶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, the corporate governance mechanism for companies in India is enumerated in the following enactments/ regulations/ guidelines/ listing agreement:

1. The Companies Act, 2013 inter alia contains provisions relating to board constitution, board meetings, board processes, independent directors, general meetings, audit committees, related party transactions, disclosure requirements in financial statements, etc.

2. Securities and Exchange Board of India (SEBI) Guidelines: SEBI is a regulatory authority having jurisdiction over listed companies and which issues regulations, rules and guidelines to companies to ensure protection of investors.

3. Standard Listing Agreement of Stock Exchanges: For companies whose shares are listed on the stock exchanges.

4. Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI): ICAI is an autonomous body, which issues accounting standards providing guidelines for disclosures of financial information. Section 129 of the New Companies Act inter alia provides that the financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under s 133 of the New Companies Act. It is further provided that items contained in such financial statements shall be in accordance with the accounting standards.

5. Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI): ICSI is an autonomous body, which issues secretarial standards in terms of the provisions of the New Companies Act. So far, the ICSI has issued Secretarial Standard on “Meetings of the Board of Directors” (SS-1) and Secretarial Standards on “General Meetings” (SS-2). These Secretarial Standards have come into force w.e.f. July 1, 2015. Section 118(10) of the New Companies Act provide that every company (other than one person company) shall observe Secretarial Standards specified as such by the ICSI with respect to general and board meetings.

¶15-030 Key legal framework for corporate governance in India

The Companies Act, 2013 The Government of India has recently notified Companies Act, 2013 (“New

Companies Act”), which replaces the erstwhile Companies Act, 1956. The New Act has greater emphasis on corporate governance through the board and board processes. The New Act covers corporate governance through its following provisions:

New Companies Act introduces significant changes to the composition of the boards of directors. Every company is required to appoint 1 (one) resident director on its board. Nominee directors shall no longer be treated as independent directors.



Listed companies and specified classes of public companies are required to appoint independent directors and women directors on their boards. New Companies Act for the first time codifies the duties of directors. Listed companies and certain other public companies shall be required to appoint at least 1 (one) woman director on its board. New Companies Act mandates following committees to be constituted by the board for prescribed class of companies:

Audit committee Nomination and remuneration committee Stakeholders relationship committee Corporate social responsibility committee

Listing agreement – Applicable to the listed companies SEBI has amended the Listing Agreement with effect from October 1, 2014 to align

it with New Companies Act. Clause 49 of the Listing Agreement can be said to be 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. Broadly, cl 49 provides for the following: 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. Disclosure Requirements

Periodical disclosures relating to the financial and commercial transactions, remuneration of directors, etc, to ensure transparency. 4. CEO/ CFO Certification

To certify to the Board that they have reviewed the financial statements and the same are fair and in compliance with the laws/ regulations and accept responsibility for internal control systems. 5. Report and Compliance

A separate section in the annual report on compliance with Corporate Governance, quarterly compliance report to stock exchange signed by the compliance officer or CEO, company to disclose compliance with non-mandatory requirements in annual reports.



The compliance requirements prescribed under cl 49 of the Listing Agreement have been elaborated in Annexure attaches to this chapter.

Annexure Compliances under Clause 49 of the Listing Agreement

S.No. Clause/ Sub-clause

Compliance

1. Clause 49(1)

A. The Rights of Shareholders 1. The company should seek to protect and facilitate the exercise of shareholders’ rights. a. Shareholders should have the right to participate in, and to

be sufficiently informed on, decisions concerning fundamental corporate changes.

b. Shareholders should have the opportunity to participate effectively and vote in general shareholder meetings.

c. Shareholders should be informed of the rules, including voting procedures that govern general shareholder meetings.

d. Shareholders should have the opportunity to ask questions to the board, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations.

e. Effective shareholder participation in key Corporate Governance decisions, such as the nomination and election of board members, should be facilitated.

f. The exercise of ownership rights by all shareholders, including institutional investors, should be facilitated.

g. The Company should have an adequate mechanism to address the grievances of the shareholders.

h. Minority shareholders should be protected from abusive actions by, or in the interest of, controlling shareholders acting either directly or indirectly, and should have effective means of redress.

2. The company should provide adequate and timely information to shareholders. a. Shareholders should be furnished with sufficient and

timely information concerning the date, location and agenda of general meetings, as well as full and timely information regarding the issues to be discussed at the meeting.

b. Capital structures and arrangements that enable certain shareholders to obtain a degree of control disproportionate to their equity ownership should be disclosed.

c. All investors should be able to obtain information about the rights attached to all series and classes of shares before they purchase.

3. The company should ensure equitable treatment of all shareholders, including minority and foreign shareholders.




Compliance

a. All shareholders of the same series of a class should be treated equally.

b. Effective shareholder participation in key Corporate Governance decisions, such as the nomination and election of board members, should be facilitated.

c. Exercise of voting rights by foreign shareholders should be facilitated.

d. The company should devise a framework to avoid Insider trading and abusive self-dealing.

e. Processes and procedures for general shareholder meetings should allow for equitable treatment of all shareholders.

f. Company procedures should not make it unduly difficult or expensive to cast votes.

B. Role of stakeholders in Corporate Governance 1. The company should recognise the rights of stakeholders and encourage cooperation between company and the stakeholders. a. The rights of stakeholders that are established by law or

through mutual agreements are to be respected. b. Stakeholders should have the opportunity to obtain

effective redress for violation of their rights. c. Company should encourage mechanisms for employee

participation. d. Stakeholders should have access to relevant, sufficient and

reliable information on a timely and regular basis to enable them to participate in Corporate Governance process.

e. The company should devise an effective whistle blower mechanism enabling stakeholders, including individual employees and their representative bodies, to freely communicate their concerns about illegal or unethical practices.

C. Disclosure and transparency 1. The company should ensure timely and accurate disclosure on all material matters including the financial situation, performance, ownership, and governance of the company. a. Information should be prepared and disclosed in

accordance with the prescribed standards of accounting, financial and non-financial disclosure.

b. Channels for disseminating information should provide for equal, timely and cost efficient access to relevant information by users.

c. The company should maintain minutes of the meeting explicitly recording dissenting opinions, if any.

d. The company should implement the prescribed accounting standards in letter and spirit in the preparation of financial




Compliance

statements taking into consideration the interest of all stakeholders and should also ensure that the annual audit is conducted by an independent, competent and qualified auditor.

D. Responsibilities of the Board 1. Disclosure of Information a. Members of the Board and key executives should be

required to disclose to the board whether they, directly, indirectly or on behalf of third parties, have a material interest in any transaction or matter directly affecting the company.

b. The Board and top management should conduct themselves so as to meet the expectations of operational transparency to stakeholders while at the same time maintaining confidentiality of information in order to foster a culture for good decision-making.

2. Key functions of the Board The board should full-fill certain key functions, including: a. Reviewing and guiding corporate strategy, major plans of

action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestments.

b. Monitoring the effectiveness of the company’s governance practices and making changes as needed.

c. Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning.

d. Aligning key executive and board remuneration with the longer term interests of the company and its shareholders.

e. Ensuring a transparent board nomination process with the diversity of thought, experience, knowledge, perspective and gender in the Board.

f. Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions.

g. Ensuring the integrity of the company’s accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards.

h. Overseeing the process of disclosure and communications.




Compliance

i. Monitoring and reviewing Board Evaluation framework. 3. Other responsibilities a. The Board should provide the strategic guidance to the

company, ensure effective monitoring of the management and should be accountable to the company and the shareholders.

b. The Board should set a corporate culture and the values by which executives throughout a group will behave.

c. Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders.

d. The Board should encourage continuing directors training to ensure that the Board members are kept up to date.

e. Where Board decisions may affect different shareholder groups differently, the Board should treat all shareholders fairly.

f. The Board should apply high ethical standards. It should take into account the interests of stakeholders.

g. The Board should be able to exercise objective independent judgement on corporate affairs.

h. Boards should consider assigning a sufficient number of non-executive Board members capable of exercising independent judgement to tasks where there is a potential for conflict of interest.

i. The Board should ensure that, while rightly encouraging positive thinking, these do not result in over-optimism that either leads to significant risks not being recognised or exposes the company to excessive risk.

j. The Board should have ability to ‘step back’ to assist executive management by challenging the assumptions underlying: strategy, strategic initiatives (such as acquisitions), risk appetite, exposures and the key areas of the company's focus.

k. When committees of the board are established, their mandate, composition and working procedures should be well defined and disclosed by the board.

l. Board members should be able to commit themselves effectively to their responsibilities.

m. In order to fulfil their responsibilities, board members should have access to accurate, relevant and timely information.

n. The Board and senior management should facilitate the Independent Directors to perform their role effectively as a Board member and also a member of a committee.




Compliance

Clause 49(II)

Board of Directors A. Composition of Board 1. The Board of Directors of the company shall have an optimum combination of executive and non-executive directors with at least one woman director and not less than fifty percent of the Board of Directors comprising non-executive directors. 2. Where the Chairman of the Board is a non-executive director, at least one-third of the Board should comprise independent directors and in case the company does not have a regular nonexecutive Chairman, at least half of the Board should comprise independent directors. Provided that where the regular non-executive Chairman is a promoter of the company or is related 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. Explanation: For the purpose of the expression “related to any promoter” referred to in sub-clause (2): i. If the promoter is a listed entity, its directors other than the

independent directors, its employees or its nominees shall be deemed to be related to it;

ii. If the promoter is an unlisted entity, its directors, its employees or its nominees shall be deemed to be related to it.”

