One of the key features of financial markets are extreme volatility. Prices of foreign currencies, petroleum and other commodities, equity shares and instruments fluctuate all the time, and poses a significant risk to those whose businesses are linked to such fluctuating prices . To reduce this risk, modern finance provides a method called hedging. Derivatives are widely used for hedging. Of course, some people use it to speculate as well – although in India such speculation is prohibited.

Derivatives are products whose val ue is derived from one or more basic variables called underlying assets or base Image may be NSFW.
Clik here to view.. In simpler form, derivatives are financial security such as an option or future whose value is derived in part from the value and characteristics of another an underlying asset. The primary objectives of any investor are to bring an element of certainty to returns and minimise risks. Derivatives are contracts that originated from the need to limit risk. For a better conceptual understanding of different kind of derivatives, you can see this link.

Derivative contracts can be standardized and traded on the stock exchange. Such derivatives are called exchange-traded derivatives. Or they can be customised as per the needs of the user by negotiating with the other party involved. Such derivatives are called over-the-counter (OTC) derivatives.

A Derivative includes :

(a) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security ;

(b) a contract which derives its value from the prices, or index of prices, of underlying securities.

Advantages of Derivatives:

1. They help in transferring risks from risk adverse people to risk oriented people.
2. They help in the discovery of future as well as current prices.
3. They catalyze entrepreneurial activity.
4. They increase the volume traded in markets because of participation of risk adverse people in greater numbers.
5. They increase savings and investment in the long run.

Types of Derivative Instruments:

Derivative contracts are of several types. The most common types are forwards, futures, options and swap.

Forward Contracts

A forward contract is an agreement between two parties – a buyer and a seller to purchase or sell something at a later date at a price agreed upon today. Forward contracts, sometimes called forward commitments , are very common in everyone life. Any type of contractual agreement that calls for the future purchase of a good or service at a price agreed upon today and without the right of cancellation is a forward contract.

Future Contracts

A futures contract is an agreement between two parties – a buyer and a seller – to buy or sell something at a future date. The contact trades on a futures exchange and is subject to a daily settlement procedure. Future contracts evolved out of forward contracts and possess many of the same characteristics. Unlike forward contracts, futures contracts trade on organized exchanges, called future markets. Future contacts also differ from forward contacts in that they are subject to a daily settlement procedure. In the daily settlement, investors who incur losses pay them every day to investors who make profits.

Options Contracts

Options are of two types – calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date.

Swaps
Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps are interest rate swaps and currency swaps.

1. Interest rate swaps: These involve swapping only the interest related cash flows between the parties in the same currency.

2. Currency swaps: These entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction.

SEBI Guidelines:

SEBI has laid the eligibility conditions for Derivative Exchange/Segment and its Clearing Corporation/House to ensure that Derivative Exchange/Segment and Clearing Corporation/House provide a transparent trading environment, safety and integrity and provide facilities for redressal of investor grievances. Some of the important eligibility conditions are :

1. Derivative trading to take place through an on-line screen based Trading System.
2. The Derivatives Exchange/Segment shall have on-line surveillance capability to monitor positions, prices, and volumes on a real time basis so as to deter market manipulation.
3. The Derivatives Exchange/ Segment should have arrangements for dissemination of information about trades, quantities and quotes on a real time basis through at least two information vending networks, which are easily accessible to investors across the country.
4. The Derivatives Exchange/Segment should have arbitration and investor grievances redressal mechanism operative from all the four areas/regions of the country.
5. The Derivatives Exchange/Segment should have satisfactory system of monitoring investor complaints and preventing irregularities in trading.
6. The Derivative Segment of the Exchange would have a separate Investor Protection Fund.
7. The Clearing Corporation/House shall perform full novation, i.e., the Clearing Corporation/House shall interpose itself between both legs of every trade, becoming the legal counterparty to both or alternatively should provide an unconditional guarantee for settlement of all trades.
8. The Clearing Corporation/House shall have the capacity to monitor the overall position of Members across both derivatives market and the underlying securities market for those Members who are participating in both.
9. The level of initial margin on Index Futures Contracts shall be related to the risk of loss on the position. The concept of value-at-risk shall be used in calculating required level of initial margins. The initial margins should be large enough to cover the one-day loss that can be encountered on the position on 99 per cent of the days.
10. The Clearing Corporation/House shall establish facilities for electronic funds transfer (EFT) for swift movement of margin payments.
11. In the event of a Member defaulting in meeting its liabilities, the Clearing Corporation/House shall transfer client positions and assets to another solvent Member or close-out all open positions.
12. The Clearing Corporation/House should have capabilities to segregate initial margins deposited by Clearing Members for trades on their own account and on account of his client. The Clearing Corporation/House shall hold the clients’ margin money in trust for the client purposes only and should not allow its diversion for any other purpose.
13. The Clearing Corporation/House shall have a separate Trade Guarantee Fund for the trades executed on Derivative Exchange/Segment.

SEBI has specified measures to enhance protection of the rights of investors in the Derivative Market. These measures are as follows:

1. Investor’s money has to be kept separate at all levels and is permitted to be used only against the liability of the Investor and is not available to the trading member or clearing member or even any other investor.
2. The Trading Member is required to provide every investor with a risk disclosure document which will disclose the risks associated with the derivatives trading so that investors can take a conscious decision to trade in derivatives.
3. Investor would get the contract note duly time stamped for receipt of the order and execution of the order. The order will be executed with the identity of the client and without client ID order will not be accepted by the system. The investor could also demand the trade confirmation slip with his ID in support of the contract note. This will protect him from the risk of price favour, if any, extended by the Member.
4. In the derivative markets all money paid by the Investor towards margins on all open positions is kept in trust with the Clearing House /Clearing Corporation and in the event of default of the Trading or Clearing Member the amounts paid by the client towards margins are segregated and not utilised towards the default of the member. However, in the event of a default of a member, losses suffered by the Investor, if any, on settled/closed out position are compensated from the Investor Protection Fund, as per the rules, bye-laws and regulations of the derivative segment of the exchanges.

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On August 1,2011, the Securities and Exchange Board of India (“SEBI”) has released draft guidelines to regulate alternative investment funds. The guidelines are currently available for public comment. SEBI has made a rational attempt to separate venture capital funds (VCFs), which are designed to invest in startup companies from Private Equity, real estate and PIPE Funds (Private Investment in Public Equity), all of which had assumed the vehicle of VCFs in India for regulatory purposes.
This post analyzes the impact of the draft guidelines for alternative investment funds on funding options available to startups. If the Alternative Investment Funds Guidelines are passed, will it help startups in any way? Will VCs find it easier to invest? Will VCs retain complete autonomy over their investment strategy?

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SEBI’s effort to regulate investment structures in a catch-all manner may spell trouble for many so-called VC and angel funds in India. It may prevent seed funds and smaller precision venture capitalists from pooling capital, if the proposals in the discussion paper go through in the current form. In regulating alternative investment structures, SEBI may have gone beyond its original mandate to protect ‘investor interest’. Its draft guidelines may be retrogressive, as compared to the recent US legislation (passed on November 3) that permits crowd-funding of startup companies.

Some of the key issues that arise from SEBI’s move:

1. It has been understood that SEBI’s power to regulate is limited to listed companies (or companies which intend to list in the near future) only. However, lately, SEBI seems to have extended its powers over a wider turf, including companies which are not listed as well. In fact, SEBI’s proposal on alternative investment funds seems to be another instance of the exercise of power over vehicles that invest in unlisted companies.
This assertion of jurisdiction over matters that are not limited to public companies, is currently being challenged before its superior body, the Securities Appellate Tribunal (“SAT”) in a matter relating to the Sahara Group. SEBI’s attempt to govern all forms of investment structures, if the regulations are finalised, may also be subject to a similar challenge.

2. SEBI has imposed high registration fees of Rs. 6 lakhs on all alternate investment funds. Investing in startups is amongst the riskiest forms of investment, with no predictable indicator to anticipate success. Investors do elaborate planning and adopt strategies that minimize the impact of government charges and taxation. Some of it may be necessary to render investment in sunrise sectors and startup industries economically viable. SEBI’s exorbitant registration fees will add to the costs these funds face, and may come in the way of setting up smaller seed-funds.

3. SEBI has sought to comprehensively restrict the ‘business model’ of the funds, which can prevent fund infusion into high-risk industries and micro and small enterprises and startups.This has been done through the following measures:

a) Imposition of minimum and maximum limits on fund size
SEBI has imposed a maximum fund size of 250 crores for venture capital funds. This makes it more difficult for VC funds to invest in new and risky technologies, which have no ‘predictable’ or ‘charted’ path to success. These technologies can often lead to groundbreaking innovations, and these are the technologies which need VC investment most.

This can be understood better in light of the business model of VC funds. Statistically, a majority of VC investments fail, but the amount of returns on the investments that succeed far outweigh the amount lost out of failed investments, which enables VC funds to make significant profits. In order to make profits by investing in riskier and technology intensive developments, VC funds shall:

i. Need to invest more funds per venture;

ii. Require a huge capital base to ‘pool’ their funds over more ventures, so that success in some ‘risky’ ventures can outweigh the failure in others.
The cap of 250 crores might prevent funds from investing in some potentially useful technologies. It does not provide them the vast capital base that they need to pool their investments in the riskier ventures.
Note that the issue is not whether the cap should have been higher, but that determination of a cap is a subjective issue, and that the cap should be determined on the basis of the business model and the investment strategy of the fund. Can we imagine a limit being imposed on the maximum capital of a company? Isn’t the optimum amount of capital determined by economic indicators and the business model? SEBI’s limit on the maximum size of alternative investment funds is very similar to this.
In addition, SEBI has introduced a minimum size of any alternate investment fund to be Rs. 20 cr. Hence, smaller players cannot source money from high networth individuals or financial institutions. If we apply SEBI’s rationale of containing systemic risk and fraud to the minimum limits it has imposed, we see peculiar results – why would the small size of a financial entity add to the element of risk it poses to a financial system?

b) Requirement of high minimum contribution by fund sponsors
SEBI has required fund managers to themselves invest 5% of the total fund amount. For large funds, this can be a significant amount. For example, a fund with a size of Rs. 200 crore will require the sponsor to put in at least Rs. 10 crores of his own money! It seems that SEBI has given preference to richer managers, and not to the brightest or smartest managers.

This may be justified by SEBI on two grounds:
i. When people invest their own money into a venture, they are likely to be more careful with it, and it can avoid reckless and excessively risky decision making.

ii. The tendency to make short term gains with disregard to long-term gains is lower, when the fund manager’s own money is involved. This is supported by historical experience in the West – in the events that led to the financial crisis, fund managers in US and Europe have taken risky decisions and exploited loopholes in the system for high short term returns. As their own money was not involved, they could successfully walk out with huge bonuses, at the expense of the investors who contributed to the fund.
Recommendation: The West is trying to deal with this problem in a different way – through ‘claw-backs’ in the remuneration packages of fund managers, which allow the fund to take back fund manager’s compensation, if within a few years any reckless or fraudulent behaviour is discovered.This method could be considered by SEBI, as it enables the most competent managers to be appointed to manage the fund. Investors who contribute their own money may not always understand the relevant industry the best, or make the best investment decisions.

c) SMEs and Micro-Enterprises may be excluded from funding – SEBI has imposed a minimum investment limit of Rs. 1 crore, or 0.1% of the fund size, whichever is higher. Thus, a fund with a size of Rs. 2000 crore needs to have a minimum investment of Rs. 2 crore. This may prevent seed funding, and funding of micro and small entreprises in their initial phases. This will also completely block startups from accessing some of the most reputed and larger funds.
The reason that SEBI has sought to regulate various kinds of investment vehicles now is because if they are unregulated, they may pose risk to the financial system of the country in general, that is, the risk out of failure of the institution can affect other parties in the financial system. In that regard, some guidance should be taken on how the Reserve Bank of India has regulated important financial sector entities. RBI uses minimum net-worth requirements to determine whether a large entity in the financial sector, or a large holding company must be regulated.
Recommendation: SEBI could have used net-worth requirements as a criterion to impose more regulation on larger funds, instead of imposing limits on investment and fund-size. SEBI has clarified that its goal behind the guidelines has been to prevent fraud and unfair trade practices. Therefore, it could have specified a net owned fund requirement for alternative funds, instead of specifying a minimum and maximum size, and the minimum amount of investment, it could have added additional disclosure requirements if the size of the fund was more than a particular threshold, or if the investment in a company exceeded a certain percentage. That would enable funds to retain autonomy, while simultaneously guarding against fraud.

4. SEBI has the power to pass regulations to protect investor’s interest. On that basis, SEBI’s regulation of investors in VC funds may be justifiable. However, seed stage and angel investors stand on a different footing from other funds. They may operate with a smaller pool of capital as compared to a traditional VC fund, but they are very sophisticated, and invest in industries that the investors themselves closely follow and understand, as opposed to investors in VC and PE funds, who may rely completely on the expertise and judgment of the fund managers for investing their funds. While regulation of VC and PE Funds to protect investor interest may be justified, regulation of seed stage and angel investors for the same reason is not needed. It is simply a restriction on their scope of operation and limits their freedom to do business, with no purported benefit to any party.

5. SEBI attempts to regulate investments made by financial institutions and high net-worth individuals in order to curb fraud, conflict of interest, unfair trade practices, and to minimise systemic risk. However, it has not commented on the applicability of Know Your Customer (KYC) and Anti-Money Laundering guidelines, a key component.

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Since there is so little information available on local statutes despite their importance to specific issues, I have decided to write down about the ones that I work with. Since I am working out of Mumbai, I usually get to deal with Bombay statutes most of the time. I have already written about a couple of statutes over here earlier. Today I am going to write about the Maharashtra Labour Welfare Fund. There is also a Bombay Welfare Fund Act which is applicable in Delhi, but interestingly not in Mumbai. Maharashtra Labour Welfare Fund Act is applicable to Pune also, just like rest of Maharashtra.

