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Evolution of Labour Legislation in India

The regulation in the case of labour and employment is often referred to as Industrial legislation in India. The historical past of labour legislation in India is interwoven with the history of British colonialism. The commercial/labour legislations enacted by the British hadbeen notably supposed to shield the pursuits of the British employers. Considerations of British political economy were naturally paramount in shaping a few of these early legal guidelines. Thus, came the Factories Act. Its good identified that Indian textile items furnished stiff competition to British textiles within the export market and therefore as a way to make India labour costlier the Factories Act wasonce first presented in 1883 for the reason that of the strain brought on the Britishparliament by the fabric magnates of Manchester and Lancashire. For this reason, India obtained the first stipulation of eight hours of labour, the abolition of little one labour, and the limit of ladies in night employment, and the introduction of extratime wages for work past eight hours. Even as the impact of this measure was once obviously welfare the true motivation was without doubt protectionist. The earliest Indian statute to regulate the connection between employer and his workmen was the trade Dispute Act, 1929 (Act 7 of 1929). Provisions had been made in this Act for restraining the rights of strike and lock out but no equipment used to be supplied to handle disputes. The customary colonial laws underwent enormous changes in the post-colonial generation considering unbiased India referred to as for a clearpartnership between labour and capital. The content material of this partnership used to be unanimously approved in a tripartite convention in December 1947 wherein it used to be agreed that labour would be given a reasonable wage and reasonable working conditions and in return capital would receive the fullest co-operation of labour for uninterrupted production and bigger productivity as a part of the approach for countrywide fiscal progress and that all concerned would realize a truce interval of three years free from strikes and lockouts. Finally, the Industrial Disputes Act (the Act) brought into force on 1.04.1947 repealing the exchange Disputes Act 1929 has due to the fact remained on statute book.

What’s Labour Inspection?

Labour inspection is a public carry out of labour administration that ensures the utility of labour law in the office. Its primary position is to convince the social partners of the should examine the rules on the workplace and their mutual curiosity in this regard, by way of preventive, academic and, the place crucial, enforcement measures. In the global era of labour, labour inspection is the most required tool of state presence and intervention to layout, stimulate, and contribute to the progress of a tradition of prevention masking all points potentially underneath its purview: business family members, wages everyday conditions of work, occupational safety and properly-being, and issues regarding employment and social security. In the meantime, labour inspectorates take part in their responsibilities in a difficult surroundings involving vital changes in the monetary and social context, in business developments; in the business enterprise of labour and employment dating; within the social and political expectations, and in technological know-how and within the nature of work dangers. An effective and outstanding labour inspectorate ought to be well funded, exact staffed, and nicely organised. The need to guide inspection systems has emerged as more obvious in current years. Labour inspection offers a complete approach to a huge type of the issues that have arisen in keeping with globalisation. An effective characteristic for labour administration, combined with socially responsible corporations and sound commercial members of the own family could be a win-win process for promoting sustainable progress.

To at ease the enforcement of the legal provisions in terms of stipulations of labour and defence of employees, the Conventions furnish, inter alia, that the approach of labour inspection shall have the mission of supplying technical expertise and advice to employers and staff. Whilst such advice and expertise can only motivate compliance with authorized provisions, it will have to nevertheless be accompanied by an enforcement mechanism enabling these guilty of violations reported by labour inspectors to be prosecuted.

Violations could also be the effect of failure to understand the phrases or scope of the relevant laws or rules. For that reason, the labour inspectors have got to normally have discretion to select to not impose penalties as a means of enforcing legal provisions.

Labour Inspection vs. Management of Labor Justice

each are public services that share the cause of the implementation of the labour legal guidelines however they’re separate institutions and feature exceptional mandates for engaging in complementary dreams. The administration of Labour Justice specialises in labour law and its task is to remedy character and collective authorized disputes. Even though in distinct worldwide places the labour inspection method is entrusted with mediation and conciliation of labour conflicts, the ILO requirements advocate that the matter be entrusted to a separate body. In a delegated quantity of nations, there are specialised business members of the own family departments for conciliation and mediation inside the Labour administration for dealing with those conflicts. That is top-rated as a way to hold the credibility of the labour inspection process.

Labour Inspection vs. Technical Inspection

a few immoderate-hazard places of work or operations require larger interest and professional skills than others to make sure that the dangers are correctly managed and controlled. Those incorporate fundamental chance web sites like many chemical works or nuclear power plant life, exact laboratories (e.g. microbiological ones) as well as boilers, cranes, electrical or fuel installations, and work with ionising radiations. In many nations, the inspection of such dangerous plants or operations is entrusted to expert technical firms, which is likewise every day or accepted by the Ministry of Labour, as an alternative than labour inspectors themselves. Such professional firms will on the whole inspect primary plant life or operations at legally prescribed durations and submit a record or certificate to the company worried. Moreover, labour inspectors will test that essential certificates are available and up to date for the duration of their inspections.

Endeavor of Freedom of Organization and Right to Collective Bargaining

Labour inspection officers often undergo obligations in the subject of industrial relations, with regards to the pastime of trade union rights and defence of exchange union individuals. One such assignment is the registration of alternate unions, ordinarily accompanied by using verification of the legality of them via-laws.

The position assigned to labour inspectors in the area of commercial members of the organization tends to take the type of close supervision of the jobs of trade unions and employers in corporations to ensure that they do not exceed the limits laid down via authorized provisions, their own interior rules and their by-laws. The Committee can handiest express its reservations when immoderate use is manufactured from such supervision to the extent that it takes the form of acts of interference in these organizations reliable events. It remembers that the labour inspectorate should only act in fine circumstances similar to offences or violations of the regulation denounced by means of a large number of members. On this regard, the Committee noted with pleasure the repeal of detailed provisions of legislation authorizing labour inspectors to interfere in alternate union’s interior affairs.

Labour inspectors may just contribute to the system of revising collective agreements; they register and supervise such agreements. In contrast, a contemporary Ministerial Ordinance established that the labour inspection would not revise the provisions of collective agreements registered with the aid of the Labour Ministry.

Power of Labor Inspectors –

Make such examination and inquiry as he cerebrates fit in order to ascertain whether the rules made there under are observed

Enter, inspect and probe any premises of factory or industrial establishment at any plausible time for the purport of carrying out the objectives. They have power to take any assistance which they cerebrate indispensable.

Supervise the persons employed in any factory or industrial establishment

He can take on the spot or otherwise verbal expression of any person for carrying out the purposes of work.

Seize or take facsimiles of registers or documents or portions thereof as he may consider germane in reverence of any offence which he has reason to believe has been committed by an employer

Exercise such other powers as may be described.

Labor Inspectors Ought To:

Seek advice from technical colleagues and test relevant felony texts, tips and publications to make sure that tips proposed or commands given are correct;

Consult the notes taken at some stage in the inspection visit and the troubles raised on the remaining assembly;

Re-observe the issues recognized and confirm, via non-public mirrored image, that

they are, in reality, the concern ones;

Determine what movement to tackle every hassle. This can rely on an evaluation of its seriousness, the inspector’s powers under the regulation and, most importantly, what is likely to improve the administrative centre scenario in a sustainable manner.

The inspector should determine to confine motion to advising on how great to comply with the regulation or, if the problem isn’t always, or not totally, covered via prison provisions, advising on how to rectify the scenario. Where a problem pertains to certain sections of the regulation or guidelines, the sections should be stated in any notification to the corporation. Wherein advice or a recommendation is based totally on a trendy or technical norm no longer designated by regulation, the difference should be made clean.

Appeals Against the Order of Certifying Officer:

Section 6 of the Industrial Employment (Standing Orders) Act, 1946 deals with appeals against the order of the Certifying officer to certify the Standing Orders under subsection (2) of Section 5. According to Section 6 of the Act, any employer, workmen, Trade Coalescence or other prescribed representatives of the workmen aggrieved by the order of the Certifying officer may prefer an appeal to the appellate ascendancy within thirty days from the date on which copies are send under subsection (3) of Section 5. The decision of the appellate ascendancy shall be final.

The appellate ascendancy shall within seven days of its orders under subsection (1) of Section 6, send copies to the certifying officer, to the employer or trade accumulation or any other prescribed representatives of workmen, accompanied, unless it has been attested without any amendment that the standing orders as certified by the Certifying Officer and authenticated in the manner as prescribed.

There is no specific provision in the Act empowering an Appellate authority to correct mistakes in the Standing orders finally certified by it under section 6(1) of the act, before the expiry of six months from the date on which the Standing Order or the last modification thereof came into operation in the manner provided in Section 10 of the Act, that is expect on an agreement between the employer and the workmen[1].

When an appeal is preferred under section 6 of the Act the Standing Orders cannot be completely cancelled, they can either be confirmed or modified.[2]In view of section 7 of the Act, consequence of its operation certain rights and liabilities are created not only in the employees but also in the employers. It cannot be said that such order would not bind the workmen as the employer failed to comply with the provisions regarding translation and Publication of Standing Orders in question. Section 5 and 6 clearly contemplate filing of objection, hearing and decision, and then making it open to the aggrieved party to file an appeal before the prescribed authority.

In Badrapur Power Engineers Association V. Deputy Chief Labour Commissioner and others[3], the certified standing orders were despatched on 7th January 1991 and the appeal was filed on 6th February 1991. The question was whether the appeal was filed within the prescribed period of 30 days. It was held that in view of the provisions of Section 6 an appeal could be filed within 30 days from the date on which copies of certified standing orders are sent. In this case the appeal was held to be filed within 30 days because January 7 was to be excluded in view of Section 9 (1) of the General Clause Act.

Section 13 Penalties and process: Non- submission of Draft Standing Orders via the business enterprise inside the time limit unique in the Act is made Penal underneath part 13 of the Act. In a similar fashion, amendment of Standing Orders or else than in keeping with the provisions laid down in section 10 of the Act shall also be punishable. For these screw ups a nice fine extending to Rupees five thousand may be imposed upon the organisation. In case of carrying on with offence once more excellent fine extending to Rupees two hundred per day after the first day throughout which the offence continues is also imposed upon the organisation. No prosecution for an offence punishable below section three of this Act will be instituted except with the earlier sanction of the suitable government. No court docket not as good as that of a Metropolitan magistrate or a Judicial magistrate of the second type shall be attempting to try out an offence beneath the Act. Any person whose right has been affected by an order of the authorities under this Act can go to the High Court under Article 226 of the Constitution for the enforcement of his right by means of any directions or writ in the nature of certiorari or mandamus[4].

Charge- Sheet

Charge betokens an acquisition. As a general rule the inspector is too apprised of the acquisition in the commencement of the Enquiry. Every charge must be in indicting. No proceedings should be conducted against without any formation of a charge.

Afore launching a disciplinary enquiry, there should be carried out a preliminary investigation to ascertain whether, a prima facie case of malfeasance is evident. A disciplinary enquiry is initiated by accommodating a charge sheet on the inspector who is alleged to have committed the malfeasance.

Stages of an Enquiry

Following are the stages in the conduct of a disciplinary enquiry:

Issuing Charge sheet
Recording Evidence
Findings of enquiry officer
Punishment

After charge sheet has been issued and the enquiry convened, the management would call witness to give evidence orally before the enquiry officer. On the strength of the record of the proceedings the enquiry officer makes up his mind on the facts and comes to the conclusion on whether the facts disclosed before him do or do not disclose the commission of any misconduct. On the findings of the enquiry officer, the management decides on whether, to punish or not and also decides the severity of the punishment. Where charge sheets have not been properly served and notice of enquiry is not intimated, the enquiry is not considered to be held properly.

Provisions of Authorities Under Industrial Disputes Act 1947

The Industrial Disputes Act, 1947 is an Act which makes provision for the investigation and agreement of commercial disputes, and for specified other purposes.

The industrial Disputes Act because it stands at present is the end result of a series of ameliorative regulation, establishing from Bengal legislation VII of 1819. To the last change to the reward Act in 1996. The goal of the Act is to keep workforce from exploitation or whimsical directives of the organization, and similarly to maintain the group of workers from the indiscipline and illegal works of the personnel and their unions.

The amazing feature of this Act is that all factories and establishment, regardless of being registered or no longer underneath some other Act and regardless of the quantity of employees on the rolls, will come below its purview. The Act applies to every trade, alternate, venture, service, avocation and so forth, which is viewed as an enterprise underneath this Act. Underneath the provisions of business Disputes Act, 1947 the next judicial boards are constituted for resolving and adjudicating disputes.

Courts Of Enquiry (Section 6)

The part 6 of the Act presents for constitution of a courtroom of Enquiry with the aid of the correct executive, as party arises for investigating any subject appearing to be principal to or related with an industrial dispute. A court of Enquiry may comprise a number of impartial man or woman or humans.

Labor Courts (Section 7)

Part-7 under the industrial Dispute Act provides the proper executive could represent one or more Labour Courts for the adjudication of business disputes in relation to any subject exact within the second time table of the Act.

Industrial Tribunal [SECTION 7-A]

under the Sec 7-A of the Industrial Disputes Act supplies the right executive may constitute one or more Industrial Tribunals for the adjudication of business disputes when it comes to any subject, whether or not specified within the second schedule or 33rd schedule of the Act. Further, when the parties to the dispute jointly or individually make a further reference to a Tribunal, the right government is bound to make the reference consequently, whether it is convinced that the applicants signify the majority of each and every get together.

National Tribunal (Section 7-B)

The imperative government may just represent a number of national Industrial Tribunals for the adjudication of commercial disputes which, in the opinion of the primary government:

Contain questions of national significance or are of such a nature that industrial establishments situated in more than one State are likely to be all in favour of or littered with such disputes.

A countrywide Tribunal shall consist of 1 man or woman most effective to be appointed by using the imperative executive. A reference is also made to a country wide Industrial Tribunal irrespective of whether or not the matter relates to the 2nd or 3rd agenda. When the parties to an industrial dispute follow, in the prescribed manner, whether jointly or separately, for a reference to a country wide Industrial Tribunal, the suitable government, if convinced that the persons applying symbolize nearly all of each party, is bound to make the reference for that reason.

When a reference has been made to a country wide Industrial Tribunal, no Labour court docket or Industrial Tribunal shall have jurisdiction upon any matter which is below adjudication earlier than it in a similar fashion, proceedings pending before a Labour courtroom or Industrial Tribunal can be deemed too were quashed once a reference is made to a country wide Industrial Tribunal. A subject once mentioned a national Industrial Tribunal can’t thereafter be pointed out a Labour court docket or an Industrial Tribunal. Jurisdiction of Labour Courts and Industrial Tribunals is furnished beneath the following Schedules:

The second schedule narrates the next disorders:

The propriety or legality of an order handed with the aid of an enterprise beneath the standing Orders;

The applying and interpretation of standing Orders;

Discharge or dismissal of workmen including reinstatement of, or provide or remedy to, workmen wrongfully dismissed;

Withdrawal of any common concession or privilege;

Illegality or in any other case of a strike or lockout; and

All concerns as opposed to those particular within the 3rd schedule

Even though the dispute relates to any topic specified in the3rd schedule and which by and large should be mentioned an Industrial Tribunal, it is going to still be talked about a Labour court, if the dispute will not be more likely to influence greater than one hundred workmen.

Reference of Controversy to Boards, Courts or Tribunals

The Section 10, of Industrial Disputes Act, deals with the reference of commercial disputes by the suitable government to Boards, Courts or Tribunals. Reference of an industrial dispute underneath this section is within the nature of operative provision providing for reference of any matter concerning an industrial dispute or the dispute itself to numerous authorities created by the Act.

According to sub section one of section ten, wherever the suitable government is of the opinion that any industrial dispute exists or is understood, it’s going to at any time by written order.

Refer the dispute to a Board for promoting a settlement thereof;

Refer any matter showing to be connected with or relevant to the dispute to a court for inquiry;

Refer the dispute or any matter showing to be connected with, or relevant to, the dispute, if it relates to any matter laid out in the Second Schedule, to a labour Court for judgement

Refer the dispute or any matter showing to be connected with, or relevant to the dispute whether or not it relates to any matter laid out in the Second Schedule or the third schedule to a judicature for judgement.

According to the second provision to Section 10(1) wherever the dispute relates to public utility service and notice under section twenty two has been given the suitable Government shall build a reference in respect of a dispute. If it considers that the notice has been frivolously or annoying given or that it might be inexpedient the acceptable government needn’t refer the dispute.

According to Section 10(2), the parties to a dispute could apply either collectively or individually, to the acceptable government for a reference of the dispute to a Board, Court, and Tribunal. The acceptable government shall build the reference, if it’s glad that the person applying represents the bulk of every party.

Section 10(4) of the act says that the suitable government will specify the points for dispute for judgement within the order of reference or during a consequent order. The Labour Court or tribunal shall confine its assessment to those points and matters accompanying the points of dispute fixed by the acceptable government.

After referring a dispute, the govt. might create additional order of reference of the dispute incorporating such alternative similar nature industries to the dispute already referred, if the choice of such dispute might have an effect on upon the opposite industries of comparable nature.

In the case of Sindhu resettlement corporation. Ltd. V. Industrial tribunal of Gujrat, (AIR 1968 SC 529) it had been command that unless a dispute was raised by working person with their leader, it couldn’t become industrial dispute.

Constitutional validity of Section 10: The validity of Section 10 has been upheld by the Supreme Court as intra-vires. Hence, it’s not offending of any of constitutional provisions.

In D.C and G. Mills v. Shambhu Nath, (AIR 1978 SC 8) the court command that section 10 isn’t violative of Article 14 of the Constitution. Below Section 10, the powers are administrative powers aside from judicial or quasi-judicial power. Hence, there’s no application of Section 11 of Civil Procedure Code, i.e., Res-judicata.

Discriminatory Labour Practices

Chapter X of the act deals with ‘Unfair Labour Practices’. According to it no employer or workmen or Trade Union shall commit any unfair labour practice. Further, it is an offence under Section 25 (u). This practice has been prohibited to regulate industrial relations and to restore industrial peace. In this regard a new Schedule-V had been added. In this Schedule, various unfair labour practices have been defined.

Following are necessary practices that are listed as unfair and created punishable:

Practices that interfere with workmen within the exercise of their rights to organise, for connection or aiding a labour union or to have interaction in any involved activities for the aim of negotiation or alternative protection.

Threatening a lock-out or closure if a labour union is unionized.

Discharge or dismiss of workmen by means of victimization or on false reasons or untrue allegations.

Practices to get rid of the work of an everyday nature

Practices to transfer a working person malafidely from one place to a different underneath the pretence of management policy.

6) Insisting any individual working man to execute a bond for permitting them to resume work if they’re on a legal strike

7) Showing partiality to at least one set of employees over another set whereas disregard less deserves.

8) Discharging the standing and privileges of permanent workmen by using badlis or temporaries.

9) Discriminating workmen for filing charges.

10) Failure to implement award, settlement or any agreement

11) Proposing or continued embezzled opposition.

The above list of practices is not exhaustive and there is no scientific test to define the expression ‘unfair labour practice’. Thus any practice which violates the provisions of the constitution meant for the dignity, security, welfare and to promote living conditions for workmen amounts to unfair labour practice.

In United Bank of India v. Siddhartha Chakraborty, the respondent was cash clerk in commercial wing of the Appellant bank. He was dismissed from service on conclusion of departmental proceedings against him. He succeeded before a Single judge and Division Bench of High Court in challenging his dismissal as void for omission of appellants to seek approval under Section 33(2)(b) of the Industrial Dispute Act, 1947 as there was a pending dispute before the concerned authority.

In Management of Binny Ltd., Engineering Division, Chennai v. Presiding Officer, Industrial Tribunal, Chennai and another application for approbation of action taken was given by the management to the Industrial Tribunal and the Tribunal concluded that the enquiry against the workman was not conducted in a fair and congruous manner. It was held by the High Court that the domestic inquiry was fair and no procedural breach was committed causing prejudice to workman. The evidence or record proved that the workman was not inclined to participate in domestic enquiry and was resolute to evade the same by one pretext or other. It was further observed that natural equity could not be stretched so far as to sanction a person to take undue advantage and make enquiry a travesty. Observance or otherwise of principles of natural equity is not to be weighed in golden scale.

In L.H.Factories and Oil Mills, Pilibhit v. State of U.P (1961) I LLJ 686, some of the employees were promoted to the rank of driver-cum-assistant-fitter. Alternative ten employees who were senior in commission and conjointly higher qualified however weren’t thus promoted raised a dispute alleging discrimination within the matter of promotion. They alleged that they were put-upon for their labour union activities. The Labour Court was of the read that “promotions weren’t given on merits but were given to indulge one association at the value of rival association.” the corporate stuffed a judicial writ within the Allahabad tribunal. it had been command that the promotions were created to please one trades union and strengthen it against the rival union and to that the disputing workmen were members. It absolutely was determined that any systematic try by leader to use his powers of management to disrupt labour union of staff amounts to unfair labour practice. Unjust dismissals, unmerited promotion, partiality towards one set of staff despite merits are a few illustrations of Unfair Labour practice.

Conclusion

Efficacious labour administration systems, public employment accommodations and labour scrutiny, are very important for good governance of labour matters and for economic and sociable progress. These systems will build good work associate degree genuineness within the work by implementing labour standards and amending operating and employment conditions, therefore incrementing responsibleness, activity safety and health, aggressiveness and productivity with convivial equity. At the same time, labour administration systems will avail stimulate economic magnification by developing and implementing economic and gregarious policies designed to engender higher employment rates, convivial cohesion and good work.

Labour administration and review systems nowadays operate in a very speedily transmuting surroundingsCharacterized by dramatic economic, institutional, demographic and political transformations,including transmuting patterns of engenderment, work organization, employment structures andRelationships, labour migration and cross-border postings, outsourcing and elongated ecumenicalSupply chains, and also the growth of the informal economy.

Labour review systems, unconditionally those in developing countries, face varied challengesthat are mundane to labour administrations holistically, together with the requisite for incremented monetary resources, additional punctually qualified inspectors, higher instrumentality and higher coaching, and amendedrecruitment procedures.

Labour scrutiny should be a public perquisite and be in accordance with international labour standards. However, the past decades have visually perceived a magnification privately auditing initiatives like the institution of good-time reportage and personal observation systems. There’s danger that some sorts of non-public initiatives may undermine public labour scrutiny. Problems of personal compliance initiatives, self-regulation and potential public–private partnerships are unworthy of additional proximate examination.

Promoting and imposing tight operating conditions, safety and health standards and reverence for Fundamental principles and rights at work are at the core of labour scrutiny activities. This includes for instance, action to combat un-avowed work, kid and coerced labour. The provisions of labour law ought to apply equipollent to all or any staff and every one workplace. General compliance and preventive ways are essential for ascertaining fairness within the work and consequently property enterprises and economic magnification. These methods ought to cowl all staff, as well as those within the public sector, the informal economy, rural economy and agriculture and export process zones (EPZs). It’s unacceptable that some EPZs are exempted from elementary national labour laws. Labour inspectors face the challenge of ascertaining labour law compliance in workplaces that are arduous to notice (e.g. within the agricultural and construction sectors), or wherever the utilization relationship is specific (home-predicated work, domestic work), or is arduous to spot (incipient varieties of employment, outsourcing and complex offer supply chains).

In order to establish the integrity of labour review, conditions of accommodation for labour inspectors ought to replicate gender equipollence and facilitate employment stability and private security within the exercise of their functions, underpinned by a felicitous restrictive framework.

References:

I. Labour Inspection- A Guide to Profession (ILO)

II. International Labour Conference 100th Session, Geneva, June 2011

III. A handbook for Labour Inspection – ilo.org

IV. Building Modern and Effective Labour Inspection Systems- ILO

V. EPSU Report Labour Inspection Services

VI. A Brief Note on Labour Legislation of India

VII. Enforcement Manual for Inspectors- Department of Labour

VIII. Industrial Disputes Act, 1947

IX. Standing Orders Act, 1946

X. ICAI, ICWAI, ICSI Study Materials

XI. Labour & Industrial Laws by S.N.MISHRA

XII. Labour Laws by Rosedar SRA ( Lexis Nexis)

XIII. Industrial Relations and Labour Law by S.C.Srivastava

XIV. Introduction to Labour and Industrial Law by Avatar Singh & Harpreet Singh

[1]Patna Electricity Supply workers Union v. A. Hussain, A.I.R. 1968 Pat. 427
[2]BijliMazdoorSangh v. Resident Engineer Allahabad, A.I.R. 1970 all. 589
[3] (1993) I L.L.J 991 (Delhi)
[4] A.R. Das Gupta v. Assam Tribunal, Guwahati, A.I.R. 1965 Assam 40

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In this article, Arunava Bandyopadhyay who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses Impact of GST on manufacturing sector.

Introduction

“Death, taxes and childbirth! There’s never any convenient time for any of them.”- Margaret Mitchell, Gone with the Wind

The quote quite truly depicts the uncertainty the society bears in its senses for the socio-economic term known as Taxes. We can fear it, we can delay it, we can hate it the most while its paid, but really we cannot avoid it. It’s part of our every transaction whether cash or digital. It’s a sole man made concept of nation building and balancing the economic well-being of the dwellers. Though we all have heard of various ancient forms of tax collection modes followed from the ancient times and even during the barter system, the basic advent of the modern taxation system is guided by the Canons of Taxation from great economist Adam Smith in his book “The Wealth of Nations”.
The Canons of Equity, Certainty, Economy and Convenience are always the guiding principle for defining the Taxes being levied by any Nation. Indian, being a diverse and booming economy, took this guidance more than seriously and could gave birth to a number of Taxes sufficient to keep the citizens confused for more than a century. In the 21^st Century, Indian Government took initiative in simplifying it from the root level by launching a new taxation system known as Goods and Services Tax (GST), which will replace a lot many confusing and burdensome taxes and will make things look simpler. Let us embark into the journey in analyzing the impact of GST on the great Indian Manufacturing Sector and we will find out ourselves whether it really simplifies or is a new burden.

The Present Taxation System in Indian Manufacturing Sector

The Indian Taxation system can be broadly divided into two major categories- Direct Taxes and Indirect Taxes. The nomenclature is purely based on whether the tax burden is borne the by the payer directly or shifted to others in the value chain. The Manufacturing sector itself is majorly governed by the Indirect Taxes regime. The Indirect Taxes are further notoriously named as Excise Duty, Sales Tax and Service tax.

Excise Duty

As per section 3 of the “Central Excise Act” 1944, Excise Duty is levied on manufacture of goods, if not otherwise exempted like Salt produced or manufactured in India. The rates are defined in the schedule to the Central Excise and Tariff Act, 1985. It is to be noted that the Excise Duty is not on sale but on removal or clearance of goods which may or may not coincide with sale of the goods. Based on Harmonized system of classification Excise Duty rates are different for each product. Also, apart from Basic Excise Duty, there are Special Excise Duty, Additional Duties of Excise (Textiles and Textile articles) and Additional Duties of Excise (Goods of Special Importance). National Calamity Contingent Duty (NCCD) is another such duty charged on specific goods like tobacco products and mobile phones, as section 136 of Finance Act , 2001. Presently the general rate is 12.5% for excisable goods.

Sales Tax

This tax is levied on sale of goods. Sales Tax is charged both by State as well as Central Government. The State government can charge Sales Tax for intra-state sales and is known as Value Added Tax (VAT) and Central government is empowered to collect Central Sales Tax (CST) on inter –state sale of goods. So each state has its own VAT specific rules.

Local Body Taxes

Sometimes for some specific areas or states or local authority applies local tax which is Local Body Tax (LBT) or Octroi.

Service Tax

It is charged by Service Provider to the Service Recipient and finally is payable to the Central Government. It is governed by the Finance Act, 1994 and its relevant notifications.

Custom Duty

As per Customs Act, 1962 read with Customs Tariff Act 1975, Customs Duty is payable to Central Government on Import of Goods to India. Anti-Dumping Duties, Countervailing Duty of Customs (CVD) like excise duty are applied to boost Indian Manufacturing industry by making imported goods costlier than local produced.

Deficiency in the Present System

The biggest problem with Indirect Taxes is prevailing since its inception. It is a well-known issue called Tax on Tax or Cascading Effect of Taxes. Let’s explore this issue:

Suppose a manufacturer of product A procures raw material at Rs. 100 and pays sales tax of 10%, incurs processing cost of Rs. 25 and keeps operating profit of Rs. 50, so total price of the product Rs. 185, now when this product is bought by another company they pay 10% tax on this product so total cost becomes Rs. 203.5 and when this company sells it to a consumer it again charges Sales Tax, so effectively it becomes a Tax on Tax.

To overcome this problem VAT concept was evolved through which the buyer gets credit of the Tax paid at earlier stage. But still there is a problem , the VAT is calculated on the value which includes Excise Duty and the credit of VAT is not available against Excise Duty and vice versa.
Further VAT rates generally vary across states and the states tend to undercut rates to attract investment which ultimately results in loss of revenue for state as well as central government.
In the present tax system a organization that pays all four major indirect taxes such as VAT, CST, Excise Duty and Service Tax has to file four returns to 4 different departments to get benefit of input tax adjustment against output tax , though it is not available for CST.
The involvement of so many departments and tax personnel’s makes tax a haunting topic and increases corruption manifold.

Let’s take another example of CST – VAT double taxation. Suppose X from Uttar Pradesh sales goods to Y from West Bengal. Now Y does some value addition and sells it to Z in Uttar Pradesh . The cost scenario will be as follows:

	Present System
Input Cost	15000
CST @5%	750
Total Cost	15750
Margin	2000
Sales Price	17750
VAT@14%	2485
Total Sale Price	20235
VAT Payable	2485

The VAT payable is inflated due to double taxation as Input Tax credit is not available.

The multiple taxation system from state to state creates the necessity create barriers across states , which affects the Logistics Efficiency and requirement of paperwork and road permits , which leads to more corruption and high cost of compliance that ultimately gets compensated by the common man in the form of inflationary prices.

Brief History of GST

GST was first introduced in France in 1954.
In India , in 1974 the L K Jha committee first highlighted the need to move into Value Added Tax regime .
In 1991 , Chelliah committee recommended VAT or GST implementation.
In 1994, Service Tax implemented in India
In the year 2000, the Central Government under the Prime Minister ship of Mr. Atal Bihari Vajpayee set up a committee headed by Mr. Asim Dasgupta to design a model taxation scheme for a universal tax in India.
In 2003, Haryana become the first State to implement VAT
In 2004 CENVAT introduced to integrate Central Level taxes
In 2006, Union Finance minister Mr. Chidambaram proposed roll out of GST by April 2010.
In 2007, the report on GST submitted by Joint Working Group got accepted by the Empowered Committee.
The committee released its First Discussion Paper (FDP) on GST in November 2009.
In 2011 , Mr. Nandan Nilekani released Information Technology Strategy for GST.
After several years of political drama, the Lok Sabha in 2015 passed the 122^nd Constitutional Amendment Bill for GST.
As per present proposal, GST will become effective from 2^nd July 2017.

What is GST ? How it works?

The Goods and Service Tax system is a proposed indirect taxation system which is supposed simplify the present tax system and merge it into a single taxation system. It is being implemented vide the 101^st Constitution Amendment Act 2016. It is a consumption based tax. The basic principle is to tax the value addition at each transaction. The Tax paid on purchases is allowed as a credit against liability on output / income. It will be levied on all transactions of services and goods.

It is proposed to implement “Dual GST” system in India. All the transactions of services and goods would attract the following two GST:

Central GST- tax collection by Central Government
State GST- tax collection by State Government
IGST – Integrated GST – collection by Central Government

For Sales within the state, earlier VAT and Excise Duty/Service tax will be replaced by SGST and CGST.

For Sales outside the state, earlier CST and Excise Duty/Service tax will be replaced by IGST–which will be paid to the center.

GST will be a destination based tax instead of origin based tax and will be imposed at the point of consumption.

Basically, GST will subsume the following indirect taxes:

At Central level

Central Excise Duty (including Additional Duties of Excise)
Service Tax
CVD (levied on imports in lieu of Excise duty)
SACD (levied on imports in lieu of VAT)
Central Sales Tax
Excise Duty levied on Medicinal and Toiletries preparations,
Surcharges and cesses

At State level

VAT/Sales tax
Entertainment tax (unless it is levied by the local bodies)
Luxury Tax
Taxes on lottery, betting and gambling
Entry tax not in lieu of Octroi
Cess and Surcharges

The items those will remain outside GST regime are:

Alcohol
Petroleum Products
Land
Properties

There will be one CGST law and 31 SGST law for each of the States including two Union Territories and one IGST law governing inter-State supplies of goods and services

From the press release dated 4 December 2015, the Revenue Neutral Rate (RNR) as proposed by the Chief Economic Advisor Shri. Arvind Subramanian indicated the following GST rate structure:

Now, let’s consider different scenarios,

Sale and resale in the same state

For intra state Sales, CGST and SGST will be levied and the collection will go to respective governments. When resold within the same state, CGST and SGST will be levied on increased Sale Price so tax liability will increase, however now the credit of input CGST and SGST will be available and only the remaining taxes will go to the respective governments. As it is between the same government of the state so there is no question of credit transfer.

Intra state Sale and resale in different states

For the initial intra state sale CGST and SGST will be applicable. For the inter-state resale IGST will be applicable and it will entirely go to central government. Against IGST both the input CGST and SGST will be taken credit of, but the SGST never went to the central government, which amounts to a loss to the central government and it ultimately is compensated by the State Govt. by transferring the credit.

Inter-state Sale and resale in the same state

IGST will be applicable for the inter-state sale and for resale intra-state CGST and SGST will be applicable. Now for the resale 50% of the IGST credit is taken against CGST and SGST. But here IGST never went to State Govt, so the central govt. compensates state government by transferring the credit.

Advantages of GST

Multiple taxations removed
Single market for the country
Goods and Services at same rate
Reduced Tax on manufacturers
Credit process simplified

Impact of GST on Manufacturing Sector

The complex tax system in India has affected the progression of Manufacturing sector of India for a long time now. With the Make in India initiative India is on its way to become a major manufacturing hub for Asia and the world, but unless the Tax system is simplified the dream will not be fulfilled. The implementation of the unified taxation system will be a positive step towards this mission and will help the manufacturing sector to stand up and recover.

The analysis of GST’s possible impact on manufacturing sector can be done through analyzing its impact on production cost, operation cost, logistics cost and time and compliance savings. Let’s analyze:

Impact on Production Cost

As already explained above GST removes the cascading effect of taxes. This will sufficiently reduce raw material cost and production cost. Further easier Tax credit system will allow better accounting and cash-flow situation for the organizations.

Reduction of Transportation time and costs

GST will ensure removal of multiple checkpoints and permits at state border checkpoints. Almost 60% of logistics effort and time will be saved which ensure more road hours and faster delivery. This will make the manufacturer’s more competitive and will effectively reduce the price of goods at better quality.

Less requirement of Warehouses

Earlier the state based indirect tax system required manufacturers to set up local warehouses to save cost. The GST system will ensure lesser Warehouse setup requirement. These savings will help the manufacturers in capacity buildup and produce more economically. This will lead the pathway to Just in Time (JIT) production philosophy and less wastage. This would allow a firm to take advantage of economies of scale and consolidate warehouses at the same time reduce capital deployed in the business. At the same time, IT costs of having ERPs deployed at many small warehouses can be saved. This will pave the way for improved service levels at lower cost in the overall supply chain.