B. Independent Directors 1. For the purpose of the clause A, the expression ‘independent director’ shall mean a non-executive director, other than a nominee director of the company: a. who, in the opinion of the Board, is a person of integrity

and possesses relevant expertise and experience; b. (i) who is or was not a promoter of the company or its

holding, subsidiary or associate company; (ii) who is not related to promoters or directors in the

company, its holding, subsidiary or associate company;

c. apart from receiving director's remuneration, has or had no material pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year;

d. none of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors,




Compliance

amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;

e. who, neither himself nor any of his relatives — (i) holds or has held the position of a key managerial

personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;

(ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of— (A) a firm of auditors or company secretaries in

practice or cost auditors of the company or its holding, subsidiary or associate company; or

(B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent or more of the gross turnover of such firm;

(iii) holds together with his relatives two per cent or more of the total voting power of the company; or

(iv) is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives twenty-five per cent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent or more of the total voting power of the company;

(v) is a material supplier, service provider or customer or a lessor or lessee of the company;

f. who is less than 21 years of age. Explanation For the purposes of the sub-clause (1): i. "Associate" shall mean a company which is an “associate”

as defined in Accounting Standard (AS) 23, “Accounting for Investments in Associates in Consolidated Financial Statements”, issued by the Institute of Chartered Accountants of India.

ii. “Key Managerial Personnel" shall mean “Key Managerial Personnel” as defined in section 2(51) of the Companies Act, 2013.




Compliance

iii. “Relative” shall mean “relative” as defined in section 2(77) of the Companies Act, 2013 and rules prescribed there under.

2. Limit on number of directorships a. A person shall not serve as an independent director in

more than seven listed companies. b. Further, any person who is serving as a whole time

director in any listed company shall serve as an independent director in not more than three listed companies.

3. Maximum tenure of Independent Directors The maximum tenure of Independent Directors shall be in accordance with the Companies Act, 2013 and clarifications/ circulars issued by the Ministry of Corporate Affairs, in this regard, from time to time. 4. Formal letter of appointment to Independent Directors a. The company shall issue a formal letter of appointment to

independent directors in the manner as provided in the Companies Act, 2013.

b. The terms and conditions of appointment shall be disclosed on the website of the company.

5. Performance evaluation of Independent Directors a. The Nomination Committee shall lay down the evaluation

criteria for performance evaluation of independent directors.

b. The company shall disclose the criteria for performance evaluation, as laid down by the Nomination Committee, in its Annual Report.

c. The performance evaluation of independent directors shall be done by the entire Board of Directors (excluding the director being evaluated).

d. On the basis of the report of performance evaluation, it shall be determined whether to extend or continue the term of appointment of the independent director.

6. Separate meetings of the Independent Directors a. The independent directors of the company shall hold at

least one meeting in a year, without the attendance of non-independent directors and members of management. All the independent directors of the company shall strive to be present at such meeting.

b. The independent directors in the meeting shall, inter-alia: i. review the performance of non-independent directors

and the Board as a whole; ii. review the performance of the Chairperson of the

company, taking into account the views of executive directors and non-executive directors;




Compliance

iii. assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.

7. Familiarisation programme for Independent Directors a. The company shall familiarise the independent directors

with the company, their roles, rights, responsibilities in the company, nature of the industry in which the company operates, business model of the company, etc., through various programmes.

b. The details of such familiarisation programmes shall be disclosed on the company's website and a web link thereto shall also be given in the Annual Report.

C. Non-executive Directors’ compensation and disclosures All fees / compensation, if any paid to non-executive directors, including independent directors, shall be fixed by the Board of Directors and shall require previous approval of shareholders in general meeting. The shareholders’ resolution shall specify the limits for the maximum number of stock options that can be granted to non-executive directors, in any financial year and in aggregate. Provided that the requirement of obtaining prior approval of shareholders in general meeting shall not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 2013 for payment of sitting fees without approval of the Central Government. Provided further that independent directors shall not be entitled to any stock option. D. Other provisions as to Board and Committees 1. The Board shall meet at least four times a year, with a maximum time gap of one hundred and twenty days between any two meetings. The minimum information to be made available to the Board is given in Annexure - X to the Listing Agreement. 2. A director shall not be a member in more than ten committees or act as Chairman of more than five committees across all companies in which he is a director. Furthermore, every director shall inform the company about the committee positions he occupies in other companies and notify changes as and when they take place. Explanation: i. For the purpose of considering the limit of the committees

on which a director can serve, all public limited companies, whether listed or not, shall be included and all other companies including private limited companies,




Compliance

foreign companies and companies under Section 8 of the Companies Act, 2013 shall be excluded.

ii. For the purpose of reckoning the limit under this sub-clause, Chairmanship / membership of the Audit Committee and the Stakeholders' Relationship Committee alone shall be considered.

3. The Board shall periodically review compliance reports of all laws applicable to the company, prepared by the company as well as steps taken by the company to rectify instances of non-compliances. 4. An independent director who resigns or is removed from the Board of the Company shall be replaced by a new independent director at the earliest but not later than the immediate next Board meeting or three months from the date of such vacancy, whichever is later. 5. Provided that where the company fulfils the requirement of independent directors in its Board even without filling the vacancy created by such resignation or removal, as the case may be, the requirement of replacement by a new independent director shall not apply. 6. The Board of the company shall satisfy itself that plans are in place for orderly succession for appointments to the Board and to senior management. E. Code of Conduct 1. The Board shall lay down a code of conduct for all Board members and senior management of the company. The code of conduct shall be posted on the website of the company. 2. All Board members and senior management personnel shall affirm compliance with the code on an annual basis. The Annual Report of the company shall contain a declaration to this effect signed by the CEO. 3. The Code of Conduct shall suitably incorporate the duties of Independent Directors as laid down in the Companies Act, 2013. 4. An independent director shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently with respect of the provisions contained in the Listing Agreement. Explanation: For this purpose, the term “senior management” shall mean personnel of the company who are members of its core management team excluding Board of Directors. Normally, this would comprise all members of management one level below the executive directors, including all functional heads.




Compliance

F. Whistle Blower Policy 1. The company shall establish a vigil mechanism for directors and employees to report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy. 2. This mechanism should also provide for adequate safeguards against victimization of director(s) / employee(s) who avail of the mechanism and also provide for direct access to the Chairman of the Audit Committee in exceptional cases. 3. The details of establishment of such mechanism shall be disclosed by the company on its website and in the Board’s report.

Clause 49(III)

Audit Committee A. Qualified and Independent Audit Committee A qualified and independent audit committee shall be set up, giving the terms of reference subject to the following: 1. The audit committee shall have minimum three directors as members. Two-thirds of the members of audit committee shall be independent directors. 2. All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise. Explanation (i): The term “financially literate” means the ability to read and understand basic financial statements i.e. balance sheet, profit and loss account, and statement of cash flows. Explanation (ii): A member will be considered to have accounting or related financial management expertise if he or she possesses experience in finance or accounting, or requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. 3. The Chairman of the Audit Committee shall be an independent director; 4. The Chairman of the Audit Committee shall be present at Annual General Meeting to answer shareholder queries; 5. The Audit Committee may invite such of the executives, as it considers appropriate (and particularly the head of the finance function) to be present at the meetings of the committee, but on occasions it may also meet without the presence of any executives of the company. The finance director, head of internal audit and a representative of the statutory auditor may be present as invitees for the meetings of the audit committee;




Compliance

6. The Company Secretary shall act as the secretary to the committee. B. Meeting of Audit Committee The Audit Committee should meet at least four times in a year and not more than four months shall elapse between two meetings. The quorum shall be either two members or one third of the members of the audit committee whichever is greater, but there should be a minimum of two independent members present. C. Powers of Audit Committee The Audit Committee shall have powers, which should include the following: 1. To investigate any activity within its terms of reference. 2. To seek information from any employee. 3. To obtain outside legal or other professional advice. 4. To secure attendance of outsiders with relevant expertise,

if it considers necessary. D. Role of Audit Committee The role of the Audit Committee shall include the following: 1. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible; 2. Recommendation for appointment, remuneration and terms of appointment of auditors of the company; 3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors; 4. Reviewing, with the management, the annual financial statements and auditor's report thereon before submission to the board for approval, with particular reference to: a. Matters required to be included in the Director’s

Responsibility Statement to be included in the Board’s report in terms of clause (c) of sub-section 3 of section 134 of the Companies Act, 2013

b. Changes, if any, in accounting policies and practices and reasons for the same

c. Major accounting entries involving estimates based on the exercise of judgment by management

d. Significant adjustments made in the financial statements arising out of audit findings

e. Compliance with listing and other legal requirements relating to financial statements

f. Disclosure of any related party transactions g. Qualifications in the draft audit report 5. Reviewing, with the management, the quarterly financial statements before submission to the board for approval;




Compliance

6. Reviewing, with the management, the statement of uses / application of funds raised through an issue (public issue, rights issue, preferential issue, etc.), the statement of funds utilized for purposes other than those stated in the offer document / prospectus / notice and the report submitted by the monitoring agency monitoring the utilisation of proceeds of a public or rights issue, and making appropriate recommendations to the Board to take up steps in this matter; 7. Review and monitor the auditor’s independence and performance, and effectiveness of audit process; 8. Approval or any subsequent modification of transactions of the company with related parties; 9. Scrutiny of inter-corporate loans and investments; 10. Valuation of undertakings or assets of the company, wherever it is necessary; 11. Evaluation of internal financial controls and risk management systems; 12. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems; 13. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit; 14. Discussion with internal auditors of any significant findings and follow up there on; 15. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board; 16. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern; 17. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors; 18. To review the functioning of the Whistle Blower mechanism; 19. Approval of appointment of CFO (i.e., the whole-time Finance Director or any other person heading the finance function or discharging that function) after assessing the qualifications, experience and background, etc. of the candidate; 20. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee.