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Hands that serve

The Maharashtra Labour Welfare Fund Act, 1953 provides for the constitution of a fund for the financing of activities to promote welfare of labour in the state of Maharahstra. Any establishment which is covered under the Bombay Shops and Establishments Act, 1948 or employs at least 5 employees is required to make bi-annual contributions in the months of June and December every year to the Maharashtra Labour Welfare Fund with respect to each of its employees including contract labourers except those employed in managerial capacity or supervisory role drawing monthly salary of more than INR 3,500. For this purpose, apart from paying its own contribution with respect to each employee covered under the statute, the employer needs to deduct a contribution amount from the salary of the employee as well and submit such amount to the labour welfare fund. For this purpose, employers are allotted code numbers. The Government also adds some contribution with this which goes to the Labour Welfare Fund administered by a Welfare Commissioner. The employer has to apply for allotment of code number to the Welfare Commissioner, Maharashtra Labour Welfare Board.

Calculation

Calculation of MLWB is done, just through the contribution of both the company as well as the labourer. The employees contribution is Rs. 6.00 for an employee who earns Rs. 3000/- while it is Rs.12 for those who earn more than 3000. Whereas the company contributes is three times what the employee contributes, that is – Rs.18 and Rs. 36 for employees who draw Rs. 3000 and more than Rs. 3000 respectively.

Dues and penalty

Any dues under this act are treated as land revenue due to the state government. If an employer is not paying contributions due to the Board, the commissioner will issue a notice to pay the dues. If the employer fails to pay despite notice, interest will be charged on the dues. If the employer does not deduct employees contribution in a timely manner, employer may have to pay it himself. There is no provision for imprisonment in the statute.

There are similar welfare fund acts in many other states.

This is how a return that one needs to file looks like:
Click here to download.

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There’s a way around the startup tax, but could SEBI’s new framework for VCs make it impractical for angel investors?

Budget 2012 proposes to introduce several provisions to modify the current taxation framework applicable to venture capitalists. In this post, we study the consequences of one much debated provision which incidentally makes startup funding taxable. What was the government thinking while introducing such a tax that will clearly affect angel investors? Is there any work-around? Is there any easy way out?

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Start Up tax

For those who are not clear on what is the startup tax all about (the rest can skip directly to the part titled “Registering a VC fund” below)

As per the budget the Income Tax Act (section 56 to be precise, which deals with how income from “other sources” will be taxed) would be amended (with effect from 1^st April, 2013), to state that any amount received by a company for issue of shares that is greater than the fair value ( reflects the real value of the company based on its assets and liabilities) as well as face value (nominal value of the share – usually Rs. 10 or 100 in most cases) of the shares will be taxed as its income (See
VCCircle for a discussion on this). Therefore, the company will have to pay tax on such income at corporate income tax rates – 30% (40% for foreign companies) if it sells shares above face value as well as fair value.

Illustration

A startup issues 100,000 shares of face value Rs. 10 at a price of Rs. 50 to an investor. That amounts to a premium of Rs. 40 per share. As per the proposal in the new budget, if the shares are issued at a price which is higher than their fair value, it will be treated as the income of the startup, and the startup will be taxed on it. Assume that the fair value of the shares is Rs. 20. Therefore, the income of the startup form such funding will be 50 – 20 = Rs. 30 per share, or Rs. 3,000,000 (three million). The startup will have to pay a tax of 30%, Rs. 900,000 (nine hundred thousand) on this.

How it affects angel investment in startups

For obvious reasons, startups have to sell shares above fair value of their shares – investors are not buying shares in a startup for the existing value of the share, which is only a small fraction of the amount they pay for each share – they are paying a premium to the face value in the hope that in the long run the fair value of these shares will grow a lot and exceed the price at which they are buying now. This is an investment they are making in low value assets, buying the assets at a higher price than their real price so that the company can use that money to grow itself. Issuing shares at a premium also enables the promoters to retain managerial control over the company, while being able to raise the necessary funding for expansion.

If money raised from investors is taxed, then a company will have lesser resources to grow – and the investor will be very unhappy that 30% of his money is not going to contribute towards the growth of the company. Investment in startups will become a significantly more expensive proposition if this tax applies to angel investor funding. Startups and investors stand to lose out a lot if this tax is applicable – and if a viable solution is not found, it is likely to affect the startup sector in a terrible way.

Registering a VC fund – the way to go for angel investors?

The only clear exception to this tax is in case of investment by a venture capital fund registered with SEBI. In case there is investment by such a fund, this tax would not have to be paid. Most individual investors and even many institutional investors do not register with SEBI in India as a fund. In most cases, money is invested in personal capacity or through closely held companies.

Other benefits of registration

Registration as a venture capital fund has other benefits under Indian law, apart from preventing the tax consequences arising from funding startups under the new budget. For example, registration exempts an investor from the elaborate lock-in requirements in an IPO under Indian law (for an exhaustive discussion of the advantages of registration with SEBI, see my post on the HeadStart Network blog). As per the lock-in requirement, when a company undergoes an IPO, the pre-IPO shareholding of non-promoters (including shares held by investors who have funded the company in investment rounds prior to the IPO) is subject to a lock-in of 1 year. These shares cannot be transferred, so an investor cannot ordinarily realize the value of his investment from an IPO for a further period of 1 year. A VC fund which is registered with the SEBI is exempt from this lock-in requirement. Angel investors who register as VCs with SEBI will be able to benefit from this exemption.

Critical considerations for angel investors before registration

Will it make sense for these investors to pool in some money into a fund first? The factors that will most strongly influence investors are the following:

- how much funds do they need to commit to the VCF at the beginning? How will pooling of funds work?

- how difficult/costly will it be to get a SEBI registration, and later on, to administer the fund/comply with SEBI regulation?

The newest problem in attempting to answer the two questions above is that the regulatory regime applicable to VC funds and other investment vehicles is transforming radically.

Overhaul of the regulatory regime applicable to VCs – which regulations apply?

VCs funds are governed by the SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”). However, on 2^nd April, SEBI issued a press release approving the draft regulations for alternative investment funds (“AIF Regulations”) proposed through a concept paper earlier last year (on 1^st August, 2011). (See my post on Yourstory for a criticism of the draft AIF Regulations).

The AIF Regulations propose to revamp the framework applicable to investment vehicles, including VC funds. Finalized AIF Regulations have not been notified yet and are not presently in force, although they may be notified at any time. Once they are notified, venture capital funds will be covered by the AIF Regulations and the VCF Regulations would be automatically repealed. Funds registered under the VCF Regulations will continue to be governed by the same until the existing fund or scheme managed by the fund is wound up. Any registration or approval granted by the SEBI under the VCF Regulations will be presumed to have been granted under the corresponding provisions of the AIF Regulations.

Until the AIF Regulations are notified, VCF Regulations continue to be applicable. Therefore, we have provided a detailed comparison of the relevant provisions of the VCF Regulations and AIF Regulations below.

Is it feasible for angel investors register as VCs after the regulatory change?

SEBI has in its press release mentioned that venture capital funds have positive spillover effects on the economy, and that the it may, along with the government and other regulators, consider granting incentives or concessions based on the need of the funds.

The AIF Regulations have drastically increased the minimum fund size from INR 5 crores to INR 20 crores, and the minimum amount that can be accepted from an investor from INR 5 lakh to INR 1 crore. The increase is significant – angel investors in India cannot individually invest more than about INR 20-25 lakhs. They may not be able to constitute such a large fund, and to pool these amounts.

Further, there are additional restrictions on the tenure of the fund, disclosure and record keeping requirements that will significantly add to the costs of operating as registered entities. We are summarizing some key requirements which will be introduced by the AIF Regulations for the first time:

· The tenure of the fund shall be at least 3 years.

· Detailed information specified under the regulations needs to be disclosed to investors (such as financial, operational, risk management information relating to fund investments, details of regulatory proceedings or breach of information memorandum, etc.).

· The fund manager is required to address all investor complaints.

Conclusion: Registration with the SEBI as a VC fund is the solution for angel investors, to prevent falling under the net of the startup tax. However, SEBI’s announcement to overhaul the regulatory framework for VC funds could make it impractical for angel investors to register with it.

However, SEBI has stated that it will consider giving exemptions for VC funds depending on their need. It may be easier for angels to get relaxations from SEBI to register as VCs, than it is to hope that the tax on startups is withdrawn altogether. Angel investors and startups would need to adopt a consistent stand on the matter, so that they can make a representation to SEBI. Your views as a startup/angel investor will play a significant role in taking this discussion forward.

We are presenting a detailed comparison between the VCF Regulations and AIF Regulations below, so that angels know how they can register as VCs with SEBI. Do you think the new requirements under the AIF Regulations will be difficult to meet for angel investors? You can mention your comments below.

Comparison of key provisions of the VCF Regulations and Draft AIF Regulations

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Assignment of copyright

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Assignment of copyright has to be in writing and signed by the assignor or by his duly authorised agent. Copyright consists of a bundle of different rights in the same work, which can be assigned either as a whole to one party or separately to different parties.

· The deed of assignment must specify the `rights assigned’, the duration and territorial extent of assignment, and the royalty payable, if any. When duration of assignment is not specified, it is presumed to be for five years and when territorial extent is not specified, it is presumed to extend within India. (Section 19, Copyright Act, 1957)

· An assignment of a Copyright is exempted from Stamp Duty. (Article 25 of Schedule I of the Bombay Stamp Act, 1958).

The above provisions apply both to registered and unregistered copyright. Apart from the above requirements, in case of registered copyright, the following additional steps also have to be taken.

Registered Copyright

Assignee has to make an application for registration of changes in the particulars of copyright entered in the Register of Copyrights in Form V under Rule 16 of Copyright Rules, 1958 to be delivered by hand or registered post. Attested copies of the deeds of assignments should be enclosed with the application.

Assignment of Design

One can obtain copyright protection on a design either under the Copyright Act, 1957 or Designs Act, 2000. A design which is registrable under the Designs Act but not registered, ceases to have copyright protection after 50 copies have been made of the same using an industrial process. (Section 15 Copyright Act)

Once registered, on subsequent assignment of the design it will be necessary to apply for entry of subsequent ownership under Rule 33 of Designs Rules, 2001. Such application shall be made to the Controller in Form 11. The instrument of assignment has to be presented in original or notarised copy. (Rule 37, Design Rules, 2001)

· The document assigning the right on design has to be in writing and the agreement between the parties concerned should be reduced to the form of an instrument embodying all the terms and conditions governing their rights and obligations. Any contravention of this requirement will render the instrument invalid. (Design Manual) (Possibly based on Copyright Act)

· Upon entry of its particulars in the register of designs, the instrument shall be effective from the date of its execution.

· An application for registration of title shall be filed within six months from the date of execution of the instrument. This period is extendable by a maximum of six months.

Assignment of Trademark

Registered Trademark

Assignment of trademark can be made by making a request on Form TM-23 or 24 depending on whether it is made by assignee alone or conjointly with the registered proprietor, along with the deed of assignment. (Rule 68 of Trademark Rules, 2002)

An application under Rule 68 has to contain full particulars of the instrument, if any, under which the applicant claims to be entitled to the trade mark and such instrument or a duly certified copy thereof has to be produced at the Trade Marks Registry for inspection at the time of application. The Registrar may require and retain an attested copy of any instrument produced for inspection in proof of title.

Unregistered Trademark

An unregistered trade mark may be assigned or transmitted with or without the goodwill of the business concerned. (Section 39 Trademark Act, 1999)

Assignment of Patents

An assignment of a patent has to be made in writing and the agreement between the parties concerned is required to be reduced to the form of a document embodying all the terms and conditions governing their rights and obligations, which must be duly executed. (Section 68, Patents Act, 1970).

Two copies of the assignment instrument certified to be true copies by the applicant or his agent along with an application in Form 16 and the Controller of Patents may call for such other proof of title or written consent as he may require. (Rule 91, Patent Rules, 2003).

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Work related Visa in India

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There are two types of work related visas for non-Indian’s who wish to come to India for work related purposes:
Business Visa designated as ‘B’ Visa and Employment Visa designated as ‘E’ Visa.

Business Visa

This is not applicable for people who are coming to India for part time or full time employment. The following activities can be carried out under a business visa: establishing an industrial/business venture or exploring possibilities to set up industrial/business venture in India, purchase/sell industrial products or commercial products or consumer durables, technical meetings/discussions, attending Board meetings or general meetings, providing business services support, recruitment of manpower, for performing duties as partners in a business and/or functioning as Directors of the company, consultations regarding exhibitions or for participation in exhibitions, trade fairs, business fairs etc., transacting business with suppliers/ potential suppliers at locations in India as buyer, to evaluate or monitor quality, give specifications, place orders, negotiate further supplies etc., relating to goods or services procured from India, acting as experts/specialists on a visit of short duration in connection with an ongoing project with the objective of monitoring the progress of the work, conducting meetings with Indian customers and/or to provide technical guidance, pre-sales or post-sales activity not amounting to actual execution of any contract or project, in-house training of trainees of multinational companies/corporate houses in the regional hubs of the concerned company located in India, internship on project based work in companies/industries for students sponsored by AIESEC, conducting tours and functioning as travel agents and/or conducting business tours of foreigners or business relating to it.
Duration of business visa is only of 6 months.

 
Those who want to take up employment or consultancy in India for a substantial duration are required to take an employment visa.

Employment Visa

Foreign national who wants 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, can obtain employment visa provided that they are being sponsored for an Employment Visa by their employer and they draw a salary in excess of US$ 25,000 per annum. The condition of annual floor limit on income will not apply to:

• Ethnic cooks,
• Language teachers (other than English language teachers) / translators and
• Staff working for the concerned Embassy/High Commission in India.

Employment visa is also granted to foreigners coming to India as a consultant on contract for whom the Indian company pays a fixed remuneration (this may not be in the form of a monthly salary), foreign artists engaged to conduct regular performances for the duration of the employment contract given by Hotels, Clubs, other organizations, coaches of national /state level teams, or reputed sports clubs, sportsmen who are given contract for a specified period by the Indian Clubs/organizations, self-employed foreign nationals coming to India for providing engineering, medical, accounting, legal or such other highly skilled services in their capacity as independent consultants provided the provision of such services by foreign nationals is permitted under law, engineers/technicians coming to India for installation and commissioning of equipment/machines/tools in terms of the contract for supply of such equipment/machines/tools, providers of technical support/services, transfer of know-how/services for which the Indian company pays fees/royalty to the foreign company.