Removal of Area Based Incentives

GST will effectively absolve the Area based incentive scheme and this will ensure the attractiveness of business to other locations and widely spread across the nation.

Easy Credit availment

Removing the restrictions, now service providers can also avail the credit of VAT/ GST paid on inputs procured, which ultimately will get passed on to the Supply Chain as cost savings.

The advent of geographical business locations

The decision of setting up business/ logistics/warehousing location will now be dealt by geographical positioning and not on tax based decisions. Many new locations will come up as attractive warehousing or logistic bases. Ultimately this savings will pass into the supply value chain and help in optimizing end product cost.
The integration of tax on Goods and Services through GST would provide the additional benefit of providing credit for service tax paid by manufacturers. With the implementation of GST, cost of any services, including logistics, will be considered a value add, and the manufacturer will get tax credit for the service tax paid.
As per the process depicted above Inter State sales will become effectively tax neutral due to the credit mechanism and will be lucrative then intra-state sales, which will help in One India set up.

Larger Warehouses Setup

With lesser location constraint, the manufacturers can club there warehouses and consolidate into one large warehouse with state – of –the art handling facilities and equipments. At the same time, with larger warehouses, transportation lot sizes will automatically increase, making way for more efficient bigger trucks.

Savings in Taxes payable:

The example we considered when input tax credit for VAT was not available. Under GST the calculation will come out as follows:

	Present	GST
Input Cost	15000	15000
CST @5%	750	750
Total Cost	15750	15750
Margin	2000	2000
Sales Price	17750	17000
VAT@14%	2485	2380
Total Sale Price	20235	19380
VAT Payable	2485	1630

The savings in tax cost is clearly visible and this will ensure overall benefit to the economy and the society.

Development of Common National market

GST will be levied only at the final destination of consumption based on VAT principle and not at various points (from manufacturing to retail outlets). This will help in removing economic distortions and bring about the development of a common national market.

Export Business

GST is not applied to goods/ services exported out of India, hence it would offer some incentive to develop the export business.

Less Corruption

Less involvement of reporting and regulating bodies would ensure good governance and less corruption. It will enable reduction of Black money while need for financial compliance will increase, but will be easier with online accessibility.

Conclusion

The GST regime will be a game changer for Indian Economy and will provide competitive advantage to the Indian Manufacturing industry which accounts for 16% of the GDP. Thus GDP will also get boost with the proper implementation of these changes. However, the Indian political system needs to be adjustable to and mature to understand the cause of the nation rather than vote bank and petty political gains which has plagued the nation till now.
It is shame for a great nation like India that it took more than 15 years to implement such a beneficial system and slowed the progress of the nation. In the upcoming years Indian citizens and the world would like to see Indian manufacturing industry to lead the nation, then only India can become world leader and prosperous nation. It will accelerate Make in India and the Digital India initiatives and ensure optimized use of the nation’s tax revenue.
With the new GST, the cost of manufacturing goods is expected to reduce while the consumption goes up. India’s GDP is expected to grow by 1-2% with the proposed GST. Let’s hope for the GST to be implemented as per present plan and a safe progression into the economy with all proposed benefits being availed.

References

http://trak.in/tags/business/2015/03/09/overview-direct-indirect-taxation-tax-structure-india/
http://www.gstindia.com/gst-impact-on-manufacturing/
https://home.kpmg.com/in/en/home/services/tax/indirect-tax/goods-and-services-tax.html
http://www.ey.com/in/en/services/ey-goods-and-services-tax-gst
http://www.gstindia.com/history-of-gst/
http://www.gstindia.com/a-hand-book-for-gst-in-india-e-book/
http://www.gstindia.com/goods-st-gst-concept-impact/
https://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)
https://www.quora.com/What-is-the-difference-between-the-current-taxation-and-the-new-goods-and-services-tax-GST-in-India-What-is-the-impact

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In this article, Ritika Das who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses Regulations related to the domain name and how domain name disputes are resolved in India.

Regulations related to domain name and how domain name disputes are resolved

The innovation of a Computer is one of the most valued endowments of science. The wide utilization of the computer prompted to the further improvement in many fields of life through the media of Internet[1]. In the early 1990’s Internet was mainly used to send mails and gather information. Now with the rise of e-commerce there is quick development in business activities transpiring through the net. Today, Internet encourages us in all strolls of our life, from online banking, e-wallet, e-governance, online dispute resolution system, information, technology; the internet has been a podium for growth and development in every field.

While the benefits of utilizing Internet are indisputable, it is not free from the negative impacts. The internet has been inclined to various abuses on account of its intrinsic nature of having no limits. It has cleared the path for distinctive sorts of violations and various complexities in the virtual world[2]. In this way, the different parts of Internet have posed challenges not exclusively to the business aspect but in general. One such difficult issue which needs prompt consideration is the domain name-trademarks conflicts[3].

The aim of this article is to break down the aid attainable to domain name holders under the laws and regulations of India.

Introduction

Let’s first understand what a domain name is. Domain Name is a unique name provided to the entity using the particular space on the net, much like the telephone numbers provided to different people or organizations. Having a similar number, however, bizarre that maybe, would create a lot of confusion. Much like that having a similar domain name also causes a lot of confusion and causes damage to the original organization[4].
Domain name is an alpha-numeric memory aide that can be coined onto an Internet Protocol (“IP”) address to empower clients to “surf the Web” more effectively than if they needed to recall the name and specifications of every IP deliver they needed to visit. Domain name has been defined by Black’s Law Dictionary as “the words and characters that website owners designate for their registered Internet addresses. All domain names have at least two levels. The first level domain name identifies the registrants. The second-level domain name is the unique identifier for the user in particular. A second-level domain name may be protected under trademark law but first-level domain names are not.[5]”

Originally a domain names purpose was to act as an address for computers on the web. The Internet has, in any case, created from a mere means to communicate to a method of carrying on business. With the expansion of business on the Internet, a domain name is additionally utilized as an identification of such businesses. In short a domain name is not only for providing an address to an Internet Communication but also is an address for any specific site.

A domain name system is under the rules and regulations of the Internet Corporation for Assigned Names and Numbers (ICANN).

There is a developing weight on trademark owners to get the rights over the domain name for their organization. A large portion of the organizations people still observes the “.com” domain is the most befitting and copacetic for business. Due to over 15 million “.com” “.org” and “.net” names are already catalogued and more often than not the domain name of a company’s choice is already taken, companies don’t mind spending lump sum amount to buy a domain name from a third party. Domain Name is much more than an Internet Address, for it likewise recognizes the Internet website to the individuals who achieve it, much like a man’s name distinguishes a specific individual, or as more pertinent to trademark debate, a Company’s name distinguishes a particular Company[6].

Domain Names in India

Choosing a Domain Name is probably the most initial and integral step of a Company or organization towards setting up an individuality in cyberspace. Domain names are like names to a site much like names are to humans, through which the network and computers know who the owner of a particular site is or who has control over the resources.
The registration of Domain Names is becoming more and more important for a company to be set up. There are millions of people searching the net and using the search engine to locate companies and their products. To make it easier for customers to find a particular company, the domain name should be similar to the work that is being done by the Company[7].
The protection of domain name in India has been in some ways, a great one, on the grounds that the Courts of India have been more patient towards the idea of giving lawful security to domain name as that to trademarks. Domain names are similar to trademark, and are not mere addresses, it is qualified for equivalent safeguard and protection much like the trademark.
To make it all the more clear, this piece of the article will investigate couple of imperative cases that are chosen by Indian Courts keeping in mind the end goal to substantiate the above explanation. In the case of Tata Sons Ltd. v. Manukosuri and Others the Hon’ble Court held that domain names ought to be granted protection much like the trademark. Trademark law applies to the exercises or activities that are done on the web, and the simple truth is that the many applicants have not registered their domain names. For the most part in India, the entanglements start when a person gets a domain name enrolled with the Registering Authority, if more often than not happens to be the Trade Name of some other individual. There is no system in the Registry to inquire whether a Domain Name has already been taken or not. It has been observed through a case Minerals Ltd. v. Pramod Borse and Another that the courts law emphasis on the intention of the party to have a particular domain name. A person’s objective is the most important thing to see. If a person had ill intentions while acquiring a name that already has been taken and wanted to be deceptive, then the court will make this a ground for injunction[8].

It has been stated in the aforementioned case that: “unless and until a person has credible explanation as to why did he choose a particular name for registration as a domain name or for that purpose as a trade name which was already in long and prior existence and has established its goodwill and reputation; there is no other inference drawn than that the said person wanted to trade in the name of trade name he has picked up for registration or as a domain name because of its being an established name with widespread reputation and goodwill achieved at huge cost and expenses involved in advertisement.[9]”

Using a generic name or a mark as a domain name may be granted protection. Although using two generic terms together in a particular way may be infringement. For example, the word “Aaj” and “tak” may be generic terms and may not be monopolized by any individual or company although both of them together would provide for protection as a trademark. A similar observation had been made by the High Court of Kerala in respect to the words “Pen” and “Books”, although a combination of both the words have been granted protection under the Trademark Law[10].

In the year of 2005, India opened up the “.in” nation code, permitting boundless second-level enlistments under “.in.” and boundless enrolments under organized zones which have been existing, for example, “.co.in” and ‘.org.in’. With India’s total national output developing at a rate of more than 8%, and a development spurt in the nation’s carefully wise youthful populace, there was a race to get space names in the “.in” area. This freedom was additionally abused by cybersquatters[11].

To attend to the protests from rights holders, in 2005 the “.in” Registry planned the “.in” Domain Dispute Resolution Policy (INDRP) along the lines of the Uniform Domain Name Dispute Resolution Policy.

The grounds on which an objection can be recorded are as per the following[12]:

The registrant’s space name is indistinguishable or confusingly like a name, trademark in which the complainant has the rights to;
The registrant has no rights or honest to goodness interests in regard of the domain name; or
The registrant’s domain name has been registered or is being used in bad faith[13].

One of the first complaints under the INDRP was recorded in 2006. From that point forward, more than 300 complaints have been recorded and speedily resolved under the INDRP. It is not just foreign brand proprietors -, for example, Google, Dell and Disney – that have effectively gained domain names from cybersquatters under the INDRP. Indian organizations, for example, Airtel and Pantaloons, have likewise utilized this strategy to prevent third party from utilizing domain names[14].

Trademark v. Domain name

There is a contrast between a trademark and a domain name, which is not significant to the right of a proprietor regarding the domain name, however is material to the “scope of the protection” accessible to a party. The difference lies in the way in which the two function. A trademark is ensured by the laws of a nation where such trademark might be enrolled.
Thus, a trademark may have different enlistments in numerous countries all through the world. Then again, since the web takes into consideration access with no geographical constraint, a domain name is conceivably available regardless of the geological area of the purchasers. The result of this potential for general network is not just that a domain name would require overall exclusivity but also additionally that national laws may be insufficient to successfully ensure a domain name. The lacuna required universal control of the domain name framework (DNS).
This universal regulation was affected through WIPO (World Intellectual Property Organisation) and ICANN (The Internet Corporation for Assigned Names and Numbers.). The result of the discussion amongst ICANN and WIPO has brought about the setting up not just of an arrangement for registration of domain names with authorize Registrars, but also additionally the development of the Uniform Domain Name Disputes Resolution Policy (UDNDR Policy) by ICANN on 24th October 1999.
To the extent of enrolment is concerned, it is given on a “first come first serve basis”. Other than that, UDNDR Policy is enlightening with regards to the sort of rights which a domain name proprietor may have upon enrolment with ICANN Registrars[15].

Factors that are considered to decide the nature of deceptive similarity

“Nature of the word marks, the label, or the composite marks.
Nature of the goods.
Similarity in nature, character and performance of goods.
Class of purchasers likely to buy the goods bearing the marks.
The mode of purchasing the goods.
Other surrounding circumstances.” [16].

Domain name and dispute resolution

To attain clarity lets understand what the types of disputes under a domain name are:

Types of dispute

Any Person who looks at that as an enlisted domain name which clashes with his rights or interests may document a Complaint to the .IN Registry on the accompanying premises[17]:

The Registrant’s domain name is indistinguishable or confusingly identical to a name or a trademark in which the Complainant has rights.
The Registrant has no rights or interests in regard of the domain name;
The Registrant’s domain name has been enrolled or is being utilized in a malafide manner[18].

In cases when such disputes arise and a Complainant files a complaint to the .IN Registry in compliance with the Rules and Regulations, the Registrant is required to go through Arbitration proceeding

Procedure of dispute resolutions

The Registry maintains a list of Arbitrators from which the .IN Registry appoints an Arbitrator resolve the said dispute. This list containing the Arbitrators are published online by the .IN Registry on their website: www.registry.in[19].

The Arbitrator should lead the Arbitration Proceedings as per the Arbitration and Conciliation Act 1996 and in compliance with this Policy and rules there under[20].

Registrant’s rights over the domain name

During the proceeding if the Arbitrator finds out any of the following circumstances depending on the evidence gathered shall display the Registrants right to the domain name:

Prior to any notice to the Registrant of the question, the Registrant’s utilization of, or evident arrangements to utilize, the domain name or a name relating to the domain name regarding providing goods and services.;
the Registrant (as an individual, business, or other association) has been ordinarily known by the domain name, regardless of the possibility that the Registrant has procured no trademark.

The Registrant is making a genuine reasonable utilization of the domain name, without any goal for business profit to mislead or redirect buyers or use the trademark with malafide intention[21].

Remedies

The remedy accessible to a Complainant’s compliant with any procedure before an Arbitrator might be restricted to requiring the cancellation of the Registrant’s domain name or the exchange of the Registrant’s domain name registration to the Complainant;s Cost as might be considered fit may likewise be granted by the Arbitrator[22].

Dispute resolution through Court proceedings

The documentation of an issue under the UDRP does not keep either party from presenting an argument before a court for a resolution either earlier or in accordance with the completion of procedures before the Administrative Panel. In the event that an Administrative Panel chooses that the domain name enrollment ought to be annulled or exchanged, there is a period of 10 working days granted wherein the documentation of the lawsuit must be sent to the concerned Service Provider[23].

No further move will be made by the Service Provider until it gets[24]:

Fair proof of a resolution of the debate between the parties;
Adequate demonstration that the claim has been expelled or retracted;
An order copy of the Hon’ble Court dismissing the lawsuit or an order that has been passed for eliminating the Domain Name or transferring the same.

It is pertinent to note that Domain Name dispute doesn’t fall under Trade and Merchandise Marks Act, 1958 or the Information Technology Act, 2000 of India[25].

In the case of N. R. Dongre v. Whirlpool Corporation (1996) 5 SCC 714 it had been held that “a man may not sell his own goods under the pretence that they are the goods of another man.” Basing on this ideology the concept of passing off exists[26].

Passing off is a type of unwarranted business rivalry by which one individual seeks to benefit from the notoriety of another entity in a specific trade or business. A passing off activity falls under the law of torts or common law. The TM Act does not determine what a passing off is, but administers the rules, regulations and remedies for passing off[27].

Requirements for a passing off

“The goods of the plaintiff must have acquired distinctiveness.
The nature of activity of both parties are the same or similar (compliance of this requirement is not always insisted).
The goods of the parties, with which the trade mark is associated, are the same or similar(compliance of this requirement is not always insisted).
The use of the trade mark by the defendant is likely to deceive and cause confusion in the public mind and injury to the business reputation of the plaintiff.
The sphere of activity and the market of consumption of goods of the parties are the same.
The customers of the plaintiff inter alia include uneducated, illiterate and unwary customers who are capable of being deceived, confused or misled.
The plaintiff has been using its trading style and trade mark for a long period and continuously, whereas the defendant has entered into the field only recently.
There has not been much delay in filing of the suit for injunction.[28]”

Domain names and Court decisions on it

INDRP had been conceivably set by the courts’ for the unmistakable treatment of domain names as trademarks and that laid a foundation of standards for their security[29].

AcquaMinerals Ltd v Pramod Bose

In the case of “AcquaMinerals Ltd v Pramod Bose”, which was concerning the domain name of ‘bisleri’, the Delhi High Court opined that: “with the progression of web correspondence, the domain name has achieved as much legitimate rational and a legality as the Trademark has. Since the administrations rendered in the web are central for any business, the domain name should be safeguarded in order to ensure and avoid infringement. The court further held that: “A domain name is more than an internet address and is entitled to equal protection as a trademark.[30]”

Yahoo Inc v Akash Arora

A party’s “Yahoo” domain name and the defendants ‘Yahoo India’ domain name were the subject of argument. The court was made a request to consider that web clients are modern, and that users know which site they would want to visit. The court held that: ““even if an individual is a sophisticated user of internet, he may be an unsophisticated consumer of information and such person may find is/her way to the defendant internet site as that of the plaintiff.[31]”

Casio India co Ltd v Ashita Tele Systems

In the case of Casio India’s domain name, the argument was preliminarily held on the ground that it was a Mumbai based company and the jurisdiction should be of Mumbai and not Delhi although that’s where the suit was filed. The court held that: “the objection with regard to the territorial jurisdiction needs to be considered in the overall context of advances and development in the field of information technology and not in the usual conventional manner. The access to the impugned domain name website could be had from anywhere else; the jurisdiction in such matter cannot be confined to territorial limits of the residence of the defendant.[32]”

Banyan Tree Holding Pvt Ltd. Vs Murali Krishna Reddy

The law although has changed with this recent Judgement. In Casio India the Court had decided that the existence of a website was reason enough to conjure the jurisdiction of a court. Although the website could be accessed from New Delhi even if the Company was based in Mumbai. In India TV, the court held that for a jurisdiction to be decided the website of a Company must be interactive, allowing the users not only to access the website but also subscribe to the services that are provided by the said Company who fall under the Jurisdiction of the Court[33].

Words describing Domain Name are substantially simpler to discover when looking through websites for data. Be that may, more often than not, not meet all requirements for much trademark security, as found in these two cases.

Mutualfundsindia.Com V Mutualfundindia.Com And Kabadibazar.Com V Kabaribazar.Com

The court inferred that these words were elucidating of the services provided. The materials placed on record missed the mark regarding showing that the words had procured auxiliary significance, which is a precondition for providing protection to a name that is descriptive[34].

Naukri.Com V Naukari.Co

It was held that this domain name was unconventional, as the party had utilized a Hindi word with English script. There was confirmation on record to demonstrate that the area name had procured secondary meaning by virtue of extensive business activities[35].

Satyam Inforway Ltd. v. Sifynet Solutions Pvt. Ltd.

This is a landmark judgement by the Apex court, wherein the question for thought arose before the Honorable Supreme Court of India was whether Internet domain names are liable to be of a legitimate standard pertinent to other intellectual properties, for example, trademarks. The Supreme Court held that:

“the use of similar or same domain name may lead to a diversion of users which would result from such users’ mistakenly accessing one domain name instead of another. Ordinary users seeking to locate the functions available under one domain name may be confused if they accidentally arrived at a different but similar website which offers no such services. Such users could well conclude that the first domain-name owner has misrepresented its goods or services through its promotional activities and the first domain-owner would thereby lose its custom. It’s apparent, therefore, that a domain name may have all the characteristics of a trademark and could find an action for passing-off[36].”

Conclusion

It is of great importance that India should revise its legislature in order to add cyber squatting and disputes on domain name, in the Information Technology Act 2000 with the addition of utilizing the Cyber Appellate Tribunal. The Arbitration awards passed by WIPO and Mediation Centre should become binding under the Arbitration and Conciliation Act 1996. Amendments should be made in the Information Technology Act 2000, expressing that the judgement passed by WIPO should go to the High Court much like the awards passed in Arbitration matters in accordance to the Arbitration Act and an execution petitions should be filed to authorize them. Due to such amendments the decisions made by ICAAN and WIPO will put exhausted system of the Indian Judiciary at ease. As to the .IN registry the INDRP arrangement is as of now securing the domain names through the arbitration proceedings. This can in a way be expanded to all TLDs through the previously mentioned revisions or amendments achieving a functional working arrangement. India ought to utilize the WIPO and ICANN instruments for dispute resolution and set a point of reference for different nations over the world. Further, ICANN’s Governmental Advisory Committee (GAC) is a valuable device for national governments to comprehend, receive and contribute towards ICANN strategies relating to particular government interests.

To better the system against domain name disputes the Government should play an active role and must take interest in the GAC. India should become more involved in ICANN’s ambition and guide India in becoming a virtually reliable country[37]. These are certain ways a Domain Name Dispute can be resolved effectively.

References

[1] Catherine Colston and Kirsty Middleton, Modern Intellectual Property Law, Second edition, (London: Cavendish Publishing Ltd, 2005) p. 615

[2] Paul Sugden, „Trademarks and Domain Names‟ in Jay Forder and Patrick Quirk (eds.), Electronic Commerce and the Law, (Australia: John Wiley & Sons, 2001) pp. 199 – 225 at p. 199.

[3]http://www.naavi.org/cl_editorial_04/praveen_dalal/pd_domain_name_nov4.htm

[4] ibid

[5]http://www.selvamandselvam.in/blog/trademark-and-internet-domain-name-and-dispute resolution/&gws_rd=cr&ei=JMetWObrKYvGvgTT0a6IDA

[6] ibid

[7] ibid

[8] ibid

[9] ibid

[10] ibid

[11] http://rnaip.com/wp-content/uploads/2014/09/6403544663news.pdf

[12] ibid

[13] ibid

[14] ibid

[15] http://ptlb.in/ipr/?p=102

[16] http://www.majmudarindia.com/pdf/Domain%20name%20dispute%20resolution.pdf

[17] ibid

[18] ibid

[19] ibid

[20] ibid

[21] ibid

[22] ibid

[23] http://www.wipo.int/export/sites/www/amc/en/docs/wipointaudrp.pdf

[24] ibid

[25] ibid

[26] ibid

[27]ibid

[28] http://www.majmudarindia.com/pdf/Domain%20name%20dispute%20resolution.pdf

[29] ibid

[30] ibid

[31] ibid

[32] https://indiankanoon.org/doc/418389/

[33]http://www.selvamandselvam.in/blog/trademark-and-internet-domain-name-and-dispute-resolution/

[34] ibid

[35] ibid

[36] ibid

[37]http://www.vaishlaw.com/article/information_technology_laws/the_domain_name_chaos.pdf?articleid=100324

How to start a transport or logistics company. Process, compliance, best practices and relevant law.

What is a logistics firm

A logistics firm is a company that stores and delivers the products of other businesses. Whether shipping, conducting air transportation or trucking a successful logistics company will need to have some means of freight transportation at its disposal; this makes a start-up logistics firm an expensive investment. A logistics firm is an organization that delivers and stores the products of different organizations. They may have expertise in the import and export of products all through the country, or may focus on ground transportation within the states.

The scope in the transport and logistics industry is varied – from a one-man show using a small truck to transport merchandise and offer services, to an armada of transport vehicles which venture to every part of the country. Road transportation includes commuter transport from taxis to bus transportation.
It can be an intense industry and there are numerous dangers confronting transport businesses yet in the event that one can take care of business, one can build an effective business.
It is a hard industry for new businesses not on account of it being capital intensive, but rather on the grounds that one needs to be reliable. just because it is capital intensive, but because you need to be reliable. Credibility is critical for any transport company as any organisation requiring transport services needs to know that they are not going to be let them down.
Dangers confronting the transport business are not just crumbling and congested roads and highways, traffic fatalities and injuries, but financial issues as well. One should not over indebt oneself. Take it gradually and ensure that you have the necessary skills. This not only means having driving skills and licences, but also financial and business skills.
It is advisable to have mentorship before embarking into this industry. Some of the areas you need to comprehend include the laws, operating cost estimates, licence fees/permit expenses, toll charges, maintenance, fuel prices and other costs as well as vehicle performance methods.
The transport and logistics industry is a simple business to enter, however, the trick comes in sustaining the business. The transport business has a ‘low barrier to entry’ at the base of the market, implying that anybody with a minibus can start offering transport services. This results in a surge of rivalry at the base end of the market.
In many instances the entrepreneur starts these businesses with little to no capital, depending rather on revenue derived from the business to cover all overheads from the first day itself. This absence of capital curtails marketing activities that may result in increased income.
With fierce competition, administrators slice costs to survive barely making enough to cover their expenses. This naturally leads to a distressed business which is unable to survive. Before starting a transport and logistics company, one must do the homework well. One must work out on how to build a sustainable business and seek out customers and contracts before starting the business because contracts do not appear magically later on. Getting funds is one of the most difficult things for any start-up to achieve. If a business owner walks into a bank and asks for a loan to start a transport business, the chances of a positive response are rare.

Some of the vital points to keep in mind which are beneficial in establishing a flourishing logistics and transport business are as follows:

Experience and Credibility in the Industry

Before starting a logistics company, it is wise to gain experience in the industry by working in logistics. Such experience helps in comprehending the intricate details of the business. In addition, working in the industry will helps to establish networks with companies that may represent future clients. Building up credibility in the industry is the basis for any start-up because customers need to trust that your firm will store and deliver their products smoothly and efficiently.

Exploit Your Experience and Connections

One should establish a firm in a market where they have business relationships and relevant knowledge. For example, if the bulk of your connections or work experiences are in one industry, it shall be beneficial if you will reach out to clients in that industry. If you have connections to or knowledge of certain regions, open a firm that specializes in export to that region.

Obtain Funding

The principle official step of starting a logistics firm is obtaining capital. Keeping in mind the end goal to do as such, one should draw up a business strategy to persuade potential investors that you can make your company turn a profit. Incorporate all associations that you already have in the logistics industry, who are willing to give you their business. Commercial banks are a potential capital source for start-ups.

Get Equipment

After obtaining the necessary capital to start the logistics firm, one needs to purchase loading equipment and vehicles capable of moving substantial amount of cargo. Due to the costs related to these kinds of purchases, it is advisable to rent the equipment until the business starts to turn a profit.

Protect your credit record

If one does not have a good credit record, none will want to loan money to start a business, especially commercial banks. It is essential to regularly communicate with your bank, and use the accounts responsibly. By having a good credit profile, you are over the first hurdle.

Find out what documents the bank needs

Contact the bank and find out about the formalities and paperwork that is needed before applying for a loan. It always makes a good impression when you are organised.

Show the bank you have the expertise

Before approaching the bank, one must be able to show that they have the necessary expertise to run a business by producing a well-constructed business plan.

Security is required

One will need security (personal surety and or assets) to cover the loan amount that is required. It is beneficial to show the bank realistic cash flow projections and balance sheets for two to three years.

Consider government funding

There are a variety of government funds and policies that have been created to empower entrepreneurs to establish new enterprises. However, solutions are customised after assessing the potential return of the venture and level of risk.

A partner could be the solution

If one does not have a deposit and cannot get approval for financing, one may consider taking a partner who may be able to provide the necessary capital.

Consider renting

If one is unable to get funding, then renting instead of purchasing a vehicle could be a good option to begin the business on a modest scale.

To determine the target-market the first step is to do proper research that will help in defining the customers. It is this collection and the analysis of information about the customers and probable competitors that will help in planning the marketing strategy. Some of the areas to look into are:

Manufacturers

They require their raw materials to be delivered to their workshops or factories.

Agriculture

Farmers use road freight haulers to transports their animal feed and chemicals such as fertilisers and pesticides, while livestock and agricultural products are transported by road.

Wholesalers

They need their stocks to be delivered to their warehouses or wholesale outlets.

Smaller services

Refuse or waste removal, furniture and office movers.

Advertise your services

Advertising in the local newspaper, or listing in the classified section of community newspapers. Another successful avenue is advertising on social media.
Apply your business name, logo and contact details on to vehicles so as to raise awareness when vehicles are out on the road.
Join associations or organisations so that you can network with companies operating in the area.

Obtaining contracts

With a specific end goal to be fruitful in getting business contracts you need to show that you have experience in the business and that you can offer your business in view of high standards of business principles and morals. Guarantee that you can offer a superior service that nobody else can. On the off chance if you have a history in the business, it makes it considerably simpler to win contracts.

Speak to proprietors of comparative organizations and make yourself known. The best wellspring of data you can discover around a range of business, is different entrepreneurs.
Make contact with organizations, for example, producers, manufacturers, wholesalers and retailers to check whether you can tender for work to deliver their products.

Transport brokers

Be watchful with whom you work with as most of these brokers do not work morally. When working as a small transport business, one can approach transport brokers and secure contracts through them. Before accepting an agreement through a broker, discuss about the terms of the agreement, so as to have correct and balanced governance set up. A broker can take up to 20% of the agreement value. “Be careful about who you work with in the brokering business as it is not well regulated and it is wise to ensure that they are reliable and upstanding.

How to get onto a suppliers list?

Winning contracts takes diligent work and it takes a lot of networking to create solid connections in the industry. Dependability is another critical viewpoint.

Offer an exceptional service: Keep in mind, there are such a variety of organizations offering a similar service and one needs to provide an incentive to an organization so that they utilize your services. The way around this is to find out about your opposition and offer something they do not, for instance, quicker turn around times, brilliant service or extremely competitive rates.
Piggybacking: Often an established transport organization will be unable to meet their contractual commitments on account of unanticipated conditions. Offer to pick-up any overflow and sub-contract the delivery. It’s often a last minute business however makes a decent chance to substantiate yourself as a reliable supplier.
Sub-contracting: One way for smaller operators to secure contracts is through sub-contracting. Subcontracting happens when a transporter contracts to a third party and not the principal and not to the vital. The subcontractor subcontracts with an established transport organization which has the contract with the principal but maybe does not have the ability carry out the contract.

Starting a logistics and transport business in India

For a start-up a business in India, courier industry is one of the fasted growing markets. Despite the rise of the e-commerce business in India courier industry is growing day by day. The Indian courier industry size in the year 2015-16 was approximately of Rs.14,000 crores. As a premium segment, the courier industry is a small but significant segment of the logistics industry. It is one of the fastest growing segments of the industry and it is expected to grow at 17% per annum to Rs. 20,000 crores in the next three years.

The different kinds of logistics business that one can start are as follows:

Courier and freight cargo service
Air cargo services
Warehousing services
Third party logistics (3PL)

The entrepreneurs have two options for starting a Courier Business in India:

Setting one’s own Logistics and courier company, or
Taking a franchise from reputed and well established courier company

Setting one’s own logistic and courier company

Setting up one’s own Courier Company in India requires a lot of money to initially to setup the network. There are many small players in India which are doing good but the reputed foreign companies are well established in the logistic business. For starting a courier company in India one have to raise the funds from the investors. One has the option of setting up a private limited company in India and then raise the funds through investors by allotting the shares of the company.

The top 10 Courier Companies in India which are well-established in the industry are as follows:

Indian Postal Services: established in 1774 and more than 1.5 lakh post offices.
DHL Express India Private Limited: established in 1969 and has a global presence in more than 200 countries.
Blue Dart Express Limited: established in 1994 and is a subsidiary of DHL.
First Flight Courier Limited: established in 1986 & has around 1200 domestic offices.
Fedex India: established in 1973 and has its distribution offices in 220 countries.
DTDC Courier and Cargo Limited: established in 1990 and hold reasonable market share in courier service in India.
TNT Express: established in 1974 and have a presence in more than 190 countries.
Gati Limited: established in 1989 and has a strong market presence in south Asia and Asia pacific region.
Overnight Express Limited: established in 1987 & Serving more than 2800 location in the country.
The Professional Courier Network Limited: established in 1987 and has twenty regional offices and more than 2000 serving locations.

Apart from above mentioned big logistic companies, there are a lot of start-ups, for instance, Delhivery which started from scratch and at present, it is one of the most established e-commerce logistics player in India.

Checklist for starting a courier business in India are as follows:

A lot of money from the investors through angel or venture capital or other sources.
Setup a legal entity as private limited company in India.
Apply for the proper tax registration such as service tax.
Build up a team and invest in the service quality and trainings.
Build a good network.

Taking a franchise from reputed and well established courier company

Due to the absence of assets everybody cannot open their own courier company and even a large number of the successful logistics start-ups learned about the courier or logistics industry by taking the franchise from different companies and after understanding the market, went ahead with their plans.

At present, we have a considerable number of courier or logistics business franchise opportunity in India where one can begin from a small amount of capital.

One simply need to require the following things to apply for a courier business franchise in India:

a legal entity setup with the proper tax registration & license.
a small space for opening the franchise with the agreement.
a small security deposit which shall vary and depend upon the courier company.
financial credentials like bank statements or bank passbook.
approval letter from the courier head office.
logistics agreement between the franchise and company.

Some of the established courier Company franchise opportunity in India are:

Indian Speed Post office Franchise Opportunity
DHL Express Franchise
DTDC Franchise
First Flight

The development in the Indian economy in recent years has brought about an immense market for logistics services. The logistics industry employs over 50 million people in India. A productive logistics partner can help enhance operational efficiencies for any business by cutting expense and delivery time. This ultimately leads to market share and profits for the business. There are various types of logistics business that one can start.

However, any logistics company needs to look into the accompanying viewpoints to be successful,

Funding and Investment

The initial step that any logistics company would need to take is to look for investment. Amount of investment in logistics business will depend upon the services that one wishes to begin. A simple brokering and freight management service will require less capital compared to a third party logistics service. For instance, to setup a freight forwarding service in India, one will require a capital investment of approximately 12 crores. A pure third party logistics service will require investments ranging from 65-100 crores. Starting an Inland Container Depot (ICD) or Container Freight Station (CFS) requires investment of several hundred crores. It is critical to recognize the specialty services that one wish to target and accordingly formulate an investment plan based on it. Finding investment in logistics is moderately less complex in India in light of liberal foreign direct investment (FDI) norms and active interest shown by huge private equity players.

Compliance and Registration

The next step is to obtain necessary registration and compliance certifications. Just as other businesses, logistics services also require certain registrations and Government compliance. In India, registration with International Air Transport Association (IATA), Air Cargo Agent Association of India (ACAAI) are very useful for freight forwarders. It may also be beneficial to be part of industry forums such as CII Institute of Logistics to raise logistics industry related issues. Other important registrations in India include Directorate General of Foreign Trade (DGFT) registration, registration with the Income Tax Department, Registrar of Companies and related Government Departments.

The following registrations are suggested for a logistics business:

Private limited company registration
Import export code (IEC)
VAT (value added tax) registration
Employee’s state insurance (ESI) or PF registration
Trademark registration, when there is a unique brand name.

Business Risk

The third aspect that one needs to look at is the business risk. In a developing economy like India, risk management plays a significant role, more so for logistics business. Since the logistics business is extremely dynamic with various partners/vendors involved in the whole operation, danger of a claim is very high. It is vital to cover the obligations by taking adequate amount of business insurance. Numerous insurance companies in India offer such insurance plans. Serious liability issues may arise from cargo damage, theft, injury, environment damage etc. While business insurances help to address a part of the liability concerns, they are not generally very effective. For instance, most Cargo and Property insurance in India will not cover inventory shortages as this is viewed as ordinary risk while running a third party logistics business. Consequently, it is imperative to comprehend the risks before executing any contract.