Compliance

Explanation (i): The term "related party transactions" shall have the same meaning as provided in Clause 49(VII) of the Listing Agreement. E. Review of information by Audit Committee The Audit Committee shall mandatorily review the following information: 1. Management discussion and analysis of financial condition and results of operations; 2. Statement of significant related party transactions (as defined by the Audit Committee), submitted by management; 3. Management letters / letters of internal control weaknesses issued by the statutory auditors; 4. Internal audit reports relating to internal control weaknesses; and 5. The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee. IV. Nomination and Remuneration Committee A. The company through its Board of Directors shall

constitute the nomination and remuneration committee which shall comprise at least three directors, all of whom shall be non-executive directors and at least half shall be independent. Chairman of the committee shall be an independent director. Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.

B. The role of the committee shall, inter-alia, include the following: 1. Formulation of the criteria for determining

qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration of the directors, key managerial personnel and other employees;

2. Formulation of criteria for evaluation of Independent Directors and the Board;

3. Devising a policy on Board diversity; 4. Identifying persons who are qualified to become

directors and who may be appointed in senior management in accordance with the criteria laid down, and recommend to the Board their appointment and removal. The company shall disclose the remuneration policy and the evaluation criteria in its Annual Report.




Compliance

C. The Chairman of the nomination and remuneration committee could be present at the Annual General Meeting, to answer the shareholders' queries. However, it would be up to the Chairman to decide who should answer the queries.

V. Subsidiary Companies A. At least one 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.

B. The Audit Committee of the listed holding company shall also review the financial statements, in particular, the investments made by the unlisted subsidiary company.

C. The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company. The management should periodically bring to the attention of the Board of Directors of the listed holding company, a statement of all significant transactions and arrangements entered into by the unlisted subsidiary company.

D. The company shall formulate a policy for determining ‘material’ subsidiaries and such policy shall be disclosed on the company's website and a web link thereto shall be provided in the Annual Report.

E. For the purpose of this clause, a subsidiary shall be considered as material if the investment of the company in the subsidiary exceeds twenty per cent of its consolidated net worth as per the audited balance sheet of the previous financial year or if the subsidiary has generated twenty per cent of the consolidated income of the company during the previous financial year.

F. No company shall dispose of shares in its material subsidiary which would reduce its shareholding (either on its own or together with other subsidiaries) to less than 50% or cease the exercise of control over the subsidiary without passing a special resolution in its General Meeting except in cases where such divestment is made under a scheme of arrangement duly approved by a Court/Tribunal.

G. Selling, disposing and leasing of assets amounting to more than twenty percent of the assets of the material subsidiary on an aggregate basis during a financial year shall require prior approval of shareholders by way of special resolution, unless the sale/disposal/lease is made under a scheme of arrangement duly approved by a Court/Tribunal.




Compliance

Explanation (i): For the purpose of sub-clause (V)(A), the term “material non-listed Indian subsidiary” shall mean an unlisted subsidiary, incorporated in India, whose income or net worth (i.e. paid up capital and free reserves) exceeds 20% of the consolidated income or net worth respectively, of the listed holding company and its subsidiaries in the immediately preceding accounting year. Explanation (ii): For the purpose of sub-clause (V)(C), the term “significant transaction or arrangement” shall mean any individual transaction or arrangement that exceeds or is likely to exceed 10% of the total revenues or total expenses or total assets or total liabilities, as the case may be, of the material unlisted subsidiary for the immediately preceding accounting year. Explanation (iii): For the purpose of sub-clause (V), where a listed holding company has a listed subsidiary which is itself a holding company, the above provisions shall apply to the listed subsidiary insofar as its subsidiaries are concerned.

Clause 49(IV)

Nomination and Remuneration Committee A. The company through its Board of Directors shall

constitute the nomination and remuneration committee which shall comprise at least three directors, all of whom shall be non-executive directors and at least half shall be independent. Chairman of the committee shall be an independent director. Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.

B. The role of the committee shall, inter-alia, include the following: 1. Formulation of the criteria for determining

qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration of the directors, key managerial personnel and other employees;

2. Formulation of criteria for evaluation of Independent Directors and the Board;

3. Devising a policy on Board diversity; 4. Identifying persons who are qualified to become

directors and who may be appointed in senior management in accordance with the criteria laid down, and recommend to the Board their appointment and removal. The company shall disclose the remuneration policy and the evaluation criteria in its Annual Report.




Compliance

C. The Chairman of the nomination and remuneration committee could be present at the Annual General Meeting, to answer the shareholders' queries. However, it would be up to the Chairman to decide who should answer the queries.

Clause 49(V)

Subsidiary Companies A. At least one 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.

B. The Audit Committee of the listed holding company shall also review the financial statements, in particular, the investments made by the unlisted subsidiary company.

C. The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company. The management should periodically bring to the attention of the Board of Directors of the listed holding company, a statement of all significant transactions and arrangements entered into by the unlisted subsidiary company.

D. The company shall formulate a policy for determining ‘material’ subsidiaries and such policy shall be disclosed on the company's website and a web link thereto shall be provided in the Annual Report.

E. For the purpose of this clause, a subsidiary shall be considered as material if the investment of the company in the subsidiary exceeds twenty per cent of its consolidated net worth as per the audited balance sheet of the previous financial year or if the subsidiary has generated twenty per cent of the consolidated income of the company during the previous financial year.

F. No company shall dispose of shares in its material subsidiary which would reduce its shareholding (either on its own or together with other subsidiaries) to less than 50% or cease the exercise of control over the subsidiary without passing a special resolution in its General Meeting except in cases where such divestment is made under a scheme of arrangement duly approved by a Court/Tribunal.

G. Selling, disposing and leasing of assets amounting to more than twenty percent of the assets of the material subsidiary on an aggregate basis during a financial year shall require prior approval of shareholders by way of special resolution, unless the sale/disposal/lease is made under a scheme of arrangement duly approved by a Court/Tribunal.




Compliance

Explanation (i): For the purpose of sub-clause (V)(A), the term “material non-listed Indian subsidiary” shall mean an unlisted subsidiary, incorporated in India, whose income or net worth (i.e. paid up capital and free reserves) exceeds 20% of the consolidated income or net worth respectively, of the listed holding company and its subsidiaries in the immediately preceding accounting year. Explanation (ii): For the purpose of sub-clause (V)(C), the term “significant transaction or arrangement” shall mean any individual transaction or arrangement that exceeds or is likely to exceed 10% of the total revenues or total expenses or total assets or total liabilities, as the case may be, of the material unlisted subsidiary for the immediately preceding accounting year. Explanation (iii): For the purpose of sub-clause (V), where a listed holding company has a listed subsidiary which is itself a holding company, the above provisions shall apply to the listed subsidiary insofar as its subsidiaries are concerned.

Clause 49(VI)

Risk Management A. The company shall lay down procedures to inform Board

members about the risk assessment and minimization procedures.

B. The Board shall be responsible for framing, implementing and monitoring the risk management plan for the company.

C. The company through its Board of Directors shall constitute a Risk Management Committee. The Board shall define the roles and responsibilities of the Risk Management Committee and may delegate monitoring and reviewing of the risk management plan to the committee and such other functions as it may deem fit.

D. The majority of Committee shall consist of members of the Board of Directors.

E. Senior executives of the company may be members of the said Committee but the Chairman of the Committee shall be a member of the Board of Directors.

Clause 49 (VII)

Related Party Transactions A. A related party transaction is a transfer of resources,

services or obligations between a company and a related party, regardless of whether a price is charged.

Explanation: A "transaction" with a related party shall be construed to include single transaction or a group of transactions in a contract B. For the purpose of Clause 49 (VII), an entity shall be

considered as related to the company if:




Compliance

(i) such entity is a related party under Section 2(76) of the Companies Act, 2013; or

(ii) such entity is a related party under the applicable accounting standards.

C. The company shall formulate a policy on materiality of Related Party Transactions and also on dealing with Related Party Transactions. Provided that a transaction with a related party shall be considered material if the transaction / transactions to be entered into individually or taken together with previous transactions during a financial year, exceeds ten percent of the annual consolidated turnover of the company as per the last audited financial statements of the company.

D. All Related Party Transactions shall require prior approval of the Audit Committee. However, the Audit Committee may grant omnibus approval for Related Party Transactions proposed to be entered into by the company subject to the following conditions: a. The Audit Committee shall lay down the criteria for

granting the omnibus approval in line with the policy on Related Party Transactions of the company and such approval shall be applicable in respect of transactions which are repetitive in nature.

b. The Audit Committee shall satisfy itself the need for such omnibus approval and that such approval is in the interest of the company;

c. Such omnibus approval shall specify (i) the name/s of the related party, nature of transaction, period of transaction, maximum amount of transaction that can be entered into, (ii) the indicative base price / current contracted price and the formula for variation in the price if any and (iii) such other conditions as the Audit Committee may deem fit:

Provided that where the need for Related Party Transaction cannot be foreseen and aforesaid details are not available, Audit Committee may grant omnibus approval for such transactions subject to their value not exceeding Rs.1 crore per transaction. d. Audit Committee shall review, atleast on a quarterly

basis, the details of RPTs entered into by the company pursuant to each of the omnibus approval given.

e. Such omnibus approvals shall be valid for a period not exceeding one year and shall require fresh approvals after the expiry of one year.

E. All material Related Party Transactions shall require approval of the shareholders through special resolution




Compliance

and the related parties shall abstain from voting on such resolutions. Provided that sub-clause 49(VII)(D) and (E) shall not be applicable in the following cases: (i) Transactions entered into between two government

companies; (ii) Transactions entered into between a holding

company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.