 

Residential permit – on entry into India

Foreign nationals including their family members who intend to stay in India for more than 180 days or have visa for more than 180 days, have to get themselves registered with the Foreigners’ Regional Registration Office (FRRO) within 2 weeks of their first arrival in India. For the purposes of registration, the persons are required to make an application in the prescribed form and be present in person at the time of registration. The following documents are required to be submitted along with application:

• Application form in quadruplicate (Form A)
• Passport and visa in original
• 4 passport size photographs
• Proof of residence in India
• Copy of employment contract and undertakings by the employer

Once the FRRO is satisfied about the above documents, a “Residential permit” to stay in India is issued to the foreign national.

 

PAN and Service Tax Registration

Employees and consultants are required to seek tax registration (Permanent Account Number) with the Indian Income tax authorities upon their arrival in India. This is a onetime registration. Foreign nationals providing services in India should check if they are liable to pay service tax.

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Evolution of ODR Industry

Online dispute resolution (ODR) was developed to circumvent clogged and slow moving courts and the hassle of physical dispute resolution mechanisms. ODR tries to harness the power of internet to resolve disputes, by reducing costs, doing away with the necessity to travel to attend courts and generally making the entire process faster and efficient through use of web based technologies. This is the basic precept on which ODR is built. If possible, this could be a significant improvement over the current alternative dispute resolution methods such as traditional arbitration, mediation etc.

ODR debuted in 1998 in United States and not much is known about it in India. What does ODR really entail? Is it a sustainable mechanism for resolving disputes? This post will try to answer these questions

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Online Dispute Resolution System- A way toward hassle free dispute resolution

Why ODR?

Cost and Time

ODR is generally considered a more efficient process than ADR/ litigation because it is quicker and less expensive. Given the fact it does not require physical presencce as is the case with ADR and litigation, it saves up on time and cost as may be required.

Modus Operandi

The mode of proceedings in ODR is often decided by the parties unlike court based suits that follow a strict statute determined procedure. Of course, ODR must follow the rules laid down by appropriate legislations and some basic principles that all legal proceedings should follow, but it has the potential to emerge as a more flexible and convenient mode of dispute resolution. Also, ODR is typically less confrontational because it take place in a much less formal setting on an online platform.

Confidentiality

Confidentiality of matter can be protected far better in an ODR process.

Flexibility

ODR is much more flexible as it is governed by party’s agreement or the rules and regulations of the online platform used and is not dependent on the stare decisis (deciding on the basis of precedents) principle just like any other ADR.

Nature of ODR

Online and Offline Model of ODR

The potential use of the Internet to resolve international disputes can be divided into two distinct areas: using Internet-related technology to resolve “real world” disputes online or partially online and using the Internet to resolve disputes arising on the Internet itself.

For instance, in offline dispute, you can have a clause in your contract with your supplier for resolution of dispute using one of the ODR platform. As far as online disputes are concerned, the platform you are dealing with might have an inbuilt mechanism as is the case with EBay

Procedures adopted for ODR

Online Negotiation

Forums such as Cyber Settle uses Negotiation for Dispute Resolution. Online negotiation can be of two types, closed model and open model.

Close Model- Online negotiation thrives on technological changes through blind bidding which is one of the most prevalent dispute resolution services available online. The common characteristic of these processes is the parties’ submission of monetary offers and demands which are not disclosed to their negotiating counterpart, but are compared by computer in rounds. If the offer and demand match, fall within a defined range or overlap the case is settled for the average of the offer and demand, the matching amount, or the demand in the event of an overlap. If the claim is settled, the participants are immediately notified via email

Open Model- Under the open model, a party can view the other’s party offer or demand only after having made a demand or offer. Whenever any offer is within twenty per cent of any demand, there is settlement of the median.

Online Mediation

A typical online mediation procedure takes place as follows. The complainant initiates it by completing a confidential form on the provider’s website. Then, a mediator contacts the respondent in order for him/her to participate. Both parties set forth the mediation ground rules.

The mediator communicates with the parties, sometimes jointly and sometimes individually, to facilitate an agreement. If an agreement is reached, it usually takes the form of writing.

Thus, the online process does not differ very much from the offline process, except for the expanded use of technology. Email is the mediator’s best friend for purposes of framing and moving discussion forward. But email was already used by offline mediators. In online mediation, websites such as Smart Settle, Legal Face Off etc. are providing online mediators with new tools to supplement email with other communication tools including electronic conferencing, online chat, video-conferencing, facsimile and telephone.

Online arbitration

Online arbitration proceeds along different communication stages (process agreement, initial presentations, rebuttals, consideration, and decision). Arbitration is in general a much less complicated communication process than mediation. In the simplest arbitration, software that allows positions to be stated and documents to be shared may provide a sufficient frame for the process.

There are many arbitration service provider in abroad such as American Arbitration Association. AAA is known for handling large, complex cases. In 2011, 46% of the arbitration filed with the AAA involved claims $1,000,000 or more.

Future of ODR

As said by Jeffrey N. Rosenthal is an attorney with Blank Rome, the attractiveness of ODR services to the world-at-large will likely only increase. The availability of such systems can build trust in a company by reminding consumers and corporations dealing with it that a neutral third-party can cheaply and easily resolve disputes.

However, India is yet to exploit the benefits of ODR. There is an acute lack of legislative action or awareness in this regard. This problem is teamed up with the lack of ODR institutions in India.

Given the fact that its being predicted that the SME Sector would be the driving force for growth in India, there is huge scope for application of ODR Mechanism in resolution of dispute for SMEs as ODR can be a cheap and easy way out of a disputes that are bound to arise during the course of business.

We would write further in this topic in the coming posts. Don’t forget to drop down your comments and suggestions and issues you would like us to cover in the next post.

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If you are a victim of crime, what can you expect from the UK authorities?

The same rights as a British citizen! In UK, there is no differentiation between legal immigrants and illegal aliens. Everyone has the right to full protection from the authorities. This post will outline for you the action points in case someone you know is subjected to violence in the UK. Keep it handy!

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Remedy for Immigrants who are subject to crime in UK

VICTIMS OF CRIME

As a victim of crime, the first port of call would be a formal complaint to the police, which can be achieved either over the telephone or by attending the local police station.

In case of an emergency, one should dial ‘999’ which connects you immediately to the emergency services who are required to attend your call within 10 seconds. To report non emergency minor crimes, call ‘101’ so that people in genuine emergency can reach police quickly through ‘999’. One also has the option of reporting crime anonymously by calling Crimestoppers who record your information and pass it to the police so that it can be used to solve the crime without you being bothered any further.

Additionally, victims are entitled to get help from police officers, witness care officers, court staff and probation officers. Victim can expect regular updates (at least once a month) from the police about their case, be told when the offender is arrested, charged, bailed and sentenced, has the right to apply for extra help when giving evidence in court (called ‘special measures’) if they are vulnerable or intimidated, has the right to be told when an offender will be released, and has the right to be referred to Victim Support.

SUSPECTS OF CRIME

The police has the power to stop, question and search the suspect – depending on the situation. If necessary, they also have the power to arrest the suspect if they have the reasonable belief that the suspect has committed a crime or is carrying illegal drugs, weapon, stolen property, or something that could be used to commit a crime. The suspect can be stopped and searched by police without any reasonable ground if the police thinks that serious violence could take place or the suspect was carrying a weapon or had used one.

SEARCH

Before the suspect is searched, it is the duty of the police officer to inform the suspect their name and police station, what they expect to find, the reason they want to search the suspect, why they are legally allowed to search the suspect, and that the suspect can have a record of the search.

ENTRY IN THE PRIVATE PROPERTY

Normally, the police cannot enter a private property without the owner’s permission, unless they’re chasing someone who’s committed a serious crime, they’re stopping serious damage to the property, they hear a ‘cry for help’ of someone in distress, or they have permission to enter the property from a court.

ARREST

Before the arrest, the police must identify themselves as the police, inform the suspect about their arrest and what crime they are being arrested for, explain why it’s necessary to arrest the suspect and also explain to the suspect that they’re not free to leave the police station. If the suspect tries to escape or become violent, the police has the power to use ‘reasonable force’.

RIGHTS AT POLICE STATION

Suspects, after being arrested have the right to get free legal advice, inform someone about his current whereabouts, have medical help if needed, know about the ‘Codes of Practice’ that the police must follow and also know about the written notice informing the suspects about their rights. The suspect has the right to make a complaint of the believe that the police has not behaved professionally at all times while the suspect was in the custody.

One cannot be held in police station without the charge being framed against him for more than 24 hours unless the suspect is alleged to have committed a serious crime, in which case, the period of custody can be extended up to 36 hours by police superintendent or up to 96 hours by the court.

If the police is able to establish that the suspect is involved in the crime, then a formal criminal charge is filed against him. Thereafter, the suspect would either be granted a bail by the police with or without conditions or alternatively be refused a bail and be produced from custody before the next available court.

Thus, whether an immigrant is a victim of a crime or a suspect of a crime in UK, the law keeps him on the equal footing as that of the UK citizen and he has the same rights that have been granted to the UK citizen.

But one might wonder if in practice, the illegal immigrants would come forward to report the crime as they have the threat of being deported. Unfortunately UK, does not have any law or policy that ‘legalises’ the status of illegal migrants who have been victims of crime. Interestingly, U.S. has a policy of “U visa” which basically provides a visa as a reward for coming out and reporting the crime. This will make his stay in the States legal and this is a very good way of getting the illegal aliens out of their shell to report the violent crimes. This was suspended between the years 2000 and 2007 though.

Many commentators recommend that UK should follow US’s “U” visa policy as well.

*Research and Editing by Rishika Lekhadia, 2^nd Year, W.B. National University of Juridical Sciences with inputs from Sandeep Kainth, immigration lawyer in the UK.

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The news of two girls from Mumbai being nabbed by cops for making a post on Facebook derisive of Bal Thackeray and dismissive of the bandh that brought the city to a standstill after his death is perhaps known to all of us by now. They were booked under Section 66A of the Information Technology Act which penalizes the act of offending or causing annoyance to someone by sending out messages through any electronic information communication device.

This has recently been challenged by Shreya Singhal, a 21 year old graduate in astrophysics from Bristol University, London. Shreya, who happens to be the daughter of Supreme Court advocate Manali Singhal and granddaughter of the late Delhi High Court judge Justice Sunanda Bhandare, and also wishes to pursue legal education, was represented in the Supreme Court by Senior Advocate Mukul Rohtagi.

Her plea states that “The phraseology of Section 66A of the IT Act, 2000 is so wide and vague and incapable of being judged on objective standards, that it is susceptible to wanton abuse and hence falls foul of Article 14, 19 (1)(a) and Article 21 of the Constitution” and she has sought to “reconcile section 41 and 156 (1) of the Criminal Procedure Code with Article 19 (1)(a) of the Constitution”. In short, while challenging Section 66 of the IT Act, she has requested the Apex Court to prohibit arrest without warrant and police investigation without magisterial order for offences which involve freedom of speech and expression.

When questioned on her locus, Senior Advocate Mukul Rohtagi responded that “she is a law student and a Facebook user”. The government is being represented by Attorney General GE Vahnavati in this matter. He admits that the arrest of the two girls were unjustifiable, but, at the same time, he has added that S. 66A of the IT Act cannot be removed .

The Supreme Court has also simultaneously admitted the plea of cartoonist Aseem Trivedi against S. 66A of the IT Act .

Section 66A of the IT Act, 2000 states:

“Any person who sends, by means of a computer resource or a communication device,—
a)any information that is grossly offensive or has menacing character; or
b)any information which he knows to be false, but for the purpose of causing annoyance, inconvenience, danger, obstruction, insult, injury, criminal intimidation, enmity, hatred or ill will, persistently by making use of such computer resource or a communication device,
c)any electronic mail or electronic mail message for the purpose of causing annoyance or inconvenience or to deceive or to mislead the addressee or recipient about the origin of such messages.
Punishment – Imprisonment for a term which may extend to three years and with fine.”

This section is indeed stated in very broad terms. It empowers the State to punish anyone who disseminates any information or expresses any thought which is deemed to be “grossly offensive and has menacing character”. Unfortunately, nowhere in the Act are the terms “grossly offensive” and “menacing” defined, and thus the state is vested with wide discretionary authority to reach a subjective understanding of the terms and penalise or reprimand any individual who posts anything which it deems to be of grossly offensive and menacing nature.

Attaching a penal law which is restrictive of an individual’s right of free speech and expression and is stated in such broad terms and vests such immense power to the state to apprehend and penalise citizens to Sections 41 and 156 (1) of the Criminal Procedure Code so that any breaches to this law is deemed to be a cognizable offence – meaning an offence for which the police does not need an arrest warrant or a magisterial order to arrest and investigate citizens for alleged commission it – does militate against the Constitutionally guaranteed democratic rights to freedom of speech of citizens and stand in the way of expressing and disseminating ideas, opinions and scientific, philosophical, ideological and artistic thoughts through the internet.

One way out is for the judiciary to construe the terms in a narrow manner and set out a clear-cut test so as to provide the state and the citizens with binding law which will serve as a guideline for the state to determine the situation specific applicability of this Section. Thus, instead of removing the law as laid down in S. 66A, fleshing out of binding guidelines for its implementation might be helpful.

S. 66A provides internet users with a degree of security against hate-mails directed against individuals and those which target specific classes, social, religious, ethnic, linguistic, political and ideological groups of people. This also affords protection to individuals from receiving of false information, spam, phishing etc. Hence, scrapping the section it in entirety will render internet users legally defenceless against these. Thus, instead of removal of the section, a constructive interpretation of the broadly worded and subjective terms used in the Section by the judiciary so as to ascertain the exact law envisaged in the section, along with the laying down of strict and pro-people guidelines regarding application and applicability of this Section would suit the purpose in a better manner.

The legal issue which is being raised here is important and contentious at the same time. If all offences which involve freedom of speech are made cognizable then the state might find it difficult at times to deal with sensitive and urgent issues such as sedition, hate-speech directed against social, communal or linguistic groups and castes, and people inciting feelings of hatred and anger against the state or against certain groups and outraging senses of morality such groups with their speech or expression might get off with impunity. Moreover, affording such wide lassitude to free speech might be detrimental to unity and integrity of the state by disruption of general public order. Since independence, the Indian state has been pretty much strict, and at times perhaps stricter than necessary, while dealing with such sensitive issues, including the issue of sedition. Strictness in this matter is perhaps necessary for the sake of our democratic sovereignty, but over-strictness has often led to unfortunate and unwarranted legal and administrative action of censorship, penalty and often undue restriction on freedom of speech, as is noted in the present situation of the two women being arrested for their Facebook posts. A similar incident had happened in West Bengal earlier this year where a professor of Chemistry from Jadavpur University, Calcutta, was arrested for posting a cartoon involving the West Bengal Chief Minister Ms Mamata Banerjee on Facebook, which, allegedly, was offensive of the State.