Clientele

Connecting well with the customers is the key to any successful business. An exhaustive study of different industries/products and understanding logistics needs in such studies is fundamental if an entrepreneur wishes to start a third party logistics company. There are numerous sectors booming as of now, for instance, infrastructure, services, auto and manufacturing as India is basically an export economy. Each of these sectors would require logistics services. Identifying weak areas and proving operationally efficient solutions is key the key to forming customer base in third party logistics services. Once a standard customer base is established, infrastructure investment can be focused upon as well as formation of solutions to cater to the outside market.

Competition

Due to the liberalisation of foreign direct investment (FDI) norms it has become easier for multinationals to enter the Indian logistics sector, it is imperative to understand the competition that the business faces as these capital substantial players can invest intensely in marketing and infrastructure. Henceforth, it is critical to do a thorough search on the competition and to focus on the companies positioning in the market.

The post How to start a transport or logistics company. Process, compliance, best practices and relevant law appeared first on iPleaders.

In this article, Brijesh Bhatt who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses structuring advice to software startup who wants to receive FDI.

Structuring advice to software startup who wants to receive Foreign Direct Investment

Let us first understand what types of major legal business structures are available in India and what are their advantages and disadvantages:

Sole Proprietorship

Sole Proprietorship is the simplest and easiest form of business structure. This form of business is owned and operated by the same person i.e. the person running the business and the person owning it are the same. The owner and business in this form has same liability. Also, income from business is considered as income of its owner and it is taxed at the same rate at which tax is applicable on Individuals. Thus, for tax purpose also owner and business are considered as one. Due to its simplicity, a large number of small business adopts this form of business structuring such as shopkeepers, consultants, small traders, etc.

Following are the advantage of Sole Proprietorship

Owner remains in complete control of his business
Income from such business is at disposal of its owner and he can use the income in any manner he deems fit.
Sole Proprietorship can be wound up quickly.

Following are the disadvantages of Sole Proprietorship

This type of business structure has limited access to funds. Funds can be borrowed for the business basis personal capacity of the owner and his ability to repay the debts.
Owner of the business has unlimited liabilities.
This type of business does not attract talent. Talented people avoid working with Sole Proprietorship firms.
It has no succession, business ceases after the death of owner.

Partnership [1]

Partnership is the form of business where two or more persons agree to share the profits of business carried on by all or any of them acting on behalf of all of them. Sharing of profit is an essence of partnership. It is not necessary that all the partners carry out business of partnership firm, any of the partners can carry out business on behalf of the partnership firm. In India partnership is governed by The Indian Partnership Act, 1932.

Partnership is formed by minimum two persons, there is an agreement between the partners to share profits from business and also the losses incurred by the partnership firm during the course of its business. Partnership agreement can be written or oral.

Following are the advantages of a Partnership

Partnership firm is easier to form, registration of partnership deed is optional, hence forming partnerships takes lesser time.
Partnership firm has more capital availability in comparison of sole proprietorship as there are more than one partner and they can contribute more capital. Further, they can get enhanced credit as they can apply for loan jointly and their loan limit will be considered jointly. Banks/NBFCs also considers partnership safer than proprietorship for the purpose of lending.
More talent pool is available to partnership firm in comparison to proprietorship firm as two persons or more are the partners/owners in the partnership firm. Different persons can contribute different skills set and ideas.
Like sole proprietorship firm, partnership firm is also flexible it is easier to form and can be wound up quickly.
Sharing of loss, losses can be shared amongst the partners.

Following are the disadvantages of Partnership

Like sole proprietorship, in partnership firm, partners also have unlimited liability. Their personal assets can be attached for default of firm or any illegal act of any of the partners. In partnership firm, all the partners are jointly and severally liable.
Since all the partners are the owners there are the chances of conflict as there may be difference in the functioning style of each partners. There may also be conflict amongst the partners on policy decisions which may turn out to be harmful to the firm.
Each partner is considered as the agent of the firm, hence any partner by his act or omission can bind firm and other partners. Due to this binding effect if a partner takes any incorrect decision it may ruin entire firm and/or its partners.
There is no continuity of business the firm may be dissolved if any partner resigns or dies.

Limited Liability Partnership (LLP)

LLP is the form of business structure which provides the ease of doing business like partnership and offers limited liability like limited liability company. LLP can be described as partnership firm with benefits of the company. LLP is governed by the Limited Liability Partnership Act, 2008 and the main features of LLP as per this Act, are as under:

LLP will be a body corporate, distinct from its partners. Any two or more persons desiring to do lawful business for profit can form LLP, by getting LLP registered with registrar of LLP.
Relationship between the partners of LLP, inter-se or LLP with its partners will be governed by LLP agreement. Partners are free to choose the terms and conditions of LLP agreement.
LLP shall have minimum two patterners and minimum two individuals as designated patterner. Out of two designated partner one must be resident of India. Rights and obligations of designated partners are prescribed in the Act.
LLP is required to maintain statement of account as regards its true value and assets, and solvency report and is also required to report them to the registrar of LLP.
LLP may be wound up either voluntarily or as per the orders of Company Law Tribunal.
The Indian Partnership Act 1932, shall not be applicable to the LLP.

Following are the advantages of LLP

Liability of each partner is limited to its contribution. LLP is liable upto its assets. Also other partners are not liable for unlawful and unauthorized acts of other partners.
LLP offers greater flexibility partners can decide on number of partners and their contribution on LLP business. Further there is no mandatory requirement for all the partners to attend meetings.

Following are disadvantages of LLP

Many states in India do not permit business entity by way of LLP.
LLP cannot bring Initial Public Offer (IPO) and list on the platform of stock exchange. In the event owner of LLP desire list it they have to get the LLP converted it into the company.
LLP has less credibility than corporation in perception of public at large considers LLP at par with the partnership firm.

Company [2]

Company incorporated under The Companies Act, 2013 is a separate legal entity. Company can do business in its name, and company can sue in its name.

Following are the main advantages of a Company

Duly incorporated company has perpetual succession. This means even after the death of its member’s company continues to carry out its business and hold its assets and discharge it labilities. Even after change of its directors or management the company continues.
Ownership of the company is being held by its owner in the form of shares. Shares are movable assets hence the ownership of the company can be transferred easily as per terms of its articles of association.
The company can hold property and other assets in its name and these property and assets will not be treated as the property or assets of its members. Company can open and operate bank account in its own name.
The company can raise capital easily in comparison of partnership or proprietorship. Lending Institutions prefer company over other forms of business.
The company is juristic person, hence as juristic person the company has the capacity to sue. Similarly, the company can be sued by the third parities.
The company is governed by the Companies Act, 2013 which ensures better governance and smooth functioning of the company.

Following are the disadvantages of a company

In comparison to proprietorship, partnership, LLP the company is costly to incorporate. Moreover, the day to day functioning and meeting compliance is also a costly affair. Thus, this form of business requires more capital.
Since the company is regulated by the Companies Act, 2013, it requires to undertake more compliance such as filing of returns, conduct of board meetings, preservation and submission of the records.
In this form of the business as the directors are different from the shareholder or the owners of the company, there may be lack of control by the owners.
The winding up of the company’s business is tedious and time consuming task. It is difficult in comparison of the other forms of the businesses.

For understanding the suitable form of company, let us also understand what are the different types of company which can be incorporated under the Indian Companies Act, 2013:

Private Limited Company

There are minimum two or more members are required to incorporate private limited company. There cannot be more than two hundred members in the private limited company. Similarly, the private limited company requires minimum two directors and the number of the director cannot be more than 20. Private Limited company requires minimum paid up capital of One Lakh Rupees.

Small Company

It is the company other than public limited company whose paid up capital does not exceed Fifty Lakh Rupees, or such other amount as may be specified by the Government, but not exceeding Five Core Rupees or whose annual turnover does not exceed Two Crore Rupees.
However, any holding or subsidiary company or section 8 company will not be treated as small company. Thus, only private limited company can be small company. There are various compliance exemptions provided to the small company under the Companies Act, 2013 such as holding only two board meetings, returns can be signed by Company Secretary or single director.

One Person Company (OPC)

OPC can be incorporated by one member only. At the time of incorporating in the memorandum of association, the member is required to disclose the name of one person who would act as member in the event of his death so that the perpetual succession of the OPC continues. OPC can have one director. There are various exemptions provided to OPC similar to small companies.

Dormant Company

As per the Companies Act, 2013, the company which is registered for doing business in future or the company which holds intellectual property or assets in its name and has no significant entries in its books of accounts can be classified as doormat company.

Foreign Direct Investment (FDI)

FDI generally refers to investment made by non-resident Indian business or individual in business in India. This investment can be made by owning business or acquiring controlling stake. FDI investment has lasting interest than mere an investment by an investor. A company receiving FDI not only gets access to capital but also gets access to technology and management style of investee company/group.

Now, relevant Foreign Direct Investment (FDI) rules prevailing in India,

Ministry of Commerce & Industry Department of Industrial Policy & Promotion, Government of India from time to time prescribes FDI policy, with the objective of attracting and promoting FDI in order to supplement domestic capital, technology and skills, for accelerated economic growth. FDI, as distinguished from portfolio investment, has the connotation of establishing a ‘lasting interest’ in an enterprise that is resident in an economy other than that of the investor[3].

Eligible Investee Entities for FDI in India[4] – Entity wise eligibility details are as under:

Incorporated Company

As per FDI policy Indian Companies can issue capital against FDI. Thus it is amply clear that at an entity level FDI in incorporated company is permissible and no restriction on receiving FDI by the company.

Partnership Firm/Proprietary Concern [5]:

FDI in these entities are allowed subject to following conditions and permission,

A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the capital of a firm or a proprietary concern in India on non-repatriation basis subject to the following conditions;

Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers/authorised banks.
The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector.
Amount invested shall not be eligible for repatriation outside India.

Investments with repatriation option: NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation option. The application will be decided in consultation with the Government of India.

Investment by non-residents other than NRIs/PIO: A person resident outside India other than NRIs/PIO may make an application and seek prior approval of Reserve Bank for making investment in the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India. (iv) Restrictions: An NRI or PIO is not allowed to invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business or print media.

In view of the above provisions, it is clear that FDI in Partnership and/or Proprietorship FDI is by and large not allowed.

Trust [6]

FDI is trust is not allowed, except Securities and Exchange Board of India registered Venture Capital Fund or investment vehicle.

LLP [7]

FDI in LLPs is permitted subject to the following conditions:

FDI is permitted under the automatic route in LLPs operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions.
An Indian company or an LLP, having foreign investment, is also permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.
FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008.

Entry Route for FDI [8]

Investments can be made by non-residents in the equity shares/fully, compulsorily and mandatorily convertible debentures/fully, compulsorily and mandatorily convertible preference shares of an Indian company, through the Automatic Route or the Government Route. Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment. Under the Government Route, prior approval of the Government of India is required. Proposals for foreign investment under Government route, are considered by FIPB.

Route of FDI on software

Let us examine whether FDI on software comes under Automatic Rout or Approval Route. Let us first consider prohibited sectors, following are the prohibited sectors for FDI [9]

Lottery Business including Government/private lottery, online lotteries, etc.
Gambling and Betting including casinos etc.
Chit funds
Nidhi company
Trading in Transferable Development Rights (TDRs)
Real Estate Business or Construction of Farm Houses.
Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
Activities/sectors not open to private sector investment e.g.(I) Atomic Energy and (II) Railway operations (other than permitted activities mentioned in the guidelines).

Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities.

Now let us examine the sectors in which FDI is under approval route and/or FDI has sectoral cap[10]

Agriculture, Plantation Sector, Mining of metal and non-metal ores, Mining – Coal & Lignite, Manufacturing, Broadcasting Carriage Services ( Teleports, DTH, Cable Networks, Mobile TV, HITS), Broadcasting Content Service – Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels, Airports – Greenfield, Airports – Brownfield, Air Transport Service – Non-Scheduled, Air Transport Service – Helicopter Services/Seaplane Services, Ground Handling Services, Maintenance and Repair organizations; flying, training institutes; and technical training institutions, Construction Development, Industrial Parks -new and existing, Trading – Wholesale, Trading – B2B E-commerce, Duty Free Shops, Railway Infrastructure, Asset Reconstruction Companies, Credit Information Companies, White Label ATM Operations, Non-Banking Finance Companies, Pharma – Greenfield, Petroleum & Natural Gas – Exploration, activities of oil and natural gas fields, Petroleum refining by PSUs, Infrastructure Company in the Securities Market, Commodity Exchanges, Insurance, Pension, Power Exchanges.

In case of government/approval route for taking FDI Foreign Investment Promotion Board (FIPB), Department of Economic Affairs (DEA), Ministry of Finance or Department of Policy and Promotion is required.
Thus, from the above it is clear that software does not fall under any of the list, hence software service can get FDI under automatic route.
Now let us consider various legal business structuring options which software business can consider at its implication on FDI:

Proprietorship/Partnership

If the software business considers structuring itself as proprietorship/partnership, then in such event the business will not attract talented manpower for developing software, nor it will be easy for them to arrange capital for infrastructure facility for software development. Even, in cases where the partnership/proprietorship manages manpower and capital there are very high chances that they will not get FDI, as first and foremost no overseas investor will invest in business model which is uncertain and there is no perpetual succession and the investor will not be assured of lever of compliances followed by the partnership/proprietorship firm. Further, FDI rules do not allow FDI in such form of business directly, and the permission is subject to various restrictions as detailed above which makes it virtually impossible to get FDI in partnership/proprietorship.

LLP

In this form of business structuring software business will be in fare better position as regards manpower, capital and perpetual succession, moreover LLP can attract FDI form non-residents. However, as per prevailing FDI policy, LLP can get FDI subject to conditions contained in FDI policy.

Private Limited Company

In the event software business structures as Private Limited Company it can get suitably qualified manpower as talent is more attracted to the company in comparison. Further the company get access to adequate capital for its initial business set up, after which it can get in touch with non-resident FDI investors for FDI in their company basis their performance. It is also pertinent to mention here that prevailing FDI policy of India has not placed any restriction on FDI by company which falls under automatic FDI route.

Conclusion as to structuring advice

In view of the above discussions as regards major types of business entities and rules governing FDI in India, it is advisable for software business who desires to receive FDI should incorporate a private limited company under the Companies Act, 2013. FDI by private limited company has to come across least number of laws and regulations for receiving FDI.

[1] Source: The Indian Partnership Act, 1932

[2] Source the Companies Act 2013

[3] Section 1.1 of Consolidated FDI Policy Circular of 2016

[4] Section 3.2 of Consolidated FDI Policy Circular of 2016

[5] Section 3.2.2 of Consolidated FDI Policy Circular of 2016

[6] Section 3.2.3 of Consolidated FDI Policy Circular of 2016

[7] Section 3.2.4 of Consolidated FDI Policy Circular of 2016

[8] Section 3.4.1 of Consolidated FDI Policy Circular of 2016

[9] Section 5.1 of Consolidated FDI Policy Circular of 2016

[10] Section 5.2 of Consolidated FDI Policy Circular of 2016

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In this article, Gautam Kumar Swain who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses India’s current policy regarding BIT.

India’s current policy regarding bilateral investment treaties

A bilateral investment agreement (BIT) is an accord establishing the terms and conditions for private investment by nationals and companies of one country in another country. Details and scope covered under BIT’s are as follows:-

Its applicability

A General concept is that the Indian BITs apply to existing and future investments in accordance with the date on which India entered into the BIT. Few exceptions to this rule are BIT’s with countries like Egypt, Sweden and Romania have limited scope and their applicability is only to investments which arise after treaty came into existence. It even allows Foreign investor whose country is not having BIT with India, can invest by creating a Special Purpose Vehicle(SPV)/ Special Purpose Business (SPB) in a country which has BIT with India.

Fair and Equitable Treatment and Full Protection & Security of the investors

FET creates minimum standards of treatment for the investors which have to be followed by India. It orders the host to have a stable and derogatory legal framework regulating investments which should meet the expectations of the investors. Four pillars upon which FET stands are the protection of legitimate expectations of investors, transparency and stability, non-denial of justice and the banning of coercion and harassment.

FPS aims to protect the investors from physical violence which can also be against the assets of the investments. Exceptions BIT’s are with countries like Egypt, Ghana, Sri Lanka, Australia, etc. which have only “Protection and Security” not “Full Protection and Security” clause.

National treatment and most favored nation treatment for the investors

The principle of “National Treatment” is the perfect part of all the Indian BIT’s but the “Most Favored Nation Treatment” is not present in the “CECA”( Comprehensive Economic Co-operation Agreement) with Singapore and “CEPA” (Comprehensive Economic Partnership Agreement) with Korea. The Principle of National Treatment assures that a foreign investor is treated at equal with any domestic investor and shouldn’t be part of any unfair or unjust treatment whereas MFN clause allows the investors to claim any favorable right which is allowed to any other State having BIT with India. But both the MFN and National Treatment clauses are not absolute in nature.

Expropriation

As recognized the hosts have limited conditions of depriving foreign investors of their investments.

A legal action of dispossessing investors from their investment should satisfy following conditions:

it should have public interest,
it should not be biased or irrational,
it should have been conducted by following due process and
it must be accompanied by adequate compensation.

Expropriation is of two types,

Direct Expropriation: Where the host nation takes the title of the confiscated asset.
Indirect Expropriation: It happens where there is a meaningful and lasting or long drawn out interference with the investment which deprives the investor of a host of incentives.

Indian constitution only allows direct expropriation as per Article 300A.

Dispute settlement mechanisms, both between Countries and between an investor and a Country

Essential factor that makes BIT important for investors which allow investors to adopt arbitral proceedings against a State without approaching its own As per Indian BIT’s, investors can access ICSID (International Centre for Settlement of Investment Disputes) or can approach for arbitration under UNCITRAL (United Nations Commission on International Trade Law) rules. As India is not a party to ICSID convention, the Foreign investors can access Additional Facility Rules of ICSID for dispute resolution.

Different types of Trade Agreement

Trade agreements generally target economic collaboration which consists of removal of disputes, removal of trade barriers, protection of investments and investors, influencing the economy of scale, influencing combined financial productivity etc. There is an order of trade agreements from simple to a complex unification of economies into a familiar market. The least complicated are TIFA (Trade & Investment Framework Agreement) and BIT. TIFA establishes the foundation for economic cooperation and removal of outstanding disputes between two countries. In BIT, two countries decide the conditions of private investments by citizens and firms of two countries. After TIFA and BIT, next are PTAs and FTAs in line. PTA (Preferential Trade Agreements) aims at lowering trade barriers whereas FTA (Free Trade Agreements) reduce the tariffs and make them least possible. After PTAs and FTAs, CEPA and CECA were introduced in the hierarchy. Those cover trade, investment, services, intellectual property rights, fair competition etc. The main difference between CEPA and CECA is the partnership in CEPA is acknowledged to be more inclusive than co-operation. Fourth categories of trade agreements bring down all tariffs and trade obstructions to all time low and combine two economies into one common market are the most complex adaptation. Examples of such assimilation are EFTA (European Free Trade Association) and EEA (European Economic Area).

India’s history with BIT

BIT’s encourage foreign investors to invest in a Country and thereby contributing towards overall developments and advancements in the economy.
India’s previous model agreement of 1993 had a more expansive ‘assets-based’ definition for investments. In its new model agreement, India has adopted an ‘enterprise-based’ definition of investment which necessarily equates investment, with an enterprise incorporated in the home state. The purpose of having an enterprise-based approach was to narrow the scope of protected investments and reduce the potential liability of the state under ISDS (Investor-State Dispute Settlement) claims.
India signed its first BIT in 1994 with the United Kingdom. During the signing of first BIT, the aim was to offer favorable conditions and agreement based protection to the foreign investors and investments. For example, the India-Singapore CECA provides exemption on import duties for investment in infrastructure sector. India has suffered many losses in BIT-related disputes with regard to White Industries Case, for e.g. Cairn Energy dragged India to India-UK BIPA.
Previously, India Govt. had created a Model BIT2 in 2003 also known as “2003 Model” which served as a relevant document for negotiation between India and other countries for few years. Cases like White Industries case, where White Industries was awarded an amount of USD 4.08 million and Cairn Energy who started international arbitration under India-UK BIPA (Bilateral Investment Protection and Promotion Agreement) wherein it sued India for a compensation of USD 5.6 billion acted as an eye-opener for India to make necessary amendment to the BIT model.

India’s important BIT decisions

The Dabhol Case

In this incident, Enron, an American Company made an investment in India through its Dutch ancillary, to build and operate a power plant in India with a sole view of selling power in India. Then Govt. of Maharashtra tried to abort the project demanding that non-competitive bidding process was used for the project. Thereafter, Enron call upon arbitration clause under the Dutch-India BIT, as a result of which India had to pay a significant sum.

White Industries Australia Limited Vs. India

In 2011, India’s Coal India Limited had then entered into a long-term agreement with White Industries, an Australian mining company for the supply of necessary equipment for the development of a coal mine near Piparwar in Bihar. A dispute on bonus, penalty payments and the quality of extracted coal emerged. In this case, the award was against India as India were accused of contradicting productive means to its Australian investor and thereby breaching its terms and conditions to the India-Australia BIT. This case gave rise to new standards in BIT law like ‘effective means’ clause which would ensure investor to seek protection under a BIT. But it took almost White Industries nearly ten years to enforce the decree due to long delays in Indian Judicial system (the reason for the same has been elaborated in “IMPORTANT FEATURES OF NEW BIT”). The White Industries decision was quite significant for India in many ways as it sends out a clear and strong signal that any form of expropriation of an investment or repudiation of justice under a BIT, to which India is a party, the concerned Investor can have the arbitral remedy. It ultimately showed that India cannot remain slack about its administrative and legislative systems while dealing with foreign investments.

India’s new bit model

India’s new model bilateral investment agreement created in December’ 2015 provides the framework for new negotiations with trading partners such as the USA which is based on the 260^th report of Law Commission of India. Although the new draft doesn’t include all recommendations by the Law Commission but suggestions like includes protection of investment as an objective were included.
The model draft favors both domestic and foreign investors. New concepts of requiring arbitrators to be impartial, independent and free from conflict of interest, clarity in arbitral proceedings etc. have been introduced in the new model. Moreover, India is hoping to use the model agreement to renegotiate existing treaties including the ones with several European countries.
There have been concerns regarding India’s model treaty adopting the safe approach. India has signed BIT’s with 83 different countries. As per UNCTAD (United Nations Conference on Trade and Development), 17 ISDS cases were filed against India of which India lost one case and won nine. Seven cases are still lying pending.

The new model revealed by the govt. doesn’t balance the protection of foreign investment with India’s right to control and was diametrically opposed to the governments’ favorite activities to solicit foreign investors as “Make In India” and “Digital India”.

Negotiating abilities of India

As per Wolfgang Alschner, a post-doctoral research fellow in international law at the Graduate Institute in Geneva “ a successful negotiation is the one which varies as little as possible from a proposed model”. India had been rule-maker in many of its BIT’s negotiation. A Model treaty is not considered as an entire document for BIT’s, it is bargaining power which is the ultimate depending factor. At the moment due to enormous market potential, India is in good bargaining position as there are many investors who want to invest in India and India can set the framework in which the interested investors can come in.

Important features of new BIT

India’s adoption of “enterprise based” definition of investment covers up the problem India faced in “assets based” definition where every kind of asset whether movable or immovable can qualify as the investment and can enjoy protection under treaties, irrespective of whether such assets can contribute to the development of host countries. “Enterprise based” usually excludes intellectual property.
The enterprise based definition allows an investor to be incorporated as legal entity according to domestic law to qualify as a protected investor. But when the issue of compulsory licenses (CLs) of patented drugs does come into the picture, the model treaty refers to the specification set by the TRIPs (Trade-Related Intellectual Property Rights) agreement under WTO.

Article 2.4[iii] of the model treaty mainly addresses issuances of mandatory licenses persistent with the international commitment of the Parties with regard to WTO Agreement which implies that CLs will no longer be classified as protected investments given they are issued in unison with the WTO agreements.
As per draft models, tribunals will have to obey the decision of the Indian Courts as Indian Courts are the better entities to judge whether CLs have been issued complied with domestic law or not but as per final model the tribunal can examine whether the CLs has been issued in conformance with WTO’s agreements on trade connected matters of intellectual property rights.
The tribunals will be less obedient to Indian courts because the concern needs to be decided in agreement with international law only.

The most antagonistic clause of the new model is the MFN (Most Favored Nation) status. MFN clause was to make sure that a nation is not differentiated or discriminated as against other nation. The level of investment protection across different countries varies with different BIT’s in existence.
MFN arrangement has granted linking of various BITs which allows the foreign investors to choose the BITs which allows maximum benefits to its investors. This provision allows investors from country “X” to claim identical favorable treatment that host country offers in another BIT to say another country “Y” even if “X” is entitled to different levels of protection.
For example, the Australian firm in White Industries case constructed a favorable clause from the Indian-Kuwait BIT to claim damages. The Australian firm argued that India had not provided them with “effective means” to accomplish the ICC award. However, they alleged that “effective means” provision had been included in the India-Kuwait BIT and the same was not provided to the Australian firm, thereby accusing India of discriminating against Australia as Kuwait has been provided with same but not Australia. MFN clause had not been incorporated in the India’s model treaty which many cited as a direct consequence of the White Industries Case.
Fears regarding “problematic” provisions promises made in treaties to be converted into newer or renegotiated agreements through the MFN clause have compelled India to drop the same from the model treaty. India’s approach of excluding MFN clause is inviting mixed reactions from every corner. Investors can use MFN as a tool to counterbalance any other elements in a new BIT which pursue to reduce investor protection, by simply conferring other BIT that has stronger investor protection.
For example, if host defines FET (Fair and Equitable Treatment) clause more restrictively, investors can invoke MFN clause and can rely on older FET definition in pre-model BIT.

Fair and Equitable Treatment clause has been invoked by investors and accounts for a bulk of fruitful claims in investment arbitration.

In model treaty, Article 3.1 on FET states: “No party shall subject investments made by the investors of the other party to measures which constitute a breach of traditional international law through:

Disapproval of justice in any judicial or bureaucratic proceedings; or
Fundamental breach of due process; or
targeted discrimination on clearly unwarranted grounds such as gender, race or religious belief; or
evidently abusive treatment such as coercion, duress and harassment.

To prevent misuse, the model treaty links FET to customary international law as the same provides a minimum standard of protection to investors. Every breach needs a violation of customary international law for a claim to be justified. Linking of FET to international law provides greater scope to the regulatory authority of governments as against broad clarifications by investment tribunals. But the currently drafted clause in the model treaty gives rise to the risk of expansive interpretation. FET can be interpreted in a extensive manner when the government has agreed to protect the nominal investments of a foreign investor in the country.
The new model treaty’s ‘enterprise based’ definition tends to safeguard all the investments made by the affiliates of a foreign company which has invested in India through a single enterprise. The model treaty makes it compulsory for foreign investors to first wear out domestic remedies before ensuing international arbitration. Advancing to domestic courts is a requirement made mandatory in several investment agreements. Arguably, the investor doesn’t have to go through the hollow process and can directly proceed to an arbitral tribunal.

The draft model stated that host state can seize investments of foreign investors directly as per Expropriation clause which was missing in the previous draft. Indirect expropriation of foreign investment is hardly followed by allocation of the value of investment by the State. Removal of the requirement of allocation of the value of an investment and limiting the test of indirect expropriation to considerable or perpetual dispossession of foreign investment was the right thing to be mentioned in the new model.

Investor obligations and transparency clause have also been toned down by the new model treaty. It has also deserted the feasibility of India to launch counter-claims against the investor, as were allowed in the earlier drafts of treaty. For the greater security of host countries concerns, it is useful to lay down that a breach of the obligations set on the investor would cause in the investor losing the advantages of the treaty preservations including ISDS and the same would allow the host state to demand to compensate against the investor. Treaty demands the investors to deliberately include recognized standards of corporate social responsibility. A country can charge responsibilities on investors in particular sectors under the domestic law without imposing conditions all at once on all investors. On transparency, the model treaty has an arrangement on clarity in arbitral proceedings as per Article 22.

Drawbacks of the model treaty

Following are the points which framed India’s defensive-minded approach in its new model BIT,

Like the previous model treaty, the new treaty also re-establishes absolute support for the Indian Judicial system. It frequently assigns the need for ‘exhaustion of local remedies’. The model clearly states that the foreign investors can raise a treaty argument with India and likewise, an Indian investor can lodge claim against a foreign state only after approaching local courts and removing feasibility of domestic decision, which can also be an alluring invitation for foreign investors as the 245^th Law Commission Report states that Indian Judicial system is overstretched by large accumulation of cases.
The model also amends the restraint period for such disputes, requiring the cases to be filed before local courts within one year of obtaining knowledge of the disputed claim. As per new model, Investors will have to wait for more five years before looking for arbitrated resolution which results in irrational delays and fundamental problems of quality of judgment.
Eradication of ‘Most Favored Nation’ clause from the new policy which was expected by countries like the U.S.A looks like an uncompromising approach to the model.
Furthermore, exclusion of taxation from its acumen is a clear expression of the Government’s reaction to several conflicts with firms like Vodafone, Nokia and Cairn on tax related matters.
The Model has allowed rigid grievance redressal mechanism like local remedies, lesser limitation, compulsory waiting period etc. as a result of diverse disputes faced by India in its previous BIT’s.
There is no specific reference to ‘FET’ clause which is commonly included standard of protection in investment treaty disputes. Instead of ‘FET’ clause, the model BIT protects against “scopes which constitute a breach of customary international law”.
The BIT protections doesn’t apply to steps taken by local government.
The model definitely excludes treaty protection for pre-investment activities related to the establishment, acquisition or growth of any investment.
The model BIT includes a broad dismissal of benefits clause, excluding the benefits of the BIT provided to investments or investors.
The model BIT includes general exceptions, as mentioned in GATT Article XX which are related to public morals and public order, health, abiding by laws and regulations, the environment and cultural protection.

India’s new model is an improvement over the previous model but still it stumbles in appearing to decide that India will remain a largely capital-importing economy, that too with greater negotiation power on its side.

Implications

The main implication as expected would be on the ongoing India-USA BIT bargaining, as India’s model is quite different from U.S.A. One of the major hurdles in the current model is the absence of ‘pre-establishment’ protection, which will help the USA to be protected before an investment is made. The U.S.A’s model consists of ‘MFN’ clause, it recognizes that taxation scopes could result in confiscation of foreign investment, it doesn’t recognize ‘enterprise-based’ definition of foreign investment and does not need the exhaustion of local remedies before starting or adopting international arbitration. The USA had already signified that it has a doubt regarding India’s new model BIT which in turn is making it difficult for Indian delegators to assure their American counterparts to accept the Indian model.

The problems that India can face while deciding future course of action is:

If India starts renegotiating BITs based on the new model, India will have to do same with many African and Asian countries where India is the current beneficiary.
If a country refuses to renegotiate India have to consider whether to carry on or terminate the agreements because if terminated the country can still use survival clause which ensures BIT for next 15 years.
Newly negotiated BITs based on new model will spell doom for Indian importers as they will have less treaty protection for investment abroad as outward foreign investment from India has increased seriously over past few years.

On July 6’2016, it was confirmed by the Dutch Govt. that Indian authorities are seeking termination of the older BIT signed in 1995. As many as 57 countries like UK, France, Germany, Spain and Sweden have also received the termination notice from Indian delegates. Remaining countries like China, Finland, Bangladesh, Mexico etc. were requested to sign a joint explanatory statement to clarify the doubts in the treaty texts to avoid expansive interpretations by arbitral tribunals. The termination order sends to various countries doesn’t end the protection to the existing investments as the treaty contains a ‘sunset’ clause which extends protection for more 15 years.

Post-Brexit, UK govt. had been trying to create a closer BIT with India. In contrast, the Cairn Energy case had compelled the Indian authorities to explore a new BIT. The chances of entering into a BIT with the UK are bigger than that of with the EU.

India’s investment scenario has changed considerably as it is no longer considered as an importing nation. Since 2005, Indian companies are expanding their global footprint by investing abroad. As per new BIT model, Indian investors are increasingly exploring investment protection tools in those jurisdictions which are generally noticed to have greater likely risks and uncertainties related to the regulatory framework and political climate. The model’s success will depend on India’s delegates ability to use this model while negotiating new treaties or renegotiating existing ones, while not compromising on its economic goals and interests.

References:

1.Wikipedia

4.https://thewire.in/22423/india-seeks-protection-with-new-model-bilateral-investment-treaty/

5.https://casi.sas.upenn.edu/iit

6.www.nisithdesai.com

http://www.hlregulation.com

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In this article, Gourav Khatri who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses Arbitrability of disputes where Fraud is alleged.

Meaning and current position

At present the scenario of Arbitration in India is that if the parties have agreement between parties which is valid, the Court can’t interfere into the context of the Agreement. Also, the Court is bound to refer the dispute to Arbitration.
The Arbitration and Conciliation Act, 1996 does not specify the class or categories of the cases or instances where the matters have been identified which can be entertained in Arbitration or not.
Since, it is not specified in legislation and also the fact that Arbitral Tribunal does not have the same powers as the Civil Court has like examination of evidence, cross objection etc., therefore, the Courts in several judgements have specified in particular cases the parties can’t enter into Arbitration even if the Arbitration Agreement is valid. (Landmark Judgement: Held in Booz Alen Case).