Explanation (i): For the purpose of Clause 49(VII), "Government company" shall have the same meaning as defined in Section 2(45) of the Companies Act, 2013." Explanation (ii): For the purpose of Clause 49(VII), all entities falling under the definition of related parties shall abstain from voting irrespective of whether the entity is a party to the particular transaction or not

Clause 49(VIII)

Disclosures A. Related Party Transactions 1. Details of all material transactions with related parties shall be disclosed quarterly along with the compliance report on corporate governance. 2. The company shall disclose the policy on dealing with Related Party Transactions on its website and a web link thereto shall be provided in the Annual Report. B. Disclosure of Accounting Treatment Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Governance Report. C. Remuneration of Directors 1. All pecuniary relationship or transactions of the non-executive director’s vis-à-vis the company shall be disclosed in the Annual Report. 2. In addition to the disclosures required under the Companies Act, 2013, the following disclosures on the remuneration of directors shall be made in the section on the corporate governance of the Annual Report: a. All elements of remuneration package of individual

directors summarized under major groups, such as salary, benefits, bonuses, stock options, pension etc.




Compliance

b. Details of fixed component and performance linked 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.

3. The company shall publish its criteria of making payments to non-executive directors in its annual report. Alternatively, this may be put up on the company’s website and reference drawn thereto in the annual report. 4. The company shall disclose the number of shares and convertible instruments held by nonexecutive directors in the annual report. 5. Non-executive directors shall be required to disclose their shareholding (both own or held by / for other persons on a beneficial basis) 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. D. Management 1. As part of the directors’ report or as an addition thereto, a Management Discussion and Analysis report should form part of the Annual Report to the shareholders. This Management Discussion & Analysis should include discussion on the following matters within the limits set by the company’s competitive position: a. Industry structure and developments. b. Opportunities and Threats. c. Segment–wise or product-wise performance. d. Outlook e. Risks and concerns. f. Internal control systems and their adequacy. g. Discussion on financial performance with respect to

operational performance. h. Material developments in Human Resources / Industrial

Relations front, including number of people employed. 2. Senior management shall make disclosures to the board relating to all material financial and commercial transactions, where they have personal interest, that may have a potential conflict with the interest of the company at large (for e.g. dealing in company shares, commercial dealings with bodies, which have shareholding of management and their relatives etc.) Explanation: For this purpose, the term "senior management" shall mean personnel of the company who are members of its




Compliance

core management team excluding the Board of Directors). This would also include all members of management one level below the executive directors including all functional heads. 3. The Code of Conduct for the Board of Directors and the senior management shall be disclosed on the website of the company. E. Shareholders 1. In case of the appointment of a new director or re-appointment of a director the shareholders must be provided with the following information: a. A brief resume of the director; b. Nature of his expertise in specific functional areas; c. Names of companies in which the person also holds the

directorship and the membership of Committees of the Board; and

d. Shareholding of non-executive directors as stated in Clause 49(IV)(E)(v) above.

2. 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 filings made to the stock exchanges where the company is listed. 3. Quarterly results and presentations made by the 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 web-site. 4. A committee under the Chairmanship of a non-executive director and such other members as may be decided by the Board of the company shall be formed to specifically look into the redressal of grievances of shareholders, debenture holders and other security holders. This Committee shall be designated as ‘Stakeholders Relationship Committee’ and shall consider and resolve the grievances of the security holders of the company including complaints related to transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends. 5. To expedite the process of share transfers, the Board of the company shall delegate the power of share transfer to an officer or a committee or to the registrar and share transfer agents. The delegated authority shall attend to share transfer formalities at least once in a fortnight. I. Proceeds from public issues, rights issue, preferential issues, etc. When money is raised through an issue (public issues, rights issues, preferential issues etc.), the company shall disclose the uses / applications of funds by major category (capital




Compliance

expenditure, sales and marketing, working capital, etc), on a quarterly basis as a part of their quarterly declaration of financial results to the Audit Committee. Further, on an annual basis, the company shall prepare a statement of funds utilized for purposes other than those stated in the offer document / prospectus / notice and place it before the audit committee. Such disclosure shall be made only till such time that the full money raised through the issue has been fully spent. This statement shall be certified by the statutory auditors of the company. Furthermore, where the company has appointed a monitoring agency to monitor the utilisation of proceeds of a public or rights issue, it shall place before the Audit Committee the monitoring report of such agency, upon receipt, without any delay. The audit committee shall make appropriate recommendations to the Board to take up steps in this matter.

Clause 49(IX)

CEO/CFO certification The CEO or the Managing Director or manager or in their absence, a Whole Time Director appointed in terms of Companies Act, 2013 and the CFO shall certify to the Board that: A. They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief : 1. These statements do not contain any materially untrue

statement or omit any material fact or contain statements that might be misleading;

2. These statements together present a true and fair view of the company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations.

B. There are, to the best of their knowledge and belief, no transactions entered into by the company during the year which are fraudulent, illegal or violative of the company’s code of conduct.

C. They accept responsibility for establishing and maintaining internal controls for financial reporting and that they have evaluated the effectiveness of internal control systems of the company pertaining to financial reporting and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies.

D. They have indicated to the auditors and the Audit committee: 1. Significant changes in internal control over financial

reporting during the year;




Compliance

2. Significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and

3. Instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the company’s internal control system over financial reporting.

Clause 49(X)

Report on Corporate Governance A. There shall be a separate section on Corporate 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 should be specifically highlighted.

B. The companies shall submit a quarterly compliance report to the stock exchanges within 15 days from the close of quarter as per the format. The report shall be signed either by the Compliance Officer or the Chief Executive Officer of the company.

Clause 49(XI)

Compliance The company shall obtain a certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance as stipulated in this clause and annex the certificate with the directors’ report, which is sent annually to all the shareholders of the company. The same certificate shall also be sent to the Stock Exchanges along with the annual report filed by the company.



Chapter 16 Important Websites

Invest India Invest India is the country’s official agency dedicated to investment promotion

and facilitation. Invest India is a joint venture between FICCI (Federation of Indian Chambers of Commerce & Industry), DIPP (Department of Industrial policy and Promotion, Ministry of Commerce & Industry) and State Governments of India, its mandate is to become the first reference point for the global investment community.

It provides granulated, sector-specific and state-specific information to a foreign investor, assists in expediting regulatory approvals, and offers hand-holding services.

An Investor Facilitation Cell has been set up at Invest India as a part of the “Make in India” initiative launched by Mr. Narendra Modi, Prime Minister of India on September 25, 2014. The Cell acts as primary support for all investment queries and for providing handholding and liaisoning services to investors. Invest India is also a part of the Japan Plus initiative, launched to facilitate and speed up investment proposals and augment economic ties between India and Japan. Invest India has also set up investment promotion and facilitation help desks for select economic ministries and countries.

For more information, please visit http://www.investindia.gov.in/

Government and Regulatory Websites

S. No.

Subject Matter Concerned Ministry/

Department of the Govt. of India

Website Address

1. Incorporation of a company

Ministry of Corporate Affairs (MCA)

http://mca.gov.in

2. Incorporation of Limited Liability Partnerships (LLPs)

Ministry of Corporate Affairs (MCA)

http://llp.gov.in


Chapter 16 Important Websites 289

S. No.



Website Address

3. Matters relating to the FDI policy and its promotion and facilitation as also promotion and facilitation of investment by Non-resident Indians (NRIs)

Department of Industrial Policy & Promotion (DIPP)

http://dipp.gov.in

4. Matters relating to foreign exchange and foreign investment

Reserve Bank of India (RBI)

http://www.rbi.org.in

5. Matters relating to taxation

Department of Revenue (DoR)

http://finmin.nic.in

6. Matters relating to direct taxation

Central Board of Direct Taxes (CBDT)

http://incometaxindia. gov. in

7. Matters relating to excise and customs

Central Board of Excise & Customs (CBEC)

http://www.cbec.gov.in

8. Matters relating to industrial relations

Ministry of Labour and Employment

http://labour.nic.in

9. Import and export of goods

Directorate General of Foreign Trade (DGFT)

http://dgft.delhi.nic.in

10. Matters relating to environment and forest clearance

Ministry of Environment and Forests (MoEF)

http://envfor.nic.in

11. Overseas investment by Indians

Ministry of Overseas Indian Affairs (MOIA)

http://moia.gov.in

http://www.rbi.org.in



S. No.



Website Address

12. 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 (http://dipp.nic.in/ English/ general/States.aspx)


Applicability of the Income-tax Act 291

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....... 6-070 limited two-way fungibility

scheme ............................................ 6-070 Resident Foreign Currency

(Domestic) accounts ....................... 6-070 sponsored ADR/GDR issue ............ 6-070 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 ....................................... 10-060

article 39, protection of trade secrets ........................................... 10-420

articles 22 to 24 of part II section III ...................................... 10-310

minimum standards of protection of GIs ........................... 10-310

Airports Authority of India (AAI) ...... 14-030 Alternate Dispute Resolution (ADR) Indian Council of Arbitration

(ICA) .............................................. 3-030 Lok Adalats (Peoples’ Courts)........ 3-030 International Centre for Alternate

Dispute Resolution (ICADR) ......... 3-030 Alternate Minimum Tax (AMT) requirement for LLPs ..................... 8-120 American Depository

Receipts (ADRs) ............................. 6-070 Anti-Avoidance Rules section 94A, Finance Act, 2011 ...... 8-090 Apprentices Act, 1961(the

Apprentice Act) apprentices, appointment of ............ 9-080

Para Arbitration and Conciliation

Act, 1996 .........................................3-030 Atomic Energy (Radiation Protection)

Rules, 2004 ......................................6-110 Atomic Energy (Safe Disposal of