In light of these recent incidences, a through and open re-interpretation of Article 19 (2) of the Constitution, which allows the state to impose reasonable restrictions on the right to freedom of speech and expression “in the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality or in relation to contempt of court, defamation or incitement to an offence.”, is perhaps the need of the hour. The petitions put forth by Shreya Singhal and Aseem Trivedi provide an excellent opportunity to the Supreme Court of India to undertake such an endeavour, address this issue and thus attend to this pressing need.

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An entrepreneur, in essence, also needs to be a good marketer, in the sense that she needs to have a definite and intuitive idea of the market in which she will be conducting her work, and the type of impression she needs to make on the minds of her target group in the market.

Most entrepreneurs learn marketing through observation of other marketers, trial and error, testing and iteration. I argue here that marketing concepts have a deeper basis in philosophy, and that a new marketer who realizes the capacity of the philosophical basis will be able to carefully choose, design, measure and adapt the process through which her target audience perceives her product.

In the first part this essay I have taken the liberty of indulging in a comparison between the artist and the entrepreneur, drawing assistance from what, in a post-Freudian psychoanalytical understanding, can be termed as the “Persona”.

In the second part, I have mapped out a logical linkage between strategy development, impression on the perceived market and acceptance by the market. I believe that following the logical flow is essential for understanding the market oriented aims and objectives any aspiring entrepreneur

In the third part, I have sought to indulge in a discourse of an entrepreneur’s ideal aims and objectives through a traditional dyadic approach of semiology – which is the study of signs and sign processes, signals, symbols, labels, likenesses, analogies, metaphors significations as a part of the process of communication, by stressing on the need for an entrepreneur to master communication through prudence, discretion, intuition and internalization of experiences.

Finally, I have sought to establish a connection between the psychological and linguistic concepts used in this essay and the existent concepts and ideas prevalent in the field of marketing.

1. The Entrepreneur, the Artist and their Like Persona: the Need for Impact, Influence and Impression

Following Carl Jung’s definition of the “persona” which we shall shortly come to, this “target group” can be referred to as the “others” and the “impression” needed to be made can also be referred to as “definite impression”. In this essay I intend to search for an existing philosophical and psychological connection between an entrepreneur’s obligations to the market and the “definite impression” which she needs to make upon the “others” to be successful.

Persona, as Carl Jung asserts, is “a kind of mask, designed on the one hand to make a definite impression upon others, and on the other to conceal the true nature of the individual”[1]. Let us put the second aspect, i.e., that of concealment of the true nature aside for now and focus on the first aspect of the Jungian understanding of persona – the one that talks of the ‘mask, designed to make a definite impression upon others’.

In essence, the both the artist and entrepreneur are creators. Uniqueness or novelty is an essential criterion for both in their respective fields. The artist has to create a new work of art taking existing forms and elements and applying her own skills, and the entrepreneur has to create a new service, or a product and even a new marketing strategy applying her own expertise, prudence and judgment. Let us see how they are similar in terms of a Jungian understanding of the Persona.

Let us put special emphasis on the terms “design”, “definite impression” and “others”. We can perhaps safely interpret, without much semantic gymnastics, that this design is extremely important for certain categories of people, the two most prominent among them being artists and entrepreneurs

They have one thing in common: their work involves making a “definite impression” on the “other”, and each has a definite target-group.  Let us, as an axiom, consider this target group as “the other” for each of these categories:

For an artist, the “other” is the group of her perceivers. If her artistic expression fails to make a “definite impression” among her perceivers, they would refuse to invest time or money to gain access to her art. Novelty and uniqueness are essential for an artist. Hardly anyone give her any credence as an artist if she cannot present anything that does not exist within her scope, field or genre. Of course, as the popular saying goes, nothing can be created out of nothing. So, the artists job is primarily to take the existing elements, constructs, concepts and elements from within (and at times, beyond) their field of work and apply a technique or a set of techniques to generate something new, through an unique tenor, style and approach.

Now, let us look at the situation of the entrepreneur. So, who is an entrepreneur? Several definitions of the term “entrepreneur” and “entrepreneurship” has been put forth by philosophers in the last two hundred years. Of these, the one which might suit the purpose of our present discussion is the definition of “Entrepreneur” as made by Schumpeter in 1964: “Entrepreneurs are innovators who use a process of shattering the status quo of the existing products and services, to set up new products, new services”[2]. She is similar to the artist in the sense that she takes existing products, services and approaches and uses her skills and techniques to create something novel and then present the same to her target market.

But this is not where it stops. Their works have to find a sustained audience or a market. For this, what matters is “impact”, i.e., the effect the artist’s creation and the entrepreneur’s innovation has on the targeted group of perceivers and buyers, i.e., on the “others”.

2. Strategy Building, Impression on the Market and Acceptance therein: a Simple but Essential Map

Let us focus solely on the entrepreneur for the rest of this essay:

For the entrepreneur, the “other” is thus the target group of the buyers of her products, ideas and services – which can be a niche one or a broad one. She must make a “definite impression” on them through the novelty and usefulness of her products, services and ideas along with her approach and presentation, or else they would refuse to invest time or money on her products and services. This impression depends on her capability of impacting the cognition and understanding of the “other”, i.e., of her targeted market, through the innovativeness, novelty and usefulness of her product, service or marketing strategy/stratagem. Impacting the “other” in a positive way would enable her to develop a sustained market base. For this, it is rather obvious that her approach, innovation and style need to be fresh, useful and convenient for the “others”.

Let us get back to the three terms we started with: “design”, “definite impression” and “others”. So where do we incorporate this into the entrepreneur’s persona?

These three elements are interrelated and they cannot be discussed separately. What is needed for an entrepreneurial persona for success is a well fleshed out “design” which would make the “definite impression” on her target group, one that is needed so that the target group does not shy away from investing on the products and services. The entrepreneurial persona always seeks out ways and means of making this “design” in a way which would make the necessary “definite impression” on the buyers of her products: a well planned design makes the kind of “definite impression” which is necessary for the buyers to accept her innovation, an ill-made “design” fails to make such impression or impact.

An admittedly over-simplistic representation of this idea would be as follows:

“good design” = “good impression” = “acceptance by the others, i.e., the target group”.

Thus, in order to know what the “good design” will be, an entrepreneurial persona must learn, largely through practice, experience and intuition, how to make the desired “good impression”, i.e., the necessary impact on the buyers’ psyche. A successful entrepreneurial marketer develops this prudence and panache of making a good or positive “impression” or “impact” on the minds of her target group (the “others”) through intuition, trial and error and experience.

3. Signifier and the Signified: A Sausserian Approach to Understanding the significance of Impact Building

Every entrepreneur marketer seeks to internalize the process of impacting her target market-base, i.e., to create and sustain a favourable impression pertaining to the product or service she has to offer to the market she has targeted. This lies at the core of understanding the market and developing and streamlining marketing strategies accordingly.

There are many ways by which this concept of developing a sustained and favourable impression or cognitive/psychic impact can be approached. One methodical, though somewhat conventional, approach that might prove helpful is that of Saussurian semiotic tradition of “dyadics”.

Now semiotics, for the uninitiated, is the study of interpretation of signs with respect to the meanings they convey. According to the tradition of Semiology developed by Ferdinand de Saussure, the relationship between signs and their meaning is dyadic – consisting only of a form of the sign (the signifier) and its meaning (the signified). According to Saussure, this relationship is regulated and shaped by social norms[3].

Let us imagine two persons: Ms. Entrepreneur and Ms. Other. Let us also imagine two towns: one named “Signifier” and the other named “The Signified” and a road joining these two towns. Ms. Entrepreneur will have to guide Ms. Other from town “Signifier” to town “Signified” along the road and she wants to impress Ms. Other with her guidance in a way that would make Ms. Other come back to Ms. Entrepreneur for this or other similar journeys time and again. So what will Ms. Entrepreneur do? She will have to ensure that Ms. Other finds both the journey and Ms. Entrepreneur’s guidance convenient, interesting and engrossing. Now, the challenge for Ms. Entrepreneur is to find out a method by which this journey can be made interesting for Ms. Other. For this, she will have to have an idea of the road joining the two towns and also of the tastes and ideas of Ms. Other. Only then will she be able to ensure a journey for Ms. Other will the later will find comfortable and attractive and will thus seek similar guidance from Ms. Entrepreneur in similar future journeys.

It is clear from the above depiction that for an entrepreneurial persona, the challenge, especially with regards to reaching out to the “other”, i.e., to her targeted market base, is to approach the “design” in such a manner that the signifiers, i.e. the “sign”s used in the design are fleshed out in a way that would help the “others” reach the “signified” – i.e., the meaning/s and sense/s intended to be conveyed through those signs – with clarity and conviction of purpose.

Given that this “pathway” – one through which the “others” will be led from the signs to their wholesome meaning – is governed by existing social conventions, an insightful understanding of similar social conditions is essential for the entrepreneurial persona. Such understanding and insight is acquired and developed through knowledge, reasoning, experience and intuition – all of which are essential tools for the entrepreneurial persona to prosper through consistent generation of innovative products, services and marketing schemes. This perception is essential for the entrepreneur so as to guide the “others”, i.e. – the targeted market base – efficiently and make their journey from the signifiers to the signified an easy and yet an intriguing and adventurous one – something that will attract their attention and rightfully earn their interest. Once these “others” are attentive and interested, their “acceptance” of the novel entrepreneurial idea, product or service becomes an obvious corollary.

In short, nothing can impact the cognition of the targeted “others” more than ensuring such a comfortable, convenient and yet adventurous journey along the roads, tunnels and conduits that lead from the signs (signifiers) used in the “design” to their meaning (the signified). An entrepreneur needs to ensure such a journey through dexterous marketing strategies. Only then can she successfully reach out to the “others” and develop a sustained and loyal market – be it a niche one or a broad mass-based one. This is perhaps one the most foolproof approaches to successful entrepreneurial marketing.

4. Conclusion: A Connection between these theoretical concepts and the prevalent practical notions of marketing

A discerning reader who is in possession of some ideas on marketing might have noticed by now that what I referred to as the “Persona” of the entrepreneur is akin to the concept of “Positioning” in marketing. In lay terms, this is where the entrepreneur stands. Positioning is the perception of the entrepreneur or her brand in the collective psyche of the target market.

Again, what is referred to as the “Others” in the Jungian understanding which we have discussed earlier is, obviously, the “target market”. The “target market” is, in lay terms, the group of customers to whom the entrepreneur pitches her products to. It is nothing but a conglomerate of potential buyers. The buyers, of course, being a part of the society, are governed and regulated, both explicitly and implicitly, by prevalent social customs, mores and norms; and their principles, tastes, ideas, choices and decision making varies accordingly. An entrepreneur, just like an artist, needs to perceive, comprehend, familiarize herself with these social norms in order to pitch and sell her innovation accordingly. This can be through structured market research or through any other way, depending on the characteristic social, economic, political and cultural features of the “target market” and also on the nature of the entrepreneurial venture, i.e., on what the entrepreneur has to offer. In order to be successful, it is essential for an entrepreneur to figure out the right ways and methods arriving at such perception, comprehension and familiarization.

As you might have noticed, even Saussure talks of the social norms in his theory of dyadic semiosis. As I have mentioned earlier, according to Saussure, the nature of relationship, i.e., the linkage between the signifier and the signified is governed by existent social norms and hence the entrepreneur needs a thorough conception of the existent social norms prevalent among its target market so that she can ensure a smooth, fluid and smart “journey” of the “other”, i.e., of any ideal representative of the target market from the “signifier” to the “signified”. Now, this “signifier” is nothing but the overall marketing strategy, which also serves as a map for the entrepreneur as she guides the ideal representative of the target market in her “journey”. Ms. Other, in our example, is one such ideal representative of the “target market”. In Sausserian Semiology, the “Signifier” connotes signs, signals, labels, likenesses et cetera. In marketing, this can be a wholesome combination of the elements which are used in impact building and brand image development. Such elements include product descriptions, logos, pricing strategies, brand imaging, and every other ingredient that goes into the concept of “brand development”, i.e., in the process of projecting a certain desired image of the product in the collective cognition of the target market. A skilled entrepreneur can successfully develop a bunch of signifiers, which, when taken together, can create a favourable “impression” or impact – through proper projection of the brand image – in the minds of the members of the target market and thereby successfully project an element of desirability as far as the image of the brand is concerned. In short, the basic requirement for entrepreneurial or any other form of marketing is to impress the target market. Our analysis supports this obvious assertion.

The “signified”, on the other hand, connotes the “aspirational stage” – the desire they will fulfill once they consume what the entrepreneur has to offer. Thus, what I referred to as the “journey” between the signifier and the signified is nothing but the transition which the target market undergoes from perception of the image of brand to its consumption. A good entrepreneur or any good businessman projects an image of her brand into the psyche of the target market through a bunch or bundle of signifiers in such a way that the target market wants to consume the product.

After such a projection of a favourable image of her brand, the task of the entrepreneur is to ensure an attractive and comfortable transition of the ideal member of the target market from brand perception to product consumption. This transition is what I have referred to as the “Journey”; the smoother this transition is, higher is the level of market satisfaction and higher the level of market satisfaction is, more favourable are the chances of the innovation – now converted to a marketable offering – to last in the market. A high level of market satisfaction leads to further development of a favourable image of the brand and thus, a sustained market for the innovated product is created. This transition, besides having to be smooth, also needs to be one that attracts the attention of the target market. In colloquial terms, the entrepreneur needs to ensure that her target market gets its “kicks” and “thrills” out of this transition. It is only then the target market will be, to use a clichéd phrase, “hungry for more” and they will want to come back to the entrepreneur for more of such “kicks” and “thrills”. It is only by ensuring such a smooth and attractive transition from image perception of the target market to consumption of her offering by the target market that the entrepreneur can increase the size of her “target market” and such increase in market size, if sustained, will lead to growth and profitability of the brand which she has created out of her innovation. That is why I have stated earlier that an entrepreneur needs to ensure that the “journey from the signifiers to the signified [needs to be] an easy and yet an intriguing and adventurous one”.