Ayyasamy v. A. Paramasivam and Ors. Case study

Facts of the case

Partnership deed for carrying hotel business and this partnership has been running a hotel with the name of Hotel Arunagiri located at Tirunelveli, Tamil Nadu.
An arbitration clause was there in the deed which bound the parties to solve the dispute by arbitration.
The Appellant was entrusted with administration, the Respondents alleged that the Appellant had failed to make unvarying deposits of money into the joint operating bank account and had unfairly tapped off an amount of INR 10,00,050. In a separate raid conducted by the CBI on premises of the Appellant’s relative, an amount of INR 45, 00,000 was snatched and suspected to have been given by the Appellant for business of the hotel.
A civil suit was filed by the defendant looking for a statement that as partners they are entitled to participate in the administration of the hotel and also a relief of permanent injunction restraining the defendant form interfering with their right to participate in the administration of the hotel.
The appellant, on receiving the summon raised an objection and made an application under A&C, Act of 196 raising the objection that the suit is not maintainable as there was an agreement which contains an arbitration clause and according to which the dispute has to be solved by the arbitration and it is mandatory for the court to refer the matter to the arbitration.
To this the respondent replied that there was fraud on the part of the appellate which cannot be adjudicated by the arbitration and referred the judgement in the case of N. Radhakrishnan v. Maestro Engineers and Ors.
To this the appellate argued that the judgement laid down in the case of N. Radhakrishnan v. Maestro Engineers and Ors. was found to be per incuriam by the court in the case of Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee in which it was held that the under section 11 of the A&C Act, fraud can be adequately taken care of even by the arbitrator.
The trial court dismissed the application of the Appellant relying upon the judgement in N. Radhakrishnan v. Maestro Engineers and Ors.
Thereafter, the appellant filed a revision petition before the HC repeating his contention that judgement in N. Radhakrishnan v. Maestro Engineers and Ors. was held to be per incuriam in the judgement in Swiss Timing Ltd.
The HC has also chosen to go by the dicta laid down in N. Radhakrishnan with the observation that the judgement in N. Radhakrishnan is rendered by a Division Bench of two Hon. Judges of this court and in Swiss Timing Ltd. The order was passed by a single Judge of this court.
Now in the appeal before the SC the question which needs to be determined is – whether the view of the HC in following the dicta laid down in the case of N. Radhakrishnan, in the facts of this case, is correct or not.
The A&C Act, does not make any specific provision which excludes any category of disputes terming them to be non-arbitrable and it has been laid down in numerous of cases that the scope of judicial intervention, in the cases where there is arbitration clause which is clear and unambiguous, would be very limited and minimal. As, section 8 contains a mandate that were an action is brought before a judicial authority, where the subject is of an arbitration agreement, the parties shall be referred to the arbitration. The only exemption to this is when the authority finds prima facie that there is no valid arbitration agreement.
Section 16 empowers the arbitral tribunal to rule upon its own jurisdiction, including ruling on any objection with respect to the existence or validity of an arbitration agreement. As per Section 16(1), the decision of arbitral tribunal that a contract is null and void shall not mean that the arbitration agreement is also null and void. The arbitration agreement or clause is treated as a separate agreement than the contract.
Section 34(2)(b) and Section 48(2) provide as one of the grounds for challenge in respect of the enforceability of an award on the ground that the dispute is not capable of settlement by arbitration under the law for the time being in force.
From the combined readings of section 5, 16 and 34 of the A&C Act, it can be inferred that it has to be shown that there is a law which makes subject matter of a dispute incapable of settlement by arbitration and according to section 5 of the act, it is clear that there should not be any judicial intervention if there is a valid arbitration agreement between the parties. Also the validity of the arbitration agreement/clause has to be decided by the Arbitral Tribunal only (As per Section 16 of the Act). This has been also laid down in the judgement of Kvaerner Cementation India Ltd. V. Bajranglal Agarwal and Anr.
Further in the case of Abdul Kadir Shamsuddin Bubere V. Madhav Prabhakar Oak it was held by the court that the serious allegations of fraud are sufficient ground for not making a reference to arbitration. The court in this case referred the judgement laid down in the case of Russell v. Russell in which it was laid down that in case where fraud is charged, the court will in general refuse the dispute to arbitration but in case the objection to arbitration is there by a party charging the fraud, the court will not accede it until and unless a prima facie case of fraud is proved.
It was also observed by the court that, where there are serious allegations of the fraud, the dicta contained in the above-mentioned judgement are understandable but mere allegations of fraud in pleadings cannot be a ground to declare the matter as incapable of settlement by an arbitrator.
Further in the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Ors. it was held by the court that the cases where the subject matter falls exclusively within the domain of public for a(right in rem), such disputes cannot be decided by the Arbitral Tribunal but by the courts only and the disputes where the subject falls under the private for a (right to personam) are arbitrable. This is not, however, a rigid or inflexible rule.

The court set down the following examples of non-arbitrable disputes,

Disputes relating to rights and liabilities which give rise to or arise out of criminal offence;
Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody;
Matters of guardianship;
Insolvency and winding up;
Testamentary matters, such as the grant of probate, letters of administration and succession certificates; and
Eviction or tenancy substances governed by special statutes where a tenant enjoys special protection against eviction and specific courts are conferred with the exclusive jurisdiction to deal with the dispute.

In the case of Vimal Kishore Shah v. Jayesh Dinesh Shah, the court added the seventh category to the six non-arbitrable categories set out in Booz Allen case which was relating to trusts, trustees and beneficiaries arising out of trust deed and the Trust Act.

It was held by the courts in the case of Natraj Studios (P) Ltd. v. Navrang Studios that the arbitration agreements between the parties whose rights are regulated by rent control legislation will not be recognized by the court of law.

Further, where the dispute is under the Consumer Protection Act, 1986, it was held by in the case of Skypak Courier Ltd. v. Tata Chemical Ltd. that the existence of an arbitration clause will not be a bar to the entertainment of a complaint by a forum under the Consumer Protection Act, 1986. The same was reiterated in National Seeds Corporation Ltd. v. M. Madhusudan Reddy and Rosedale Developers Pvt. Ltd. V. Aghore Bhattacharya.

Therefore, the position that emerges both before and after the decision in N. Radhakrishnan is that the courts have given the effect to the binding precept incorporated in Section 8 in the judgements laid down by the courts in the case of P. Anand Gajapathi Raju v. P.V.G. Raju, Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums, Sundaram Finance Ltd. v. T. Thankam, Pink City and Branch Manager, Magma Leasing and Finance Ltd. v. Potluri Madhvilata. It was further held by the court that once there is an arbitration agreement between the parties, a judicial authority before which the action is brought is under a positive obligation to refer the parties to the arbitration by enforcing the terms of the contract. There is no element of discretion left with the court but to compel the parties to arbitration.

The position in UK, where arbitration is valued as an effective form of dispute resolution is also same. As in UK, according to Section 24(2) of the Arbitration Act, 1950, the court could review the authority of a tribunal to deal with the claims involving issues of fraud and determine those claim itself. However, under the English Arbitration Act, 1996, there is no such restriction and the arbitral tribunal has the jurisdiction to consider and rule on issues of fraud.

According to the basic principle and the object behind Arbitration and Conciliation Act, 1996, the arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal where the intention of the parties is expressed in the terms of their agreement and out of which, the parties had the knowledge of the efficacy of arbitral process can be inferred. Therefore, it is the duty of the court to refer the parties to arbitration so that the purpose and object of Arbitration and Conciliation Act, 1996 could not be destroyed.

Further, this principle should guide the approach when a defence of fraud is raised before a judicial authority to oppose a reference to arbitration. The arbitration agreement between the parties stands distinct from the contract in which it is contained, as a matter of law and consequence. Even the invalidity of the main agreement does not ipso jure result in the invalidity of the arbitration agreement. Parties having agreed to refer disputes to arbitration, the plain meaning and effect of Section 8 must ensue.

According to the 246th Law Commission Report, two views in this regards have been expressed, one is in favour of civil courts in case of serious fraud and other view in favour of Arbitral Tribunal. This brings into force that the Law Commission has recognized that in case where there is serious fraud, it has to be dealt by the Civil Court and in case where there is fraud simplicitor, it can be determined by the Arbitral Tribunal.

Therefore, if the court finds that there are serious allegations of fraud which make virtual case of criminal offence or where the allegations of fraud are so complicated that it becomes absolutely essential to be decided by the civil court, the civil court can side-track the agreement by dismissing the application under section 8. It can also be done in case where there is forgery/fabrication of documents in support of the plea of fraud. However, reverse position of this would be that where there are simple allegations of fraud touching upon the internal affairs of the party and it has no implication in the public domain, the arbitration clause need not to be avoided.

In the present case, as per the facts the SC didn’t find fraud to be so serious which the arbitrator cannot take care of. Therefore, the SC revised the judgements of the lower courts, allowed the appeal and referred the parties to arbitration.

The Supreme Court observed that the doctrine of separability and kompetenz-kompetenz (embodied in Section 16 of the Act) helped the arbitral tribunal retain powers to adjudicate upon matters without court intervention. The SC attempted to strike a balance in the considerations of arbitrability of fraud. It held that while matters that involved allegations of “serious fraud” would not be arbitrable, matters that had “mere allegations” of fraud were arbitrable.

According to the facts in the present case, the Supreme Court didn’t find the fraud to be so serious which the arbitrator cannot take care of. Hence, the Supreme Court changed the judgements laid down by the lower courts and allowed the appeal and referred the parties to the arbitration. It was observed by the SC that, section 16 of the Arbitration and Cancelation Act helped the arbitral tribunal to retain its powers to entertain the matters without intervention of the court, as the doctrine of severability and kompetenz-kompetenz are embodied in section 16 of the Arbitration and Conciliation Act. The Supreme Court had tried to balance the dispute of arbitrability of fraud by laying down that the matters where fraud is of serious nature would not be arbitrable and where there are mere allegations of fraud would be arbitrable.

The supreme court also drew the difference between allegation which are simple in nature and the allegations which demand evidence which is complex in nature and requires to be proved beyond reasonable doubt, which can only be done by civil court and not by an arbitrator. Therefore, the matters of fraud which are not so complex and are just mere allegations would be arbitrable and the court is bound to refer those matters to arbitrator. According to the SC, the Swiss Timing case and Radhakrishnan case were on different subject matters therefore, the Swiss Timing case didn’t have precedential value as compared to the Radhakrishnan case.

The controversy over arbitrability of fraud has been now settled as the Supreme Court has now laid down by ending the dispute regarding the applicability of the principle which was laid down in Swiss Timing case over the principles laid down in Radhakrishnan case. The Supreme Court laid down the approach that has to be followed by the court while dealing an application under Section 8 of the Arbitration and Cancellation Act where the contention of fraud is alleged.

Further, it was also laid down by the Supreme Court that where the courts are dealing with international jurisprudence on the matter of arbitrability, the courts have to decide while considering other common law jurisdictions, should evolve towards strengthening the institutional efficacy of arbitration.

Whereas this verdict is a wanted step and in the exact direction, however it would still leave the grit regarding the gravity of the swindle to the idiosyncratic resolution of the court. Therefore not only would scam be obligatory to be specifically pleaded, the fraud pleaded would mechanically require to be of a serious and severe nature. The Court has also delicately stated that accusations of swindle can be adjudicated upon in courts when the person against whom such allegations are flattened desires to be tried in court. This will be a supplementary factor to be dignified by courts in deciding applications for locus to arbitration. It will also be decisive for courts to dissect if fraud is directed at the arbitration agreement, thereby inculpating the agreement (and the resultant arbitration, the same being creature of the arbitration agreement), as contra-distinguished from the main contract.

The verdict acts as a fail-safe judgment as it takes into interpretation universally-accepted principles of kompetenz kompetenz, separability and party autonomy as the epicenter of settlement, and accords due respect to ordinary business reasoning underlying arbitration clauses in contracts. It reinforces the intention of the judiciary to be a partner in arbitral proceedings and offer backing, both in an active and unreceptive manner, where questions arise with respect to reference to arbitration.

Outcome of Judicial Pronouncements

Whereas this verdict is a wanted step and in the exact direction, however it would still leave the grit regarding the gravity of the swindle to the idiosyncratic resolution of the court. Therefore not only would scam be obligatory to be specifically pleaded, the fraud pleaded would mechanically require to be of a serious and severe nature. The Court has also delicately stated that accusations of swindle can be adjudicated upon in courts when the person against whom such allegations are flattened desires to be tried in court. This will be a supplementary factor to be dignified by courts in deciding applications for locus to arbitration. It will also be decisive for courts to dissect if fraud is directed at the arbitration agreement, thereby inculpating the agreement (and the resultant arbitration, the same being creature of the arbitration agreement), as contra-distinguished from the main contract.
The verdict acts as a fail-safe judgment as it takes into interpretation universally-accepted principles of kompetenz kompetenz, separability and party autonomy as the epicenter of settlement, and accords due respect to ordinary business reasoning underlying arbitration clauses in contracts. It reinforces the intention of the judiciary to be a partner in arbitral proceedings and offer backing, both in an active and unreceptive manner, where questions arise with respect to reference to arbitration.

Conclusion

Keeping the above judgements in mind, we can conclude with the fact that wherever such disputes are there which consist of the both nature civil as well as criminal and where the dispute is a subject matter to Arbitration due to valid arbitration clause, the Courts can only entertain, if the nature of the matter is grave and evidence are required to prove the dispute and taken on record.

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In this article, Jisnu Dutta who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses Corporate governance of insurance companies in India. Process, compliance, best practices and relevant law.

Corporate governance of insurance companies in India. Process, compliance, best practices and relevant law

The general business structures of the companies allow the managers to run the business under the guidance of the board members who in turn is answerable to shareholders of the company. Managers look into day to day business where as board will oversee manager’s job periodically with reference to set agreed goal and policy guidelines.
The share holders have right to select director which ensures that most powerful directors are also answerable to the shareholder. However, in Indian scenario a typical organizational structure is often observed when the major share holder also act as a board member and manager.

A company runs on the basis of perpetual succession to satisfy each and every stakeholder. The illustrative list of such stakeholder shall include customer, supplier, employee, manager, share holder, Government. Each and every party or stakeholder has one thing in common, that they have economic interest in a company.

To satisfy their economic interest all the stakeholder gets into any or different kind of contractual or economic linkage with a company as permitted under the law. This economic interest could be fulfilled lawfully or unlawfully and also can be fulfilled in a biased way so to impair the due benefit of other deserving stakeholder.

Corporate governance is the process to prohibit fulfillment of economic interest unlawfully or unethically or in a biased manner towards any particular stakeholder.

Ethical satisfaction of different economic interests is guided by either by set rules which encompass broad act (Example : income tax act in relation to Govt), company culture and practice (Example :Rewarding effective employee) or specific contracts (Example: Purchase agreement in relation to customer) in first part together with existence of supervisory body confirming the company action is in line with the Act ,culture or contract in second part and transparency providing the scope to review by any stakeholder in the third part.
Corporate governance is the continuous process of maximizing shareholders equity ensuring fairness to all other stakeholders including employee, supplier, distributer, customer, banker, Government, project effected people etc. Corporate governance is a precondition for long-term success of an organization. This not only encompass the for profit companies but also include benevolent institution like nonprofit trust, educational institute like universities, administrative bodies of game or cultural activity
Corporate governance is more important in the financial sector because financial companies act as intermediaries between investor and borrower. Failure of these companies to govern their business in a morally expected way would have long lasting impact on economy forcing it to contract. Insurance sector is a subclass in financial sector. The insurance sector in India is regulated by IRDAI (Insurance Regulatory and Development Authority of India).

Insurance provides necessary safeguard towards unforeseen adverse future events. Insurance business uses the concept of risk pooling and probability of occurrence of loss event. Insurance is a legally binding agreement between insurer and insured that transfers part or full of risk from a policyholder to an insurance provider in return of premium paid by policy holder.

Corporate governance in insurance sector is guided by the corporate governance guideline issued by IRDAI. IRDAI issued comprehensive Corporate Governance Guidelines on 18.05.2016 which will be applicable on insurance companies from FY 2016-17.
The revised guidelines cover the broadly covers Corporate Governance practices, appointment of MD/ CEO and other Key Management Persons (KMPs) and the appointment of statutory auditors of insurers. The guidelines also contemplate to oversee the compliance position in regard to the adherence of corporate governance guidelines.
Those Corporate Governance requirements of companies which were listed in the Stock Exchanges wad guided by the requisite compliance to Clause 49 of Listing Agreement of the Stock Exchanges. The Indian insurance companies are not listed in stock exchanges till date but IRDAI advised insurers to familiarize themselves with Corporate Governance structures and requirements appropriate for listed entities.

The IRDAI guideline squarely put the responsibility of good governance upon the board of insurance company where as IRDA will also oversee the maintenance of the stipulations in this regard. These guidelines are additional to the related provisions of the Companies Act, 2013 and any other laws or regulations framed there under. Where the requirements of these guidelines are in conflict with other rules or guideline as per statute the stricter guideline shall be followed.

The guidelines address various requirements broadly covering the following major structural elements:

Overall Governance structure
Constitution of Board of Directors
Broad tasks of BOD.
Control Functions to be exercised by board
Formation of different mandatory committee and their function
Disclosures requirement
Outsourcing policy guideline
Relationship with stakeholders
Reporting to IRDAI for compliance
Whistle blowing policy
Evaluation of Board of Directors including Independent Directors

The following pictorial gives overall picture of the corporate governance in action as envisaged by IRDAI policy

Overall Governance structure

Broadly this guideline outlines the required structure of board of director to be adopted by insurance company, the manner by which they will exercise control through the appointment of actuary, auditor, remuneration committee, policy holders protection committee. They will have to adopt whistleblowing policy adequately safeguarding the whistleblower where as board or IRDA can have information regarding irregularities existing inside. The insurer shall submit report to the compliance of guideline to IRDAI.

Constitution of Board of Directors

The Board of Directors of insurance companies/corporations shall have minimum three independent directors. Though, this criterion is relaxed for insurance companies at their initial years. They can have two independent directors in the board in cases they have not crossed five years from the grant of Certificate of Registration to them.

Any independent director shall have to fulfill the conditions stipulated under Section 149 of the Companies Act, 2013. Independent director shall be issued appointment letter which will lay down the terms and conditions, duties, responsibilities, payable sitting fees, etc. In case the number of independent directors falls below the required minimum as laid down, such vacancy needs to be filled up before the immediate upcoming Board meeting or three months from the date of such vacancy, whichever is later, under intimation to the Authority.
In case, the Chairman of the Board is a non-executive director, the Chief Executive Officer shall be a whole time director of the Board. As required under Section 149 of the Companies Act, 2013, every insurer shall ensure that there is at least one woman director in the Board .The Board will create standards of ethical behavior which will help the employee to effectively resolve conflict. Board at macro level shall be committing to a corporate philosophy and governance that will also provide for the level of risk adoption properly linked to its investment policy and strategy to mitigation any additional risk.
The board shall be held responsible for the action of the insurance company though Board can delegate its authority to different committee or executives. The composition of board shall be towards fulfilling different expectation from various stakeholders. The board shall review corporate policies from time to time to ensure the policy takes care of emerging needs and shall be adequately modified to become suitable with passage of time.

The Insurance Act prohibits an insurance intermediary/agent to be the director of an insurance company (except with prior approval of the IRDAI) .A financial intermediary sells policy to policyholder and therefore if put in board he may not be able to take a objective view because of his association with selling of policy and thereby earning commission.

Disclosures requirement by the board

Appropriate procedures and rules shall be maintained by the insurance company in the matter of conduct of board meeting and their committees. In this regard the Secretarial Standards of ICSI as issued from time to time and relevant provisions of the Companies Act, 2013 shall be complied with.

Broad tasks of BOD

The Board in consultation with the Key Management Persons should establish and duly evaluate strategies and policies to address the following broad range of areas.

Financial projections on the capital requirements, estimated revenue, expenses and projected profitability with the objective to meet the expectations of policyholders and shareholders.
Full compliance with the Insurance Act and adherence to secondary legislations.
Broader policy for resolving conflicts of interest between stakeholders.
Fair treatment of policyholders and employees.
Establishing adequate business disclosures procedures.
Establishing channel enabling whistleblower to raise their voice. Adequate protection to whistleblowers.
Developing a corporate culture that rewards ethical behavior.

Control Functions to be exercised by board

Board should also put on place the following control mechanism,

Suitable and stringent mechanisms for quantification of agreed risk level, identification of present risk level, identification of additional investment opportunity or ways to mitigate additional risks.
Board is responsible for compliance and hence processes must be in place for ensuring compliance to not only applicable laws and regulations but also adherence to the policies approved by the board.
Creation of an internal audit function who will review and assess the effectiveness of policies and ensure company’s adherence to internal control mechanical as well as its disclosures on strategies, policies or procedures to its stake holders.
Formation of sustainable organizational structure must ensure that the control function remains independent from business operation.

Formation of different mandatory committee and their function

Board, with the objective to preserve adequate board time, may delegate significant corporate responsibilities to different committees of directors after laying down overall objective, role and responsibilities. Board may form such committees to effectively monitor the company as a whole.
IRDAI advises all insurers to mandatorily establish Committees for Policyholder Protection, Risk Management, Investment, Audit, Nomination and Remuneration, Corporate Social Responsibility (only for profit earning insurers).
However, though not mandatory, additionally the board may form Committees such as Asset-Liability Management Committee, Ethics Committee, etc.

Audit Committee (Obligatory)

In line with direction contained in Section 177 of the Companies Act, 2013 every Insurance company/corporation shall be required to constitute an Audit Committee.
The function of Audit Committee is to oversee the accounting methods for preparation of financial statements, statement of cash flow and disclosure on annual and quarterly basis. Audit committee will also see the adherence to financial reporting standards by the insurance company and ensure dissemination of correct facts and figures. Audit committee may also set-up requisite procedures and processes to put in place required checks and control mechanisms.
An independent director of the Board will act as chairperson of Audit Committee. She should have an accounting/finance/audit experience and may be a person with strong financial analysis background.

Investment Committee (Obligatory)

An Investment Committee shall be set up by the Board of Insurance corporation .The committee shall comprise of the Chief Executive Officer Chief Risk Officer, Chief of Investment, the Actuary of insurer and at least two Non-Executive Directors.
This Committee shall be responsible for recommending investment policy and strategizing the operational framework for investment operations of insurance company.
The policy should have its focus on Asset Liability Management (ALM) supported by stringent internal control systems. The investment policy and operational framework shall encompass liquidity aspects as necessary for smooth operations, compliance with prudential regulatory norms applicable on investments, risk management function to ensure matching yield on investments and protection policyholders’ funds.

Risk Management Committee (Obligatory)

Insurance is understood to be risky business as it assumes and distributes risk. successful running of insurance company is squarely dependent on how well the different risks are managed across the organization.
Insurers are required to set up a risk management committee to formulate and monitor company’s risk management strategy in pursuit of developing an effective risk management system.
Chief Risk Officer (CRO) shall guide and supervise risk management function.Different roles in the risk management committee shall be organized in such a way that it could monitor all the risks across all lines of business of the company and the Chief Risk Officer shall have direct access to the Board.
Instead of focusing only on compliance this risk management committee shall focus on adding value to the business. This function should closely work with the finance function, without losing its independent and objective view required to assess and evaluate capital, finance and other operation related decisions.

Policyholder Protection Committee (Obligatory)

IRDAI is to protect policyholders’ interests as mandated by statute. IRDAI therefore, in turn, stipulates adoption of healthy market practices in terms of sales, marketing, advertisements, promotion, publicity, redressal of customer grievances, consumer awareness and education through promulgation of various secondary legislation. The list of relevant Regulations/Guidelines/Circulars is as appended below:-

Regulations for Protection of Policyholders’ Interests, 2002
Insurance Advertisements and Disclosure Regulations, 2002
Guidelines on Advertisements, Promotion & Publicity of Insurance Companies and Insurance Intermediaries in May 2007.
Guidelines on Grievance Redressal by Insurance Companies in July 2010 and Handling of Complaints/Grievances of Policyholders, April 2015
Master Circular in the matter of Insurance Advertisements’August, 2015
Guidelines on Public Disclosure for insurance companies
Different Circulars on Handling and Disclosure of the Unclaimed Amounts of policyholder.
Guidelines on Electronic Mode/online mode of Payments for Claims

Nomination and Remuneration Committee (Obligatory)

IRDAI specifies to constitute the Nomination and Remuneration Committee in line with the provisions of Section 178 in Companies Act, 2013. Some of the Insurance Companies which have two independent committees one for Nomination and other for Remuneration may merge these two Committees with the Board approval, under intimation to IRDAI. The two companies shall be merged within 180 days from the date of issue of these corporate governance guidelines issued on 18.05.2016.
The Nomination and Remuneration Committee shall be responsible to go through the declarations of intending applicants before their reappointment/ appointment/election as directors by the shareholders at the General Meetings. In addition to this, the Committee shall also scrutinize the applications of aspirants for appointment as the Key Management Persons.
In the remuneration part, the Committee is required to determine on behalf of the Board or shareholders to determine remuneration or compensation packages for the CEO, the Executive Directors, Key management Persons of the company in adherence to the insurance company’s policy on remuneration or other relevant documents as deemed fit.

Corporate Social Responsibility Committee (Obligatory)

Companies Act, 2013 in Section 135 stipulates constitution of a CSR Committee subject to fulfillment of certain conditions as mentioned in the above mentioned section. Similarly, Indian Insurance Companies has to set up a CSR Committee if the insurance company earns a Net Profit of Rs. 5 Crores or excess during last financial year passed.
Further the ‘Net Profit’ shall be as shown in the financial statement of the Indian insurance company prepared in accordance with insurance act 1938.Any profit from any foreign branch or dividend from any other Indian company which is already complying section 135 of companies act shall not be included in the net income. Neither the net income is required to be recomputed as per the provisions of companies act.

Disclosure Requirements

The IRDAI (Preparation of Financial Statements and Auditors’ Report of Insurance Companies) Regulations, 2002, have prescribed certain disclosures requirement to be shown in the face of financial statements. Authority is also considering inclusion of additional disclosure requirements to be made by insurers at periodical intervals.

Before finalizing of such additional disclosures, In the meantime, the Board is required to ensure that the following information is prepared as per the relevant standards/formats to the extent available and the impact of any changes therein are also disclosed in the annual accounts:-

Qualitative and Quantitative information about financial and operating ratios of the insurance company’s such as commission and expenses ratios, incurred claim etc.
Required solvency margin vis-à-vis the actual solvency position of the insurance company.
Insurers operating in life insurance business should disclose persistency ratio of policies offered by them
Financial position including growth rate and current financial performance of the insurance company
Descriptive commentary on the inside risk management organization.
Details of claims intimated, claims disposed off and pending claims with details of period the data pertains to.
Pecuniary relationships or transactions between Non-Executive Directors and the insurance company requires to be disclosed in the Annual Accounts.
Element wise Disclosure of remuneration package(including incentives or ESOP) of MD & CEO and all other directors and Key Management Persons
Payments/Advance made to any of the group companies from the Policyholders Funds
Any other material information which have an impact on the insurer’s financial position.

Outsourcing policy guideline

All outsourcing arrangements shall be as par the Board approved outsourcing policy & every outsourcing arrangements shall have to be approved by Committee of Key Management Persons.
The Board or the Risk Management Committee have to be periodically apprised about different outsourcing arrangements entered into by the insurance company along with the confirmation about compliance to existing internal policy while making this outsourcing agreement.
Company’s core functions shall not be outsourced by any insurance company except in cases where the same is specifically permitted by the IRDAI. Every outsourcing contract shall specific provision ensuring confidentiality of business data, processes and outputs where these data were used .Data shall continue to have ownership with the insurance company /corporation. The outsourced agency is required to hand over the data and all software programs/models etc on termination of the outsourcing arrangement in orderly manner.
The management of the insurer shall have to monitor and review the performance of agencies to which different noncore jobs have been outsourced .The management is required to review at least once a year and file the report to the Board.

Reporting to IRDAI

Insurers shall have to examine that how much compliance they are performing with respect to with these guidelines. The insurer have to take immediate action to achieve compliance in cases where already compliance is not made. It is expected that all the necessary compliance structure shall be put in place to ensure total compliance with the guidelines issued. This shall be effective from the financial year 2016-2017. In cases where such compliance is either too difficult to achieve or is not possible for any particular reason, the insurance companies shall have to write to the IRDAI for additional guidance in this regard.
Company Secretary is required to be designated as the Compliance officer of each insurer whose duty shall be to monitor continuing compliance with these guidelines.
Annual Report of insurance company shall have a separate certification from the Compliance Officer ( company secretary as mentioned above) in the format given in Annexure 8 of the guideline.

All insurers have to file a report on compliance status in respect to these Corporate Governance guidelines on annual basis. This report is required to be filed within 3 months from the end of financial year, i.e., before 30^th June. The report is to be filed as par the format in the Annexure 9 of the guideline.

Whistleblower Policy

Insurers are advised to adopt an effective “whistle blower” policy, where-by employees can raise concerns internally about anticipated irregularities, governance related issues, or any other matter including financial reporting. These may also include a mechanism so that employee can confidentially report to the Chairman of the Board / Committee of the Board / Statutory Auditor.

Evaluation of Board of Directors including Independent Directors

As stipulated under Schedule IV of Companies Act, 2013, independent directors are required to meet at least once in a financial year to evaluate the performance of non-independent directors. Similarly, Independent Directors shall be evaluated by the non-independent directors of the Board as given in the Schedule.
The guideline also provides for Role of CEO & other senior functionaries, Role of Appointed Actuaries, External audit and Appointment of Statutory Auditors, Relationship with stakeholders in detail.
This corporate governance guideline is applicable to all insurers from FY 2016-17 which is expected to induce ethical governance in the business of insurance in India.

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In this article, Kanishka Chakrabarti who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses Post-grant opposition and revocation proceedings under the Indian Patent Act.

Introduction

Patent is a right that is exclusive which is granted to the original inventor for an innovative product or a novel process that provides a unique way of doing something or that which provides for a novel technical resolution to a problem. It provides an exclusive right to the inventor to manufacture, sell his invention or product. Therefore it is very crucial that a patent is only bestowed to those inventions which validate the exclusive right and comply with the criteria stated above.
A patent, once granted, does not imply that the same will stay unchallenged by any party during its life. In spite of the granting of a patent, it can be put to trial by certain persons on various grounds, either through a post-grant opposition or by way of revocation proceedings.

Opposition to Patent

There are provisions under the Indian Patent Act pertaining to oppositions. They are put in place to ensure that unfair obtaining of patents and claiming inventions which are trivial or insignificant are prohibited.

An opposition proceeding can be termed as an administrative process under the authority of the Patent office which permits a party to challenge a patent.

Oppositions can be filed at various stages which is contingent upon the phase of the patent, either at the pre-grant stage (in order to obstruct unlawful grant of patent) or at the post-grant stage. Thus, oppositions are of two types under the Act, pre-grant oppositions, and post-grant oppositions.
India signed the Trade Related aspects of Intellectual Property Rights (TRIPS) Agreement on 1^st January, 2005. Subsequently Section 25 of the Act was amended to adhere to the agreed terms of TRIPS, which provides for an integrated system of pre and post grant oppositions.
As the scope of this project is restricted to post grant oppositions and revocation proceedings, we will be concentrating on these aspects and will not be discussing the pre-grant opposition in elaborate detail.

Post Grant Opposition

A Post grant opposition can be raised after a patent is granted, provided that such opposition is filed before the expiry of 1 year from the date of publication of allowance of the patent.
As per the Act, any ‘person interested[1]’ and wishing to oppose a patent, can file a notice of opposition addressed to the Controller ensuring that the notice fulfills the criteria provided under Section 25 of the Patents Act, 1970. The ‘person interested’ definition provided under the Indian Patent Act includes a person who is engaged in, or in promoting, research in the same field as that to which the patent relates. An ‘interested person’ also includes any organization that has manufacturing/trading/financial interest in products that relate to the product that has been patented.

Post grant oppositions can be filed on the basis of a number of reasons as stated in Section 25 (2) of the Patents Act.

It is to be noted that a number of conditions under which a patent can be opposed post-grant are similar to the reasons provided under section(s) related to revocation proceedings.

The grounds are as stated hereunder:

Invention was publicly known or practiced prior to the claim of priority date.
The invention has been published or filed prior to the filing of the applicant
Invention on which claim is made has been published before.
Applicant obtains the patent through wrongful means.
Invention is obvious and is devoid of any novel step.
The ‘invention’ does not amount to an invention as contemplated under the act, or is not patentable.
The specifications do not adequately describe the invention or the means through which the same can be performed.
Failure to disclose to the Controller the information required under Section 8, or has done so fraudulently.
Convention patent application has not been filed within one year of filing the first application in a convention country.
Specifications do not, or wrongly reveals source of biological material utilized in the invention.
Invention was foreseen in light of knowledge available within any local or native community in India or elsewhere.

Important differences between Pre-Grant Patent Opposition & Post-Grant Patent Opposition

It is to be noted that even though one had opposed a patent at the pre-grant stage, nothing prevents him from filing an opposition at the Post-grant stage.

Pre-Grant Opposition	Post-grant Opposition
Can be filed by any person.	Can be filed by only ‘person interested’.
Infringement cannot be alleged as the patent has not been granted.	As patent has already been granted, infringement proceedings can be started.
Does not explicitly give the Patent Applicant a right to hearing.	Provides the Patent Applicant an opportunity to be heard.
Does not directly allow the party opposing a right to be heard. A request has to be made for the same and the rules do not provide for how the hearing is to be conducted. The discretion of providing the opponent an opportunity lies with the Patent Controller, who may or may not provide the same based on what he feels are the merits of the opposition.	The Opponent’s right to be heard is irrespective of the merit of the opposition.
No fees required for filing opposition.	Fees required to file opposition (Rs. 1500 in case of natural person and Rs. 6000 in case of any person other than a natural person) and overall a costly process.
The process is faster.	Process is lengthier owing to hearings, and by extension thereof delays, extensions etc.
Decision can only be challenged by way of a writ petition.	The Controller’s decision is open to challenge by way of appeal to IPAB.

On granting of a patent and before the expiration of a 1 year period from the date of publication of grant of patent, any ‘person interested’ can file a notice of opposition to the Controller. In the event that the patentee wishes to challenge the opposition, he shall submit a counter-reply statement at the office concerned, detailing the reasons and grounds on the basis of which he believes that the opposition should be dismissed. He can also furnish evidence in support of the same. Further, the opponent in turn can file counter-evidence or reply, the scope of which is to be limited to the patentee’s reply.
The Controller thereafter shall form an Opposition Board (consisting of three members) which will carry out a detailed scrutiny and investigation of the patent and submit their findings and recommendations to the Controller within three months of receipt of relevant documents.
The Controller shall fix a date of hearing and intimate the same to the patentee and opponent.
On the date of the hearing, the parties are to present their respective arguments, and the Controller shall, on the basis of the arguments and the findings of the oppositions board decide the matter.
The controller shall convey his decision to the parties and provide the reasons on the basis of which he arrived at the same.

The Supreme Court, in the case of Cipla Ltd. vs. Union of India & Ors.[2], has laid stress on the principles of natural justice during the opposition process as well as the importance of the recommendations of the Opposition Board. The Supreme Court has opined that the Opposition Board’s recommendations must be made available to the parties concerned in order for the parties to effectively argue their contentions before the Controller at the time of hearing. The Court has stated that even though the Act and the Rules do not mandate the Controller or the Opposition Board to provide copies of the recommendation to the parties, as the report is a crucial document in the decision making process, the principles of natural justice should prevail.

Revocation Proceedings

All persons (except patentee) are required to seek permission from the patentee for utilizing any of the exclusive rights conferred to the patentee. However, this does not mean that such parties cannot challenge the validity of the patent concerned. Apart from post-grant opposition, revocation is another option that lies with ‘person interested’ (among others) to question the legality of a patent.
Under Section 64 of the Indian Patents Act, a patent may thus be revoked on, (i) petition of a person who is the person interested or petition of the Central Government or (ii) a counter claim in a suit for infringement of patent.
It is to be noted that the forum would differ in the above cases, for any person interested or the central government the petition would lie before the Intellectual Property Appellate Board, and in case of the person making counter-claim in a suit for the revocation of the patent concerned, it would have to be before the High Court.[3]

Conditions under which Revocation Proceedings can be initiated

An invention with same complete specifications has already been claimed, and has been granted patent.
The patent was granted to a person who was not entitled to apply for the same.
Patent was wrongfully obtained in violation of rights of another party/petitioner/person through which patent has been claimed.
Subject of the claim does not amount to invention.
Invention claimed is not new; is publicly known, publicly used in India before the priority date or was published in India or elsewhere in the documents referred in Section 13 of the act.
Invention is obvious or lacks any inventive step.
Invention is not of any use.
The specifications are inadequate, so far as describing the invention or method of usage is concerned.
Scope of claim or complete specification is not clearly defined.
Patent obtained through incorrect or false proposal or representation.
Subject of the claim is not patentable under the purview of the Patents Act.
Invention claimed was secretly used in India before the date of claim.
Applicant has not been able to disclose information required under section 8 or has furnished information was known by him to be false.
Applicant has contravened direction for secrecy under Section 35.
Leave to modify specification under Section 57 or Section 58 was obtained through fraudulent means.
Complete specification doesn’t state, or states erroneously the source or geographical origin of biological material used in the invention.
Invention claimed was foreseen in light of the knowledge available within any local or native community in India or elsewhere.