Radioactive Wastes) Rules, 1987 ......................................6-110

Atomic Energy Act, 1962 prescribed substances ......................6-110 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............................................6-110

Banking Regulation Act, 1949 voting rights ................................... 6-070 Banking Sector, .................................. 14-040 Bharat Sanchar Nigam

Limited (BSNL) ..............................2-060 Bilateral Investment Promotion and

Protection Agreement (BIPA) .........2-080 Bilateral/Multilateral Trade

Agreement(s) ...................................8-380 Biological 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 .....................................5-050 Biotechnology Parks BTP units .........................................5-050



Para Biotechnology Regulatory

Authority of India ......................... 14-020 Biotechnology sector potential investment areas ............ 14-020 Bombay Stock Exchange

Limited (BSE) ................... 2-060, 14-040 Bonded Labour System (Abolition)

Act, 1976 (the Bonded Labour Abolition Act). See also Child Labour (Prohibition & Regulation) Act, 1986

section 3 .......................................... 9-070 section 20 ........................................ 9-070 Books of accounts, maintained and

audited ............................................ 8-170 Business Process Outsourcing

(BPO) sector ................................. 14-040 Business to Business (B2B)

e-Commerce ................................... 6-110 C

CPA Remedies under ............................ 11-070 Capital assets ........................................ 8-080 Capital gains ......................................... 8-080 Capital instruments, transfer of prior RBI permission ...................... 6-110 Capital market ..................................... 14-040 Cash & Carry Wholesale

Trading/Wholesale Trading (WT) ................................. 6-110

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

Para Central 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) ......................... 8-300, 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. ....... 9-070


Index 293

Para Child Labour, elimination of Supreme Court directions ............... 9-070 Children (Pledging of Labour) Act,

1933 ................................................ 9-070 Civil Aviation major developments ...................... 14-030 regulatory functions and

Infrastructural facilities................. 14-030 Coal Mines (Nationalisation)

Act, 1973 ........................................ 6-110 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 ........... 9-040 [statutory] auditor ........................... 9-040 Companies (Issue of Depository

Receipts) Rules, 2004 ..................... 6-070 Companies Act, 2013 See also Corporate Governance in

India. clauses (a) to (e) of section 20 of

the Indian Trusts Act, 1882 ............ 9-040 domestic VCF, setting up of ........... 6-020 employment visa ........................... 13-010 incorporation, procedure for ........... 7-140 issuing ESOPs to employees .......... 6-070 part IV, sections 108A to 108G ...... 4-060 SEBI (SAST) Regulations ......... 6-080 section 227(4A) ................... 9-040, 9-040 section 25, non-profit entity,

legal structure ................................. 7-080 section 418 ...................................... 9-040 section 419 ...................................... 9-040 sections 417 and 418 ...................... 9-040 sub-section (4) ................................ 9-040 voting rights on shares .................... 6-070 Competition (Amendment)

Act, 2009 ........................................ 4-030 Competition Act, 2002 (Competition

Act). See also Monopolistic and Restrictive Trade Practices Act, 1969 (MRTP Act)

abuse of dominant position (section 4) ....................................... 4-020

Para competitive neutrality ................4-020 enforcement of ...........................4-020 Act for merger control .....................4-020 filing of notice............................4-020 invitation of comments and

objections from the public .........4-020 passing of order ..........................4-020 publication of details of

combination ...............................4-020 show cause notice, issue of ........4-020 amended thresholds .........................4-030 anti-competitive agreements

(section 3) ........................................4-020 enforcement of ...........................4-020 Clause (a) of section 54 of the Act,

target enterprise ...............................4-020 commission directions, failure to

comply penalties..............................4-020 section 36(2) or (4) ....................4-020 section 6(2) ................................4-020 under section 41(2) ....................4-020 commission orders, contravention

of .....................................................4-020 non-compliance instance ............4-020 Competition Appellate Tribunal ......4-010 competition law jurisprudence ........4-030 Competition Policy and Law

(Raghavan Committee) ...................4-020 furnishing false information,

penalties for .....................................4-020 Gazette notifications ........................4-030 imposing monetary penalty .............4-020 leniency scheme for

cartel members ................................4-020 lesser penalty .............................4-020 marker system ............................4-020 making false statement,

penalties for .....................................4-020 maximum waiting period.................4-020 penalties under ................................4-020 cease and desist order ................4-020 monetary penalty .......................4-020 prima facie opinion..........................4-020 Regulation of combination

(Section 6) .......................................4-020 section 20(3) of the Act ...................4-030 section 5 of the Act..........................4-030



Para sub-section (3) of section 1 and

sections 5, 6, 20, 29, 30 and 31 ....... 4-030 threshold limits ............................... 4-020 Competition Appellate Tribunal's

(COMPAT) pending Monopolies Act cases,

disposal of ...................................... 4-030 Competition Commission of India

(Competition Commission /Commission/CCI)

draft merger Regulations ................ 4-030 confidentiality of the documents,

Request for ..................................... 4-030 filing fee ......................................... 4-030 Form I ............................................. 4-030 Form II ............................................ 4-030 Form III .......................................... 4-030 independent agencies,

appointment of ................................ 4-030 notice formats ................................. 4-030 shorter review period ...................... 4-030 target enterprises under acquisition,

exemption for ................................. 4-030 voluntary pre-merger consultation ..... 4-030 Constitution of India article 19(1)(a) .............................. 10-450 article 19(2) .................................. 10-450 article 21 ....................................... 10-450 article 246(1) ....................... 8-340, 8-420 article 246(3) .................................. 8-420 article 265, income tax.................... 8-010 article 74(1) .................................... 3-010 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 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

Para 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 .......9-050 section 7 ..........................................9-050 Copyright duration/term of ............................. 10-270 licensing and assignment of .......... 10-260 need for registration ...................... 10-230 of “works” of foreign nationals,

Protection to .................................. 10-250 registration of ................................ 10-230 Core Investment Companies ..................6-100 Corporate Governance in India. See also Companies Act, 2013 advisory group on Corporate

Governance: Standing Committee on International Financial

Listing Agreement, clause 49 ........ 15-030 Audit Committee ..................... 15-030 Board of Directors ................... 15-030 CEO/CFO Certification ........... 15-030 disclosure requirements ........... 15-030 report and compliance .............. 15-030 subsidiary companies ............... 15-030 mechanism .................................... 15-010 Regulatory Framework .................. 15-020 SEBI .............................................. 15-020 Customs (Advance Rulings) Rules, 2002 Notification No. 55/2002-Customs

(N.T.), dated August 23, 2002 .........8-400 Credit Information Companies

(Regulations) Act, 2005 ..................6-110 Coastal Regulation Zone

Notification ................................... 12-110 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


Index 295

Para 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

Customs 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

D Dedicated Freight Corridors ................. 2-060 Definitions allocable area .................................. 6-110 anti-competitive agreement ............ 4-040 arbitration ....................................... 3-010

Para asset reconstruction company

(ARC) ..............................................6-110 assignment ..................................... 10-060 associated enterprises ......................8-090 association .......................................6-110 bonded labour ..................................9-070 bonded labour system ......................9-070 cartel ................................................4-040 combinations ...................................4-020 commodity derivative ......................6-110 commodity exchange .......................6-110 common facilities ............................6-110 conciliation ......................................3-010 consumer ....................................... 11-030 contribution .....................................9-070 cultivation under controlled

conditions ........................................6-110 customs duties .................................8-340 data protection ............................... 10-250 employee .........................................9-030 excluded employee ........................ 13-010 forward contract ..............................6-110 geographical indication ................. 10-310 gratuity ............................................9-030 hazardous waste ............................ 12-060 horizontal agreements .....................4-020 HSN numbers ..................................8-390 income .............................................8-010 industrial activity .............................6-110 industrial dispute .............................9-020 Industrial Park .................................6-110 Infrastructure ...................................6-110 Infringement of trademark............. 10-020 international transaction ..................8-090 International Worker ..................... 13-010 inter-state migrant workman ...........9-030 labour ..............................................9-010 layout design ................................. 10-380 mediation .........................................3-010 negotiation .......................................3-010 passing off ..................................... 10-020 personal data.................................. 10-450 recognised association .....................6-110 registered trademark ...................... 10-060 registration of a trademark ............ 10-020 turnover ...........................................4-040



Para under controlled conditions ............ 6-110 vertical agreements ......................... 4-040 wages ................................... 9-020, 9-030 well-known trademark .................. 10-020 Department of Banking Operations and

Development (DBOD), RBI ........... 7-010 Department of Commerce, Ministry of

Commerce and Industry (MoCI) .... 5-020 Department of Road Transport and

Highways ...................................... 14-030 Department of Scientific & Industrial

Research (DSIR) ........................... 14-030 Depository Receipts (DRs) ................... 6-070 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 ............................. 13-010

E E-Kranti Ministry of Labour & Employment

E-governance initiative ................... 9-070 Education bilateral educational relations ....... 14-030 Right of Children to Free and

Compulsory Education Act ...................... Electricity Act, 2003 ........................... 14-030 Electronics and Information

Technology sector ........................ 14-040 Electronics Hardware Technology

Parks (EHTPs) Scheme EHTP unit ....................................... 5-040 Electronic returns .................................. 8-650 Emblems and Names (Prevention of

Improper Use) Act, 1950 ................ 7-030 Employee’s Compensation Act, 1923

(the EC Act) ................................... 9-150 Employees Deposit-linked Insurance

Scheme ........................................... 9-040 Employees Provident Fund Act (EPF

Act), 1952 international workers .................... 13-010 Provident Fund, contributions to .... 9-030

Para Employees' State Insurance (Amendment)