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The US House of Representatives has recently passed the ‘Entrepreneurs Access to Capital Act’. The passing of the Act has led to demand for similar legislation in India too. It is expected that the Act will make it easy for US startup companies and entrepreneurs to raise capital in early stage of their businesses. Crowd Funding is a method by which startups can sell their stocks and other securities through the internet, by using crowd funding sites or even social networking sites. Through Crowd Funding these companies can sell unregistered securities of upto $2 million. The act also ensures that crowd funded company gets no individual investment above $10,000 and that any investment is also lesser than 10% of the investor’s annual income.

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Crowd Funding

The Crowd Funding Bill in US

Though the crowd funding laws were earlier non-equity based, now equity based crowd funding is also feasible in the US. Getting a seed loan is often very difficult right at the beginning for a startup. In fact most of the applicants don’t get their loan sanctioned. Crowd funding gives the process of selling shares a whole new dimension as companies would be able to interact with their shareholders closer than ever before. Crowd funding for the small entrepreneurs is a lot similar to like collecting money from peer-to-peer. In the peer-to-peer way of collecting money, entrepreneurs can ask every person from the vendor next street to the beer holder in the bar to give some money as fund to the company. All these persons then become the ‘shareholders’. Such peer-to-peer lending method helps to create deeper connection between investors and the company as they would now know the company more ‘personally’.

Crowd Funding and India

The passing of the Bill has led to discussion over a similar Bill in India. There is no specific regulations for Crowd Funding in India – and in the light of the current laws with respect to raising money from the public, a startup cannot really opt for crowd funding – as the same will lead to violation of prohibition against soliciting investment from the public by private companies. Yet the development of the Crowd Funding laws in India can open up a plethora of opportunities for entrepreneurs who would not be bound by the red tape as before.

Crowd Funding Laws for India?

If the Crowd Funding laws like the U.S are passed in India then retail investors can fund the company using the Internet. However, using the Internet for raising funds can have its own issues. Clear laws need to be put in place whether the Internet sites through which crowd funding would be done should follow the regulations of SEBI. As offers of shares made to 50 persons or more are stated to be public offers according to the section 67 of the Companies Act the shares distributed in the Internet would also require a prospectus and associated compliances. Also a question might be asked if the site through which Crowd Funding would be done needs to have a registration with the SEBI as the site is acting as an intermediary. All these questions need to be addressed before the concept of Crowd Funding really kicks off in India as well.

Observations

Crowd funding ensures that the probability of committing a fraud is near to zero (provided some adequate steps are taken by SEBI to ensure this like by ensuring investor protection). This is because as Crowd Funding is done through the use of Internet platform it allows investors to directly connect with the company. Although it calls for some level of sophistication on part of the investor so that he assess the risks and opportunities, there is scope to create more transparency and democratize investment in startups. In the context of India transparency and trust is more essential as there are always numerous complaints of small level businesses committing ‘fraud’ with the people. A solid crowd funding law and good regulation will enable the Indian startups in a great way.

Option of SME Exchange in India

Under the current Indian legal scenario, the closest option available to start-up companies is to raise money from the SME Exchange, a recent project of the Bombay Stock Exchange and the National Stock Exchange that has recently got a nod from SEBI. SME Exchange is particularly a good option for the small scale start-ups given the relative gloom currently plaguing the market. The SME Exchange is nothing but a separate financial exchange catering to the small and medium scale enterprises, with less cumbersome processes and costs for smaller companies. The changes in the market intermediaries, regulatory supervision and maturity level and global integrity of financial markets are likely to boost start-ups intending to raise money from the mass by listing at the SME Exchange.

Among the prescribed criteria for a start-up venture intending to raise funds through this exchange, following deserve special mention:

1. The post-issue capital of the start-up should be less than Rs. 10 crores. If the capital is between Rs. 10 crores and Rs. 25 crores, it has an option to get itself listed at the main parent exchange or the SME Exchange.

2. The issue should be 100% underwritten.

3. Minimum trading lot is an amount of Rs. 1 lakh.

4. A company can appoint up to 5 market makers who will provide liquidity through two way quotes, i.e. to buy as well as sell, for at least 75% of the trading hours.

The SME Exchange is also likely to see investment from VC/PE funds because of the removal of the block to exit opportunity available to the promoters via strategic stake sale etc. Moreover, the requirements of obtaining pre-issue clearances from SEBI have been waived and it would be sufficient to get a compliance certificate from the Merchant Banker to raise money from the exchange. Nor do the companies need to send printed copies of the financial statements anymore, instead they can simply upload the same on their websites and publish half-yearly instead of the earlier quarterly results. All these additional advantages, along with the primary gain in being able tap a new source of crowd funding, are likely to prove beneficial to the start-ups intending to take recourse to the SME Exchange.

*Researched and drafted by Soubhik Chakrabarti, 1st yr, RGNUL, Patiala

*Special thanks to Shouvik Kr. Guha for his assistance in drafting this post.

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The agreement for renting a property is one legal document that almost no-one can avoid. You may have to negotiate (if at all you know how to) or at least sign one either for personal or business use. However it’s surprising as to how few people take the opportunity to negotiate or even understand these agreements – property owners and occupiers included. Most people in India have little idea as to what to look out for in these agreements. Hence, we decided to write this comprehensive guide to negotiating and understanding legal agreements dealing with leasing, renting or leave and license arrangements for residential and commercial properties. This is a must read if you own property that you want to rent out, or even if you are staying or working from a rented premises.

While each house rent or lease agreement has its unique situations that can merit unique terms and conditions to be inserted in a contract, there are some crucial terms that should almost always be included in agreements to protect their interests and prevent future misunderstandings that could potentially lead to trouble, disputes, financial losses or litigation.

First let us see what are the most common legal relationships you may enter into while renting a house or a commercial property .

Lease

A lease is a transfer of the right to use the property in question which may be for a specified period, or even for perpetuity provided that a price is paid for the same. If the landlord does not want to create a lease in perpetuity, it would be better to specify a time period in the lease agreement. It is not possible to evict the leaseholder while the lease is in existence – unless there is a provision for terminating the lease agreement provided in the lease agreement itself.

What if a lease amounts to a tenancy?

Most Indian states have enacted tenancy laws or rent-control legislations, which place a ceiling on the rent that can be charged on leased properties, and also severely restrict the grounds on which the tenancy can be terminated. The lessee is called a ‘statutory tenant’ in such cases. Properties in premium locations in Mumbai and other cities have been leased on what is today considered to be a nominal rent – as the pace of inflation and increase in property prices was many times higher than the corresponding increase in rent permitted under tenancy law. This causes severe financial loss to the owner of these properties. While the owners have very valuable property in their ownership, they can not enjoy the value of the same as they can neither charge market rate of rent, nor can they evict the existing tenants.
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Therefore, persons leasing their property must ensure that the letting of property on rent does not qualify as a tenancy under rent control legislation, and this has to be done through careful legal drafting.

Leave and License

A leave and license agreement is one of the most popular ways adopted by parties to ensure that the letting of property does not amount to a lease under tenancy related legislation. Unlike a tenancy or lease, a leave and license agreement does not create any property rights in favour of the person who occupies the house (licensee).

In case of tenancy as well as lease, the right to use the property gets transferred from the owner to the person who is renting out the place. However, no such transfer of right to use takes place in leave and license agreements. There is only a license given to the licensee for limited use of the property in a certain way. The terms of the licenses govern what are the rights of the licensee (the person who rented the house). This is the form of agreement most preferred by landlords, and 11 month leave and license agreements for residential properties have become a norm all over India. Lease agreements are common only with respect to commercial properties.

Advantage of leave and licence

Due to the difficulty of getting a tenant or a leaseholder to vacate a place, most landlords prefer to enter into a leave and license agreement for a contractually specified period after which the licensee is obligated to vacate the premises. Under a leave and licence, the amount of rent (and increases in rent in case of renewal of the agreement) can be contractually determined by parties. Further, the lessor or owner has greater freedom with respect to termination of the licence and eviction of the lessee.

It is a common practice to grant leave and license agreement only for 11 months or less to avoid being classified as tenancy. Leave and license agreements also do not attract the rent control acts that once plagued many residential property owners. If the licensee and the landlord agree to continue the arrangement and renew the agreement, they may enter into a fresh leave and license agreement for 11 months at a time.

A lease however, is for a longer duration of time, usually for 1 year or more, although there is no minimum or maximum period specified by law. A lease creates a property right in favour of the lessee (the person taking a lease over the property). Leases are more common for commercial properties as opposed to residential properties which are usually let out on basis of leave and license (lease of commercial property is discussed later).

Checklist to ensure an effective lease deed or leave and license agreement

Following is a checklist for the essential clauses in a leave and license as well as lease agreements:

Find out who is the actual owner

It is crucial that a leave or license or lease agreement is signed only with the real owner of the house. Find out who is the owner, and even demand to see some papers establishing the name and identity of the owner. Usually in residential societies it is very easy to find out the name of an owner. You can request the owner to examine the title deeds of the property, which will mention how land was originally allotted (by a government authority, etc.) and how its ownership transferred. These documents should be requested before paying the security deposit or making any advance payment. Electricity bills or bills relating to municipal taxes can also be referred to (although they are not very reliable indicators of ownership).

It is more difficult to trace ownership of agricultural land, which may have been transferred through several private hands, through intestate succession, partitions, intra-family transfer etc. for hundreds of years.

If the person leasing the property is not the owner of the land, find out if he has the authority to lease it.

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Want to lease this house? Better find out who is the owner first!

If the person entering into the contract is not the owner but someone else, you should check whether he has the authority to lease the property. Usually, a power of attorney can suffice for the purpose.

If you fail to enter into a contract with the real owner but enter into an agreement with someone who is not the real owner without due authority to enter into contracts, then the real owner may at any point evict you from the premises and you’ll have the status of a trespasser in the eyes of law.

While it may be possible to recover your costs from the person who misrepresented himself as being capable of letting out the property to you, but it will require a difficult and sometimes prolonged legal battle which is best avoided. In such cases, you may even register an FIR alleging fraud.

Also, in the agreement itself, it is desirable to insert a warranty clause on behalf of the lessor stating that he is bona fide owner of the premises and that he has the requisite unfettered rights to rent out, lease or give on license the premises in question. An indemnity clause can also be inserted in cases there is a breach of this warranty, making the owner liable to make good all the losses arising out of such breach of warranty.

Renting out mortgaged property

Sometimes, a property to be rented out will be mortgaged with a bank or some other financial institution, in which case they would retain the registered sale documents. In that case, the owner would require a no-objection certificate from the bank or the financial institution. Failing to do this would be in violation of the mortgage agreement – and in case the bank tries to recover money by selling the property it may jeopardize the rights of the occupant, which must be kept in mind and provided for in the agreement.

Term of the agreement

What is the duration of the lease? Or the license? This is very important to specify. Any mistake in this regard can be very costly for the landlord. For leave and license agreements, a term of no more than 11 months is desirable. Commercial leases are often of long duration, sometimes running into 5-6 years as well. In case of factories, cinema halls or such other properties leases can be multi-decades or even multi-century long.

In case of lease of restaurants, or any property with significant setup or installation costs should be of a longer duration – so that the lessee who would make a lot of investment in the installation and set up gets enough time to exploit his investments.

Termination clause and notice period

Most property related disputes between landlord and occupant usually take place over termination and eviction. It is, hence, very important to clearly specify in the agreement as to how and in what circumstances the agreement can be terminated. Usually provision is made for both fault based and no-fault termination. Fault based termination rights are triggered when one party breaches any terms and conditions of the agreement. No fault termination is when the parties can terminate the agreement without citing any reason.

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What if you get a place like this and then get prematurely terminated?

Due to the difficulty and costs associated with finding a new premise as well as finding a new occupant, both landlords and tenants are usually not too happy to have easy no-fault termination clauses. Hence, leaving the premises is often made difficult by throwing in long notice periods and even lock in periods. This is very common in commercial property leasing.

In any case, it is a common practice to include a clause stating that either of the parties can terminate the contract, and the manner in which the termination notice shall be served and the duration of the notice period. The notice period is essentially the time other party gets to make alternative arrangements or brace for the termination before it is actually terminated. One month notice period means that the party willing to terminate the contract must notify the other party at least one month before he actually intends to terminate the contract. One month and three month notice period are most common in India although sometimes parties can insist on an even longer notice period.

Even if the owner wants to sell the property, he must respect this notice clause.

Lock in clause

Some agreements have a lock-in clause. The lock-in clause of a leave and license or lease agreement states that a tenant cannot leave the rented property or terminate the agreement for a specified period of time, during which the contract is ‘locked in’. This period is commonly referred to as a lock-in period. If the tenant leaves the rented property he/she would be required to continue to pay the rent until the lock-in period is over.

For instance, if the lock-in period is 1 year and the tenant wants to leave after 4 months, then unless he is able to negotiate something better with the landlord, he must either retain the place until the end of the year despite giving notice, or vacate the place but pay for the entire year’s rent anyway.

Lock in periods is more common in lease agreements as opposed to leave and license agreements.

The occupant should be wary of this clause, especially if he is unsure about how long he intends to occupy the property. If the landlord insists on adding this clause, the tenant can try and add a provision for it to not apply in exceptional circumstances (for example, the lock-in clause will not apply if the tenant is transferred to another city by his employer).

Sub-letting clause

It is common practice to specifically prohibit sub-letting. Otherwise, the landlord would lose control over what kind of people are allowed to stay in the property. If sub-letting is not prohibited, the occupant may sub-let the property to undesirable people on whose conduct there will be no control of the landlord.

In case of properties such as restaurant, factories or any other property with major investment in installation costs, it is important to have less strict sub-letting clause. Ideally there should be no restriction on sub letting given the nature of the restaurant business, where management often changes hand frequently. In any case, the agreement should at least include a clause where upon paying a specified fee to the owner, sub-letting will be allowed.