However, it should be noted that the grounds laid down in Section 64 (1) of the Indian Patents Act is not exhaustive.

Further, Section 65 provides that the Central Government may revoke a patent after ascertaining that the invention relates to atomic energy and no patent on the same can be granted as per the relevant provisions of the Atomic Energy Act, 1962.

Also, under Section 66, if the Central Government deems that a patent or the manner in which the rights to the same are being exercised is detrimental to the interests of the public or the state, then such patent can be revoked, albeit an opportunity to the patentee is to be given, with respect to his right to be heard.

Under Section 85 of the Patents Act, a person interested or the Central Government may apply to the Controller for revoking a patent with respect to which compulsory license had been granted, if within two years of its grant,

if it has not worked in the territory of India, or
the public’s reasonable requirement from such patent has not been fulfilled, or the invention has not been made available to the people-at-large at a reasonable level of affordable pricing.

Instance of Revocation under Section 66

Avesthagen Ltd. had been granted a patent on a product consisting of Jamun, Lavangpatti and Chandan which was proposed to be used for treatment of diabetes. Avesthagen’s filing for patent in the said product in the European Patent Office (EPO) was turned down under the ground that it infringed upon Traditional Knowledge Digital Library (TKDL).
The Central Government of India, on finding out about the same, revoked the patent that was granted to Avesthagen by the Indian Patent Office under Section 66 of the Indian Patents Act, i.e. on the patent being prejudicial to the interests of the public and being mischievous.
Avesthagen’s argument that while it was traditional knowledge, but the fact that when used in this particular combination they show an accelerated effect did not hold water, as the Central Government argued and proved that the fact that these plants were used for management of diabetes was known for centuries, and it was obvious that their extracts would perform the same function. Held, a patent cannot be granted for re-validating a traditional knowledge.

Important points of comparison between Post-grant Opposition & Revocation

Scope	Post-grant opposition	Revocation
Relevant Section	25 (2)	64, 65, 66, 85
Locus Standi	Person Interested	Person Interested / Central Govt., / Supposed Infringer in a Counter Claim
Appropriate Forum	Patent Office	Intellectual Property Appellate Board / High Court
Relevant point of time	After the grant of patent but before the expiry of one year from the date of publication of grant of a patent.	After grant of patent and during its subsistence.
Reasons	Limited to grounds provided under Section 25 (2)	Reasons stated under Section 64, 65, 66 and 85 are not exhaustive.

Conclusion

It is interesting to observe that criteria to be fulfilled by a challenger in case of post-grant opposition are comparatively stricter than in case of pre-grant opposition. However, subsequently, as compared to post-grant opposition, the criteria applicable for revocation proceedings appear to be relaxed. The proceedings under Section 25 (2) and Section 64 are two different and distinct proceedings. There is nothing in the Act to prevent an unsuccessful party in an opposition proceeding under Section 25 (2) to proceed under Section 64 for revoking the patent.
The two-tier opposition process combined with the revocation proceedings has proved to be overwhelming for genuine innovators, more so in the pharmaceutical industry. As a pharma giant and one of the fastest growing economies in the 21^st century, India is struggling to balance adherence to TRIPS, multiplicity of suits and looking after interests of the general public.
Oppositions as a mean of invalidating patents find favour particularly owing to lesser expenses and quick resolution as opposed to revocation proceedings, which generally is a much more long drawn process. As stated above, pharmaceutical companies in particular file a large number of oppositions, but lately other industries too have started to sit up and take notice of the advantages of filing oppositions to nip in the bud susceptible patents.

Popular grounds under which most oppositions are filed are ‘novelty’ and ‘inventive step’. Lately, procedural grounds are also being alleged as a key factor for denying patents. [4]

The Delhi High Court, in the Chemtura Case[5] stated that the requirement of updating the Controller about the status does not equate to merely stating the countries of filing or the status whether it is “pending or dismissed”. Further, the requirement is not fulfilled by informing once regarding filing of similar applications outside the country; rather the obligation is a continuing one to inform the Controller about any changes in the status from time to time.

The Supreme Court has clarified in its judgement in the case of Dr. Aloys Wobben & Anr. Vs. Yogesh Mehra & Ors.[6] that as per Section 64 of the Patents Act, revocation can be sought by either a counter claim in suit for infringement OR by filing a revocation petition before the IPAB, the challenger cannot attempt to simultaneously proceed against the patentee in both the matters. Attempting to seek one of the remedies would bar him from availing the other.

The Supreme Court, aware that multiplicity of suits was often a tool for cash-rich litigants with less than honest interests formulated guidelines, viz.

If an infringement suit has been filed and a counter-claim for revocation is made, it is the High Court that would decide upon revocation. The defendant in the suit for infringement is barred from filing a revocation petition with the IPAB (so far as it deals with the same matter).
Similarly, as a corollary, if a revocation petition is filed with the IPAB against a patent, and a suit for infringement is filed pertaining to the same patent, the defendant in the suit was disentitled from seeking revocation of patent while filing his counter-claim. The revocation petition with the IPAB would be decided.[7]

Differing standards of obviousness?

‘Obviousness’ or ‘lack of inventive step’ is a common element that finds a place as a basis of rejection of patent in both opposition and revocation. However, on closer inspection of the provisions relating to them respectively, it can be noted that the word “clearly” finds a place in Section 25 (1) (e) and 25 (2) (e) [pertaining to pre-grant and post-grant opposition respectively] but not Section 64 (1) (f), i.e. relating to revocation proceedings.
This implies that while the person opposing in post grant opposition before the Controller needs to establish without doubt the lack of an ‘inventive step’ but while appearing in front of the IPAB (or High Court) the same extent of ‘proof’ need not be the case.
The question of whether an inventive step is involved is both a question of law and a question of fact and while the Controller need not necessarily possess a legal background, the same is not the case with IPAB (one member required to have legal background)& the High Court. Perhaps it is owing to this fact that the intention of the legislature was such that the Controller need not refuse/strike down a patent unless he is fairly certain that there was no inventive step involved, with respect to the IPAB/High Court, it is assumed that the rationale will be explained and heard to a greater degree than in front of the Controller.

Therefore, it can be concluded that a challenger who files an opposition citing lack of an inventive step, requires a higher degree of proof, in order for him to successful, as opposed to revocation proceedings.

As a corollary, in case of revocation proceedings, the court should not issue a decision in favour of the patentee based on giving benefit of doubt.

[1]Section 2 (1) (t) of the Indian Patents Act.

[2] SC, Civil Appeal No(s).8479-8480 of 2012

[3]Section 104 of the Patents Act provides that no suit for infringement can be brought before a court lower than a District Court having jurisdiction to try the matter, and in case of a counter claim for revocation made by the defendant, the same must be transferred to the High Court.

[4]http://www.lakshmisri.com/Uploads/MediaTypes/Documents/L&SWebsite_IPR_TopDisc_GunjanSharma.pdf

[5] Chemtura Coporation vs. Union of India & Ors. In the High Court of Delhi, CS (OS) No. 930 of 2009.

[6] Civil Appeal No. 6718 of 2013 decided on June 2, 2014 (Citation presently unavailable).

[7] http://www.livelaw.in/enercon-case-supreme-court-simplifies-patent-revocation-procedures-avoid-multiplicity-proceedings/

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In today’s world, with the impetus given to the Intellectual Property a Non-Disclosure Agreements (NDA) has become an obvious necessity. Be it, a proprietary software, a patent or just documents – an employer, to stay relevant need to make sure that their confidential information should remain within their domain and not end in the hands of their competitor. In the current world, a slight edge over a competing business could mean a world of difference and an entity should not be made to lose it for lack of a NDA.

The concept of trade secret was defined in Ambiance India Pvt. Ltd. v. Shri Naveen Jain ^[1], where it was held that ” a trade secret is some protected and confidential information which the employee has acquired in the course of his employment and which should not reach others in the interest of the employer. However, routine day-to-day affairs of employer which are in the knowledge of many and are commonly known to others cannot be called trade secrets. A trade secret can be a formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others.”

Even though the Indian Contract Act, 1872 (Contract Act) does not explicitly envisage a NDA, the same could be considered as ‘restrictive’ agreements in terms of Section 27 of the Contract Act[2] and hence void. The only exception being in the case of sale of goodwill of a business whereby a buyer may be refrained from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein, provided such local limits are reasonable.

Negative covenant enforceable during the term of employment

In the case of Niranjan Shankar Golikari [3] the Apex Court held Negative covenants operative during the period of the contract of employment when the employee is bound to serve his employer exclusively are generally not regarded as restraint of trade and therefore do not fall under Section 27 of the Contract Act. Meanwhile, in Wipro Ltd. v. Beckman Coulter International S. A[4] the court held that negative covenants between employer and employee contracts pertaining to the period post termination and restricting an employee’s right to seek employment and/or to do business in the same field as the employer would be a restraint of trade and therefore, a stipulation to this effect in the contract would be void.

Is an NDA in restraint of trade?

The Bombay High Court in VFS Gobal Services Pvt Ltd [5] held that a clause prohibiting an employee from disclosing commercial or trade secrets is not in restraint of trade. The effect of such a clause is not to restrain the employee from exercising a lawful profession, trade or business within the meaning of Section 27 of the Contract Act.

While the Delhi High Court in Mr. Diljeet Titus, Advocate v. Alfred A Adebare and Ors.[6] restrained the Defendant from misappropriating the information including the lists of clients and other information forming the database of the firm, in Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber[7] granted injunction restraining the Defendants from using the compilations, database comprising the list of the clients and in Escorts Const. Ltd v. Action Const.[8], restrained Escorts from manufacturing, selling or offering for sale the Pick-N-Carry Mobile Cranes that were a substantial imitation or reproduction of their industrial drawings.

Conclusion

From the above line of the decisions we can see the courts have tried to draw a line between the rights of the employer and employee. In cases where the confidential information or trade secret is at stake and the same is not available in the public domain then an employer can enforce an NDA, provided that the employee cannot be confronted with decision of either working for the employer or remain idle. An NDA could be enforced only if the restraint imposed was only with respect to not using the confidential information they acquired from their employment and not with respect to carrying on a similar service.

[1] 2005 (81) DRJ 538

[2] Section 27 of the Contract Act provides that ‘every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.’

Exception 1: Saving of agreement not to carry on business of which good will is sold – One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein, provided that such limits appear to the court reasonable, regard being had to the nature of the business

[3] Niranjan Shankar Golikari v. The Century Spinning and Mfg. Co. 1967 AIR 1098

[4] 2006 (3) ARBLR 118 (Delhi)

[5] VFS Global Services Private v. Mr. Suprit Roy 2008 (2) BomCR 446.

[6] 2006 (32) PTC 609 (Del.), On termination of employment, the defendant took away important confidential business data, such as client lists and proprietary drafts, belonging to the plaintiff.

[7] 1995 (35) DRJ 335, The Court went on to hold that such database in fact amounted to a copyright and thereby deserved protection.

[8] AIR 1999 Delhi 73

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This article by Dipti Khatri discusses the very important issue of seat and venue of arbitration.

Introduction to the issue of Seat & Place/Venue of arbitration

In International Commercial arbitration, the question arises as to which substantive law would govern the arbitration process. To answer, generally validity of the arbitration agreement and seat or place is considered. Venue is considered simply to be a geographical location as per the convenience of the parties. However, seat decides the actual appropriate court which would have the exclusive jurisdiction to decide the case. Where a seat is specified in the agreement, generally the procedural aspects of that country are considered. However, where the parties have failed to choose the specific law, it is governed by the law of the place of arbitration. The challenge of an award is then required to be done in the Court where the seat of arbitration is located and that Court is considered to have supervisory jurisdiction.

However, after the recent amendments the Part I is to be made applicable under certain situations. Section 9 which relates to Interim Relief, Section 37(1) (a) which relates to appeal to orders, Section 27 (Court assistance for evidence) is applicable even in the foreign seated arbitration.

In Enercon Indian Ltd. and Ors. v. Enercon Gmbh the dispute arose of the non- supplies under the International property License Agreement (IPLA). It stated that the venue would be London and the governing Law would be the Indian Arbitration and Conciliation Act, 1996. The question arose whether London Court could have concurrent jurisdiction where the venue was in London. The Hon’ble Supreme Court of India distinguishing between the seat and venue of the arbitration held that “the express mention in the judgment that London was the venue of the arbitration does not lead to the conclusion that it was the seat of arbitration. Once the seat has been decided, Indian Courts will have supervisory jurisdiction and the English Court will not have jurisdiction. It is thus, not necessary for the seat and venue to be the same. The hearing even if it is taking place at a different place, the chosen seat of arbitration will remain unaffected.

However, in the absence of straight jacket provision relating to Arbitration and Conciliation Act, 1996 the controversy which has still not been resolved includes whether can two Indian parties choose the foreign seat of arbitration? The Court have tried to settle the position through a plethora of cases in the recent years however, there is no clarity provided on the same. The Madhya Pradesh High Court in the Sasan’s case stated that party autonomy would be considered in deciding the matter. However, again the Supreme Court’s reluctance to answer on the same has let the issue unanswered. As the Supreme Court established a foreign nexus to the dispute and allowed foreign arbitration between the two parties outside India.

Why the controversy regarding seat/venue of arbitration still remains?

In the Sasan’s Case, where the dispute arose out of a mine development agreement there were two parties Reliance-owned Sasan Power Ltd, and NAAC America (Agreement I). Later on after two years, the North America Coal Corporation India (NACC India) was formed, whereby all rights and liabilities under Agreement I were transferred from NAAC America to NACC India (Agreement II).Thus, the Supreme Court concluded that the parties had entered into two agreements (i) the bi-party agreement which was entered between the foreign element and an Indian entity; and (ii) a tripartite agreement between the foreign entity and an Indian entity, where the rights and obligations were given to the Indian entity. The Supreme Court in asserting its Judgment came to the conclusion that there was foreign element involved and thus, allowed the parties to be governed by the foreign law and appointed foreign seat. Therefore, the main questions relating to whether Indian parties can opt for a foreign seat at the autonomy of the parties were unanswered. Supreme Court was reluctant in addressing and setting aside the judgment of the Madhya Pradesh high Court thereby leaving in the instance of a dilemma. They stated that the

“…. the question whether two Indian companies could enter into an agreement to be governed by the laws of another country would not arise in this case. So long as the obligations arising under the AGREEMENT-I subsists and the American company is not discharged of its obligations under the AGREEMENT-I, there is a ‘foreign element’ therein and the dispute arising therefrom. The autonomy of the parties in such a case to choose the governing law is well recognized in law.”

Position prior to Sasan’s Case

Prior to this, the issue has been considered in various recent Judgments. In the case of TDM Infrastructure Pvt. Ltd. V. UE Development India Ltd. that by looking at the legislature’s intention it can be concluded that Indian nationals opting for the foreign seat would derogate the Indian Law and would be against the public policy. The Judgment stated as follows:

“It held that Section 28 is imperative to Section 2(6) of the provisions of the Act. Therefore, the intention of the Legislature is that the Indian Nationals should not derogate Indian Law”. It would be called to be against the public policy of India.”

To further explain what they mean by “opposed to public policy” the Court relied on the case of Oil and Natural gas Corporation Ltd. v. Saw Pipes Ltd. It held that if it is contrary to the fundamental policy of Indian Law; the interest of India; justice and morality and patent illegality it would amount to be against the public policy. Further, the scope was enhanced in the case of Phulchand Exports Limited v. O.OO. Patriot where it was stated that Section 48 would also carry the same meaning as that of given in the Saw Pipes Case.

The Court again relied on TDM Infrastructure in the case of Addhar Mercantile Private Limited v Shree Jagdamba Agrico Exports Pvt. Ltd. (Addhar Mercantile) which was related to Section 11 of the Arbitration Act. In this case, the Court made the parties to follow the substantive Laws of India even though the parties had an agreement to contractually agree to an “ arbitration in “India or Singapore’’ with substantive Law to be taken as English Law.

Further, in Reliance Industries Limited & Anr. v Union of India, the arbitration was challenged on the ground that it was seated outside India. However, the Court without touching on this ground only upheld the foreign seated arbitration between two Indian parties.

The Supreme Court opined as follows:

“It stated that it was too late to state that the seat of arbitration is not analogous to an exclusive jurisdiction clause. Once the parties have mutually agreed that the seat will be in London, it can no longer be the content of the parties that Part I of the Arbitration agreement will be applicable”.

Also, in the case of Videocon Industries Ltd. v. UOI it was stated by the Supreme Court that appellants have nowhere claimed exemptions under the Indian Law and therefore, they see no reason why Indian Law should be exempted. Thus, the Court no where mentioned about the ‘foreign seat’. Their only concern was ‘exemption from the Laws of India’.

Further, again the same contentions were raised in the case of Delhi Airport Metro Express Pvt. Ltd. which demonstrated the uncertainty in determining the issue of whether the two parties can choose the foreign seat of arbitration. Again seeking hold of the TDM Infrastructure Case, BALCO and Aadhar the Court reached at Further, even if two Indian parties successfully obtain a foreign arbitration award, it is still possible to delay enforcement proceedings in India by claiming that the award violates public policy.

However, earlier Supreme Court in the Bharat Aluminium Company Ltd. v. Kaiser Aluminium Technical services Inc. has held that seat of arbitration inevitably imports the acceptance of the party to the substantial law of the other Country. Also, the Court made an observation that no parties can circumvent the substantive Indian Law and will not have an overriding effect contrary to the provisions of the contract.

Thus, where the above two cases establish that argument can take place abroad; the judgment of Madhya Pradesh High Court has raised the controversy again. The Reliance Industries Judgment and the Sasan’s Judgment suggest totally contrary position to that of the above case.

Recent Amendment adding to the controversy

While the recent amendments have been brought in 2015 with the aim of reducing the judicial intervention and bringing about the effectiveness, however, it has not concluded on the point of whether interim reliefs by the Indian Court can be granted in a foreign seated International commercial arbitration. As, the International commercial arbitration should include at least one non- Indian Party. However, the present act does not talk about the interim relief of the same.

Conclusion

At last, the conflicting opinion of the Courts, reluctance to address the matter has set out ambiguous position. Further, while recent amendments relating to interim relief has been brought it does not expressly mention the case of International commercial arbitration where two Indian parties are involved. Thus, the uncertainty and the ambiguity continue. A conclusive finding by the Supreme Court is still awaited.

Bibliography:

Can two Indian parties opt for a foreign seat of arbitration: An unresolved question http://www.trilegal.com/pdf/create.php?publication_id=14&publication_title=can-two-indian-parties-opt-for-a-foreign-seat-of-arbitration-an-unresolved
Post Balco Developments, Mondaq,
Seat versus Venue, http://www.financialexpress.com/archive/seat-versus-venue/1229641/
International Commercial Arbitration, Law and Recents Developments in India, Nisith Desai Associates http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/International_Commercial_Arbitration.pdf
Can Indian parties choose foreign seat of arbitration? Supreme Court’s Sasan judgment fails to resolve uncertainty http://barandbench.com/can-indian-parties-choose-foreign-seat-arbitration-supreme-courts-sassan-judgment-fails-resolve-uncertainty/

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In this article, Kshitij Datta Rishi who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses What laws apply to a public charitable trust in India? Process compliance, best practices, and applicable laws.

Introduction

Before we understand the laws applicable to the public trusts in India, we need to understand the difference between the various non-profit organizations societies, Section 25 companies &, trusts in India.

Types of non-profit organizations

Societies

During the 19th century close to the 1857 event, various groups and organizations were established in the country on contemporary issues of arts, politics, science & literature. Later to give legal standing to such organizations, the Societies Registration Act was enacted in India in 1860. This act allows the formation of any literary, charitable and scientific Society for any such purpose as described in Section 20 of the Act. Under the Act, any group of seven persons who agree to follow a Memorandum of Association (MOA) can register a Society.
Such Memorandum should include the name of the society, the purpose and the details of the members. Also, this should be accompanied by a set of Rules and Regulations.
Post India’s Independence, based on the adaptation orders 1948/50, the Act continued to remain on the statute but came under the legislature of State governments and various amendments have happened to the same in different states

Section 8 companies (under the Companies Act, 2013) or the old 25 Companies (under the Companies Act, 1956)

The section 8 of the Companies Act, 2013, allows a mechanism through which a Company can be registered with a limited liability if such company is formed for promoting arts, science, commerce, protection of environment or any other useful object provided it intends to apply the income and profits in promoting the underlying objects. Also, that the members cannot be paid any dividends from the profits.

The objective of this structure is to provide a corporate outlook to such companies while exempting them from heavy legal/regulatory requirements.

To register such a Section 8 company, the process is similar to registering or other companies in exception of an additional license requirement specific to this Section 8 company

Trust, Endowments, and Waqfs

As per Section 3 of The Indian Trusts Act, 1882, ‘A “trust” is an obligation annexed to the ownership of the property, and arising out of confidence reposed in and accepted by the owner, or declared and accepted by him, for the behalf of another, or of another and the owner.’
The party/person who designates the confidence is called ‘author of trust’ (testator), the person who accepts such confidence is called ‘trustee’ and the person for whose benefit the mentioned confidence is accepted is ‘beneficiary’.
Essentially, these types of organizations are legally created as modes of property settlement/arrangement dedicated for definite charitable and religious purposes. The basis of their formation is the presence of a property or an asset which has been donated by the will maker for a specific purpose, religious or social. Charitable and religious institutions are special kinds of Trusts which have clear non-secular intent. Waqf is another variant of Trust where the donor is a Muslim.
Their incorporation, organizational structure, and distribution of functions and powers are governed by the provisions of the specific law under which they are registered.

Broadly, these organizations can be registered legally in the following five ways:

Registering before the Inspector General of Registration/ Charity Commissioner under the respective State Public Trusts Act e.g. the Rajasthan Public Trusts Act, the Gujarat Public Trusts Act, the Bombay Public Trusts Act,1950etc.;
By seeking interference of civil courts to lay down schemes for governing a Trust under Sections 92 and 93 of the Civil Procedure Code;
Registration of the trust deed (of a Public Charitable Trust) under the Registration Act, 1908;
Notifying an organization in the list of Charitable Trusts and Religious Endowments which are supervised by the Endowments Commissioner of the State or by a Managing Committee formed under the Charitable Endowments Act, 1890 or under other State laws on Hindu Religious and Charitable Endowments; and
Creating a Waqf under the provisions of the Waqf Act, 1995.

Trusts can be differentiated into Public and Private. Persons, groups, companies etc. on the receiving end of trusts are called beneficiaries. The types of beneficiaries distinguish public trust from a private trust.

Private trust beneficiaries are generally closed groups, individuals, companies but beneficiaries of public trust are always not defined, that is public at large. This Public trust is an organization that is formed with the primary motive of charity to public.
A trust can be created by written deed, will or it can even be created by word of mouth. However, in case of immovable property as the subject, the trust can be created only by non-testamentary instrument signed by author of trust and is registered, or by will of author. Therefore, ‘Will’ is not necessarily required to be registered, even though it may pertain to immovable property.
The primary instrument of forming a trust is the Trust Deed, which is made on non-judicial stamp papers of prescribed fee and is signed by the trustee(s) for submission to the concerned Registrar. For this, since the trust is based on the principle of asset transfer, the registrar or sub-registrar having authorized to register properties has the authority to register this Trust Deed. For this reason, Trust Deed of the proposed Trust may be registered with the registrar of properties or Tahsildar, followed by the endowment of the same at the district level in the collectorate. In case of metropolitan regions/cities, this process is carried out with separate offices of registrar of properties and endowments.

The Trust Deed should contain various details including the names of authors, the names of trustees; settlers of the trust; the names if any, of the beneficiaries or whether it is the public at large; name and address of the trust; objects of the trust; specifics on the appointment, removal or replacement of a trustees, their powers, rights & duties and powers; the method and mode of determination of the trust among others.

Comparison between Society Trust and Section 8 Company
	Society	Public Trust	Section 8 Company
Act/ Legislation	Societies Registration Act of1860	Public Trusts Acts like the Bombay Public Trusts Act of 1950	Companies Act of 1956
Jurisdiction	State where registered	State where registered	State where registered
Authority	Registrar of societies	Charity Commissioner	Registrar of Companies
Registration	As Society (and also as Trust in Maharashtra and Gujrat)	As Trust	Memorandum and Articles of Association
Number of Persons needed to register	Minimum seven; no upper limit	Minimum two Trustees;	Minimum2 shareholders/ Minimum 2 directors
Board of Management	Governing Council or Body/ Executive or managing Committee	Trustees	Board of Directors/ Managing Committee
Mode of succession on Board of Management	Usually election by members of the General Body	Usually by appointment	Usually election by members of the General Body

Now that we have understood the basic types of non-profit organizations, it is important to also understand what is meant by charitable organizations.

Charitable Organization

Charitable organizations are organizations established for charitable purposes. These are non-profit organizations; however, it must be realized that not all non-profit organizations are charitable organizations. Some of the charitable organizations may be established by companies primarily as a part of their tax planning strategies.
The main responsibility of any charitable organization is to work towards benefit of the public by focusing on causes that help the public at large. Along with this, all the operations performed by these organizations should be legal and their policy should be in line with the general public policy.

Charitable Purpose

Public charitable trust must be created for the larger benefit of the public. Similarly, Societies may be registered for charitable purposes. Section 8 companies as described previously are formed for the limited purposes of “promoting commerce, art, science, religion, charity or any other useful object.
In legal terms, the concept of “charitable purpose” may differ a bit from the dictionary definitions of the term.
As per Section 2(15) of the Income Tax Act, 1961, the term Charitable purposes include “relief of the poor, education, medical relief, and the advancement of any other object of general public utility.” In addition to this, Finance (No.2) Act, 2009 added the “preservation of environment (including watersheds, forests, and wildlife) and preservation of monuments or places or objects of artistic or historic interest” under the purview of the term charitable purposes.
Apart from this, Finance Act, 2008 restricted the definition of “charitable purpose,” by mentioning that if the “advancement of any other object of general public utility” involves undertaking any business activity, trade or commerce, or providing any related service for a condition or a fee, it will not be considered a “charitable purpose.”
The Finance Act 2010, retrospectively effective from April 1, 2009, provided some relief by setting up a threshold and exempting the aggregate amount of receipts from such activities up to one million rupees. An organization, established for and running programs for education, relief of poverty and medical support were not affected by the amendments of 2009 or 2010.

Under the state laws, as per the Section 9(1) of the Bombay Public Trusts Act, 1950, charitable purpose includes:

Education
relief of poverty or distress
medical relief
provision of facilities for recreation or other leisure time occupations, if the said facilities are provided in the interest of public benefit and social welfare.
the advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teaching or worship.”

As can be realized above, the definition of charitable purpose is broad enough to cover activities other than working towards providing direct relief from poverty or calamities.

Laws applicable to Public Charitable Trusts in India

Before we go into specifics of Public charitable trusts, a few important points must be considered regarding the charity sector:

There is no individual legislation or a law, which comprehensively governs the charitable organization sector and similarly there no single regulator in this sector in India

Based on the choice of persons forming the charity and the purpose, a charitable organization can be formed in various ways and may be subject to different acts of legislation
Separate legal provisions exist at state and national levels
Nonprofit organizations are also not permitted to be involved in any ‘political activity’. Under the Bombay Public Trusts Act, even ‘political education’ remains outside the scope of ‘charitable purpose’.
India, to maintain being a secular state, does not allow distinction of color, caste and creed in formation of any charitable organization. However, it is still possible to create a valid trust for the benefit of a specific section of the community. But then this kind of trust would not be allowed any income tax exemption
As discussed in the point above, religious trusts established for the benefit of a specific religious communities are also not allowed to benefit from income tax exemptions

Laws governing the formation/registration of such Public Charitable Trusts in India

The first law in India Trusts came into force in 1882 and was known as the Indian Trusts Act, 1882. This ACT was basically for management of Private Trusts.

As opposed to the central law from private trusts, a charitable institution formed as a Public Trust in individual states is, governed by the Public Trust Act applicable in the relevant State. As an example, the public charitable trusts formed/ registered in the state of Maharashtra are governed by the Bombay Public Trusts Act, 1950.
Similar act is operational in state of Gujarat. For such trusts, Rajasthan, has a Trusts Act of 1959 and Madhya Pradesh had an Act of 1951. In certain southern states , there are endowments Acts (eg. Andhra Pradesh), while a many of the northern and north-eastern states in India have no trust Act at all.
Even New Delhi-has no trust Act. In such cases, if no Public Trust Act exists in that state, then the public trusts in these states are governed by the Indian Trusts Act 1882.

Based on the ruling from the case of Hanumantram Ramnath (Bom), it can be concluded that even though the Indian Trusts Act, 1882 does not specifically apply to public charitable trusts, there are three bare minimum requirements to create a charitable trust. These are:

A declaration of trust – binding on settlor,
Setting apart of a definite property and the settlor depriving himself/herself of the ownership, and
The beneficiarie(s)- for which the property is thereafter to be held,

It is important that the transferor of the property by the settlor or that the author of the trust must be competent to sign a contract. Along with this, the trustees should also be persons who are competent to sign a contract. It is also very critical that the trustees identified should signify their acceptance for acting as trustees to make the trust a legally valid one.

Specific acts for different states governing the Public charitable trusts or similar endowments have been mentioned in the list towards the end of the article.

Applicability of Income Tax Act 1961 to Public charitable trusts

Public charitable trusts are exempted from income tax. These exemptions provided to the public charitable trusts are specified in the Section 11, Section 12, and Section 13 of The Income Tax Act.

Section 11 of the Act provides details of the modes of exemption from income tax to such public charitable trusts
Section 12 mentions about exemptions for the contribution of income of the trust
Income of trusts from these contributions
Voluntary contribution received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes
Section 13 of Income Tax Act gives the details related to forfeiture of exemption of income tax by public charitable trust

All trusts are obligated to file annual reports. These returns of income should be filed with the relevant authorities having jurisdiction of the state where the trusts are registered. Income of the authors of trusts can be taxed as personal income under Sections 60 – 63 of the Income Tax Act, 1961 in cases where the trust deed has a provision for revocation of trust.

Section 80G provides details of the privileges available to the donors of public charitable trusts. Under this section, an individual donor is granted specific deduction if donations are made to such kind of public charitable trusts. To be able to provide this benefit to its donors, a public charitable trust is required to obtain a valid certificate. For obtaining this certificate, a trust is required to give application with form 10G along with the trust deed to the income tax office. The primary prerequisite to obtaining this certificate to provide benefit to the donors is that the income gained from the property of the trust should only be used in charitable purposes (as described earlier). The specific conditions to be fulfilled by the public charitable trusts to obtain this certification are:

The trust should be a public charitable trust, the benefit is not for private trusts
The trust should be registered under the relevant laws of the state and also, with the income tax department
Any income or contribution of the trust should not be not applicable for exemption under Section 11, Section 12, Section12A and Section12AA of the Income Tax Act. If this is the case, the trust should not use donations for private business and should maintain separate books of accounts
The bylaws and objectives of the trust should be for charitable purposes only
The trust should be having regular maintenance of accounts and regular audit of the same
There should be no irregularity in filing of income tax returns

Applicability of the Foreign Contribution (Regulation) Act, 2010 to Public charitable trusts

Public charitable trusts that receive foreign contribution or donation from foreign sources are required to obtain registration under Section 6(1) of Foreign Contribution Regulation Act, 2010. Such a registration under the ACT is called an FCRA registration.

To be eligible for applying for the FCRA Registration a trust should match certain criteria,

A public charitable trust seeking foreign contributions for definite cultural, economic, social, religious or educational programs may obtain FCRA registration or receive foreign contribution through “prior permission” route
The trust must have also been in existence for a minimum of three years at the time of making the FCRA application and should not have received any foreign contribution before applying for the same without the Government’s approval
Additionally, the trust seeking registration should have spent at least Rs.10,00,000/- over the last three years on its aims and objectives, excluding any administrative expenditure. To prove the same, Statements of Income & Expenditure, duly audited by Chartered Accountant, for last three years must be submitted

After the application is done, various additional criteria are checked before the FCRA registration is provided. However, even after the registrations, the trusts should be careful in accepting the grants from foreign entities as these could be risky in terms of their source of funds or the purpose of these funds may go against the public/ nations wellbeing.

Other Applicable Laws for Trusts

Religious Endowments Act, 1863
Charitable Endowments Act 1890
Hindu Religious and Charitable Endowments Act 1951
Charitable and Religious Trusts Act, 1920
Official Trustees Act, 1913
Registration Act, 1908
Civil Procedure Code, 1908
Indian Stamp Act, 1899

Wakfs

Mussalman Wakf Validating Act,1913
Mussalman Wakf Act, 1923
Mussalman Wakf Validating Act, 1930
Wakf Act, 1995

Some relevant State Acts

Bombay Public Trusts Act, 1950 and Bombay Public Trusts Rules, 1951
Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987
Bihar Hindu Religious Trusts Act, 1950
Karnataka Hindu Religious Institutions and Charitable Endowments Act, 1997 and Karnataka Hindu Religious Institutions and Charitable Endowments Rules, 2002
Orissa Hindu Religious Endowments Act, 1951
Kerala Travancore-Cochin Hindu Religious Institutions Act, 1950
Rajasthan Public Trust Act, 1959
Tamil Nadu Hindu Religious and Charitable Endowments Act, 1959
The Madras Hindu Religious And Charitable Endowments Act, 1951
Uttar Pradesh Charitable Endowments (Extension of Powers) Act, 1950 and Charitable Endowments (U.P. Amendment) Act, 1952
United Provinces Charitable Endowments Rules, 1943
Religious Endowments (Uttar Pradesh Amendment) Act, 1951

References

Societies, Trusts/ Charitable Institutions, Waqfs and Endowments: Social Capital – A Shared Destiny
Handbook on Laws Governing formation and Administration of Charitable Organizations in India – CA Rajkumar S. Adukia
FCRA Registration for Trusts and NGOs – India Filings

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In this article, Mohammed G A who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses dispute resolution under the Companies Act, 2013.

A dispute resolution mechanism is an organized process that addresses disputes or grievances that arise between two or more parties involved in business, legal, or societal relationships. Under the Companies Act 1956, there were a number of dispute resolution forums/bodies to provide judicial settlement in a wide range of business issues and the Indian Companies were required to approach these multiple forums for resolving their disputes based on the subject matter in dispute. This resulted in a backlog of number cases, protracted litigation time, which was considered as major impediments to ease of doing business in India.

With a view to streamlining the process, the Companies Act 2013, has effectuated a single forum for adjudication most of the disputes related to companies in India. Further, over the last few years, Government of India has taken a number of steps in reforming its dispute resolution machinery, to ensure the speedy and efficient disposal of corporate/commercial litigations in India. The establishment of Commercial Courts, amendments in the Arbitration and Conciliation Act, passage of Insolvency and Bankruptcy Code, 2016, (“Bankruptcy Code”), constitution of the National Company Law Tribunal (NCLT) and notification of Companies Mediation and Conciliation Rules, 2016 reflects a complete overhaul in the dispute resolution machinery in India’s Corporate Litigation.