Act, 2010 (No.18 of 2010) section 18 ........................................9-030 salient features .................................9-030 Rashtriya Swasthaya Bima

Yojana ........................................9-030 Employees' State Insurance

Corporation (ESIC) .........................9-040 Employees’ Family Pension

Scheme ............................................9-040 Employment Exchanges (Compulsory

Notification of Vacancies) Act, 1959 (the Employment Exchange Act)

section 4(1) ......................................9-080 section 4(2) ......................................9-080 Environment Protection Act, 1986 (the

Environment Act) 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 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


Index 297

Para Export of Service Rules, 2005 (Export

Rules) rule 3 ............................................... 8-300 Export Promotion Schemes ................ 14-040 Export Oriented Unit (EOU) Scheme minimum investment ...................... 5-020 domestic tariff area (DTA) to

EOUs, supply from ................... 5-020 ITC (HS), prohibited import and

export items ............................... 5-020 purpose of ....................................... 5-020

F Factories Act, 1948 (the Factories Act) working hours ................................. 9-050 FCCB/ADR/GDR guidelines issue of shares by Indian companies6-060 Financial sector ................................... 14-040 Food processing 11th five-year-plan strategy .......... 14-020 advantages .................................... 14-020 investment opportunities,

areas of ......................................... 14-020 Foreign Contribution Regulation Act,

2010 (FCRA). See also Societies Registration Act, 1860 ......... 7-080, 7-080

foreign funding and applicability.... 7-080 sections 2(a) and 2(c) ...................... 7-080 section 6 .......................................... 7-080 section-25 company, society and

trust ................................................. 7-080 Foreign Currency Convertible Bonds

and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 ................................. 6-070

Foreign Direct Investment (FDI) asset reconstruction companies

(ARC) ............................................. 6-110 credit information companies

(CICs) ............................................. 6-110 eligible investment instruments ...... 6-050 FEMA Regulations ................... 6-050 employee stock option scheme,

issue of shares ................................. 6-070 existing shares, investment in ......... 6-080 acquisition of shares by way of

transfer, non-residents/NRIs ..... 6-080 Form FC-GPR ................................ 6-030

Para in trusts ............................................6-060 investment routes ............................6-030 automatic route ..........................6-030 entry routes ................................6-030 equity shares, issue of ................6-080 external commercial borrowings

(ECBs) .......................................6-030 FIPB/Government of India,

approval of .................................6-030 government Route ......................6-030 MSE (Micro and Small

Enterprise) .................................6-030 investment, eligibility for ................6-020 person resident outside India or

a non-resident entity...................6-020 investments ......................................6-010 issue of Instruments .........................6-070 issue of Shares to Non-resident

Investor ......................................6-070 pricing guidelines .......................6-070 issue of shares under

FCCB/ADR/GDR ...........................6-070 know your customer

(KYC) report ...................................6-030 mergers/demergers/amalgamations,

acquisition of shares ........................6-070 micro and small enterprise (MSE) ........ 6-060 partnership firm or a proprietary

concern ............................................6-060 by non-residents other than

NRIs/PIOs ..................................6-060 non-repatriation basis .................6-060 restrictions .................................6-060 with repatriation benefits ...........6-060 preference shares, types of ..............6-050 prohibited investments ....................6-040 Public Sector banks .........................6-060 registered FII ...................................6-020 sectoral cap / statutory

ceiling ........................................6-020 remittance and repatriation ..............6-110 adjudication and appeals ............6-110 compounding authorities ............6-110 escrow accounts .........................6-110 payment of royalty .....................6-260 penalties .....................................6-110 violations and consequences ......6-110



Para rights/bonus shares, issue of ........... 6-110 FIPB/RBI approval ................... 6-070 sectoral policy / sectoral

equity caps ...................................... 6-010 securities market and commodity

exchanges, infrastructure companies ....................................... 6-060

Share Swap ..................................... 6-070 shares / convertible debentures /

preference shares, pricing of ........... 6-010 Foreign Direct Investment

(FDI) policy .................................... 6-010 Foreign Exchange (Compounding

Proceedings) Rules, 2000 ............... 6-110 Foreign Exchange Management

(Establishment in India of Branch or Office or other Place of Business) Regulations, 2000 .......... 7-010

Foreign Exchange Management (Remittance of Assets) Regulations, 2000 ................................................ 6-110

Foreign Exchange Management Act (FEMA), 1999

Notification No. FEMA 20/2000-RB dated May 3, 2000 .................... 6-010

rights/bonus shares, issue of ........... 6-070 Foreign Exchange Management Act,

1999 ................................................ 7-010 Foreign Institutional Investor (FII) ....... 6-020 debt instruments, purchase of ......... 6-020 exchange-traded derivative

contracts ......................................... 6-020 perpetual debt instruments .............. 6-020 SEBI Regulations ........................... 6-020 sector-specific restrictions and/or

ceilings ........................................... 6-020 Foreign investment into Non-banking

Finance Companies (NBFCs) ......... 6-100 Foreign Investment Promotion Board

(FIPB), Department of Economic Affairs (DEA), Ministry of Finance ................................ 6-040, 6-110

Foreign investors. See also Incorporation of a foreign company.

AD category-I bank (AD bank) ...... 7-010 articles of association (AOA) ......... 7-020 BOs, LOs and POs, general

conditions applicable ...................... 7-010

Para Branch Office (BO) ...............................7-010 annual activity certificates .........7-010 foreign entities, LOs/BOs ................7-010 auditor’s certificate ....................7-010 form FNC ...................................7-010 undertaking additional activities,

application for ............................7-010 Government route ............................7-010 incorporated entity...........................7-010 incorporation of company ...............7-010 know your customer

(KYC) norms ...................................7-010 liaison office (LO) ...........................7-010 memorandum of association (MOA) ... 7-020 private company ..............................7-020 private limited company ..................7-020 project office (PO) ...........................7-010 public company ...............................7-020 Reserve Bank Route ........................7-010 unincorporated entity .......................7-010 Foreign Nationals entering India employment visa ........................... 13-010 income tax ..................................... 13-010 rates of income tax ........................ 13-010 compliance requirements ......... 13-010 exempted categories ................. 13-010 registration formalities .................. 13-010 exemptions ............................... 13-010 remittance of salary abroad ........... 13-010 residential status ............................ 13-010 social security schemes to

expatriates, applicability of ........... 13-010 tax liability .................................... 13-010 Foreign Venture Capital Investor

(FVCI) domestic VCF..................................6-020 SEBI-registered FVCI .....................6-020 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 ..........................................6-110 Free Trade Agreements (FTAs) .............2-080


Index 299

Para G

Gems and jewellery advantages .................................... 14-020 investment opportunities,

areas of ......................................... 14-020 General Agreement on Trade and

Tariffs (GATT), 1994 article VI ......................................... 8-370 Genetic Engineering Approval

Committee (GEAC) ........................ 6-110 Geographical indication (GI) .............. 10-310 infringement of ............................. 10-340 Registrar of Geographical

Indications .................................... 10-320 registration of ............................... 10-320 application for ......................... 10-320 duration of ............................... 10-330 Geographical Indications of Goods

(Registration and Protection) Act, 1999 .............................................. 10-310

GI, falsification of ........................ 10-340 Geographical Indications of Goods

(Registration and Prot Persons eligible to apply ection) Rules, 2002 .............................................. 10-310

Global Depository Receipts (GDRs)..... 6-070 Golden Quadrilateral Project,

roadways ......................................... 2-060 Golden Quadrilateral, railways ............. 2-060 Goods and Sales Tax (GST) comprehensive value-added tax

(VAT) on goods and services ......... 8-570 Constitutional Amendment Bill,

March 2011 .................................... 8-570 Grant of patent in India Post-grant opposition .................... 10-110 pre- and post-grant opposition,

grounds for filing .......................... 10-110 insufficient disclosure of the

invention ................................. 10-110 invention .................... 10-090, 10-160 patent granted on convention

application ............................... 10-100 pre-grant opposition ...................... 10-100 process of ...................................... 10-080 invention ................................. 10-170 patent cooperative treaty (PCT) .... 10-130 renewal by the patentee ........... 10-140

Para restoration of ............................ 10-130 rights of .................................... 10-170 term of patent ........................... 10-130 what is not patentable

in India? ................................... 10-170 GST 1% Additional tax on supply of

goods (ATSG) .................................8-600 Administration of taxes ...................8-650 Central Goods and Services Tax

(CGST) ............................................8-570 Expected rates of .............................8-580 Goods and service taxes Council .... 8-610 interstate transactions ......................5-090 registration number of assesseee .....8-620 value for purpose .............................8-630

H Hazardous Wastes (Management,

Handling and Transboundary) Rules, 2008 .................................... 12-060

Hazardous Wastes Management Regulations .................................... 12-060

Hierarchy of Courts for Civil Matters District Courts ................................3-020 High Courts .....................................3-020 Lower Courts ...................................3-020 Supreme Court ................................3-020 Tribunals .........................................3-020

I Income 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



Para discontinuation of an entity

carrying on business ....................... 8-220 heads of income .............................. 8-060 income of an assessee ..................... 8-030 previous year .................................. 8-040 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 ........................... 13-010 section 5 of the ITA ........................ 8-030 section 6 of the ITA ........................ 8-020 section 6, foreign nationals’

residential status ........................... 13-010 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 also Foreign investors. in India, procedure for .................... 7-030 additional e-Forms, filing of ..... 7-030

Para approval of name .......................7-030 certificate of commencement of

business ......................................7-030 certificate of incorporation .........7-030 digital signature certificate

(DSC) .........................................7-030 director identification number