Payment clause

Apart from specific obligation to pay and the amount of rent/ license fee/ lease fee, the agreement should be very clear about when the payment obligation arises. There should be no doubt as to on what date what amounts become payable. It is also justifiable to specify what will be the mode of payment – such as cheque, cash or internet transfer, and to whom the payment is to be made. Sometimes, the security deposit is adjusted against the last few months rent – which should also be specified in the agreement. The consequences in case of delay in payment, usually penal interest in the range of 12 to 18%, in case there is more than 10 days of delay, can also be specified.

Increase in rent clause

Many a time a landlord may slip in a vague rent increase clause that gives him the power to increase it any time “if market price changes”. The perception of market price can widely differ from person to person – hence it is the duty of licensees or lessee to keep such clauses out of the agreement. Some lease agreements specify that every year the rent will increase by 10% – in which case it would be a good idea to clarify whether this is a simple increment or a compound increment. In case of leave and license agreements, since such agreements are anyway only for 11 months, rent increase clauses are unusual and should be negotiated hard by occupants. The agreement should specify that unless specifically provided in the agreement, there will be no rent increase during the term of the agreement.

Guarantor Clause

The landlord may insist on a guarantor clause, though this is not a common practice. In case any default is made by the occupant, the guarantor can be called on to make the losses good. This is a rarely used clause but very effective in case of disputes between landlords and occupants.

Maintenance/association charges clause

In case of an apartment or house rented in a society, there may be a fixed monthly maintenance charges or association charges by the society. The usual practise is for the landlord to pay the maintenance/ association charges, although he can transfer the same on the occupant through the agreement. The agreement should have a clause stating who is going to bear this expense. The agreement should specify who would bear all electricity, water and other utility charges if any.

Wear and tear clause

Certain features of the property are bound to deteriorate with time, for example: the paint coating etc. and the occupant should not be held responsible for such normal wear and tear. The agreement should contain a wear and tear clause stating that the occupant will return the property in the condition in which he received it, subject to normal wear and tear, as long as the same was not caused by any direct act or negligence.

Clause for furniture and fixtures

If a piece of furniture is no longer working or becomes unfit to use as a result of everyday wear and tear, then the landlord is required to replace or repair the item. The landlord cannot charge the tenant or withhold the deposit for items which are unusable due to everyday wear and tear. A specific clause should be entered into the agreement for this purpose. However, if an occupant would damage a piece of furniture or equipment through improper use or carelessness then the landlord is allowed to charge the tenant for the damage or withhold all or part of the deposit up to the amount of loss.

These fixtures (such as furniture and electrical appliances) in the premises must be listed, counted and the details of the same should be added as an annexure to the agreement. The occupant should be required to ensure in the agreement that these remain in working condition and undamaged throughout his possession of the property. The wear and tear clause must apply to these items as well.

Clause on associated facilities and amenities

Many properties come along with facilities like parking space, use of swimming pool, club or gym etc which the owner is entitled to along with the property. However, these rights do not transfer to the licensee or the lessee unless a clause is inserted into the agreement specifying that such incidental amenities and associated facilities will be accessible by the occupant.

Security deposit clause

The essential purpose of the security deposit is for the convenience of rectifying arrears in rent, damage to property, unpaid electricity or phone bills and other miscellaneous costs that remain unpaid by the occupant. The amount is often in multiple of the monthly rent (for example the security deposit can be amount equivalent to 6 months’ rent). The security deposit is refundable, less the cost of any damage on repossession the landlord and is normally interest free.

A proper clause should be inserted in the agreement stating that the security deposit will be refunded to the tenant on repossession of the property by the landlord. The agreement should clearly state whether this deposit is interest free. There should also be a clause in the leave and license or lease agreement addressing the consequences of failure in part of the landlord to return the security deposit in timely manner. The agreement should provide that a certain interest will be charged on the security if it is held back beyond the date on which it is supposed to be returned to the occupant under the contract.

This clause can also state that a penal amount will be charged on the security deposit for every day of delay by the occupant to leave the premises after the term of the lease or the leave and license is over.

The security deposit clause should also specify as to what kind of penalty can be charged by the landlord in what circumstances against the security deposit maintained with him.

Repair works during occupancy

The agreement should specify who would be responsible for what kind of repairs. Small repair work without significant financial burden should be covered by the occupant, but the cost of significant repair works which are necessary to keep the premises in liveable or usable condition should be negotiated upon and allocated for in the agreement. If not specified, this often leads to disputes between parties. If nothing is specified, then occupant may be obliged to carry out even major repairs to keep a house in liveable condition. The agreement should specify if the occupant is under an obligation to report any damage to the property to the landlord and how much time may lapse before such reporting.

Clause for tax liability

Tax liabilities may arise out of renting out a property, especially in case of commercial properties. It is desirable that the parties should allocate responsibility for payment of service taxes, property and municipal tax and water tax in the agreement. Further, note that in certain cases tax is to be deducted at source (TDS) on rent payments. This reduces the actual amount of payment received by the lessor. In order to prevent confusion in future, it is safer to specify whether TDS can be deducted from the rent amount (thereby reducing the rent amount) or whether the amount specified as rent is the amount left after deduction of TDS (in which case, the rent payment must be grossed up, known as a tax gross up).

If nothing is specified, tax liability would usually fall on the landlord. Even without mentioning as such, occupant may be able to deduct TDS anyway.

Dispute resolution clause

This clause refers to the court which will have authority to resolve the dispute, in case there arises any dispute between the landlord and the tenant. Normally, it is the court which has jurisdiction over the city in which the property is located, or the court which has jurisdiction in the city where the landlord resides. A clause to submit the dispute to arbitration through this clause is possible, and in most cases will be very desirable, especially agreements involving significant money.

General nuisance clause

General nuisance clause is to prevent the occupant from carrying out, or permitting others to carry out, undesirable acts that might cause nuisance to the landlord or the neighbours. Landlords often prefer to make this a trigger for termination without notice – although this is almost certain to be disputed and not very practical in reality.

General points of concern regarding leasing or renting of any nature

Apart from the above mentioned clauses the tenants and landlords should be aware of other basic and peculiar details of their legal relationship imposed by law. For instance, a tenant should be aware of the fact that the landlord’s permission is required before initiating any major changes to the property.

The occupant should be wary of clauses allowing for automatic increase in rent, arbitrary amendments to the existing terms of the agreement by the landlord, and any provision that permits the landlord to enter the property at any time.

With inputs from Ila Vyas, New Law College, BVDU, Pune.

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An introduction to Islamic Banking

Some of the most famous investment banks in the world, such as Goldman Sachs, Lehmann Brothers and Rothschilds are Jewish origin. Shylock, in the Merchant of Venice, was a Jew. This is for a specific reason – for a long time, Christianity prohibited the charging of interest, and hence, Jewish establishments which offered banking and financial activities flourished.

The story of Islamic finance is similar. Shariah law prohibits the charging of interest (interest is called riba as per Shariah). This does not mean that banks cannot run operations profitably. It simply means that banks run their operations differently – they work as partners in a client’s business, instead of charging ‘money for money’. In a transaction compliant with Islamic law, the bank undertakes the risks associated with ownership of assets. The business is a kind of joint venture.

Islamic law also prohibits transactions which are speculative (such as gambling) or have a significant amount of risk or uncertainty (gharar). Derivatives and contingent contracts are usually invalid, and commercial transactions involving elements of uncertainty need to be carefully structured so that they do not fall foul of this prohibition.

Islamic finance in the global economy

Political regimes in global financial centres had sensed the growth opportunities from Islamic finance early on and accordingly tailored banking laws to permit Islamic products. As a result, Islamic finance has flourished in London, Paris, and Tokyo.  During the financial crisis, Islamic finance also served as a cushion to mitigate the impact of the liquidity crunch.

The Indian connection

India can benefit for Islamic finance for three compelling reasons:

1. India has the second largest Muslim population in the world. This segment of the population needs access to personal finance. Conventional banking products are not in accordance with their personal law and are not fully accepted by the market segment.

2. A high level committee report (known as the Sachar Committee report) in India had pointed out that certain sections of Muslims are very backward in India, and do not use the banking sector. The policy goal of financial inclusion can be met if financial products offered to Muslims are not repugnant to their personal law.

3. India has substantial need for inward investment for its infrastructure development goals, and post the financial crisis, sourcing investment from the Middle Eastern nations is a huge opportunity for India. Mr. H.Abdur Raqeeb, convenor of the National Committee for Islamic Banking and general secretary of Indian Center for Islamic Finance, has pointed out that India needs approximately US $ 500 billion in investment in various sectors in the next 10 years.

However, investors from Islamic nations such as the Middle Eastern countries prefer Islamic law compliant vehicles before they invest in India. The most recent available government data (as of March 2011, from the Department of Industrial Policy and Promotion, Government of India) suggests that UAE has a meagre 1% share of the total foreign direct investment in India. Permitting Islamic finance can fulfil a sizeable portion of India’s investment needs.

The next post shall throw light on the early movers and their plans for Islamic finance.

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In the context of Islamic Finance, does one have a right under the Indian Constitution to receive financial services that are compliant with their religious practices?

Before answering this question, a few things need to be put into perspective.

1.  In light of the global success of the Islamic Finance Industry, there is no doubt that there are legitimate financial products that can be introduced in India. Many banks are in fact ready to deploy such instruments in India as soon as legal barriers are removed
2.  A large number of people in our country are excluded from financial services like banking (as documented by the report of the Sachaar Committee), which is a key factor for development amongst the poor. Credit leads to growth of entrepreneurship. However, the question is, if there are religious barriers to these people who are against entering into transactions involving charging of interest, and there are non-interest based (and thus sharia compliant) financial products which are viable and found to be stable and profitable around the world, is there any rational in not offering the same in India too? None that I can see, and none that the Government of India offers as reason.
3. Is offering such a banking product against secularity? We have adopted the free market in India – and the underlying principle of that market is that demand and supply determines whether a product should exist or not. Everything depends on freedom of choice. As long as there is no significant externality (negative side effects on people other than buyer and seller of the product) or some other kind of market failures (monopoly, asymmetric information etc) the government should not interfere with the free market. In this case, existing laws made by the government to regulate banks prevent them from undertaking Islamic banking products. This is a question of free market economy as much as it is of religious preference.

Right to Islamic Finance under the Constitution

Under the Indian Constitution, right to development has been recognized as a Fundamental Right under Article 21. Access to a credit system and financial services is a very important ingredient of development. While it is possible to argue that the Muslims who does not participate due to the prohibitions in their faith are not excluded by the government by their own preference, it is prima facie faulty argument. The question is not whether Muslims should participate in the regular interest based banking system. The question is whether a viable and credible credit system which is in compliance with their faith, on that they want to access can be arbitrarily (arbitrarily, since no good reason is offered for the same) barred from developing.

Politically, this is a very strange action on part of the ruling party which claims to be pro-Muslim interest.

Legal recourse to legalize Islamic Banking and Finance in India:

The best way to deal with this seems to be taking up the matter up through a writ before High Courts and the Supreme Court, since effectively barring Islamic Finance through regulations amount to violation of Right to Equality (arbitrariness), Right to Practice a Religion (since following religious tenet is resulting in financial exclusion) and Right to Life. Most importantly, once the case is admitted and notice is issued to the Government, they will need to take a stand on the matter. The Government will find it very difficult to take an anti-islamic finance stand in the matter and hopefully the process will thus be expedited.

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India is all set to embrace Islamic Banking and Finance as reforming the current banking law to allow sharia compliant banking is on top of Finance Minister Pranav Mukherjee’s to-do list. Banking Laws Amendment Bill, 2010 proposes to bring about the necessary changes in Indian Banking Law to open doors for Islamic Banking and Finance in India – which has done extremely well even in non-islamic countries like UK and Sri Lanka. Apart from providing finance of their preference to one of the largest Muslim population in the world, it will enable Indian projects to receive finance from Middle East and other countries where lenders prefer Islamic finance to other conventional methods of financial transactions. However, is India ready to take on the opportunity?

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One of the key factor that will determine India’s success at Islamic finance is availability of trained personnel. For the youth in India, this brings fresh opportunity. Those who learn the intricacies of Islamic finance can look forward to meteoric growth as demand for experts will exceed supply right from the beginning. On the other hand, it will be a challenge before banks and financial institutions to find experts for various roles. One of the most difficult task may prove to be creation of a Sharia board which is required to govern and audit compliance of all the products and services with Islamic principles.

What is a Sharia Board?
The fundamental reason for existence of Islamic Banking and Financial products is that it caters to a market which prefers Sharia compliant means of finance. Islamic finance products therefore are required to be Sharia compliant by definition. It therefore becomes necessary that apart from designing a financial or banking product in accordance with principles of Sharia, it must also be certified by experts who understand religious principles as well as banking and finance business. This is where a Sharia-board becomes indispensible in the course of developing Islamic Banking and Finance products.

A Sharia board in this context is an advisory board, which is constituted of Muslim religious scholars who are trained in Islamic Finance. The Board pre-approves various products and services offered by an Islamic Bank or Financial Institution. Their primary job is to consider whether the proposed product or service before them is compliant to Sharia law. If it is not, it may suggest changes so as to Islamic values are maintained.

The Challenge before Sharia Boards
The biggest challenge before any Sharia board is identifying the correct interpretation of Sharia law – as Sharia is not codified law. Even precedents are not binding. Therefore, Islamic scholars often hold varying views on important issues. Uniform practices with respect to what is Sharia compliant banking and what is not is yet to emerge. Lot of difference often exists between rulings of Sharia boards of different banks, especially in different countries as scholars tend to follow different schools of Sharia interpretation.

What will happen in India?
In light of the fact that India is a vast country and with many sects of Islamic people (predominantly Hanafi, Shafi’i in Kerala and others), it is important to ensure that universally agreeable interpretations and principles emerge so that all kind of products and services offered by Indian Islamic banks and financial institutions receive equal treatment. Confusion with respect to this can seriously hamper a nascent market of Islamic products. Lack of uniform principles are also likely to lead to much litigation, and in the Indian context, given the time required to resolve legal disputes, this can surface as a major problem.

Training of Scholars for Effective Participation is Sharia Boards
It is essential therefore that from the outset there should be no lack of trained personnel to man the Sharia boards, who should understand principles of Sharia as well as banking and finance, and do not adopt materially different interpretations of Sharia. The initial training for this purpose is crucial. It is desirable that Reserve Bank of India, bearing the ultimate responsibility to protect banking interests in India, will ensure that the training issue of Sharia boards does not happen in an unplanned and haphazard manner, as that is sure to cause much distress to banks and financial institutions when they start rolling out products and services in accordance with Sharia.