The scope of this article pertains to reviewing and critically examining the key changes in the regulatory framework governing dispute resolution by undertaking a comparative analysis of the Companies Act 1956 with the 2013 Act. Brief reference shall be made to the rules, notifications, circulars and orders issued by the ministry of corporate affairs (‘MCA’) pursuant to the 2013 Act. In this regard the article seeks to answer the following main research questions:

What are the key differences in the positions under the 1956 and 2013 Acts with regard to dispute resolution?
How far the dispute resolution mechanism changed under the 2013 Act?
Has the regime under the 2013 Act fulfilled its objective of providing an effective dispute resolution mechanism under the companies Act?

The various dispute resolution mechanisms/forums under the Companies Act, 2013 have represented below:

National Company Law Tribunal and Appellate Tribunal (Sections 407-434)

The setting up national company law tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) is a paradigm shift with the objective of establishing a single forum to adjudicate all disputes relating to companies India.
The idea of setting up a single forum dealing with all the matters under the Companies Act 1956 was not new and was introduced earlier by the Companies (Second Amendment) Act, 2002 which provided the legislative framework for the Constitution of NCLT. However, the constitutional validity of the NCLT and NCLAT was challenged in Thiru R. Gandhi, President Madras Bar Association V. Union of India[i], wherein the Madras High court held that certain characteristics of the tribunal violated the constitutional principles of separation of powers and independent of the judiciary by vesting essential judicial functions in a non-judicial body consisting of non-judicial members. However, the Supreme Court of India on 11^th May 2010 gave a ruling that the provisions of Companies (Second Amendment) Act, 2002 pertaining to transfer of several judicial and quasi- judicial powers under the Act to NCLT are constitutionally valid while holding that the qualifications of technical members and the Composition of selection committee of such members as prescribed in the statute had defects and required correction.
In one more judgement in Madras Bar Association vs Union of India[ii] the Hon’ble Supreme Court found that defects as found in Companies (Second Amendment) Act, 2002 also existed in the provisions of the Companies Act, 2013.

After Much debate the government on June 1, 2016,[iii] issued notifications, bringing into effect several sections of the Companies Act 2013, and setting up NCLT and NCLAT. The NCLT will have 11 benches initially, two at New Delhi and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. The NCLT will comprise a president and judicial and technical members, as necessary.

The new tribunal would prove an effective and efficient alternative forum to the wide variety of forums/bodies entrusted with enforcement of the company law. NCLT will replace the Company Law Board (‘CLB’), The Board for Industrial and Financial Reconstruction (‘BIFR’), Appellate authority for industrial and financial corporation (‘AAIFR’) and High Court. The Company Law Board (‘CLB’) is mainly concerned with the shareholder actions relating to oppression and management and miscellaneous aspects such as a change in registered offices, approving share issuance at discount to face value, and investigation of the affairs of the company by an inspector. The Board for Industrial and Financial Reconstruction (‘BIFR’) was established under the purview of the Sick Industrial and Companies (Special Provisions) Act, 1985, for revival and rehabilitation of potentially sick industrial undertakings and for liquidation or closure of non-viable and sick industrial companies.
The high court deals with Specific matters under the Act of 1956, mainly, compromise, amalgamation, merger, reduction of share capital, winding up of a company, statutory appeals from the CLB and constitutional writ petitions against orders of BIFR and Appellate authority for industrial and financial corporation (‘AAIFR’).

The table represents the various types of matters which are going to be or proposed to be dealt by the NCLT,

*The provisions for granting these powers have not been notified yet.

Consequences of the introduction of NCLT

Establishment of NCLT has led the consolidation of all the company related matters pending before the various forums such as such as CLB, BIFR and different high courts across the country under one roof and the powers hereto undertaken by these forums will be now carried out by the NCLT. Thus NCLT provides one stop solution for adjudication of company matters
In pursuant of Section 422 of Companies Act, 2013, the NCLT and NCALT are mandated to dispose-off applications filed before it within a period of 3 months from the date of filing. However, an extension of 90 days may be granted by the President of NCLT or Chairperson of NCLALT for the disposal of the matter.
Presently, the high courts are burdened with matters including winding up of proceedings. Transfer of such proceeding to NCLT is expected to reduce the burden. Furthermore, as the appeal from an order of NCLT will lie before the NCLAT, there will further reduction in the burden of high courts, considering that earlier appeal from the CLB was filed before high Court.
With the notification of the provisions of Bankruptcy Code, NCLT would form a forum which offers a completely novel and improved process for the liquidation of Companies in India.

However, not all the provisions related to NCLT and NCLAT have been notified and the Government also appears to have taken a phase-wise approach towards enforcing this framework by transmitting certain matters under NCLT jurisdiction for the time being.

A simple appellate procedure under the Companies Act 2013

The Companies Act, 2013 has simplified the appellate procedure, by limiting the number of appellate authorities to two, through which application or petitions can be filed and thereby, ensuring quick and final settlement of disputes. An aggrieved person against the order of NCLT may appeal to appellate tribunal i.e., NCLAT and all appeals from the NCLAT shall be directly filed with the Supreme Court against any question of law. This may be contrasted with the dispute resolution system under the 1956 Act, which grants statutory appellate jurisdiction to the High Court in respect of decisions passed by BIFR and AAIFR.
These appeals are generally heard by a Single Judge of the High Court and a party may file a further appeal to the divisional bench of that High Court followed by a final appeal to the Supreme Court. A new provision by way of Section 422 has also been introduced in the Companies Act, 2013 which unequivocally states that any proceedings presented before the tribunal or appeals filed before the appellate tribunal shall be disposed of as early as possible and the tribunal shall make every possible effort to dispose of the proceeding within three months from the date of presentation before the tribunal or filing of appeal.

Special Courts (Sections 435 – 438)

The Central government has been empowered to establish ‘Special Courts’ for the speedy disposal of certain offences punishable under the Companies Act, 2013, with imprisonment of two years or more, by notification to establish or directly designate to set up Special Courts[i]. The objective behind setting up these courts is to let magistrate courts attempt try minor violations, and that grave offences ought to be managed by Special Courts. To achieve this objective the MCA has notified the provisions dealing with ‘Special Courts’ vide its notification dated 18^th May 2016[ii].
Further, by another notification[iii] dated 18^th May 2016, MCA after obtaining the concurrence of the respective Chief justices of the High Court, has designated eight courts as “Special Courts”. These would be in State of Jammu and Kashmir, Maharashtra, Goa, Gujarat, Madhya Pradesh, West Bengal, and Union territories of Andaman and Nicobar Islands; Dadra and Nagar Haveli and Daman and Diu. In addition Central Government by further notifications has designated Special Courts in the National Capital territory of Delhi[iv]; States of Rajasthan, Chhattisgarh, Punjab, Haryana, Manipur, Union Territories of Chandigarh and Puducherry, and Districts of Coimbatore, Dharmapuri, Dindigul, Erode, Krishnagiri, Namakkal, Nilgiris, Salem and Tiruppur[v]; and State of Meghalaya[vi]. As per the notifications, these courts have been designated for the purposes of the trial of offences punishable with imprisonment of two years or more in terms of Sec 435 of the Companies Act 2013.

Constitution of Special Court

A Special Court Shall consists of a Judge who shall be appointed by the Central Government of India in consensus with the Chief Justice of High Court within whose jurisdiction the Judge to be appointed is working. A person being appointed as Special Court Judge must be holding the office Session Judge or an Additional Session Judge immediately before such appointment.

Offences Triable by Special Court

According to the Section 436 of the Companies Act, 2013, below mentioned offences are triable by Special Courts,

Offences for which the Companies Act, 2013, accommodates imprisonment of two years or more;
Cases sent by a Magistrate (where he believes detention is unessential) for any offence deliberated under the Companies Act, 2013. This provision will come into force when a person is arrested and kept in custody, and it creates the impression that the inquiry cannot be finished within of 24 hours period as required under the Code of Criminal Procedure, 1973 (CrPC) and there are justifications for believing that the charges or information is established, and detainment is authorized by Magistrate for a period of not more than 15 days (if authorized by Judicial Magistrate) or 7 days (if authorized by Executive Magistrate), as the case may be. In such cases, the Special Court has the same force as the Magistrate having ward to attempt such case;
Take acquaintance of an offence under the Companies Act, 2013, without the suspect being committed to it for trial upon examination of the police report of the facts constituting such offence or if a complaint if filed on that behalf
Try at the same trial in addition to an offence under the Companies Act, 2013, an offence for which a suspect may be charged under CrPC.
The Special Court may try summary proceedings for any offence under Companies Act, 2013, which is punishable with imprisonment for a term not more than three years. However, in the case of any conviction during this summary trial, a sentence of imprisonment should not exceed more than one year.

All offence under the Companies Act shall be triable by the Special Court having jurisdiction over the area of the registered office of the company in relation to which the offence is committed. The provisions of the CRPC, 1973 shall apply to the proceedings before a Special Court. The Special Court shall be deemed to be a Court of Session and the person conducting a prosecution before a Special Court be deemed to be a Public Prosecutor.

Mediation and Conciliation Panel (Section 442)

In general parlance, mediation means an intervention of some neutral third party in a dispute with an intention to resolve the dispute.
The Constitution of Mediation and Conciliation panel was the new provision which was inserted in the Companies Act, 2013. Sec 442 of Companies Act 2013 authorises the Central Government to maintain a panel of experts to be called as mediation panel for the purpose of effectuating mediation between parties during any proceedings pending before Central Government or NCLT or NCLAT.
This provision has come into force with effect from 1^st April 2014 vide its notification dated 26^th March 2014 by MCA[vii]. On 9th September 2016, MCA notified the Companies (Mediation and Conciliation) Rules, 2016 which provides rules and guidelines for empanelment as Mediators or Conciliators. The Rules ensure that the Panel acts in good faith, by specifying certain ethics that should be followed by every member of the Panel, these include, upholding principles of natural justice towards the parties, especially by keeping in view of the relationship of faith that should be maintained throughout the proceedings[viii].
According to this provision, the parties to the dispute may voluntarily apply to the relevant authority i.e., Central Government, NCLT or NCLAT (as the case may be) to refer the matter to the Mediation Panel. Alternatively, the Central Government, NCLT and the NCLAT before which any proceedings are pending may, on its own, refer any matter pertaining to such proceedings to the Mediation Panel. The Mediation Panel shall dispose of the matter within three months from the date of reference. However, disputes relating to investigations initiated under Chapter XIV of the 2013 Act i.e. those involving serious and specific allegations of fraud, or misfeasance and malfeasance of the officers of the company, or cases involving prosecution for criminal and non-compoundable offences cannot be referred to mediation conciliation panel
The goal of all mediation is to facilitate the parties to arrive at an amicable settlement and at the same time it ensures the protection of confidentiality of information of the parties to the dispute and prohibits the use of such of the information in any other proceedings. Also, the mediation process is cost effective and less time consuming when compared adjudication before Courts, Tribunals or even arbitral tribunal.
If the mediation is successful, it may result in a settlement agreement with the consent of all parties and the same shall be submitted by the panel to the relevant authority and the aggrieved parties can file its objections before relevant authorities. If the settlement does not arrive between the parties to the dispute then panel may refer the matter back to the relevant authority for adjudication of the matter.

Compounding of certain offences (Section 441)

Compounding of an offence is a settlement mechanism, by which, the offender (Company or an officer thereof) is given an option to pay money as a replacement for of his prosecution, thereby avoiding a prolonged litigation (Bradford Investments Plc. (No.2), Re, 1991 BCLC 688). It is a short cut method to circumvent litigation and to bring an end to a default.
The MCA vide its notification dated 1^st June 1, 2016, notified Section 441 of Companies Act, 2013, dealing with “Compounding of Certain offences”[ix]. The concept of compounding of offence is not new, Section 441 of 2013, Act is a re-enactment of Section 621A of the Companies Act, 1956.It provides for compounding of certain offences involving the imposition of fine as punishment and it provides a silver lining for settlement of offences out of court within a short time frame.

Three major developments/changes brought by Section 441 are,

Offences punishable with (a) imprisonment or fine; or (b) imprisonment or fine or both; shall now be compounded with permission of Special Court.
Presently, any offence punishable with fine only, cannot be compounded, if the inquiry against such company has been initiated or is pending under 2013, Act.

The financial limit for compounding of offence by Regional Director has been elevated from INR 50,000 to INR 5 Lakhs.

Compoundable offences and authorities authorised to Compound the offence

Any offence punishable with fine only and where the maximum amount of fine which may be imposed for such offence does not exceed five lakh rupees may be compounded by the Regional Director. Any offence punishable under this Act with fine only and where the maximum amount of fine which may be imposed for such offence exceeds five lakh rupees may be compounded by the NCLT. The offences which are punishable by fine or Imprisonment; fine or Imprisonment or with both may be compoundable with the permission of Special Court. The same has been represented below:

Non-Compoundable offences

Compounding of offences is not possible in the following circumstances:

If either the investigation against the company or officer thereof has been initiated or is pending [Third Proviso to Section 441(1)].
Where similar offence committed has been compounded and period of three years has not expired [Section 441(2)].
Any offence which is punishable under this Act with imprisonment only OR with imprisonment and also with the fine; cannot be compounded [Section 441(2)]

Analysis of Section 441 viz-a-viz Section 621A

Third proviso to Section 441(1) of Companies Act, 2013 provided that the offence cannot be compounded where either the investigation has been initiated or is pending. However, under the 1956 Act, no such provision was there and the offence could have been compounded during the period of investigation also

Serious Fraud Investigation Office (Sections 211 and 212)

Serious Fraud Investigation Office (SFIO) is a multi-disciplinary fraud investigation agency established under Ministry of Corporate Affairs. It consists of experts in the field of the capital market, accountancy, information technology, forensic audit, law, investigation, company law, and taxation for detecting and prosecuting or recommending for prosecution white-collar crimes/frauds. SIFO was constituted by the Government of India on 9 January 2003, since then it continues as a non-statutory body of the Ministry of Corporate Affairs[i].

The Companies Act 2013, gave a statutory recognition to SFIO by establishing the SIFO and empowering it to act as a nodal agency for investigating of frauds in the affairs of the company under Sections 221 and 212, respectively, which were notified by MCA 26^th March 2014[ii]. In 1956, Act there was no specific provision for SIFO and the investigation by SIFO was done only on the request by MCA. SFIO is conferred with the powers of a magistrate and issue orders for the arrest of a person. The terms and conditions of service of Director, experts and other officers of SIFO are specified in Companies (Inspection, Investigation and Inquiry Rules), 2014.[iii]

Conclusion

From the above data is clear that Government of India has taken various measures to amend the legislation and introduced the new provisions in the Companies Act, 2013 and address public concern over corporate accountability and responsibility. This establishment of NCLT and NCLAT will reduce, a multiplicity of litigations, ensure speedy and efficient resolution of company related disputes in India. However, not all the provisions related to NCLT and NCLAT have been notified and the Government also appears to have taken a phase-wise approach towards enforcing this framework by transmitting certain matters under NCLT jurisdiction for the time being.

Further, the new provision in the 2013 Act with regard to the compounding of offences, Special court, and the establishment of mediation panel, provision of statutory status to SIFO is a boon and all concerned companies hope for speedy settlement of disputes. This new provisions under the Companies Act, 2013, would help India to improve its global ranking, in World Bank report as the country for ease of doing business.

[i] http://www.sfio.nic.in ((Accessed on 25 Feb 2017)

[ii]http://www.mca.gov.in/Ministry/pdf/CompaniesActNotification26March2014.PDF (Accessed on 25 Feb 2017)

[iii] http://www.sfio.nic.in/fAQ.aspx ((Accessed on 25 Feb 2017)

[iv] http://www.mca.gov.in/Ministry/pdf/AmendmentAct_2015.pdf (Accessed on 23 Feb 2017)

[v] http://www.mca.gov.in/Ministry/pdf/NotificationOrder_19052016_1.pdf (Accessed on 23 Feb 2017)

[vi] http://www.mca.gov.in/Ministry/pdf/NotificationOrder_19052016_2.pdf (Accessed on 23 Feb 2017)

[vii]http://www.mca.gov.in/Ministry/pdf/designationofSpecialCourt_28072016.pdf (Accessed on 23 Feb 2017)

[viii] https://www.mca.gov.in/Ministry/pdf/Notification_05092016.pdf (Accessed on 23 Feb 2017)

[ix] http://www.mca.gov.in/Ministry/pdf/Noti_SplCourt_18112016.pdf (Accessed on 23 Feb 2017)

[vii]http://www.mca.gov.in/Ministry/pdf/CompaniesActNotification26March2014.PDF (Accessed on 24 Feb 2017)

[viii]http://www.mca.gov.in/Ministry/pdf/CompaniesMediationandConciliationRules_10092016.pdf (Accessed on 24 Feb 2017)

[ix] http://www.mca.gov.in/Ministry/pdf/Notification_02062016_I.pdf (Accessed on 24 Feb 2017)

[x] (2010) 11 SCC 1

[xi] 2015) 8 SCC 583

[xii] Notification No. S.O. 1934(E), S.O. 1935(E) & S.O. 1933(E) dated June 1, 2016

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In this article, Noopur Kalpeshbhai Dalal who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses Enforcement of Foreign Awards in India.

Introduction

The Enforcement of a decree, whether foreign or domestic, is governed by the provisions of Civil Procedure Code, 1908 (CPC) in India. There are two ways to get a foreign judgement executed in India. Firstly by filing an Execution petition under section 44A of the Civil Procedure Code, 1908 or second by filing a suit for the foreign judgement or award.

Section 2 (6) of the Civil Procedure Code deals with the enforcement of the awards or judgements passed by any Foreign Court. According to section 2 (5) of the Civil Procedure code, a ‘foreign court’ means a court which is situated outside India and which is not established or governed by the Central Government of India. A Judgement or decree or award passed or given by such foreign court is called a Foreign Judgement. Thus judgements which are delivered by any court in USA, France, England, Canada, Germany, Japan, China etc. are said to be foreign Judgement.

Rules for enforceability of Foreign Judgments and Awards in India

The enforcement and binding of the judgements delivered by the foreign courts can be understood in details as below:
The following sections of the Civil Procedure Code, 1908 deals with the provisions related to the enforcement of the Foreign Judgements in India.

Section 13 of the Civil Procedure Code, 1908

According to the provisions of section 13 of CPC, every foreign judgement or decree has to pass the tests as laid down under this section. Section 13 of the Act exemplifies the principle of Private International Law which means that any Court in India shall not enforce a foreign judgement if such judgement is not passed or awarded by a competent court abroad. The provisions of section 13 of the act are substantive and not simply procedural law.

Section 13 lays down that a foreign judgement becomes inconclusive and is unenforceable under the following circumstances:

A foreign judgement which is not delivered by a competent court;
A foreign judgement which is not delivered on the basis of the merits of the case;
A foreign judgement in which it appears on the face of the proceedings to be delivered by taking an incorrect view of the international law or by refuting the applicability of an Indian Law in the case in which such Indian Law is applicable;
A foreign Judgement which was delivered by a foreign court in conflict with the laws of natural justice;
A foreign judgement which was obtained with an intention of fraud;
A foreign decree which is found to be in breach of any law which is prevalent in India.

The above exceptions for enforceability of foreign judgements in India can be better understood with the help of the decisions as given by the Honourable Supreme Court of India, Honourable High Courts, and other Courts. Each of the above stated exceptions to section 13 is discussed comprehensively below:

Foreign judgement which is not delivered by a competent court

In the below mentioned cases the courts have held that the foreign court had no jurisdiction and thus the foreign judgement/ award id not enforceable

R. M. V. Vellachi Achi v. R. M. A. Ramanathan Chettiar, AIR 1973 Mad 141

In this case the plaintiff had filed a petition against one of the three partners of a Money lending firm in Singapore demanding a sum of money due from him, claiming the execution of the ex-parte decree passed by the Singapore government against the respondent. However the Respondent has alleged on the point that since he is a partner in the firm and was also not physically present during the hearing of the case in the Singapore high court, the decree passed by the foreign court cannot be enforced in the Madras High Court. The plaintiff in response to the said argument held that the respondent being a partner of the firm has accepted various suits on behalf of the Firm in Singapore Court and thus has accepted the jurisdiction.

The Court in the said case held that it was the firm which has accepted the jurisdiction of the Singapore Court and not the partner in his individual capacity. Thus, based on the above stand Madras High Court held that the decree against the respondent is not executable under section 13 of the Civil Procedure Code, 1908.

K.N. Guruswami v. Muhammad Khan Sahib, 9 August, 1932

In the above cited case the appellant had filed an appeal for the effect of an ex-parte judgement passed by a foreign court. The appeal was made on the defendants who were carrying on the business in partnership in a foreign state and the firm had issued a promissory note. In the said case the appellant had requested for the acceptance of a decree which was passed by a foreign court ex-parte against the defendants.

The Court in the above case held that mere by entering into a contract into a foreign state does not imply the acceptance of the decisions and jurisdiction passed by the Courts of that Country. Thus, it was held that the decree passed against the defendants was without any jurisdiction.

Inference

Based on the understanding of the above cited cases under Section 13 of the Civil Procedure Code, 1908 the following inferences can be laid down,

In the cases of Actions in personam any foreign court can pass a judgement or award against an Indian Person, who was served summons but had chosen to remain ex-parte to the case. But the said foreign judgement or award may be executable against such Indian person in India only if the below mentioned conditions are accomplished:

When the said Indian person is the subject of the foreign country in which the judgement or award is delivered against him even on prior occasions;
When he is the resident of the foreign country when the action was initiated against him;
When the Indian person chooses a foreign tribunal or Court to take actions in the capacity of a plaintiff, in which Court he is sued upon;
When the party to suit appears voluntarily in the hearing of the case;
When any agreement has bound the Indian person to submit himself to any court or forum in which the decree is delivered.

In the above mentioned cases the Court can accept the jurisdiction of a foreign court for passing of a decree against the defendant (Indian Person).

Foreign judgement which is not delivered on the basis of the merits of the case,

D.T. Keymer vs P. Viswanatham Reddi, AIR 1916 PC 121

The Judgement passed by the Bombay High Court is considered to be a landmark judgement. In the said case, a suit was filed by the plaintiff for claiming money from the defendant as a partner of a particular firm, in the English Courts. The Court has undergone certain interrogations on him in which he did not answer and such omission to answer was struckoff by the Court and a Judgement was passed against him. When the said judgement was brought to an Indian Court for enforcement the defendant claimed that the decree was not passed on the merits of the case and so it is not conclusive as per section 13 of the Civil Procedure Code, 1908. The said case was brought to the Privy Council, where the Honourable High Court held that as the defence of the defendant was struck down by the foreign Court and treated as no defence from the end of the defendant for the said claim, the decision was not conclusive and thus the said decree passed by the foreign court is not enforceable in India as per section 13 of the Civil Procedure Code, 1908.

Y. Narasimha Rao v. Y. Venkata Lakshmi, (1991)3 SCC 451

In the above case, the Supreme Court held that the decision of a case should be a result of the consent of all the parties to the case. The requirement of consent is only fulfilled if the respondent on his will has duly served in the case and has voluntarily submitted his reply or has accepted the claim or jurisdiction of the court or has agreed to the passing of the decree by the Court either by appearing in the hearing or without appearing in the hearing.

The Court in this case further held that mere reply against the claim under the protest and without submitting to the jurisdiction or appearing in the Court either in person or through any representative, the decision cannot be considered to be taken on merits of the case.

S. Jayam Sunder Rajaratnam v. K. Muthuswami Kangani, AIR 1958 Mad. 203

In the above case the Court held that though the Foreign judgement or decree was passed ex-parte but it was passed taking into consideration the evidences and based on the interrogation in the hearings the said award shall be considered to be conclusive and passed on the merits of the Case.

Wazir Sahu v. Munshi Das, AIR 1941 Pat. 109

In the above case it was held by the Honourable Patna High Court that just because one of the issues under dispute was not dealt with, it does not conclude that the findings of the case and the decision delivered there upon was not on the merits of the case.

Inference

Based on the understanding of the above cited cases under Section 13 of the Civil Procedure Code, 1908 the following inferences can be laid down,

An Award or decree delivered by a Foreign Court against an Indian defendant who has chosen to remain ex-parte in the said case, can be made enforceable against him if the same is passed by taking into consideration the leading evidences and investigation undertaken during the case.

A foreign judgement in which it appears on the face of the proceedings to be delivered by taking an incorrect view of the international law or by refuting the applicability of an Indian Law in the case in which such Indian Law is applicable,

***Anoop Beniwal v. Jagbir Singh Beniwal,* *AIR 1990 Del. 305***

The above citied case refers to a matrimonial dispute between two parties. In the said case the plaintiff had filed a divorce petition against the defendant under the English Court on the basis of the relevant provisions of the Matrimonial Causes Act, 1973 (English Act). The grounds of divorce were that the respondent had behaved in an unreasonable manner with the petitioner it was not possible to live further with the respondent. The decree was passed by the English Court and was brought to the Indian Court for enforcement. The respondent claimed that since the decree was passed by the English Court it was not passes taking into consideration the Indian Laws. However the Indian Court under section 13 of the Civil Procedure Code, 1908 held that there is a similar ground for divorce in cases of cruelty in the marriage association as per the provisions of the Indian Hindu Marriage Act. Therefore the English Court had taken the decision based on the similar grounds and therefore there was no refute to recognize the Indian Act. Thus the Judgement passed by the English Court was enforceable in India.

Panchapakesa Iyer v. K.N. Hussain Muhammad Rowther, AIR 1934 Mad. 145.

The above case refers to a family property settlement dispute, wherein the foreign court granted probate of the will in the favour of the executors. The Property was majorly located in the jurisdiction of the foreign court and some of the part of the property was also located in India. The wife of the testator filed a claim against the executors of the will for share in the said property. The suit of the widow wife was heard and a decree was passed by the English Court and a part of it was satisfied.

For the remaining part the widow assigned the property in favour of the plaintiff. The above case was held in the Indian court for enforcement of the decree passed by the English Court by the Defendants. The Indian Court in this case held that as the property under the Indian Jurisdiction was the subject matter of the suit, it is under the jurisdiction of the Indian Law and the English Court cannot refute the Indian Law and thus the said foreign judgement is not enforceable in India.

Inference

Based on the understanding of the above cited cases under Section 13 of the Civil Procedure Code, 1908 the following inferences can be laid down,

A Foreign Judgement or Award passed by a foreign court for the claim of an immovable property situated in India cannot be enforceable as it refutes the International Law.
A Foreign Judgement or award which is passed in contradiction of an Indian Law and which refutes the recognition of an Indian Law cannot be made enforceable in India. However a proper contract or treaty with such foreign country is made for foreign jurisdiction then in that case the foreign decree can be made enforceable.

A foreign Judgement which was delivered by a foreign court in conflict with the laws of natural justice

Hari Singh v. Muhammad Said, AIR 1927

In the above case the Indian Court held that the foreign court had not appointed a guardian for the minor defendant and further the judgement of the case was delivered ex-parte without the knowledge of the minor. Even on the minor becoming major the defendant had not come to know of the suit being pending against him and a decree passed by the foreign court for the said suit. Thus on the basis of the said facts it was held by the Indian Court that the decree passed by the foreign court was against the laws of Natural Justice and cannot be made enforceable in India as per section 13 of the Civil Procedure Code, 1908. Therefore the said case was held inconclusive.

Lalji Raja & Sons v. Firm Hansraj Nathuram

In the above cited case the Honourable Supreme court had held that just because a suit is passed by a foreign court ex-parte does not mean the said foreign award or judgement is passed against the laws of Natural Justice.

I&G Investment Trust v. Raja of Khalikote

In the above case the Court held that though the summons were issued against the defendants but the same were never served to the defendant and an ex-parte judgement was passed by the foreign court and the proceedings were against the laws of natural justice.

Inference

Based on the understanding of the above cited cases under Section 13 of the Civil Procedure Code, 1908 the following inferences can be laid down,

A Foreign Court which passes a judgement or decree must be comprising of impartial persons and must be of fair view and not against the laws of natural Justice. Unless all the conditions of reasonable and fair judgement is fulfilled as per the laws of Natural Justice a foreign decree or award is not enforceable in India.

A foreign judgement which was obtained with an intention of fraud

Maganbhai Chhotubhai Patel v. Maniben, AIR 1985 Guj. 187

The Court in the above case held that as the plaintiff had misled the court about the place of his residence (domicile) the foreign decree which is delivered on the basis of this false representation the said foreign judgement is inconclusive and cannot be enforced in India as per section 13 of the Civil Procedure Code, 1908.

Satya v. Teja Singh, AIR 1975 SC 105

The court in the above case held that as the plaintiff has obtained the decree from the foreign court by misleading the foreign court with regard to the jurisdiction of the suit though the said suit cannot be dealt by the foreign court, thus such foreign judgement obtained by fraud is inconclusive and not enforceable as per section 13 of the Civil Procedure Code, 1908.

Sankaran v. Lakshmi, AIR 1974 SC 1764

The Honourable Supreme Court of India in the above case has held that although it is not permissible for the court to show its mistake, it can be shown that it has been misled. There is an important difference between the two terms mistake and trickery. The decision of a case can be set aside if the Court was imposed upon or misled to give a judgement.

Inference

Based on the understanding of the above cited cases under Section 13 of the Civil Procedure Code, 1908 the following inferences can be laid down,

In case the foreign court is misled or the plaintiff has lied to any foreign court based on which the foreign decree has been passed. Then such Judgement may not be enforceable in India as per the section 13 of the Civil Procedure Code, 1908.

A foreign decree which is found to be in breach of any law which is prevalent in India

T. Sundaram Pillai v. Kandaswami Pillai, AIR 1941 Mad. 387.

The court in the above case had held that the foreign judgement was obtained by the defendant by breaching the provisions of the Indian Contract Act. At the time of entering into the contract the defendants were minor and thus the contract is void ab intio. Thus the Judgement passed by the foreign court based on the said contract is breaching the provsions of the Indian laws relating to the Contract act and thus it is inconclusive and not enforceable in India as per section 13 of the Civil Procedure Code, 1908.

Inference

Based on the understanding of the above cited cases under Section 13 of the Civil Procedure Code, 1908 the following inferences can be laid down,

A foreign judgement or award which is passed by a foreign court and is found to be breaching the provisions of an Indian Law, then such foreign award is not enforceable in India. But if in case a contract is based on provisions of the proper law of the contract then it is enforceable in India.

Conclusion

Thus from the above, it can be inferred that if a judgement is passed by a foreign court against an Indian person, the decree or award may not be enforceable against him due to the operation of section 13 of the Civil Procedure Code, 1908. In the said cases the plaintiff is required to come to the Indian Court either to get the foreign judgement executed or to file a petition under section 44 A of the Civil Procedure Code, 1908 or should file a fresh suit for the enforcement of the judgement. Once the said judgement is recognized by a foreign court, then the procedure for enforcement of the said judgement from a superior court as per section 51 of the Civil Procedure code, 1908 will be initiated.

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In this article, Premvati Dhaka who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses possible ways to structure a family owned retail business. Process, compliance, best practice and relevant law.

What is business

A group or trade and industry where goods and services are replaced for one another or for currency. Each and every business required type of investment and customer to make a profit.¹
In other words, we can explain business, with an objective, an action is conducted for earning the profit.
Business is also known as an enterprise, a corporation or a firm.

Family owned business

A Family business is company retained, controlled and operated by members of one or several families. Many family businesses have non-family supporters as an employee but particularly in smaller companies, the top places may be owed to family members. The family owned business and family operated business play an important role in service and GDP creation in the most of the capitalist countries.
Family and business two collaborative measurements creates a family business, usually owned and managed by two or more family members. In the other form of business like public sector enterprises, multinationals and public limited corporations, ownership is faced as a separate issue from handling the business like competition, less values and less motivation.
Whereas in case of family business esteem, faith and sacrifice among family members take importance over reaching business objectives. Family business will give more open environment to the employee and time flexibility. They will focus on the productivity not on the working hours.

Disadvantage also there with this business that it can be possible that protectiveness, fight and ego in between the family members. A traditional family business pattern if new generation wants to change according to new technology, may be it would be not acceptable by the elder and old one of the top position member of management.

A quick look at India’s top family business enterprises

Reliance Industries
Tata Consultancy Services
Bharati Airtel
Wipro
Jindal Group

Characteristics of Business

Interchange of goods and services – Business actions are straight or secondarily concerned with the interchange of goods or services for money.
Deals in many transactions – All business man daily handle many transactions. Exchange goods or service is regular work done in business.
Income is the main objective – Profit of the business is reward in terms of money that a businessman get after successful business process.
Business expertise for financial success – A businessman needs to have good potentials and knowledge to start and successfully continuing any business.
Threats and Uncertainties –Different type of risks are there in business. Few can be insured like fire and theft. These kind of situations are uncertain. Other conditions are not included in insurance like loss in business due to competition or fall in price, all these kind of loss must be tolerated by businessman.
Customer and Vendor – Each business has at least two parties, one is a purchaser and a dealer. It’s a deal between these two parties. One will buy and one will sale. Buyer will get good/service and seller will get money.
Linked with production – If business is related to manufacturing of items or goods, this is called industry. It also includes the distribution of the goods also.
Social duties² – Now the business trend is related to service. The good is the service the best would be the business. The current approach of business is not profit oriented, it’s completely service oriented approach, for customer satisfaction.

Retail

It’s very old approach of the business. In this kind of business there are many distributions networks to earn the profit. Supply chain network is very crucial in retail business. Retailer needs to be focus on the type of the stores, locations of the stores, surrounding other competitor for the same kind of goods, market status. Once the plan of retail business sets well according to the factors required. Retailer has to set up more support services like credit payment, delivery services and huge range of the additional supporting services as well. Online shopping is very common and fast growing support services that can be provided by a retailer to grow the more business customers.

What is the importance of retail business?⁴

Retailers are the connecting chain in between the producers and customers. Retailers to make easy available of goods or services to customers. Retailers offer many schemes to the customer for more business like feedback, shopping sessions and gift packaging. Retailers make comfortable shopping for customers if its stores they have many salesperson to help you and guide you. If the retail chain is online they provide chat popups.

How it works

Supply chain starts from manufacturer or producer, wholesalers, retailers and last user is consumer. A manufacturer who manufactured the goods by use of machines, raw material, and labor. Many big retail companies like Walmart and amazon are large to deal with manufacturer, they don’t need any mediator or middle body of the transaction.⁵

Type of family business

Family owned business
Family owned and managed business
Family owned and led business⁸

Basic workflow of a retail business

Master Data (Article, Listing, Assortment etc)
Planning: Merchandising planning
Distribution (DC to DC, DC to Store etc)
Inventory Management
Store operation
Financial posting

Operational process of Retail business

Purchasing and store operation – Retail store head take care of the purchasing responsibility. It depends on the retail store size, It`s small sized then manager is responsible and if it is large sized organization then it handled by centralized.

Manager or head of the department place order of the stock after checking inventory. Either on regular basis or when they observed that particular item is less available and fast moving.

Handling inventory – Handling include all kind of work like receiving consignment, unloading containers, sort out boxes and arranged in the store. The basic rules of the retail is first in – first out rule. Store should be arranged in appropriate and attractive way so easy for customers and artistic appeal.