(DIN) ........................................ 7-030 e-Form 1 ....................................7-030 e-Form 18 ................................. 7-030 e-Form 32 ..................................7-030 memorandum and articles of

association (MOA & AOA) .......7-030 share capital, issue of .................7-030 capital markets ................................2-050 competent court ............................. 10-440 competition laws .............................4-010 complaint (first information report,

ie FIR) ...........................................10-240 copyright enforcement ................... 10-240 data protection laws ....................... 10-450 department of industrial policy &

promotion (DIPP) ............................2-010 digital IT and telecommunications ..... 2-030 digital techniques .......................2-030 R&D in digital technology .........2-030 economic powers, regulating

concentration of ...............................4-010 economy, salient features of ............2-010 execution of orders of courts ......... 10-430 contempt of court proceedings . 10-430 FDI equity inflows ..........................2-010 financial and banking sector ............2-050 Reserve Bank of India (RBI) .....2-050 foreign investment ...........................2-070 types of ......................................6-010 foreign trade regulations ..................2-070 global foreign direct investments ....2-010 gross domestic product (GDP) ........2-010 higher education sector ...................2-040 infrastructural reforms airways .......................................2-060 electricity sector .........................2-060 inland waterways .......................2-060 ports ...........................................2-060 railways ......................................2-060


Index 301

Para roadways and expressways ....... 2-060 state electricity boards

(SEBs) ....................................... 2-060 Telecom services ....................... 2-060 Intellectual Property Laws,

enforcement of .............................. 10-490 intellectual property acts .......................................... 10-010 laws ......................................... 10-010 International and Regional Trade

Agreements ..................................... 2-080 manufacturing ................................. 2-020 non-profit entity, legal structure ..... 7-130 public financial institutions ............ 2-050 purchasing power parity (PPP) ....... 2-010 registration of GIs ......................... 10-310 service sector .................................. 2-020 SEZs ............................................... 5-010 technical education system ............. 2-040 technical expertise .......................... 2-040 Indian companies, downstream

investment. See Total Foreign Investment, calculation of............... 6-100

owned and/or controlled by non-resident entity(ies) .......................... 6-100

foreign investment .......................... 6-100 Indian copyright law ........................... 10-210 Indian Depository Receipts (IDRs) ....... 6-020 Indian Design(s) Act, 2000 ................. 10-270 action for infringement

of design ....................................... 10-350 Indian Forest Act, 1927 ...................... 12-080 Indian Patent Office (IPO) patent applications, secrecy of ...... 10-220 Patent Office Journal .................... 10-140 Indian Patents and Designs

Act, 1911 ...................................... 10-140 Indian Post Office Act, 1898 ................ 6-110 Indian retail industry investment areas ........................... 14-040 major advantages .......................... 14-040 Mom and Pop stores ..................... 14-040 retail formats ................................. 14-040 Indian Technical and Economic

Cooperation programmes ............... 2-040 Indian Trade and Merchandise Marks

Act, 1958 ...................................... 10-020

Para Indian Transfer Pricing guidelines .........8-090 (Indian) Contract Act, 1872 ................. 10-460 (Indian) Copyright Act, 1957 work .............................................. 10-210 (Indian) Information Technology Act, 2000 section 43A.................................... 10-450 section 69 ...................................... 10-450 section 72A.................................... 10-450 Industrial Designs cancellation, protection and

enforcement of .............................. 10-310 registrability of .............................. 10-310 registration, process of .................. 10-300 registration, validity of .................. 10-290 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).................... 9-050 Industrial Entrepreneurs’ Memorandum

(IEM) ............................................. 14-040 Industrial Policy Statement, 1991 Atomic Energy (Control of Production

and Use) Order, 1953 ............................. 6-110 Notification No. S.O. 61(E),

dated 18-01-2006 .......................6-110 Resolution No. 8/1(1)/97-

PSU/1422, dated 6 October 1998 ...........................................6-110

Industrial Property, 1883 ..................... 10-090 Industrial Relations laws .................................................9-020 Industries (Development & Regulation)

Act 1951 ................... 4-010, 6-110, 6-040 investment by a person resident

outside India ....................................6-060 Information Technology Act, 2000 (IT Act) electronic commerce ..................... 10-460 section 10A, validity of contracts ..... 10-460 section 43, penalty for damage to

computer, computer systems, etc ..... 10-460 section 65, tampering with

computer source documents .......... 10-460 section 66, computer related

offences ......................................... 10-460 section 69, Government

interference with data .................... 10-460



Para section 72, penalty for breach of

confidentiality and privacy ........... 10-460 Information Technology Act, 2000 ..... 10-450 Information-technology-enabled

services (ITeS) .............................. 14-210 Infringement and Passing off offences and penalties ................... 10-020 Infringement and Passing off suits, relief granted by Courts ....... 10-020 Anton Pillar Order ................... 10-020 restraining the infringer ........... 10-020 Inland Waterways Authority of India

(IWAI) ............................................ 2-060 Insurance Act, 1999 .............................. 6-110 Insurance Regulatory and Development

Authority Act, 1999 (the IRDA Act) ............................. 14-040

Insurance Sector.................................. 14-040 Integrated Circuits, Layout Designs of duration of protection ................... 10-400 infringement of ............................. 10-410 registrability of ............................. 10-390 Intellectual Capital .............................. 10-010 Intellectual Property (IP) Laws International Copyright

Order, 1999 ................................... 10-230 IP litigation ................................... 10-230 IPR-related litigation .................... 10-420 proof of ownership ....................... 10-230 intellectual property (IP) protection acts ................................................ 10-010 Intellectual Property Appellate Board

(IPAB) .......................................... 10-050 Intellectual Property Rights (Imported

Goods) Enforcement Rules, 2007 ................................... 10-450

rule 2(b) ........................................ 10-450 Intellectual property rights (IPR) ........ 10-010 civil action for enforcement of ..... 10-430 litigation .................................. 10-440 District and Sessions Judge ..... 10-440 Section 11 of the (Indian) Customs

Act, 1962 ...................................... 10-450 International Classification of Goods

and Services (Nice Classification) ..................... 10-030

Para International Depository Authority (IDA) Institute of Microbial Technology

(IMTECH) ..................................... 10-160 Inter-state Migrant Workmen (Regulation

of Employment and Conditions of Service) Act, 1979 (the ISMW Act)

inter-state migrant workman ...........9-140 IT Amendment Act, 2008 .................... 10-460

K Knowledge Process Outsourcing (KPO) investment areas ............................ 14-040 major advantages ........................... 14-040

L Labour 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 Law of Limitation Applicability of ................................. 11-060 Legal entity ............................................7-080 Legal Metrology Act, 2009 ...................8-370 Legal Services Authorities Act, 1987 ....3-010 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 ................................7-070 extent of Liability of partners ..........7-050 winding up .......................................7-060 Long-term capital gains .........................8-080

M Major Port Trusts Act, 1963 ..................2-060 Maternity Benefit Act, 1961 (Maternity

Benefit Act) pregnant woman, entitlement to ......9-060 Media and Entertainment..................... 14-040 Micro, Small and Medium Enterprises

Development Act, 2006...................6-060 Mineral Products (Additional Duties of

Excise and Customs) Amendment Act, 1959 .........................................8-450

Mines Act, 1952 ....................................9-050


Index 303

Para Mines and Minerals (Development &

Regulation) Act, 1957 .................... 6-110 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 .................. 9-030 minimum wages ............................. 9-040 Ministry of Corporate Affairs (MCA) General Circular No. 6/2011, dated

March 08, 2011............................... 7-030 online portal for filing of forms ...... 7-030 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 ............................ 9-010 Ministry 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 .................... 4-020 Monopolies Inquiry Commission

Report, 1965 ................................... 4-010 Monopolistic and Restrictive Trade

Practices Act, 1969 (MRTP Act). See also Competition Act, 2002

section 36A(1)(x)............................ 4-020 Monopolistic Trade Practice ................. 4-020 Multi-product SEZs .............................. 5-010 Municipal Solid Wastes (Management

and Handling) Rules, 2000 ........... 12-060 N

National and Festival Holidays Act ...... 9-050 National Biotechnology Regulatory

Authority ...................................... 14-020 National Calamity Contingency Duty

(NCCD) MRP/RSP ....................................... 8-370 section 3 of the CTA with section

136 of the Finance Act, 2001 .......... 8-370

Para section 3(5) ......................................8-370 sub-section (2) of section 3 of the

CTA .................................................8-370 National Common Minimum

Programme (NCMP) ..................... 14-030 National Company Law Tribunal

(NCLT)................................ 3-010, 7-110 National Consumer Disputes Redressal

Commission .................................. 11-050 National Council for Teachers

Education (NCTE) ........................ 14-030 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 .............. 14-030 National Seeds Policy ............................6-110 National Stock Exchange of India

Limited (NSE) .................................2-050 Non-banking Finance Companies

(NBFC) holding/operating company .............6-110 minimum capitalisation condition ...6-110 para 4.6.4(iii)(b) .........................6-110 Non-resident Indians (NRIs),

investment basis exchange traded derivative

contracts ..........................................6-020 non-repatriation basis ......................6-020 perpetual debt instruments...............6-020 repatriation basis .............................6-020

O Oil and gas sector advantages ..................................... 14-020

P Patent Cooperation Treaty

(PCT), 1970 ................................... 10-090 Patent infringement proceedings ................................... 10-200 Patent laws ........................................... 10-070



Para Patents (Amendment) Act, 2005 ......... 10-070 Patents Act, 1970 compulsory licensing .................... 10-190 controller of patents ................ 10-190 grant of .................................... 10-190 section 11A ................................... 10-100 section 25(1) ................................. 10-100 section 3 and 4 .............................. 10-070 suit for infringement ..................... 10-200 Payment of Bonus Act, 1965 (the