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Changing laws reflect immigration stats?

This post is on latest changes in UK immigration law – from Sandeep Kainth, an immigration lawyer in the UK. Sandeep plans to write a series of blogposts for Indians planning to immigrate and those who want to learn about UK immigration law. This is the first post from him. 

I first started blogging some time ago to share my knowledge on Immigration law, under the UK Jurisdiction. I enjoy researching complex cases and achieving results! The Immigration law is changing quite rapidly in the UK.

On 11th June the Government announced changes in the Immigration Law for Non-European Economic Area (NON EEA) these changes will affect people wanting to enter or stay in the UK depending on their private or family life.

I deal with cases from all over the world, and see the demand of people wanting to enter the UK. I also am aware as to how some people spend their life savings for their son/daughter/relative to work study or settle in the UK.

These changes are taking place to help the Governments programme to reform Immigration, and to follow consultation and specialists advice from the ‘MIGRATION ADVISORY COMMITTEE’ these mainly come into effect on the 9th July; 2012.

Below is a description of some of the changes that shall be taking place

1. Introducing a new minimum income of (£18,600) for sponsoring the settlement in the UK of a spouse or partner, or fiancé(e) or proposed civil partner of non-European Economic Area (EEA) nationality, with a higher threshold for any children also sponsored; £22,400 for one child and an additional £2,400 for each further child;

2. Publishing, in casework guidance, a list of factors associated with genuine and non-genuine relationships, to help UK Border Agency caseworkers to focus on these issues;

3. Extending the minimum probationary period for settlement for non-EEA spouses and partners from two years to five years, to test the genuineness of the relationship;

4. Abolishing immediate settlement for the migrant spouses and partner where a couple have been living together overseas for at least 4 years, and requiring them to complete a 5 year probationary period;

5. From October 2013, requiring all applicants for settlement to pass the ‘Life in the UK Test’ and present an English language speaking and listening qualification at B1 level or above of the Common European Framework of Reference for Languages unless they are exempt;

6. Allowing adult and elderly dependants to settle in the UK only where they can demonstrate that, as a result of age, illness or disability, they require a level of long-term personal care that can only be provided by a relative in the UK, and requiring them to apply from overseas rather than switch in the UK from another category, for example as a visitor; and

7. Restricting family visit visa appeals, initially by narrowing the current definitions of family and sponsor for appeal purposes, and then, subject to the passage of the Crime and Courts Bill, which was published on 11 May 2012, removing the full right of appeal against refusal of a family visit visa.

Sandeep Kainth is an experienced Immigration Lawyer; he is passionate about helping people to understand the changes that are occurring in the UK – E-mail: skainth11@yahoo.co.uk

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This factsheet covers the market outline for Islamic Finance globally. It contains links to events which business development managers must attend in order to network and build relationships with industry experts and government officials from across the world. For professionals the industry, this page also mentions the essential qualifications that you must acquire in order to serve organizations in the industry.

Annual Growth rate: 20% (see here)

Volume of assets under management by Islamic law compliant institutions: over 1 trillion

Number of business players:  600 financial institutions operating in more than 75 countries (source)

Islamic Insurance (also known as Takaful)

Expected growth rate in 2011: 31% (see here)

The size of this industry is expected to increase almost three-fold from an estimated US$9 billion in 2009 to $25 billion by 2015, as per an Ernst and Young study (see here for details)

Major Global Events

(These are relevant for aspiring market participants, professionals, and experts as opportunities for networking and are a great brand building exercise)

• World Islamic Economic Forum (WIEF) [Just finished on 7^th to 9^th June, 2011 in Astana, Kazakhstan]
• Annual World Islamic Banking Conference (WIBC, Asia Summit) [Just finished on 8^th and 9^th June, 2011, Singapore]
• Annual World Islamic Banking Conference (WIBC, World Summit) [Scheduled for 21^st to 23^rd November, 2011 in Bahrain]
• International Takaful Summit (London) [Scheduled for 12th to 13th July, 2011]

Important qualifications/ certifications (for current and aspiring professionals in the industry)

• Certified Islamic Professional Accountant (CIPA) (see here for details)
• Certified Shari’a Adviser and Auditor (CSAA) (see here for details)

International standardization bodies

1. Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)

Status of AAOIFI

The AAOIFI has 41 accounting and governance guidelines for Islamic financial institutions. The individual financial sector regulators in Bahrain, Qatar, Syria and Sudan have made the standards mandatory for Islamic financial institutions, however, they are merely considered advisable in countries such as Malaysia, Saudi Arabia and the United Arab Emirates. England does not rely on them either.

Lack of standardization is a concern that has attracted the attention of industry professionals and regulators alike, and joint efforts at an international level are expected.

Latest news on Islamic finance from AAOIFI

AAOIFI has passed 11 new financial standards on October 31, 2010 (see here for more details)

2. Islamic Financial Services Board (IFSB)

The Islamic Financial Services Board (IFSB) was established in 2002 as an international standards setting body. It recommends standards consistent with Sharia principles. It has over 190 members, including several central banks, the International Monetary Fund, the World Bank and the Islamic Development Bank.

The IFSB’s recommendations and standards are not binding on its members.

Some of the important standards and guidance notes issued by the IFSB are given below.

Standards relating to Takaful (Islamic Insurance)

IFSB-8: Guiding Principles on Governance for Takâful (Islamic Insurance) Undertakings

IFSB-11: Standard on Solvency Requirements for Takâful (Islamic Insurance) Undertakings

Standard relating to Sukuk

IFSB-7: Capital Adequacy Requirements for Sukuk, Securitisations and Real Estate investment

Capital Adequacy and Risk Management Standards

IFSB-1: Guiding Principles of Risk Management for Institutions (other than Insurance Institutions) offering only Islamic Financial Services (IIFS)

IFSB-2: Capital Adequacy Standard for Institutions (other than Insurance Institutions) offering only Islamic Financial Services (IIFS)

GN-2: Guidance Note in Connection with the Risk Management and Capital Adequacy Standards: Commodity Murâbahah Transactions

View the exhaustive list of standards and guidance notes here

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The expression ‘Public Interest Litigation’ has been borrowed from American jurisprudence, where it was designed to provide legal representation to previously unrepresented groups like the poor, the racial minorities, unorganised consumers, citizens who were passionate about the environmental issues, etc.

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India’s Supreme court challenging constitutional validity of the Civil Liability for Nuclear Damage Act, 2010

You must have come across this phrase quite often, at least in the news. PIL has achieved a place of great importance in our legal system. The term is not expressly defined under any statute. The meaning has evolved out of various judgments. It simply means that any public spirited person can approach the court for a public cause or public interest or public welfare by filing a petition. The question which often arises in this context is what can be regarded as “public interest”? Clearly, “any act for the benefit of public is in public interest.”

In India, the first PIL was filed in the year 1976; Mumbai Kamgar Sabha v. M/s Abdulbhai Faizullabhai and others [1976 (3) SCC 832]. The seed of PIL was sown by Justice Krishna Iyer through this landmark judgement. Soon thereafter, with the efforts of Justice Bhagwati, the concept of PIL has evolved and developed to a great extent. He is in-fact known as the Champion of PIL in India!

The other historical PIL is the one filed for prisoner’s rights Hussainara Khatoon v. State of Bihar. Many has regarded this case as the first PIL in India as well. In this case the attention of the court was drawn to the incredible situation of under trials in Bihar who had been detained pending trial for periods far in excess of the maximum sentence for the offences they were charged with. The court not only proceeded to make the right to speedy trial the central issue of the case but passed the order of general release of close to 40,000 under trials who had undergone detention beyond such maximum period.

What is Public interest litigation?

Public Interest Litigation differs from ordinary litigation. It does not involve the enforcement of the rights of one person against another. Rather, this type of litigation is filed to provide justice to the deprived sections of the society. It is a collaborative effort that encompasses the petitioner, the court and the government. It is commendable to see that courts have taken all possible measures to allow access to public spirited persons and even NGOs to file petitions on behalf of those who cannot approach the court.

A very prominent PIL activist in India is, Mr. M.C. Mehta: a lawyer by profession and a committed environmentalist by choice. From the scores of PILs he filed, it seems his mission in life was to protect the environment. He has single-handedly obtained about 40 landmark judgements and numerous orders from the Supreme Court against environmental offenders. Some of the landmark judgements arising out of PILs filed by him are:

1. The Oleum Gas Leak Case
2. The Delhi Vehicular Pollution Case
3. The Child Labour Case
4. The Gamma Rays Case
5. The Ganga Pollution Case.. to name a few.

The Supreme Court has performed Judicial Activism by passing various orders and judgements in PILs. The expression “Judicial Activism” signifies the anxiety of the courts to find out an appropriate remedy for the aggrieved person by formulating a new rule to settle the conflicting questions in the event of uncertain laws or absence of any law on a given point.

How to file a PIL

In India, a PIL can be filed in the Supreme Court under Article 32 and in the High Courts under Article 226 of the Constitution of India.
The Supreme Court has taken various steps that have given a healthy boost to PIL. The procedural requirements are very easy and relaxed as compared to filing of other ordinary petitions. Even a letter, post card, newspaper report or email addressed to the Supreme Court by a person, acting in public interest has been accepted as a petition. Any simple information received by the court complaining of a legal injury against a person or a group of persons, who cannot approach the court directly (because of poverty, disability, social backwardness and the like) can be treated as a PIL. The courts understand that in such cases it would be unfair to expect a person to incur expenses and approach the court through ordinary litigation.

In a landmark judgment, D.K. Basu v State of West Bengal, the court acted upon a letter petition which drew attention to the repeated instances of custodial deaths in West Bengal. The court further mandated that a relative of the arrested must be promptly notified. It made clear that the failure to comply with this direction would be punishable as contempt of court. The early PILs had witnessed the award of compensation by the court to victims of human rights violations. This practice of initiating proceedings on the basis of letters has now been streamlined and has come to be described as ‘epistolary jurisdiction’.

Also, the Supreme Court has relaxed the rule of locus standi while filing PILs. Locus standi means the ability of a person to approach the court having sufficient connection to the case in hand. In other words, a person who has actually suffered a legal harm has the ability to approach a court seeking a remedy. However, in the case of PIL, any public-spirited person, who may not be directly affected by the legal harm, can approach the court, seeking a remedy.

It is pertinent to be noted that once a PIL has been filed, it cannot be withdrawn. The courts might also take suo motu cognizance of matters involving public interest. suo motu is the power of the court to initiate proceedings against a party by its own motion.

However, the procedure to file a PIL is similar to that of a writ petition.

In High Court

If a Public Interest Litigation is filed in a High court, then two (2) copies of the petition have to be filed. Also, an advance copy of the petition has to be served on the each respondent, i.e. opposite party, and this proof of service has to be affixed on the petition.

In Supreme Court

If a Public Interest Litigation is filed in the Supreme court, then (4)+(1) (i.e. 5) sets of petition has to be filed opposite party is served, the copy only when notice is issued.

Court Fees

A Court fee of Rs. 50, per respondent (i.e. for each number of opposite party, court fees of RS. 50) has to be affixed on the petition.

Criticisms of PIL

PILs have been subject to a lot of criticism in recent times. One of the main criticisms is that by entertaining PILs and exercising Judicial Activism, Courts are trying to usurp the functions of the Legislature and Executive. Justice Bhagwati, in the judgement of Bandu Mukti Morcha v. Union of India [AIR 1984 SC 802] had observed that the courts by performing the aforementioned actions are merely assisting in the realisation of the constitutional objectives of the Judiciary and not usurping the functions of the Legislature and Executive.
Another criticism is the major dilution of the principle of locus standi. It has been argued that such dilution has opened up the floodgates for frivolous cases that either involves the litigant’s private interests, or for seeking publicity rather than seeking justice, or to stage their political objectives. In such cases, the petitions have been dismissed and heavy costs have been imposed by the courts. This acts as a deterrent to people from filing such PILs in future.

Some interesting PILs filed in the past one year

1. May 2013: A PIL has been filed in the Delhi High Court saying that the Prime Minister of India’s Facebook Page shows a distorted picture of the national flag.
2. May 2013: PIL has been filed in the Supreme Court seeking SIT probe into IPL spot-fixing scam.
3. April 2013: PIL filed in the Supreme Court seeking to restrain government authorities from taking any coercive action against anyone for posting alleged objectionable comments on social networking sites like Facebook.
4. March 2013: PIL in the Supreme Court filed by a lawyer seeking orders to make the offence of watching pornography a non-bailable offence.
5. February 2013: PIL filed against rapper Yo Yo Honey Singh in the Punjab and Haryana High Court for the offensive and vulgar lyrics of his various songs.
6. April 2012: 2 PILs filed in the Delhi High Court accusing the Union Human Resource Development Ministry of colluding with a particular candidate, another arguing that candidates being considered for the UGC top jobs of Chairman and Vice Chairman are either ineligible or inefficient.
7. April, 2012: The Gujarat High Court took up suo motu action for the safety and maintenance of the bridge from where Mahatma Gandhi had launched his historic Dandi March in 1930
8. March 2012: PIL filed in the Madurai Bench of the Madras High Court to stop san quarrying in the rivers Cauvery and Kollidam, in order to protect the natural resources of these rivers.
9. March 2012: The Supreme Court threw out a petition questioning the appointment of Gujarat Governor Kamla Beniwal and seeking her removal for appointing state Lokayukta disregarding the Chief Minister’s objections, calling the petition frivolous and fined the party heavily.
10. January, 2012: PIL filed on Army Chief’s Age controversy, in the Supreme Court.

Resource: Prof. H.D. Pithawala’s Book: Legal Language and Legal Writing for the students of the First Year of the Five Year Law Course, Mumbai University

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Indian National Graduating From Foreign University

Any Indian who obtains his LLB degree whether through a 5 year course or a 3 year course from a foreign university which is recognised by the Bar Council Of India [BCI] is eligible to write the All India Bar Examination [AIBE] and practice in any Indian Court. The necessary conditions for his enrolment into a State Bar Council are as follows:

• The degree has been obtained after regularly pursuing the course for a period which is not less than three years in case the degree in law is obtained after graduation in any branch of knowledge or for a period of not less than five years if admitted into the integrated course after passing +2 stage in the higher secondary examination or its equivalent (High School);
• The University is recognized by the Bar Council of India.