Customer Service

Within store assistance	Transaction (billing) process	Complaints
1. Sales person will help to search what exactly customer is looking for	1.Accepting payments	1. Exchange and refund
2. Salesperson can explain any other substitute option for best choice	2. Packing of items in easy carry mode	2. defects and claims

Accounting and finance – For the large retail business, there would be many chains for the retail stores. One important information is accounting, sales, refund, and claims. This department needs to work on the balance sheet. Finance has responsibility to calculating the salaries of the employee.

Information Technology – This is the vigorous part of the department. The person who handled this department managing the electronic payment system and online customer services.

Marketing – the importance of the department is to raise the sale of products to the end clients and generate income of the retail store.

Best practice of retail business

Need to decide Business construction – Firstly, need to decide the legal business structure. It is possible to change business structure after some time also but then it would be expensive and little tough process. So once you start your business you need to do right choice.

Need to decide name of your retail business – A right name selection is also play a crucial role in the retail business. Same as name logo is also very important to decide for business. That will give a recognition to your business.

Compose a Professional Strategy – It doesn’t matter that your plan is on written or in your mind but a good business plan can make a business successful. It’s important to plan before execution.

Choose What Goods to Sell – After all basic set up, we need to choose the goods or services which we want to sell.

Study the Rules and regulations – For every business there are some legal steps that need to be considered. What regulations needs to be considered while starting a retail business? For this you can consider both lawyer and accountant, they can help you to organize retail business.

Select a Place – It’s vital to finalized retail business store location. It will directly affect your business success. A good location can make a fast moving business while the wrong location can destroy the value of the business with less customers. Principle rule of the success is

Create Store Guidelines – During the planning stage we need to set the retail business policies. It’s important to be ready for the situations that can be come unexpectedly, so you have to be ready for that kind of situation with a solution. This can help you and give a path that how to deal with day to day problems or unavoidable situation with a standard way.

Promotions and advertisement – To give benefit to your retail shop, you need to check the media buy and sales actions. Generate a trade advertising strategy, inspiration sales promotion concepts.

Compliance and legal requirements of retail business^[9]

India is a structured market & a publicly accountable. Legal requirements of a retail business is depending on the kind of the product we are going to sold and the state and city where want to set up that business. Because the law and regulation can be change according to the location as decided for the business. Retail business now focused on the met requirement of the environment, health, and safety regulatory compliance and to satisfy a consumer demand. Handling dangerous material storage necessities to certify fire code responsibilities are met. Proper disposal facility in the store.

Shops and Establishment License – This license is structured by the department of labor and regulates buildings wherein any business is going on. This act consider the working hours, time interval in-between the work, annual leave, cleanliness, light, ventilation, accident and facilities to the employee and the overtime work. This regulations vary from one state to other state and can be change according to the requirement of the business.

Trade License – If you want to start a business it’s very urgent to have a trade license. This license is acquired under shop and establishment license. Once we applied, we can get this license in minimum eight days. It has to be get within 30 days of initiation of the business. If without this license anybody start this business it will comes under unethical practice. Renewal period for this license is January 1^st to 31^st Requirements of document for applying the Trade license application form 353 and 354, Tax paid receipt, consent letter and City survey extract.
Central Excise License – It is charged on making of goods and those into developed in India must pay central excise duty. Any person accountable to pay central excise must obtain a central excise registration no. This no is fifteen digit number, first ten digits are PAN no., next two digits are corresponds with applicant status, last three digit denotes number of premises. Penalty for the absence of license is 10,000 and 7 years of imprisonment.
State Excise License – Regularization of Excise Income while stopping the use of unsafe liquor and certify knowledgeable intake in sanitized circumstances. Applying State Excise rules and actions by regulating production, conveyance, ownership, deal of the trade in spirit, alcohol and other intoxicants.Value Added Tax (VAT)¹¹ – is ruled by individual state Acts. Value added Tax is vary according to state wise.
Central Sales Tax (CST)11 – is ruled by Central Sales Tax Act, 1956. This tax is ruled by a single central act.

Service Tax11 – This is related to income. If the turnover crosses a fix limit of Rs 9lacs, according to law service provider has to register under the law.

Professional tax – This tax is imposed by particular Municipal Corporations and states of India. It is a basis of income for the government.

Employees Provident Fund – EPF is a retirement which is applicable for the salaried peoples. Both employee and employer needs to contribute at the rate of the 12 percent. It’s under the governance of the EPFO (Employee provident fund organization) in India.

Employees State Insurance Corporation (ESIC) – It’s a financial security and health insurance scheme for the Indian worker and governed by the ESIC. As per the law ESIC comes under the ministry of the labour and employment.

Labor clearance from ministry of labor – Department of the labour issues the clearance certificate for the relieving a principal liabilities.

Clearances from the local Municipal Corporation – Municipal Corporation are vested with a long list of the functions delegated by the state governments under the municipal legislation.

Weights & measurement clearance – Weights and measures department works based on the metric system and international systems of units recognized by the international legal metrology.

Ministry of health & local food commissioner for stored diary & meat products.
Other Licenses – depending upon the state & nature of business.

The possible legal structures for family owned retail business can be chosen from the following,

Sole Proprietorship

It is a one – man group where a single individual owns, manages and controls the whole business. It is the most suitable legal structure accepted by most family owned business that are in the start-up stage. This kind of business model puts complete liability on the owner while minimizing the legal hurdles for setting up the business. Also spouse and other family members can be employed by the company without having to be formally declared as an employee. It suits retail businesses as the market will mostly be limited, localized and a hint of personal touch to business goes a long way into building credibility amongst customers.

Legal hurdles for setting up a sole proprietorship business are –

Business licenses/trade license – if the business is run out of a profitable space then it has to comply with shops and establishments act, which specifies the norms relating to work and other general requirements; the employee state insurance act which requires registration depending on the place of work (factory/ establishment) and the no of people working.

In-case of e-retailers, no specific laws are formulated regulating the conduct of business, but they have to comply with labor laws, tax laws and have to have registered domain id.

Taxation – the company will be registered to the owner and will be considered as a personal asset and filed under individual tax returns rather than filing a separate business tax report. However it is not exempt from other taxes like professional tax, service tax , self-employment taxes etc
Succession – the chain in a solely owned business is not fixed and can be transferred to anyone depending on the owner. If the owner is incapable/unable to handle the business, then the ownership is not automatically transferred to successor but liquidated as the business and owner are considered as one and the same.
Capital for investment – the capital for the business comes only from the owner and is not given the option of raising capital through stocks or any other money generating investments.

Partnership firm

A partnership is defined as a relation between two or more persons who have agreed to share the profits of a business carried on by them or any of them acting for all. It is usually suited for small to medium sized business in retail, wholesale trade, manufacturing etc. Start-up companies usually begin with this business model as the liabilities and investments are divided and the organization is clearly outlined. In case of a family owned business following this model, there is clarity in terms of nature of work done by each, individual rights and responsibilities bound by a contract.

Legal hurdles that are to be overcome before setting up of a partnership firm are:

Compliance – general compliance with the partnership act, contract act and companies act. The partnership is made at will and is not binding .It is based on mutual trust and shared goals. The partners are to be consulted on each of the firm’s decisions and should be considered.
Taxation – normal taxation according to type of business – service tax, professional tax etc.

Relevant act with the retail business

Partnership act ^[14]

The Indian Partnership Act, 1932 was passed in India in 1932. Under section 44(d) of the Act, a suit can be filed in contradiction of the handling partner for termination of the partnership firm. Family owned retail business can within the partnership of the two members of the one family or in between the siblings.

Contract act^[15]

Indian contract act, 1872 the act was approved by British India. This contract law is effective in all states of India excluding the state of Jammu and Kashmir. This act includes the conditions in which possibilities created by two parties, so that both can be legally bound. We all are in routine basis enter into different kind of contract every day. Each and every contract comes with privileges and responsibilities in between the contracting parties.

Company act^[16]

The Companies Act 2013 is an act of the Parliament of India which controls combination of a company, accountabilities of a company, managements, and termination of a company.

Best exercise for the family owned retail business:¹⁷

Attracting investors: In a family retail business shareholders dedicated more clearly and workwise than other business. Long term stability and growth is the main motto of family shareholders.

Remaining expectant: Positive attitude is more important in family owned retail business because of that in any dark situations and circumstances a company can pass that hard time easily. Family business is generally hopeful about their coming bright time and faith on each other. If determination would be high than productivity of the worker would be on high level.

Highlighting long-term standards over short-term advantages: Only a family firm will think about the long term stability and work on their fix standards. Their family business passing a high value business to their new generation so they focus on maintaining their long term benefits.
Promote your business and customer attractive offers to raise the number of customers.
Give many types of payment options to your customers for easy payments
Give the facilities for feedback and any complaints

References:

https://www.entrepreneur.com/article/38822
http://kalyan-city.blogspot.in/2011/03/what-is-business-meaning-definitions.html
https://en.wikipedia.org/wiki/Retail
https://www.thebalance.com/what-is-retail-2892238
http://indianresearchjournals.com/pdf/APJMMR/2012/September/1.pdf
http://iosrjournals.org/iosr-jhss/papers/ICIRFSS/8.37-42.pdf
http://www.abrmr.com/myfile/conference_proceedings/Con_Pro_12316/article-7.pdf
https://www.slideshare.net/ialwaysthinkprettythings/family-business-13536118
http://www.indiary.org/en/legal-advice/Retail-%E2%80%93-India-is-open-for-Retail-Business-2-79-22
https://www.indiafilings.com/learn/how-to-start-a-retail-business/
https://m.yourstory.com/2012/09/service-tax-vat-or-cst-an-overview-taxation-basics-for-startups/
http://www.esupportkpo.com/images/Learning%20Pages%20-%20Articles%20-%20Types%20of%20Business%20Structures%20in%20India.pdf
ttps://www.entrepreneur.com/article/38822
https://en.wikipedia.org/wiki/The_Indian_Partnership_Act,_1932
https://en.wikipedia.org/wiki/Indian_Contract_Act,_1872
https://en.wikipedia.org/wiki/Companies_Act_2013
https://www.fastcompany.com/1811411/best-practices-family-businesses
https://blogs.constantcontact.com/retail-best-practices/

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In this article, Rajan S who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses the recent amendments in Maternity Benefit Act.

Everything You Need To Know About The Recent Maternity Benefit Amendments

The aim of Maternity Benefit Act, 1961 is to regulate the employment of women employees in factories, plantations, mines, shops, the circus industry and establishments having ten or more persons, for certain periods before and after childbirth and also to provide maternity and other benefits.

Recently, the Rajya Sabha has passed the Maternity Benefit (Amendment) Bill, 2016 towards the Maternity Benefit Act, 1961 which has addressed the various provisions which are mainly focussed on enhancing the maternity benefit.

This amendment was passed based on the recommendations from the 44^th session of Indian Labour Conference (ILC) and the reiterations on its subsequent sessions of ILC. Moreover, the Ministry of Women and Child Development has also requested to enrich the maternity benefit. The proposed change was deliberated in Tripartite Consultations and further, it has been concluded to amend the Maternity Benefit Act 1961.

This amendment to the Maternity Benefit Act would be at par with international labour law standards set by the International Labour Organisation. Conversely, some of the proposed alterations could impact on cost to employers.

The following are the salient features of the proposed amendment,

Enhancement of paid Maternity Leave

The existing paid maternity leave 12 weeks has been proposed to amend 26 weeks which is only applicable for the women who have less than two surviving children. Out of this 26 weeks, 8 weeks (previously 6 weeks) maternity leave can be availed before the expected date of delivery. However, for other cases the existing maternity paid leave shall continue i.e. 12 weeks period.

Maternity Benefits to Surrogate mother

For the maternity benefit of Commissioning mother or surrogate mother (means a biological mother who uses her egg to create an embryo implanted in any other woman) shall be entitled for paid surrogacy leave of 12 weeks from the child handed over date. The same benefit shall also be applicable to adopting mother, provided the adopted child is less than three months old.

Work from home option

This provision gives an option to women after her maternity leave. However, the terms of work at home option is applicable as may be mutually agreed between the employer and the women.

Crèche facilities

The proposed amendment also has the benefit of crèche facilities to be mandatorily provided for the women by the employer who has 50 or more employees. The prescribed rules such as distance to the facility from the establishment, whether shared or individual crèche facility, whether chargeable basis or free of charge to the employee, would be guided on government official notification.
This amendment permits the eligible women to make four visits per day to the crèche facility including the interval for rest.

This amendment also dictates that every establishment shall intimate to every woman in writing and electronically, at the time of appointment about the benefits available under the Act.

Given this amendment, below provisions remain unchanged for getting the maternity benefit,

No change in Eligibility criteria i.e. only those women are eligible who has worked minimum 80 days in the 12 months prior to her expected delivery date.
Also, it continues to prohibit the Employer to employ women for a period of six weeks immediate after her delivery.

This amendment shall come into effective from the date of Central Government notification in the Official Gazette.

Seeing these provisions in said amendment, particularly increase in maternity leave period and the crèche facilities to be provided by the employer would make a substantial impact on the cost to employer and may lead to potential decrease in the women employee recruitment.

On the other hand, this will indirectly create a goodwill among women employee with their employer which may pave the long term working with that employer. Moreover, it will also enhance the standard of parenting and reduces the strains for the working women during maternity period.

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In this article, Rakesh Gupta who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses Employee Provident Fund Withdrawal Rules and Taxes.

Introduction

A Provident Fund is a scheme developed by the Central Government which gives financial security to employees after their retirement. It is the part of employee salary structure. As per the scheme, a percentage from employee’s salary is deducted and added to his provident fund account every month and his employer would also require contributing the same percentage of the amount to the employee’s provident fund account. In India, there are three types of provident funds, i.e., Public Provident Fund for the public, Employees Provident Fund (EPF) for private sector employees and General Provident Fund (GPF) for Government employees.

Employee Provident fund (EPF)

The Employee Provident Fund (EPF) is governed by Employee Provident Fund Organization (EPFO), a statutory body under (Labour Ministry) Ministry of Finance, India. It helps private sector employees to save a small portion of their salary every month. This scheme helps them to fabricate a corpus which is duty excluded for use in the fag end of their lives or retirement. Employee Provident Fund is a long haul reserve funds apparatus, fundamentally went for a calm retirement, salaried representatives may pull back their cash in their EPF record to take into account diverse budgetary prerequisites or at the season of any real life occasions, for example, weddings, home remodel/adjustment and medicinal treatment among others. The amount is deposited at the Employee Provident Fund Organization (EPFO). The investments made by a number of employees are pooled together and invested by a trust. EPF covers following three schemes.

Employees’ Provident Fund Scheme, (EPS) 1952
Employees’ Pension Scheme, 1995 (replacing the Employees’ Family Pension Scheme, 1971) (EPS).
Employees’ Deposit Linked Insurance Scheme, (EDILS) 1976.

As per Employees Provident Fund Act, rules and regulations, 12% of the basic pay of a salaried employee (in addition to dearness allowance and cash value of food allowances, if any) is deducted from his or her salary on a monthly basis as a contribution towards an EPF account. However, an employer contributes 8.33% in the Employee Pension Scheme (EPS) while only 3.67% is deposited in the Employee Provident Fund account. The current rate of interest on provident fund deposits (for the financial year 2016-17) for an EPF account is 8.65% p.a. The rate of interest is subject to change every year, as announced every year by Employee Provident Fund Organization apex body.

All associations which have hired more than 20 employees ought to obligatorily enrol with EPFO. To make the ideal utilisation of the EPF account, salaried representatives must know about what a provident reserve account involves and how it is worked.

As per the EPF Scheme withdrawals are not permitted from the EPF account until the worker has stopped working or is independently employed. The money from the EPF account can be withdrawn if the employee doesn’t have any job. PF exchanges are permitted if the holder changes employments. If an employee decides to withdraw money from his EPF account after quitting the job, he needs to submit a declaration mentioning the reasons for the same.

Employee Provident fund (EPF) withdrawal Rules

The Employees Provident Fund scheme has become the retirement saving scheme in the true sense. The Labor ministry of India issued a gazette notification about the changes in withdrawal rules EPF Act, with effect from 10^th February 2016 but it was withdrawn on 19^th April 2016 due to the pressure from the various trade unions. The changes brought in by the government was

Retirement age of an employee increased from the current 55 years to 58 years.
An Employee can withdraw 90% of EPF balance once he reaches the age of 57 years.
An Employee cannot withdraw Employer contribution to EPF before 58 years.
EPF membership does not end with leaving the job.
Government plans to start online facility for EPF withdrawal in Aug 2016.

Let’s go through these changes in detail

Retirement age increased from the current 55 years to 58 years

As per earlier Employee Provident Fund rule, the retirement age of an employee was 55 years. From 10^th February 2016, the retirement age was increased to 58 years. In today’s global scenario retirement age is 58 years across all industrial sectors, so this change is keeping in step with times.

Withdraw 90% of EPF balance once an employee reaches the age of 57 years

Earlier the retirement age of employee as per EPF rules was 55 years. Therefore one was allowed to withdraw 90% of his EPF balance one year prior to retirement i.e. at the age of 54 years. With these new rules, the age of retirement has been increased to 58 years, now the employees will not be able to claim withdrawal of their provident fund after attaining the age of 54 years. They would have to wait till attaining the age 57 years. But the change is that now under this facility, the employee would be able to withdraw 100% of his contribution and interest earned on it unlike 90% of the total accumulations earlier.

Restriction on withdrawal of Employers contribution to Employees Provident Fund before 58 years. (This new rule has been withdrawn)

As per the notification dated 10^th February 2016 any person who is a subscriber to Employers Provident Fund cannot withdraw the employer’s contribution to EPF before the retirement. The employer’s portion can be withdrawn only after attaining the retirement age (58 years). It is to be noted that the withdrawals from the Employers Provident Fund within five years of joining are still taxable. The problem that the Employers Provident Fund would face is whether it would pay interest on Employer share which one is not allowed to withdraw. ‘The inoperative account rule of Employers Provident Fund says that an Employers Provident Fund account would not earn interest if there is no contribution for 3 years’. Now onwards, there would be several Employers Provident Fund account without contribution as people would not be able to withdraw their full Employers Provident Fund corpus. Will such account not give any interest after 3 years? The rule says

“A member, who ceases to be in employment and continues to not be employed with a covered establishment for at least two months, may be permitted to withdraw only his own share of contribution, including interest earned thereon. The requirement of ‘two months’ period referred above shall not apply in the case of female members resigning from the service for the purpose of getting married or on account of pregnancy/ childbirth.”

Employee Provident Fund membership does not end with leaving the job

As per the notification dated 10^th February 2016 subscriber to Employees Provident Fund cannot withdraw the EPF contribution by the employer before the retirement. The employer’s part can be withdrawn after attaining the retirement age (58 years). Since one can’t withdraw the 100% of the PF balance, your Employee Provident Fund account is not closed. As per earlier Employees Provident Fund rules, the membership was linked with the employment. One becomes a member of Employee Provident Fund with the joining of a new job. Once the subscriber to Employee Provident Fund become jobless and withdraws his Provident Fund balance, the membership expires.

But now Employee Provident Fund membership would continue up to the retirement age. The Employee Provident Fund membership has become independent of the job. Since one can’t withdraw the 100% of the Provident Fund balance, the membership is bound to continue.

Withdrawal Purposes

Employees Provident Fund is an important part of most of the salaried persons. It can help one, at times when he is pressed for money in life. If any person who have already worked for years like 5-20 yrs., he must have accumulated a good amount in his Employee Provident Fund account. Such employees may withdraw money from their Employee Provident Fund accounts for various purposes, subject to certain conditions. Individuals have to furnish several documents in addition to meeting the eligibility criteria as per Employee Provident Fund withdrawal rules. The list of purposes and quantum of contribution which can be withdrawn are listed below:

Situations when an employee can withdraw money from Employee Provident Fund account while on employment

Hereunder are those major landmarks in life or reasons for which an employee can take out the money from his Employee Provident Fund account

Marriage Purpose of Self, Sibling, and Children
Education Purpose of Self + Children
Repairs/Alteration of Existing House
Repayment of Existing Home Loan
Purchase/Construction of House or Flat
For Medical Treatment
Miscellaneous

Specific Rules for specific situations

Marriage purpose for self, children, and siblings

Any salaried employee can withdraw from his Employee Provident Fund account for the occasion of marriage if he has completed 7 (seven) yrs. of service. He can avail this facility 3 (three) times in life (during his tenure/service) and the maximum amount he can withdraw cannot be more than 50% of the “Employee share” in Employee Provident Fund account. For this purpose, part of employer’s contribution is not considered for withdrawal. So even if Employee Provident Fund account total balance is Rs 15 lacs, the whole amount is not considered for calculation purpose, only employees own contribution and interest on that amount are used for calculation purpose. This is applicable for the marriage of

Self
Son or Daughter
Brother or Sister

For the purpose of withdrawal, the employee needs to provide the full address of venue, marriage date in Form 31, and also attach some proof of weddings like Marriage invitation or the bonafide certificate of the fees payable and give it to his employer for verification and processing.

Education of Self + Children

A salaried employee can also withdraw for education expenses for self and children. This is valid only for post matriculation educational expenses. By post-matriculation, it means after 10th standard. So if any subscriber is admitting his child to any college or university for graduation or post-graduation or any other professional course, he can withdraw from his Employee Provident Fund account. But this can be availed only after 7 (seven) yrs. of service and the maximum amount can be withdrawn is 50% of own contribution.

This can be used for maximum 3 (three) times in employees lifetime, but this 3 (three) times also includes the “marriage” as the reason. So the fact of the matter is, for Marriage or Education purpose, you can withdraw for maximum 3 (three) times in total.

Purchase/Construction of House/Land

If a salaried employee plans to buy or construct a house OR purchase a land, then he is eligible to withdraw some limited money from his Employee Provident Fund account once in a lifetime.

Here are some of the rules which need to fulfilled

The house/land should be on employees name or his/her spouse name or jointly in their name i.e. employee and his/her spouse (no other combination is allowed)
Employee should have completed 5 yrs. of tenure in his employment
If purchasing a land, the maximum permissible amount is 24 times of monthly wages.
If purchasing or constructing a house/flat then, the permissible limit is 36 times of monthly wages (including the acquisition of land also)

The property in question should be free from any dispute or encumbrances to avail this facility. Also, the property should be registered and a proof of registration must be given to get this facility.

Repayment of Existing Home Loan

If an employee has a home loan, then he can withdraw some part of his/her Employee Provident Fund money to repay his home loan. But for this purpose, the employee needs to have minimum 10 yrs. of service. This facility is available only once in his/her lifetime and this time limit is, clubbed with the above- mentioned reason (3rd) above. Therefore one can either withdraw money from Employee Provident Fund account for purchase/construction of house or repayment of house loan, not both.

The property should be registered in the name of self, spouse or jointly registered with a spouse. The employee won’t get the benefit if the loan is taken jointly with father, mother, and siblings. The maximum amount one can withdraw is up to 36 times of monthly wages. The money to be received under this clause can be taken from self-contribution and employer contribution in Employee Provident Fund. To get the money under this clause one needs to provide the proof for house agreement, the sanction of house loan and some other documents as asked by the Employee Provident Fund Organization (EPFO) office. The money will be issued directly to the lender bank.

Repairs/Alteration of Existing House

If a salaried person wishes to withdraw from an Employee Provident Fund account for the purpose of house renovation or alteration, he needs to follow certain rules regarding this purpose. These rules are

The maximum money employee can withdraw is 12 times of his/her monthly wages
The house should be more than 5 yrs. old after construction completion date.
Employee should have completed minimum 10 yrs. of service
Employee can avail this facility only once
The house should be in the name of self, spouse or jointly with spouse

For the above purpose, money can only come out of employees own contribution, not employer’s contribution

Medical Treatments

A salaried person can withdraw money from his Employee Provident Fund account for a medical treatment for self, parents, spouse and children in following 3 situations (anyone, not all)

More than I month of hospitalisation (for any reason), or
Major surgical operation in a hospital, or
If one is suffering from T.B., leprosy, paralysis, cancer, mental derangement or heart ailment and having been granted leave by his employer for the treatment of the said illness.

The benefit of this clause is that one can withdraw the money anytime in his service tenure. There is no requirement that, one must have completed a minimum/specific number of years in service/job. Even if one has been in service for just 1 yr. or 2 yrs., he can still withdraw money for medical treatment. The maximum money can be withdrawn is 6 months wages. This benefit can be taken anytime and for any number of times during a lifetime.

There are some documents which need to be produced and submitted along with Form 31

A certificate from an employer stating that member is not getting the benefit of Employees’ State Insurance Scheme facility
A certificate from an eligible doctor stating the medical illness to the member and time period for which hospitalisation is required.

Miscellaneous

Every employee subscribed to Employees Provident Fund scheme can choose to withdraw from their Employees Provident Fund account for other reasons as well

Premature retirement due to any physical or mental disability
Going abroad for the sake of better employment or
Settling down in a foreign country.

Tax Implication on Employees Provident Fund Withdrawal

Tax on Employees Provident Fund money withdrawal is the main concern of the employees who leave early. Most of us know about the tax-free nature of Employees Provident Fund. The Employee Provident Fund is also considered most reliable retirement corpus. There is no chance of default. Subscribers will get a better interest rate and no one can take away provident Fund corpus. Beside this Provident Fund is totally tax exempt. We have a common perception that Employees Provident Fund does not have any tax tension.

But, very few of us know that the Provident Fund corpus can also be subject to the ‘tax cut’. Provident Fund balance can be reduced by 34.6%. One may only get 65.5% of Provident Fund money. The TDS (tax deducted at source) can dent PF balance severely. There is a provision of the tax on the premature withdrawal of Employees Provident Fund.

Tax Treatment of Different Provident Funds

There are four types of provident fund, which give tax concession. The following table has been taken from the Income tax website. The table shows the tax treatment of provident funds. Please do read the note given below the table.

	Statutory Provident Fund	Recognized Provident Fund	UN-recognized Provident Fund	Public Provident Fund
Employer’s contribution	Exempt from tax	Exempt up to 12% of salary (Note 1)	Exempt from tax	Employer does not contribute to such fund
Employee’s contribution eligible for deduction u/s 80C	Yes	Yes	No	Yes
Interest credited to the said fund	Exempt from tax	Exempt from tax if the rate of interest is upto 9.5%. Interest in excess of 9.5% is charged to tax.	Exempt from tax	Exempt from tax
Amount received at the time of termination of service	Exempt from tax	If certain conditions are satisfied, then lump sum amount is exempt from tax	If certain conditions are satisfied, then lump sum amount is exempt from tax	Exempt from Tax

Note

Salary for this calculation includes the following components

Basic salary,
Dearness allowance
Commission based on a fixed percentage of turnover achieved by the employee.

Tax Benefit of Employees Provident Fund

As mentioned in the table, the Employees Provident Fund enjoys many tax benefits. The Employees Provident Fund saves your tax in following ways:

Employer’s contribution to Employees Provident Fund account is exempt from tax. This exemption is subject to 12% of employee’s basic salary plus DA.
The interest on employer’s contribution is also exempt from tax.
The employee’s contribution toward Employees Provident Fund is also eligible for tax deduction under section 80C of the Income- tax Act.
The interest on the employee’s contribution is also tax exempt.

Tax Benefit Is Subject To Minimum Service Requirement

An investment which gives tax deduction comes with a lock-in period. Except for the ELSS, all other tax saving investments has a minimum lock- in period of 5 years. So is the case with Employees Provident Fund. The investment in Employees Provident Fund may give tax benefit up to 30%, but it depends upon the tax slab one has been in all previous years.

Therefore, if employee/s does not complete the minimum investment requirement of 5 years, the above tax exemption and deduction would be void.

Return Back of EPF Tax Benefit

If any employee withdraws from Employees Provident Fund balance before 5 years’ service all his tax saving will become null and void.

The person has to return back the tax deduction because of the employee EPF contribution. The employee must have taken the 80C tax benefit on the EPF contribution. It is also calculated financial year wise
The interest on PF contribution will become the part of other income. It would be added in the tax calculation of every financial year.

TDS on Employees Provident Fund

The new TDS rule of Provident Fund is painful for most of the employees as the percentage of TDS can be deducted are 34.6%. In Income- tax it is said to be the maximum marginal rate. The 34.6% tax is huge, that too of Employees Provident Fund corpus. It would be really very frustrating if one gets Employees Provident Fund money after such a big deduction.

Conditions of TDS on Employees Provident Fund Withdrawal

The Employee Provident Fund Organization (EPFO) can deduct tax at source (TDS) only if an employee falls under the following two criteria.

The employee has not completed total 5 years of continuous service.
The EPF withdrawal amount is more than 50,000. (Earlier this limit was Rs 30,000).

Explanation

‘5 years of continuous service mean aggregate service’. The person may have worked in different organisations, but total service period should be more than 5 years. However, the following points should be considered while calculating the continuous period of service.

The employee must have transferred the Provident Fund balance of the previous organisations. If you have withdrawn the PF balance of previous employment, the service period of the employment is not considered for continuous service.
Employee’s previous service period would not be added to recent service period unless he transfers the previous Provident Fund balance.

However, one can minimise or avoid TDS on Employees Provident Fund withdrawal if you fulfil some requirements

Relaxation of TDS from Employees Provident Fund withdrawal

If employee has submitted PAN
If an employee has given the PAN, the TDS would be 10% instead of 34.6%.
If Employee has submitted Form 15G/ 15H

If an employee submits form 15 G with the Employees Provident Fund withdrawal form, the TDS would not be applicable. The form 15G/15H is a self-declaration that total income (including Employees Provident Fund corpus) is within the tax- free limit.

No TDS for Most of the Employees

A number of employees leave the job after 5 years of service. Therefore, they need not worry about the TDS of Employees Provident Fund. The following points need to be remembered:

The Employees Provident Fund maturity amount is tax-free if one is engaged in the continuous service of more than 5 years.
If the service termination is beyond employees control. If you are out of a job because the lockout, retrenchment or medical condition, the rule of TDS would not be applicable.

Suggestions

Ways to Avoid Tax on Employees Provident Fund Withdrawal

Early Provident Fund withdrawal can leave the salaried person in a heavy tax burden. Besides this, there are other hassles as well. But if one plans properly, tax and hassles can be avoided

One must avoid withdrawing Employees Provident Fund after every job switch. This might compel the person to pay tax after every withdrawal. Instead, Provided Fund transfer will save tax.
If one is taking a small break from the job, don’t withdraw the Employees Provident Fund balance. One can transfer the Employees Provident Fund balance after joining the service again. A Provident Fund account gives interest till 3 years of non-contribution.
If one is leaving a job and switching to a business or profession. Wait for completion of 5 years.

LIST OF WEBSITES REFERRED

http://www.epfindia.com/site_docs/PDFs/Downloads_PDFs/EPFAct1952.pdf

https://www.taxmann.com/bookstore/…/employees-provident-funds-and-miscellaneou

https://www.bemoneyaware.com/blog/changes-in-epf-withdrawal-rules-from-10-feb-2016/

https://www.relakhs.com/latest-epf-withdrawal-rules-w-e-f-10th-feb-2016/

The post EPF Withdrawal: Rules and Taxes appeared first on iPleaders.

In this article, Rituraj Singh Bhati who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses how to structure an MLM company legally in India. Process, Compliance, Best practiceS and Relevant law.

MLM: ‘Multi-level Marketing’ strategy is also known as ‘network marketing, pyramid selling and referral marketing’ in different marketing cultures across the globe except China where MLM has been declared illegal. Similarly, a practice known as pyramid scheme is banned in various countries.

MLM is a strategy which has been in knowledge of Indians since late 70’s; the history of MLM has been a disputed area of discussion, though some links of MLM working as late as 1886 by the name of Avon which is a successfully running company even in today’s scenario MLM companies have always been a matter of dispute around the globe because of the typical work plan according to the strategy; numerous countries are planning or have planned to declare pyramid schemes as an illegal entity because most of the companies mis-use the contacts and revenue attained due to vast working of the multi-level marketing and in most of the situations the companies work on pyramid schemes and give it a name of multi-level marketing company.

It is a global confusion that, the pyramid scheme is wrongly misunderstood or is confused as MLM Company because of their similar work strategy and hierarchy system. These kinds of pyramid scheme selling companies start off very well and provide the down line with the profits they have earned by recruiting new recruits below them (known and further referred as “down lines”) but after a certain time when the owners of the companies think that they have made enough money to handle the fraud by bribing government officials and authorities they all of sudden withdraw the money which is in circulation of the market and flee; that’s the major reason why China has declared pyramid scheming groups as illegal and various other countries also have strong laws regarding pyramid scheming groups.
Multi-level marketing is an easy and cheap form of marketing practiced by the companies, in this particular form of marketing the company does not even needs to hire the representatives, employees etc. the people working under multi-level marketing companies are not contractual employees of the company, they are just another “down line” accrued by their successor “down line”.
The name itself specifies the working of the multi-level marketing companies, where a scheme is launched by a person and he further makes members under him and promises them a certain amount of profit on percentage basis on the sale of a certain product or scheme and the members accrued by him further will accrue people under them promising them the profit percentage, in the same manner, it was promised to them on sale of certain product or scheme and so on the list of members keeps on increasing as every member of the chain wants to earn extra profit by the means of percentage of goods or services sold by their down line.
On accruing or on addition of every “down line” the person accruing the new “down line” gets paid as well as the person who has accrued the person above him (predecessor “down line”) also gets paid, in the same manner every person associated with the multi-level marketing company earns reward on every single addition in the chain and further sales.
Supposedly there is a chain (Z) which has 5 members already accrued to it as links, say (A, B, C, D, E) now let’s assume that A linked B, B linked C, C linked D & D linked E); if ‘E’ brings or adds a new “down line” ‘F’ to the chain he will get rewarded to add ‘F’ to the chain and in return A, B, C, D & E will also get a share in the reward because due to ‘A’ ‘E’ was able to link ‘F’ to the chain. These companies work on the principle of ‘link by link addition’ strategy which says that if ‘A’ had not made ‘B’ a down line; it would not be possible for ‘E’ to link ‘F’ to the chain because would also not be a part of the chain.
The strategy allows every person to attain profit by every addition in the chain. By this sole formula the multi-level marketing companies hold multi million dollars market in every single country except China. The multi-level marketing company’s strategy also clarifies that the person sitting on the higher link of the chain earn higher level of margins than the people who have just joined the chain as the person sitting of the higher link of the chain naturally has more down links which are joined after him.
Likewise, the people linked to the multi-level marketing company are not a job-holder in the company and they do not obtain or receive any pay from the company itself; they derive their profits from the amount generated by the Multi-level Marketing structure; plus point of this non-employment/ non-payment policy is that the “down lines” are not protected by employment laws of the land they are instead cited and staged as “independent contractors” working on their own account without burdening the company under several liabilities. Though such a liability free structure multi-level marketing companies frequently face law suits and criticism all across the globe.