Bonus Act) ...................................... 9-030 Payment of Wages Act, 1936 (the

Payment of Wages Act) .................. 9-030 Pharmaceuticals advantages .................................... 14-020 Pharma Vision 2020 ..................... 14-020 Plant laws ............................................ 10-340 Plantation Labour Act, 1951 ................. 9-050 Plant Variety and farmers’ rights,

infringement of ............................. 10-380 criminal action......................... 10-380 duration of protection ................... 10-360 registration procedure ................... 10-350 Portfolio Investment Scheme (PIS) ...... 6-020 Ports initiatives ...................................... 14-030 investment areas ........................... 14-030 latest developments ...................... 14-030 National Maritime Development

Programme ................................... 14-030 Power sector power for all by 2012 ................... 14-030 Principle of Trans-border

Reputation .................................... 10-020 Principles of Corporate

Governance ................................... 15-010 Private Security Agencies (Regulation)

Act, 2005 ........................................ 6-110 Protection of Plant Varieties and

Farmer’s Rights Act, 2001 (the Plant Act)

Protection of Plant Varieties and Farmers’ Rights Authority ............ 10-340

rights under ................................... 10-370 Public Liability Insurance Act, 1991 .......12-090 Public Sector Undertakings (PSUs) ...... 2-060

Para R

RBI Reference Rate ...............................4-020 Real Estate investment areas ............................ 14-020 propellants for ............................... 14-020 real estate regulator ....................... 14-020 Remittance of asset ................................6-110 Reserve Bank of India (RBI) .................4-020 Restrictive Trade Practice ......................4-020 Return of income/ Revenue ...................8-160 Review Committee on Genetic

Manipulation (RCGM) ....................6-270 Roads and Highways investment areas ............................ 14-030 public–private partnership ............. 14-030 right of way (ROW) ...................... 14-030

S Scheduled Tribes and Other Traditional

Forest Dwellers (Recognition of Forest Rights) Act, 2006 ............... 12-080

SEBI (Acquisition of Shares and Takeovers) Regulations, 1997 .........6-070

capital instruments, transfer of ...... 12-220 SEBI (Venture Capital Fund)

Regulations, 1996 ............................6-020 Sector-specific FDI policy agriculture & animal husbandry ......6-110 Air Transport Services ....................6-110 asset reconstruction companies .......6-110 banking – public sector ...................6-110 cable network ..................................6-110 civil aviation sector .........................6-110 commodity exchanges .....................6-110 credit information

companies (CIC) .............................6-110 defence industry ..............................6-110 direct-to-home .................................6-110 e-commerce activities ......................6-110 electric generation, transmission,

distribution and trading ...................6-110 headend-in-the-sky (HITS)

broadcasting service ........................6-110 industrial parks ................................6-110 insurance .........................................6-110 manufacturing .................................6-110 mining .............................................6-110


Index 305

Para non-banking finance companies

(NBFC) ........................................... 6-110 petroleum & natural gas sector ....... 6-110 print media ...................................... 6-110 satellites – establishment and

operation ......................................... 6-110 security agencies in

private sector .................................. 6-110 single-brand product trading ........... 6-110 tea plantation .................................. 6-110 telecommunication ......................... 6-110 terrestrial broadcasting FM ............. 6-110 trading ............................................. 6-110 Sector-specific SEZs ............................. 5-010 Securities and Exchange Board of India

(SEBI)........................................... 14-040 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) ................................. 6-110 Semiconductor Integrated Circuits

Layout-Designs Act, 2000 ............ 10-380 Service Tax administration ................................. 8-330 advance ruling ................................ 8-320 persons eligible to apply ............ 8-320 service tax matters ..................... 8-320 centralised registration, Provision

for ................................................... 8-270 compliance under............................ 8-280 export of services ............................ 8-310 general exemptions ......................... 8-270 diplomatic missions for official

use of taxable services ............... 8-270 Notification 17/2011 dated

March 1, 2011 ........................... 8-270 Notification No. 41/2007-ST

dated October 6, 2007 ............... 8-270 import of services ........................... 8-310 levy of service tax ........................... 8-260 liability to pay service tax ............... 8-260 small service providers, exemption

to ..................................................... 8-260 statutes governing the levy of ......... 8-260 taxable services ............................... 8-260

Para taxation of service ...........................8-260 value of taxable service ...................8-260 Service Tax Rules, 1994 ........................8-250 SEZ Developers dividend distribution tax (DDT),

exemption ........................................5-010 FEMA/FDI/ECB .............................5-010 100% Foreign Direct Investment ... 5-010 external commercial borrowing

(ECB) .........................................5-010 minimum-land requirements ......5-010 indirect taxes ..............................5-020 major incentives to ..........................5-010 direct taxes .................................5-020 minimum alternate tax (MAT),

exemption ........................................5-010 SEZ Proposals online filing facility .........................5-010 SEZ Units Direct Taxes ....................................5-010 FEMA/ FDI related .........................5-010 external commercial borrowings

(ECBs) .......................................5-010 sectoral norms ............................5-010 Indirect Taxes ..................................5-010 major incentives ..............................5-010 obligations of ...................................5-010 Sexual Harassment at Workplace

(Prohibition, Prevention and Redressal) Act, 2013 .......................9-070

Shops and Commercial Establishments Act(s) ...............................................9-050

Short-term capital assets ........................8-080 Societies Registration

Act, 1860, See also Foreign Contribution Regulation Act, 1976 (FCRA) .......................................... 7-080

Society registration of a ..............................7-080 characteristics of............................. 7-080 procedure for incorporation .............7-080 Software Technology Park of India

(STPI) ..............................................5-030 Software Technology Parks duty-free custom bonded area .........5-030 STP unit ...........................................5-030 Software Technology Parks (STP)

Scheme ........................................... 5-030



Para Special Economic Zones (SEZ) administrative set-up ...................... 5-010 board of approval (BOA) .......... 5-010 development commissioner ....... 5-010 salient features .......................... 5-010 SEZ policy, objectives of .......... 5-010 unit approval

committee (UAC) ...................... 5-010 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............................................. 5-010 minimum regulatory regime ........... 5-010 objectives ...................................... 14-030 setting up, process of ...................... 5-010 single-window clearance

mechanism ...................................... 5-010 Special Economic Zones Act, 2005

(SEZ Act) ....................................... 5-010 Special Economic Zones Rules, 2006

(SEZ Rules) form-H ............................................ 5-010 form-I ............................................. 5-010 rule 53, net foreign exchange

(NFE) .............................................. 5-010 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) .......................................... 14-030 Telecommunication investment areas ........................... 14-030 measures and incentives ............... 14-030 The [State] Labour Welfare Fund Act labour welfare fund,

constitution of ................................. 9-040

Para The Employees' State Insurance Act,

1948 (the ESI Act) employer contribution .....................9-040 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 judiciary ..........................................3-010 Courts for Civil Matters,

hierarchy of ................................3-010 District Courts ............................3-010 High Courts ................................3-010 Lower Courts .............................3-010 Special Courts or Tribunals .......3-010 The Supreme Court ....................3-010 legislature, cardinal functions of .....3-010 members of parliament ....................3-010 President ..........................................3-010 State Legislature ..............................3-010 The Parliament ................................3-010 The Hazari Committee Report, 1966 .....4-010 The Mahalanobis Committee Report .....4-010 The Payment of Gratuity Act, 1972 (the

Gratuity Act) gratuity ............................................9-040 Total Foreign Investment, calculation of direct foreign investment,

counting of ......................................6-080 indirect foreign investment,

counting of ......................................6-080 Tourism industry adventure tourism .......................... 14-040 medical tourism ............................. 14-040 rural tourism .................................. 14-040 wellness tourism ............................ 14-040 Trade Marks (Amendment)

Bill, 2009 ....................................... 10-030 Trade Marks Act, 1999 civil and criminal remedies ........... 10-020 Trade Marks Journal ............................ 10-030 Trade Secrets breach of contract .......................... 10-420 Indian contract law ........................ 10-420 Trade Unions Act, 1926 (Trade

Unions Act) .....................................9-020


Index 307

Para Trademark “WHIRLPOOL” ............... 10-020 Trademark Infringement of ............................. 10-020 interim injunction, order of ........... 10-020 interim reliefs in a suit .................. 10-020 passing off .................................... 10-020 registration of ............................... 10-020 Trademark in India assignment, transmission and

licensing of ................................... 10-060 rectification of .............................. 10-050 registration procedure ................... 10-030 convention applications ........... 10-030 goods and services,

classification of ....................... 10-030 Madrid protocol ...................... 10-030 opposition proceedings ........... 10-030 registration renewal ...................... 10-040 Trademark laws .................................. 10-020 TRAI Act, 1997 .................................. 14-030 Trans-border Reputation concept ........ 10-020 Transfer of Shares ................................. 4-030 between resident and non-resident,

reporting obligations ....................... 6-080 pricing guidelines ........................... 6-080 by non-resident to resident ........ 6-080 by resident to non-resident ........ 6-220 Transfer Pricing .................................... 8-090

Para Transfer Pricing Certificate ...................8-090

TRIPS Agreement for protection of

trademarks ..................................... 10-020 Trust characteristics of..............................7-080 procedure for registration ................7-080 instrument of trust (trust deed) .......7-080 stamp duty ..................................7-080

U Unfair Trade Practice ............................4-030 United Nations Convention on Biological

Diversity (CBD) 1992 ..................... 12-100 Universalisation of Elementary

Education (UEE) .............................2-040 V

Value Added Tax (VAT) .......................8-540 Venture Capital .................................... 14-200

W Water (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 ...........................4-030 Wildlife (Protection) Act, 1972 ........... 12-070 Withholding Tax rates of .............................................8-100