List of Universities recognised by the Bar Council of India

1. Australia

• UNIVERSITY OF MELBOURNE
• NATHAN CAMPUS, GRIFFTH UNIVERSITY, BRISBANE
• SCHOOL OF LAW, BOND UNIVERSITY, GOLD COST
• QUEENSLAND UNIVERSITY OF TECHNOLOGY, BRISBANE
• THE UNIVERSITY OF SOUTH WALES, SYDNEY
• THE AUSTRALIAN NATIONAL UNIVERSITY., CANBERRA
• UNIVERSITY OF ADELAIDE
• UNIVERSITY OF FLINDERS
• UNIVERSITY OF MONASH
• UNIVERSITY OF SOUTHERN CROSS
• UNIVERSITY OF SYDNEY
• UNIVERSITY OF  TASMANIA
• UNIVERSITY OF TECHNOLOGY SYDNEY

• RAJASHAHI UNIVERSITY
• DACCA UNIVERSITY
• CHITTAGONG UNIVERSITY

• SASKAT CHEWAN UNIVERSITY
• UNIVERSITY OF ALBERTA
• UNIVERSITY OF WINDSOR, ONTARIO

• RANGOON UNIVERSITY

• TRIBHUVAN UNIVERSITY

• KARACHI UNIVERSITY
• PUNJAB UNIVERSITY, LAHORE
• UNIVERSITY OF SIND

• UNIVERSITY OF STAPHEN BATROI, IRWILUS

• UNIVERSITY OF SINGAPORE

• HANDONG INTERNATIONAL LAW SCHOOL, HANDONG GLOBAL UNIVERSITY, POHANG, SOUTH KOREA

• MAKARERE UNIVERSITY, KAMPALA

• BUCKINGHAM UNIVERSITY
• CITY UNIVERSITY OF LONDON
• COUNCIL FOR NATIONAL ACADEMIC AWARDS
• HULL UNIVERSITY
• INNS OF COURTS SCHOOL OF LAW
• LEEDS UNIVERSITY
• LEICESTER UNIVERSITY
• LONDON UNIVERSITY
• OXFORD UNIVERSITY
• CAMBRIDGE UNIVERSITY
• THAMES VALLEY UNIVERSITY
• UNIVERSITY OF WALES COLLEGE OF CARDIFF
• UNIVERSITY OF BRIMINGHAM
• UNIVERSITY OF BRIMINGHAM
• UNIVERSITY OF HEARTFORDSHIRE
• UNIVERSITY OF DURHAM
• UNIVERSITY OF LIVERPOOL
• UNIVERSITY OF WARWICK
• UNIVERSITY OF BRISTOL
• EAST ANGLIA UNIVERSITY
• NOTTINGHAM UNIVERSITY
• UNIVERSITY OF MANCHESTER
• * BANGOR UNIVERSITY
• * KINGSTON UNIVERSITY, LONDON
• * UNIVERSITY OF WOLVERHAMPTON  SCHOOL OF LEGAL STUDIES
• * SCHOOL OF LAW, UNIVERSITY OF SHEFFIELD, U. K.
• * KENT LAW SCHOOL, UNIVERSITY OF KENT, CANTERBURY
• * SCHOOL OF LAW, UNIVERSITY OF EAST LONDON
• * SCHOOL OF LAW, UNIVERSITY OF SOUTHAMPTON
• * UNIVESITY OF WESTMINISTER
• * BRUNEL LAW SCHOOL, BRUNEL UNIVERSITY, WEST LONDON
• * SCHOOL OF LAW, BIRMINGHAM CITY UNIVERSITY
• * NORTHUMBRIA UNIVERSITY, NEWCASTLE UPON TYNE
• * LANCASHIRE LAW SCHOOL, UNIVESITY OF CENTRAL LANCASHIRE, PRESTON
• * SCHOOL OF LAW, SWANSEA UNIVERSITY, SWANSEA, U. K.

• CORNELL LAW SCHOOL
• GEORGE TOWN UNIVERSITY
• SOUTH WESTERN UNIVERSITY
• UNIVERSITY OF MICHIGAN
• UNIVERSITY OF TEXAS
• MARSHALL THE SCHOOL OF LAW OF THE COLLEGE OF WILLIAM AND MARY, VIRGINIA, USA
• SYRACUSE UNIVERSITY COLLEGE OF LAW, NEW YORK
• WIDENER UNIVERSITY SCHOOL OF LAW, WILMINGTON
• CLEVELAND-MARSHALL COLLEGE OF LAW, CLEVELAND STATE UNIVESITY
• UNIVESITY OF PENNSYLVANIA LAW SCHOOL, PHILADELPHIA
• UNIVERSITY OF WISCONSIN
• UNIVESITY OF CALIFORNIA, BERKELEY
• FORDHAM UNIVERSITY, NEW YORK
• SCHOOL OF LAW, LOYOLA UNIVERSTIY, CHICAGO
• SCHOOL OF LAW, SANTA CLARA UNIVERSTIY, CALIFORNIA
• SCHOOL OF LAW, HOFSTRA UNIVERSITY, NEW YORK

• UNIVERSITY OF ZAMBIA

Note:The following conditions are applicable for Universities which are marked with
“*” in the list given under United Kingdom.

• Three years’ LLB degree only if taken after a three years’ bachelor degree course in any subject ( that is after obtaining BA / BSc /B.Com /BBA); or
• Three Years’ LL.B. course followed immediately by 1 year whole time LPC/BVC and followed by a contract of service with a Law Firm for two years to be entitled to be enrolled as a solicitor or take pupillage for a year in a Chamber of a qualified Barrister to be a Master, or
• Four Years’ of LLB jointly with another subject like Finance, Accounts, Management or a Language to be immediately followed by one year full time LPC/BVC from a College of Inns of courts/ Solicitors Society or a Master degree in Law. 

How can an university get a degree to be recognized by Bar Council of India?

A foreign University can apply to the Bar Council of India for the recognition of a degree in law. The matters is placed before the Legal Education Committee which gives recommendations to the Bar Council of India. The application for the recognition of degree contains the following details:

1. History of the University
2. Prospectus or brochure describing the courses of study
3. University’s standing in the accreditation list made officially or by any recognized private body
4. Any other information that the Bar Council of India may prescribe from time to time and subject to inspection by the Bar Council of India of the University, if necessary.

[Source: http://www.ibanet.org/PPID/Constituent/Student_Committee/qualify_lawyer_india.aspx]

Can Foreign Nationals Practice in India?

Any foreign national whether he obtained his degree from an Indian University or a foreign University cannot practice in India. He/she may engage in legal academics or legal research but is prohibited from practising law in India.

Not just foreign nationals but foreign law firms are also not allowed to practice law in Indian territory. The Bombay High Court in Lawyers Collective v. Bar Council of India held that  the practice of law by foreign firms in India is illegal and  that “the practice of law” under the Advocates Act in India encompasses all forms of practice, not just litigation practice in court but also corporate practice, advisory practice, mergers and acquisitions and the whole works.

Researched by: Satyaditya Singh Dhakare, NLIU Bhopal

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Merely obtaining a law degree, i.e. LL.B. does not entitle one to practice law as an advocate. There are some basic challenges of bureaucracy you must overcome in order to actually practice law. The legal profession in India is regulated by the Advocates Act, 1961 which in turn provides for the creation of Bar Council of India and State Bar Councils. To enter the profession as a practising lawyer, one has to enrol himself/herself as an advocate with any State Bar Council. Interestingly, there are only 18 State Bar Councils although there are 28 States in India.

What are the eligibility criteria?

Section 24 of the Advocates Act specifies the qualifications of a person entitled to be enrolled into the Bar. The section states that a person shall be qualified to be admitted as an advocate on a State roll, if he fulfills the following conditions:

1. He is a citizen of India, although a national of any other country may be admitted as an advocate on a State roll, if citizens of India, duly qualified, are permitted to practise law in that other country, subject to other restrictions (however, currently BCI has not permitted lawyers of any other country to practice in India).
2. He has completed the age of twenty-one years.
3. He has obtained a degree in law after the 12th day of March, 1967, after undergoing a course of study in law from any University in India which is recognised for the purposes of the Advocates Act by the Bar Council of India. If a lawyer has obtained a degree from any foreign university, such a person may be admitted only if the degree is recognised by the Bar Council of India.

Please note that the student has to get himself/herself enrolled with the State Bar Council in order to be eligible to appear for the All India Bar Examination (AIBE). Once the student has cracked the AIBE, he/she is eligible to practice law in the respective court.

Note that only the students graduating from the academic year 2009-10 onwards are required to write the Bar Exam, and earlier lawyers did not have to write this exam. Those students who graduated before the notification of 2009-10 do not have to give the exam even if they enrol now.

Very Useful Link for doubts: – http://www.barcouncilofindia.org/about/first-all-india-bar-examination/all-india-bar-examination-frequently-asked-questions/#whoshould

Eligible persons are admitted as advocates on the rolls of the State Bar Councils. The Advocates Act, 1961 empowers State Bar Councils to frame their own rules regarding enrolment of advocates.

Power with the State Bar Council

The State Council’s Enrolment Committee may scrutinise a candidate’s application. Those admitted as advocates by any State Bar Council are eligible for a Certificate of Enrolment. All applicants for enrolment as advocates are required under Section 24 (1) (f) of the Advocates Act, 1961 to pay an enrolment fee of Rs.600/- (Rupees Six hundred only) to the respective State Bar Council and Rs.150/- (Rupees One hundred Fifty only) to the Bar Council of India. These payments should be made using separate demand drafts.

Different state bar councils have formulated their own rules regarding enrolment as an advocate. However, most of the State Bar Council requires the candidate to submit an application along with the degree of law and mark-sheets along with judicial Stamp paper and requisite fees.

However, the amount of money is not confined to the Rs. 750-/ as far as the different state bar councils are concerned. There are several other fees, insurance premiums, Gazette Notification costs, Advocate’s Card costs etc. involved, which brings the total amount required close to Rs. 4000/- to Rs. 5000/-, and sometimes more, depending on the state where one gets enrolled.

Important: Those engaged in service or business cannot enrol
A person who is otherwise qualified to be admitted as an advocate, but is either in full or part-time service or employment or is engaged in any trade, business or profession shall not be admitted as an advocate.

All the papers for enrolment should be presented before the Secretary, Bar Council, in person on the days designated by the respective state bar council.

BCI helpline

When BCI started the AIBE, they also opened a telephonic helpline to clarify all doubts with respect to enrolment with the bar. However, this number is rarely reachable.

Helpline numbers for information about the All India Bar Examination.
The numbers are: 011-49225022 (English) or 011-49225023 (Hindi)
The timings for the helpline numbers are: 10.30 am – 1 pm (Morning) 2 pm – 4.30 pm (Evening)

You can also write in with your queries to barexam@barcouncilofindia.org.

Once you are done with registration with the State Bar Council, you can appear in the All India Bar Examination and after passing the exam, you can finally practice.

How to enrol with state bar councils

Below is the list of Bar Councils in India and hyperlinks of a selected few that would take you to detailed procedure for enrolment in those state bar councils.

Bar Council of Andhra Pradesh –
Official website: http://www.barcouncilap.org/
Contact No.: (040) 6685 9885, 6685 4785.

Bar Council of Assam, Nagaland, Meghalaya, Manipur, Tripura, Mizoram & Arunachal Pradesh – Click here to know how to enrol
Official website: http://www.barcouncilassametc.org/aboutus.htm
Contact No.: (0361) 2544663, 2734840, 099545-46004.

Bar Council of Bihar –
No Official website, Blog Available: http://biharstatebarcouncil.blogspot.in/
Contact No.: (0612) 2505583, 2221125.

Bar Council of Chhattisgarh
No Official website, Information available on: http://www.lawtoday.in/5.php
Contact No.: (07752) 410169, 413500.

Bar Council of Delhi – Click here to know how to enrol
No Official website, Information available on: http://www.lawtoday.in/6.php
Contact No.: (011) 2338 7701.

Bar Council of Gujarat – Click here to know how to enrol
Official website: http://www.barcouncilofgujarat.org/
Contact No.: (079) 27663460, 27434073.

Bar Council of Himachal Pradesh
No Official website, Information available on: http://www.lawtoday.in/8.php
Contact no.: (0177) 2812017.

Bar Council of Karnataka – Click here to know how to enrol
Official website: http://ksbc.org.in/index.aspx
Contact No.: (080) 22484875.

Bar Council of Kerala
Official website: http://www.barcouncilkerala.com/
Contact No.: (0484) 2394195, 2393810.

Bar Council of Madhya Pradesh
Official website: http://sbcofmp.org.in/
Contact No.: (07662) 250638.

Bar Council of Maharashtra & Goa – Click here to know how to enrol
Official website: www.barcouncilmahgoa.org
Contact no.: (022) 2265 6567 / 22677508.

Bar Council of Odhisa
Official website: http://odishabarcouncil.org/
Contact No.: (0671) 2507885, 2508453.

Bar Council of Punjab & Haryana
No Official website, Information available on: http://www.lawtoday.in/15.php
Contact No.: (0172) 2688519, 2688507.

Bar Council of Rajasthan
Official website: http://barcouncilofrajasthan.org/
Contact No.: (0291) 2545066, 2545251.

Bar Council of Tamil Nadu
Official website: http://barcounciloftamilnadu.org/
Contact No.: (044) 2534 2739.

Bar Council of Uttar Pradesh
No Official website, Information available on http://www.lawtoday.in/17.php
Contact No.: (542) 2508658, 2382805

Bar Council of West Bengal
Official website: http://wbbarcouncil.org/
Contact No.: (033) 2248 8956, 2248 7233, 2230 5771

High Court of Jammu and Kashmir
There is no State Bar Council, powers are vested in the High Court.
Many PILs have also been filed by lawyers to constitute a State Bar Council.
Interestingly, there is a website (http://www.ajkbarcouncil.com/), which claims to have a Bar Council for Azad Jammu & Kashmir.

State Bar Councils without Official websites:-

• Bar Council of Bihar
• Bar Council of Chhattisgarh
• Bar Council of Delhi
• Bar Council of Himachal Pradesh
• Bar Council of Punjab and Haryana
• Bar Council of Uttar Pradesh

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