Some of the major MLM players in India are

Oriflame,
Herbalife,
Amway,
Hindustan Unilever,
Tupperware

The basic working strategy of a MLM Company is shown below by the medium of a chart

Process of structuring an MLM company

Setting up a Multi-level Marketing company in India is fairly legal and easy to setup. The basic requirements to structure a legal and permissible Multi-level Marketing Company in India are:

It should be a direct selling Entity with acquired licences as per the law of the land where the business would prevail. The licences to be obtained are PAN number, TIN number, CIN Registration number, labour Licence and a bank account in a Nationalized Bank of India.
The person starting a Multi-level Marketing Company should make the company’s status and structure clear by the way of MOA (Memorandum of Association) and/or in the partnership deed. Nature of business should be specified by the documents of the company.
It should clearly mention and formulate the rate of incentives and profits to be distributed to the independent contractors/down lines and also the time limit within which the company should pay their share of incentives.
The company should have an official website which clearly shows its total information and even shows the names of the authorized direct sellers appointed by the Company and their Personal Identification Numbers.
The Company should have an independent department handling the Consumer Grief within 7 days of such grievances get registered. Consumer Complaint registration should be easy and straightforward.

The process of incorporating a Multi-level Marketing Company involves following Heads/Steps

In a Multi-level Marketing Company a director has a very limited risk as the numbers of people employed are very less and the down lines added by the front lines are independent contractors and hold no liability against the company neither does the company has any liability against them.
A person planning to structure a Multi-level Marketing Company should emphasise upon his legal framework to meet up the upcoming circumstances. The deed of the MLM should clearly show the nature of the business. And in addition there should be adequate policies relating to the relation between the company and the direct seller / direct seller and the consumer/product return policy/product return policy/termination of the business policy etc.
The most important stages in the process to structure and launch a Multi-level Marketing Company is: Product, Launching, and Human Resource.

Firstly, the product should be tested and should be able to attract people at mass. The products already sold by a company older than your company will not be sold until and unless they excel in Quality or in Quantity when compared to the established company’s product. Product should be unique and useful.
Secondly, the launching and the branding of the product should be such that it attracts customers and the person using the product should come in persistently as a permanent user of the product.
Thirdly and most importantly the HR of the company should be very strong and into the root level of public. This is the most important media to everything while processing a Multi-level Marketing Company. The whole and sole work of such companies is related to human chains and direct marketing and selling.

BEST PRACTICES IN MLM STRUCTURE

Practices related to MLM structuring are

Matrix MLM Plan

Matrix MLM plan is a different plan than the others as it consists of limited income and member increase out of an unlimited entity of down line and product sales. Under this plan a fully loaded setup will connect your company with less than 4,000 people as links and their business thereon. As to the present scenario there are numerous of top leaders associated with chains a hundred times elaborate than the one provided by this matrix plan. It narrows an unlimited opportunity into a limited income interest.
The matrix MLM plan operates on spill over principle, which is a major asset to this particular form. The spill over principle states that on achievement of certain number of the member in a significant level the next down line members will automatically fall under the next level and so on; it saves the company as well as members from the paralleling of big players and small players on the same level. It allows you to fill the generation lines of your structure and even the generation lines of the distributors linked with the members.
Another plus point of the matrix plan is that it can be handled easily as the front line never exceeds 2 to 3 members and so on every further link. It is also a constantly position changing plan according to its needs related to the project. The managers and the authorities are hired, managed, replaced with every such new project.

Binary MLM Plan:

Binary plan as the name itself suggests is based upon the binary number of members in the links and the next spill over. The plan revolves around the number ‘two’ as soon as the link reaches a total of two members the plan spills over to the next row narrowing the level of single line members to two. Though being only two members in a level the structure provides supportive environment to the newbies as they are directly associated to their seniors with a human ratio of 1:1. The very strength of the binary plan is its support to every level of the business environment.
Working under a binary MLM plan you can link 2 members with each binary level as business centers where they can derive profit multiplied by ‘n’ (also known as 2 x n plan, where ‘n’ denotes infinity). Therefore, there is no limit in the binary plan for the amount of business centers to be developed under two people utmost. With this calculation, each business center has a limited payout capacity which allows both the company and the distributors to earn profit.

Stair Step Break Away MLM Plan

Under stair step break away MLM plan as the name suggests that a distributor does progression bit by bit (like a ‘stair step’) in his distributorship and when he attains a certain level of targets he can ‘break away’ from the upline distributors to form and facilitate their own association/circle/business from then on independently. Breaking up with the upline distributors allows the newly independent organization to accrue a better and larger amount of commission. Under this plan every distributor has a limit to sponsor only a single level of front line distributors; here there is a limit bounded to the level of the distributor but not to the width of the front line distributors a distributor can sponsor. Thus, in this plan a distributor can sponsor ‘n’ number of front line distributors with a condition that they shall be on the same level at the time of sponsorship.
This plan is the most constructive plan to attain the main goal of the business that is to sell the highest possible stock product of the parent company. The plan allows the distributor to link as many frontline distributors as he can; who even personally consume as well as sell further the products of the company they are associated with.
In this plan a front line distributor’s direct competition after establishment is from the cross line distributors as well as the up line distributor from whose link the distributor had broken away.

Unilevel MLM Plan

The Unilevel MLM plan is somewhat similar to the stair step break away plan discussed above. This plan also allows you to sponsor a single line of distributors and similarly there is no limitation set upon you regarding the width of the line you want to sponsor unless and until a single line is sponsored. This plan is best for forming enormous chains with huge amounts of links connected to them.
As the name suggests a Unilevel plan is only elaborate to a single level and therefore is very easy to be understood by everyone whether be a part-timer distributor of a full time distributor. With the ease to understand the plan it is in turn easy to explain it to the consumers.
This is the best and most suitable plan to be adopted by a start-up MLM Company where the easement involved with the plan helps the first timer distributors and the customers.

Board MLM Plan

The board income plan is a rare and high yielding plan consisting of different numbers of board members as per the company’s will; the board can consist of 3,5 or 9 members as per needed. One of the members will be specified regarding the commission each and every time the entries of the board are completed.
The board members in addition to the income from the board can accrue bonuses, referral commission etc.

Types of board plans,

Single board,
Multi board,
Shuffling board,
Auto filling board,
Manual filling board.

Board MLM plan is also known as revolving matrix multi-level marketing plan.

Hybrid Unilevel MLM Plan

The said plan was devised quite recently in 1985. The plan is fairly complex as well as high paying to the new recruits which is a better scenario to keep the recruit associated with the company and earn extra profit with the help of such recruits which is unlimited. In this particular plan the sales leaders are absent and everyone is considered to be a distributor. The formula of earning profit from this plan is

Profit = Distributors below you (x) Number of levels below you.

Plus, you get paid with the commission according to your position amongst the distributors in the down line; the more of the time you are linked in the down line the higher will be your level among the distributors, and you will be paid significantly higher than a new distributor who has joined after you. Sponsors also do not lose their potential good yearning distributors as break away. As there is no option to break away the sponsors can generate continuous profits from the distributors under them on the average percentage of commission paid to them.
Through this plan a distributor earns a higher profit for a period of 30-60 days but the sponsor sitting in the company earns the higher profits for the entire duration of the working of the distributor with the company.

Generation MLM Plan

Amongst the other MLM plans the generation MLM plan is considered to be the most important as well as the most typical plan; the plan provides numerous of attributes for which it is considered to be the most important of all by the newbies as well as settled sponsors.
The system of working of this plan is typical to understand; it generally functions like a Unilevel MLM Plan, except instead of getting paid off the level you get paid on generations. A generation consists of the entire volume below you to the next person below your down line; the volume index travels higher to lower limits i.e. up line to down line which covers the higher ranking as well as lower ranking distributors than you.
The generation plan requires expertize as well as accuracy to get running. The plan is typical and resultantly is even more complex to explain to the end user.

Gift MLM Plan

Easiest way to earn money with lowest possible risk involved. It can be said as a shortcut to earn wealth and prosperity. The plan is also referred to as donation plan or charity plan.
The plan works as a first donate than wait for it to rotate scheme; here a person first has to donate keeping aside the self-centred act and in turn he gets eligible to receive gifts from other members. This is not a Multi-level marketing plan it is a general gesture where you give one and get eligible to receive many.

Relevant Laws

Kerala is the first state in India to enforce MLM guidelines binding the procedure and process of structuring and running an MLM. Even the Rajasthan Government has issued guidelines as to Direct Selling.

The people having any grievance from an MLM company would be deemed to be heard and concluded by the consumer forums under The Consumer Protection Act, 1986, as the people buying the products from the direct sellers also fall under the classification of a consumer.

The general guidelines top established MLM emphasize upon:

The company should be a Private Limited or Public Limited Company.
The Company should mandatorily have TIN, DIN for Directors, PAN, MOA and MOM, Sale taxes paid to the government, IT returns, TDS etc.
Bank account in a nationalized bank.
Company shall not pay incentives upon admission of a new member.
MRP of the goods shall be visible clearly.
The product to be sold by the company shall comply with all the regulations made by the principle act to which the good is related.

India may not have laws guiding setup and running up of an MLM but it has certain law against MLMs. The law is mentioned as under:

Money circulation schemes are banned under “Prize Chits and Money Circulation Schemes (banning) act, 1978.”
India has taken up the steps to form guidelines for MLM; a bill was issued in 2005 but still, is not passed by the houses of parliaments.

The post How to structure an MLM company legally in India. Process, Compliance, Best practices and Relevant law. appeared first on iPleaders.

In this article, Rohit Sharma who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses applicability & Status of Arbitral Awards passed in any proceedings which Commenced prior to October 23, 2015.

Introduction

The new amended Arbitration and Conciliation Act, 2015 (‘Amended Act’)[1] was first introduced on 23 October 2015 in the form of an Ordinance.The issue of the applicability of the Act has been contentious since the promulgation of the ordinance and the same was put to rest by the Parliament when Lower House on 17 December 2015 passed the Arbitration (Amendment) Act and inserted section 26 which mandated that the Amended Act would not apply to proceedings instituted under the Principal Act unless agreed by the parties.

Inception of the Amended Act

In 2014, 246^thReport of Law Commission of India[2]reviewed the provisions of the Arbitration and Conciliation Act, 1996, where it gave some insight into several inadequacies observed in the functioning of the 1996 Act. Prior to this Report, the Commission had also recommended various amendments to the Act in its 176^th Report which was introduced as Arbitration and Conciliation (Amendment) Bill, 2001 but unfortunately, could not materialize into law due to several inadequacies. Finally in 2015, Law Commission’s recommendations were incorporated in the Arbitration and Conciliation (Amendment) Ordinance, 2015 later enacted as Arbitration and Conciliation (Amendment) Act, which deemed to have come into force on the October 23, 2015. The Amended Act caused has been cause of much speculation and conjecture since it came to force solely due to ambiguity over its effect on ongoing arbitration.

Main matter of Contention

Arbitration and Conciliation (Amendment) Ordinance, 2015, predecessor of Amended Act, was unclear about whether or not it would apply to pending arbitrations and related court proceedings because of it being so vaguely worded, as it merely stated that- shall come into force at once.^[3] This ordinance was orphaned from the intention of the Law Commission, when it gave its recommendation its 246^th Report[4] where it in Section 85-A, in no ambiguous words, it explained the scope of application of the proposed Act.The Law Commission in its Report had contemplated insertion of Section 85A to the Arbitration and Conciliation Act, 1996. As per its recommendation Section 85A stated-

Unless otherwise provided, the provisions of the instant Act (as amended) shall be prospective in operation and shall apply only to fresh arbitrations^[5] and fresh applications^[6], except in the following situations-

The provisions of Section 6A shall apply to all pending proceedings and arbitrations. Explanation: It is clarified that where the issue of costs has already been decided by the court/tribunal, the same shall not be opened to that extent.
The provisions of section 16 sub-section (7) shall apply to all pending proceedings and arbitrations, except where the issue has been decided by the court/tribunal.
The provisions of second proviso to section 24 shall apply to all pending arbitrations.

Although, Section 85A was not incorporated in the Arbitration and Conciliation (Amendment) Ordinance, 2015, and there was no specific provision with respect to prospective or retrospective operation of the Ordinance, yet it is important to note that the Law Commission in its 246^th Report had clearly defined ‘fresh arbitration’ as:

Arbitrations where there has been no request for appointment of arbitral tribunal, or
Arbitrations where there has been application for appointment of arbitral tribunal, or
Arbitrations where there has been appointment of the arbitral tribunal.

The recommendations by Law Commission were not incorporated in the Ordinance but this blatant ambiguity was addressed by section 26 of the Amended Act. Yet even after incorporation of section 26, the uncertainty prevails regarding the scope and applicability of the provision.

The critical question that has been contentious since the Amended Act came into force has been-Whether or not the Amended Act applies to arbitration proceedings which commenced before October 23, 2015 and were pending as on that date, or does it apply to only such arbitration-related court proceedings that were initiated on or after October 23, 2015 which are in relation to arbitral proceedings commenced before October 23, 2015. These questions have been addressed in detail in this paper by examining the scope of section 26 and application of general practice on retrospective application of a legislation where there exists no express provision on its retrospective.

Different High Courts have approached the issue differently which has further added to the prevailing confusion. The paper will separately address the stance of various High Courts and their implications.

Section 26 of the Amended Act[7]

The foremost intention behind the introduction of Section 26 was to not only clarify but to settle that unless the parties otherwise agreed, the Amendment would not apply to arbitrations that were initiated prior to the commencement of the Amendment. This is abundantly apparent from the phraseology of the provision-

Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act

.

After a thorough reading of the provision the root of trouble becomes apparent, the is – in the first part of the section declares that Amendment Act shall apply to-arbitral proceedings, and in the later part of the provision states that the Amendment Act shall apply ―in relation to arbitral proceedings. Use of two different phraseology makes it imperative to determine the import and significance of the expression –in relation to arbitral proceedings as differentiated from arbitral proceedings and to decipher why two different expressions have been used.

The Supreme Court in the case of Thyssen Stahlunion Gmbh v. Steel Authority of India[8]has already defined the expression- “in relation to arbitral proceedings” and held that the expression encompasses arbitral proceedings along with court proceedings relating to the arbitral proceedings. Therefore the expression covers the proceedings pending before the arbitrator along with proceedings before the court which are in relation to the same arbitral proceedings.

The Madras High Court on “Arbitral Proceedings” versus “In relation to Arbitral Proceedings

The Madras High Court in a matter New Tirupur Area Development Corporation Limited v. Hindustan Construction Co. Ltd.[9]discussed the two contentious phrases appearing in Section 26. The issue before the court was concerned with the effect ofSection 26 on any proceedings in court or going to be taken to the court, after the Amendment Act came into force. The court here in explicit terms held that the intention of the legislature was unequivocal, that theAmendment Act was prospective to “arbitral proceedings” commenced before the Amendment, but retrospective to matters “in relation to arbitral proceedings” which commenced after theAmendment (including court proceedings, notwithstanding whether these court actions were in relation to arbitral proceedings commenced before, or after the Amendment Act)[10]. This interpretation of statute lead to following conclusions-

Application of Section 26 was generalized. Amendment Act applied similarly to court proceedings related to arbitrations commenced before October 23, 2015, as well as court proceedings initiated on or after October 23, 2015 that are actually in relation to arbitrations, commenced before October 23, 2015.[11]

The anomaly in this judgment is apparent from the fact that concerned court proceedings – ones instituted after the commencement of the Amendment Act and the ones which branch out of arbitral proceedings initiated before the Amendment Act are being treated at the same footing.

In layman words it would imply that arbitral proceedings which commenced before the Amendment Act came into the picture, are to be governed by the 1996 Act, where as any and all court actions arising from said arbitral proceedings(commenced before October 23, 2015) , if instituted on or after the new regime, are to be governed by the new regime. Which in effect means that if an award was passed in an arbitration which commenced prior to October 23, 2015, and if a petition challenging the award is instituted after October 23, 2015, the challenge would be governed by the Amended Act (although the award was passed under the1996 Act). This interpretation of the provision is fallacious on the face of it as profoundly affects the substantive rights of parties under section 34, with respect to setting aside of arbitral award.

The Substantive Nature of Section 34 Bars Any Retrospective Impact of the Amended Act

Section 34 of the pre-Amendment Act primarily deals with setting aside a domestic award which encompasses domestic award resulting from an international commercial arbitration.[12] It provides the substantive right for challenging an arbitral award which may be set aside on the grounds like- like incapacity of parties[13], invalidity of the arbitration agreement under the law to which the parties have subjected it[14], lack of proper notice of appointment of arbitrator or of the arbitral proceedings[15], where the courts find that the subject matter is not capable of settlement byarbitration[16], et cetera mentioned in Section 34. Additionally, the provision also allows setting aside of an award if it is in conflict with the public policy of India. Supreme Court has decided upon what meaning can be ascribed to “public policy of India” in the case ONGC Ltd. v.Saw Pipes.[17]

The right of Appeal is a Substantive Right

Law stands unanimously with respect to the proposition that the right of appeal is a substantive right and not merely a matter of procedure.[18]It is a vested right and accrues to the litigant and exists as on and from the date the list commences and although it may be actually exercised when the adverse judgement is pronounced, such right is to be governed by the law prevailing at the date of the institution of the suit or proceeding and not by the law that prevails at the date of its decision or at the date of filing of the appeal. This right can only be taken away by means of an express enactment and not otherwise.[19]

There is no argument to the proposition that an appeal is a continuation of suit. This right cannot be taken away by a procedural enactment which is not made retrospective, this right cannot be imperiled. This helps to establish the fact that the right to set aside an award underSection 34 of the pre-Amendment 1996 Act is a substantive right.

The Amendment Act affecting an Accrued Substantive Right cannot be applied

That the Amendment has imposed restriction on the right provided by the Act under section 34. The pertinent question that demands expeditious answer is – whether the restriction discussed above be imposed on the right to set aside an award arising from pre-Amendmentarbitral proceedings?

Several cases in past have settled the present proposition like ColonialSugar Refining Co. Ltd. v. Irving[20] stated that any interference with the existing rights is contrary to the well-known principle that statutes are not to be held to act retrospectively unless a clear intention to that effect is manifested, this principle has been frequently applied by the SupremeCourt in HooseinKasam Dada (India) Ltd. v. State of Madhya Pradesh[21] which stated that ―a preexisting right of appeal is not destroyed by an amendment if the amendment is not made retrospective by express words or necessary intendment. The fact that the pre-existing right of appeal continues to exist must necessarily imply that the old Act continues to exist for the purpose of supporting the pre-existing right of appeal.[22]On implication from the settled case laws above it follows that the interpretation of Section 26 of the Amendment Act would be rendered fallacious when applying the new regime to court proceedings (commenced after the Amendment) which are in relation to pre-Amendment arbitral while applying the old regime to said arbitral proceedings.[23]

Delhi High Court on Section 34

The same question recently came for consideration before the Division bench of High Court of Delhi in Ardee Infrastructure Pvt. Ltd. v. Ms. Anuradha Bhatia &Ors[1]. Here the court while adjudicating upon the controversy with regard to application of the Amendment Act, 2015 held that the right to have an award enforced or not is an accrued right and ‘the amended provisions would apply if they are merely procedural and do not affect any Accrued right(s).

Brief premise of the case was that a notice for invoking arbitration was given by the respondent in June, 2011. The statement of claim for the same was also filed in February 2013 and an interim award was passed on July 10, 2014 followed by the final award in October 2015.

Pursuant to the award, a petition under section 3 objecting the award was filed in January 2016. The Learned Single judge while deciding the case, in his order dated May 31^st, 2016 directed the Petitioner to deposit 2.70 crores along with the condition that if the said sum was not deposited within the stipulated time the objections filed by the Petitioner under section 34 would be dismissed. Aggrieved of the impugned order the petitioner preferred appeal before the division bench of Delhi High Court.

While Petitioner/Appellant argued that– Firstly, that the Petition under Section 34 of the Act would not be governed by the amended provisions of Sections 34 and 36 and, therefore they are entitled to an automatic stay on the filing of the Petitions under Section 34 of the Act. They agitated that as per Section 6 of the General Clauses Act, 1897, repeal of an enactment would not affect any right acquired or accrued under the repealed enactment unless a different intention appears in the repealing Act. Based on the same argument they argued that amendment cannot be allowed to take away the vested rights of the party and therefore Section 6 of the General Clauses Act, 1897 would be applicable. It was also argued by the counsel for Petitioners that Section 26 of the Amending Act does not express any intention of retrospective application prior to October 23, 2015, and therefore, it would operate prospectively and not to arbitration commenced prior to October 23, 2015.

Based on the above legal contentions they prayed that the order of Learned Single Judge, imposing condition upon the Petitioner, to deposit Rs. 2.70 Crores for issuing notice in its Petition under Section 34 of the Act to be declared illegal.

Respondent on the other hand heavily relied on the Madras High Court Judgment in New Tirupur Area Development Corporation Limited v. Hindustan Construction Company Ltd^[2] to contend that, the legitimate interpretation of Section 26 of the Amendment Act, 2015 would entail that – Section 26 of the Amendment Act uses the expression “to arbitral proceedings” instead of “in relation to arbitral proceedings”, this implies that the legislative intent was to limit the scope of section 26 and it could not be extended to include post-arbitral proceedingsMoreover, aid to Section 6 of the General Clauses Act cannot be resorted because of use of the restrictive phrase in Section 26 of the Amending Act. It categorically denied that this interpretation of Section 26 would take away right accrued in favour of the Appellant.

Issue that the Hon’ble court culled out from the Appeal was,

The implication of the amendments brought to Section 34 and Section 36 of the Act, by the Amendment Act. The Court was burdened with adjudicating upon the issue that- whether the Appellant would be entitled to an automatic stay of the Award dated October 13, 2015 in terms of Section 36 of the Act or not.

The Hon’ble High Court of Delhi minutely observed that the logical interpretation of Section 26 of the Amended Act should be one which equitably dealt with all types of cases that would fall for consideration under the Act, after the amendments were introduced vide the Amended Act on October 23, 2015.

The Court has lucidly explained and for illustrative purposes identified three categories of cases that would fall under the Act, after introduction of the amendments:-

Category I: Cases whereArbitral proceedings commenced prior to October 23, 2015 and were pending before an arbitral tribunal on October 23, 2015;

Category II: Cases where Arbitral proceedings commenced prior to October 23, 2015 and the award was also made prior to October 23, 2015, but the petition under Section 34 seeking the setting aside of the award was made after October 23, 2015;

Category III: Cases where the arbitral proceedings commenced prior to October 23, 2015 and the awards were made prior to October 23, 2015, and the petition under Section 34 had also been instituted before court prior to October 23, 2015.

The Hon’ble High Court after thorough observation was of the view that, if Respondent’s interpretation to the expression “to the arbitral proceedings” is accepted it would lead to anomalies. However, if the expression “to the arbitral proceedings” which is employed to the first part of Section 26 of the Amended Act is given the same expansive meaning as the expression “in relation to arbitration proceedings” as appearing in second part of Section 26, it would not result in anomaly. The Hon’ble High Court also expounded the reason for digressing from the judgments passed by High Courts of Calcutta and Madras,and observed that if hypothetically a narrow view of the expression “to the arbitral proceedings” in Section 26 of the Amended Act is to be taken, then it would not address those categories of cases where the arbitral proceedings commenced prior to October 23, 2015 and where even the award was made prior to October 23, 2015, but where either a petition under Section 34 was under contemplation or was already pending on October 23, 2015, and this would not be the correct interpretation of the provision.

The interpretation supplied by Madras High Court and Calcutta High Court would still hold good if the amended provisions were merely procedural and would not have affected the accrued right of either party. As a consequence, the petitions filed by the appellants under Section 34 of the said Act would have to be considered under the unamended provisions of the Act and consequently, the appellants would be entitled to automatic stay of enforcement of the award till the disposal of the said petitions.

Conclusion

It cannot be disputed that if the present matter in question was a matter of procedure only, the retrospective applicability of the Amendment would have been well founded. The logical conclusion that may be drawn is that the un-amended 1996 Act would apply to the whole gambit of arbitration proceedings which commenced before the Amendment Act, right upto the culmination of the proceedings into a challenge or an enforcement of the award. [3]

It is evident that the contradictory judgments passed by different High Courts have only added to the confusion among the parties currently embroiled in enforcement proceedings post the amendments in the Act.[4] In the light of these conflicting judgments, it is pertinent that the confusion is clarified and/or settled by either the legislature or the Apex Court; otherwise, the ambiguity will continue and parties in future would suffer indefinitely. The ambiguous nature of this issue requires urgent consideration to provide uniformity to the law and for its effective implementation as this is an eminent threat to alternate dispute resolution mechanism in India

[1] Arbitration & Conciliation (Amendment) Act, 2015, No. 3 of 2015 (India)

[2] LAW COMMISSION OF INDIA, REPORT NO. 176 – THE ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2001[1] Arbitration & Conciliation (Amendment) Act, 2015, No. 3 of 2015 (India) (2001), available at http://lawcommissionofindia.nic.in/arb.pdf. (Hereinafter ‘246th LAW COMMISSION REPORT’)

[3]Section 8, The Arbitration and Conciliation (Amendment) Ordinance, 2015

[4]Supra n.2, § 85(2)(a) 246th LAW COMMISSION REPORT

[5] “Fresh Arbitrations” mean arbitrations where there has been no request for appointment of arbitral tribunal; or application for appointment of arbitral tribunal; or appointment of the arbitral tribunal, prior to the date of enforcement of the Arbitration and Conciliation (Amending) Act, 2014.

[6] “Fresh Applications” mean applications to a court or arbitral tribunal made subsequent to the date of enforcement of the Arbitration and Conciliation (Amending) Act, 2014.

[7] Arbitration and Conciliation (Amendment) Act, No. 37 of 2015, § 26 (India).

[8](1999) 9 S.C.C. 334.

[9]A. No. 7674 of 2015 in O.P No. 931 of 2015 (Madras High Court) (India).

[10]D. Gracious Timothy, “The Conundrum Underlying Section 26 Of The Arbitration Amendment Act, 2015: Prospective Or Retrospective?” IJAL.Vol V(2) (2016):205

[11]Id, p. 79-82

[12]Arbitration and Conciliation (Amendment) Act, No. 37 of 2015

[13]Id, § 34(

[14]Id,§ 34(

[15]Id,§ 34(

[16]Id,§ 34(

[17] (2003) 5 S.C.C. 705 (India).

[18]Vijay Prakash v. Collector of Customs (1988) SCC 402

[19]Deep Chand v. Land Acquisition Officer, (1994) 4 SCC 99 at p. 102

[20]1905 A.C. 369 (U.K.).

[21]A.I.R. 1953 S.C. 221 (India).

[22]A.I.R. 1953 SC 221

[23]Supra n. 10 at p. 210

[24] FAO (OS) No. 221 of 2016 &FAO(OS) No. 222 of 2016

[25]Supra n. 9

[26] Seaford Court Estates Ltd. v. Asher, [1949] 2 K.B. 481 (U.K.).

[27]Supra n. 10 at p. 220

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In this article, Rohit Upadhyayay who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses How to register a charitable trusts and get necessary income tax registrations for donor benefit?

Introduction

Charitable trusts are the institutions incorporated to advance help and support to the person who really belongs to the poor and deprived category. This form of institution is incorporated to provide maximum benefit to the society. Trust so formed is purely independent and a nonprofit entity as the main aim of formation of trust is to cause public benefit. A trust also provides a various group of individuals to collectively help the person who are unable to survive and to take care of all of their needs. These institutions are formally incorporated as any other company or association and have its own individual legal identity as a legal person. The firm can also make its own individual decision by means of its trustee. The trusts so formed may be formed with a premeditated thought or it may be after its formation may solemnize the intention of formation of such an institution. The trusts so formed may be engaged in one or more than one business by means community service or to provide affordable services to the person availing those services. These trusts can be make to serve old age citizen, orphans, physically disabled children, specially able children, and even for animals. Charitable trusts are also forms to promote efforts to bridge gap between the privileged and the needy.

Classification of trusts

The following are the major classifications of trust in India.

Private trust
Public trust

Private trust

Private trusts are the trusts which are formulated to benefit or to contribute towards any specific class or category of people and keeps their prospective interests on the key for such formations. So a private trust could be recognized as a trust which has a specific cause of formulation and it has certain class which is made as the beneficiary. Example if an industrialist or an employer with an intention of service or to support the health, or other bonafide conditions of the family of the 100 laborers and his employees forms a trust that trust would be a private trust. The Indian trusts Act, 1882 governs all the private trusts in India. The act of 1882 is applicable all over India expect the state of Andaman and Nicobar islands and the state of Jammu and Kashmir.

The following mentioned have similar motive as that to a private trust but they are excludedWaqf

Waqf

Waqf boards are the boards which command the rights and maintains the property inherited by the virtue of donation by the Islamic community. The parliament has authorized this body by means of statutory authority and passing a statute in its favor.

Property of a Hindu Undivided Family’s

property of Hindu undivided family can also be settled as a trustee.

Public or private religious as charitable endowments

The endowment department of state is the authority which has been constituted with a view to manage all the religious donations received by the temple and other religious activities.

Creation of a private trust

few conditions to be taken care of before setting up of a private trust,

Any person can form a private trust
A private trust should have a legal purpose which is not forbidden by law and procedure to be adopted shall also be legal.
The person so forming the trust should have attained majority, should be of sound mind must not suffer from any mental disability which renders him not suitable for holding any place or position.
The person setting up any private trust should not be declared to be bankrupt or disqualifies by any other law or legal means.
The person who is minor can also establish or create a trust but this condition would require prior approval from civil court of competent jurisdiction.

Trustee/beneficiary of a private trust

Trustees are the official living guardian of the trust and the officially hold the property. The trustee I regarded as the person who is officially authorized to hold the property on behalf of the trust and te position of the trustee is similar to that of a director of a company. Except the director gets paid and the trustee doesn’t get paid. The trustee performs an ex-gartia duty for all the members of the trusts and beneficiaries

Qualifications of a trustee

A person competent to hold property can become a trustee of a trust.
The person holding the post of a trustee must have administrative skills to manage the affairs of the property vested with the trust and the trustee should also have reasonable prudence to strive to make his best efforts to take care of the interest of the beneficiaries and the trust itself.
Any individual, association or company can also be appointed as trustee.

Public trust

Private trusts are formulated without any specific intention and the beneficiary class of society is also not clear. Such trusts are not very effective in administration and they have no such big participation into the development of the status of society neither they have any such mandatory obligation for such community service. The major purposes of incorporation of such public trusts are to manage religious affairs and such institution manages their personal dominations and other financial gifts as for religious donations.

Waqf board.
Endowment department for Hindu religious affairs.

Laws and regulations regarding the establishment of trusts in India

The trusts incorporated in India are established by the virtue of Indian Trust Act 1882. The section 3 of the act defines trust as follows:
“Trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.
Section 4 of the act of 1881 provides that the trust should be formed for a lawful cause. A trust may never be formed for satisfaction of any unlawful action or activity, The trust so formed must also not defeat the provisions of law either in expressed or in any implied manner, the trust should not be formed to fulfill fraudulent intentions of a person, the trust shall not be constituted to cause any injury to any person individual or any company, the trust should not also involve any of those affairs which are against any public policy or declared by court to be immoral.
Section 5 of the act of 1882, provides that no trust in reference to immovable property can be incorporate and effected unless the person proposing that transfer declares the same on a non-testamentary instrument which is duly signed and registered by the author of the deed or the creator of that trust. In case of a moveable property no trust in favor of such moveable property is valid until the property is transferred to the trustee.

The trust, when applied for registration, will have following contents in the application form as a valid requisite

Name of the trust.
Address of the trust
Objects of the trust(charitable or Religious)
One settler of the trust
Two trustees of the trust
Property of the trust-movable or immovable property (normally a small amount of cash/cheque is given to be the initial property of the trust, in order to save on the stamp duty).

After the above-mentioned conditions, the next following necessary steps are taken.

Prepare a Trust Deed on stamp paper of the requisite value
The trust deed so formed shall be registered with the locally empowered registrar who will register the trust under Indian Trust act, 1882.
The trust deed would have due stamps required to incorporate such institution (ratable as per the norms of registration)
The photo identity of the person setting up the trust along with his passport size photograph on the same deed.
Passport size photograph of the two trustees who are being handed over this trust.
Signature of the person setting up the trust.
Signature of two witnesses on the trust deed.
After compliance of all the relevant formalities the trust deed is submitted to registrar and after the approval of Registrar the trust comes to existence.

There are few other statutory provisions for the establishment of trusts.

Companies Act, 2013.

The companies’ acts 2013 have specific provisions for incorporation of nonprofit organization to support such causes of social interests. Prior to the act of 2013, the same provisions existed with the Companies Act of 1956. Under section 25 of the act incorporation of nonprofit organization

The nonprofit organization is the institution who are incorporated to serve the main objective of promotion of education, social, welfare, cultural and religious which are formally sourced by the individual or association for such profits.

While incorporation of a trust under Companies Act 2013 there must be following compliances,

Digital signatures of the Director.
Director identification number (S.153)
Name availability of the proposed company
Preparation of Memorandum of association (MOA )and article of association(AOA).
Grant of license under section 8 of The Companies Act to work for charitable objective.

Indian Constitution

The constitution of India also empowers such effort of incorporation by setting and promoting of such formations. The Article 19 (1) (C) provides for the formation of such organizations. this has been a special incorporation by the means of a fundamental right.

The constitution of India also empowers other minority and other weaker and backward community to establish and manage their own institution to establish promote and profess their beliefs and to strive to promote their personal practice.

Society’s Act, 1860

The society’s act of 1860 also provides for registration of nonprofit organization and charitable trust as under. Any group of seven or more individuals can personally associate for any literary, scientific and charitable purpose or for any other purpose which may be defined in section of the societies act 1860may formally by subscribing their names to a memorandum of association and filing to the registrar of joint stock companies to formulate such society.

According to section 20, the concise list of the societies which can be registered under this act has been defined and the following may be registered under the societies act of 1860.

Military orphan funds
Societies established at several presidencies part of India.
Established or promotion of science, literature and fine arts
Foundation and maintenance of libraries.
Museum, galleries, painting and other form of work.

The following are the relevant provision regarding income:

As the trust formed under any of the above mentioned programs are strictly for nonprofit initiatives as charitable trust enjoys income tax exemption and public trusts as the Hindu Religious Institutions and Charitable Endowments Act, 1997 and the Muslim Wakf council formed under Muslim Wakf Act, 1954. Enjoys additional benefit on account of being a public trust and get exemption from taxes based laws and regulation.

The details of the specific exemption are as follows

Section 11. Tax exemptions.

In compliance and consistency with the provision laid in section 60(transfer of income without transfer of asset) and 63(transfer and revocable transfers) of the income tax act the income earned by any religious trust would be exempted from taxation liability as per the extent specified in the schedule for this act. To obtain such exemption from taxation the procured income must fulfill certain conditions.

Nature of income and the extent to which tax exemption is allowed – Section 11(1)(A)

When the property is completely and wholly for charitable purpose to the extent of income is applied to such charitable or religious purpose in India. Whereas such income is accrued or set apart for such application, to the extent of 15% of the income from such property.

When any trust earns any income for some charitable purpose which aims for the promotion of welfare which helps in realizing Indian goals theses are exempted to such charitable or religious purpose outside India.

Section 12 of income tax provides for voluntary contribution

Income earned by the trust by the means of contribution received by the trust from the donors
A contribution voluntarily made by a charitable trust with and intention to engage into charitable or religious purpose can either receive or donate towards the charitable trust.

Section 13. Provides major guidelines when the special exemptions under the section 11 and section 12 would be forfeited and would not have the privilege of exemption.

If the contribution and the income so received is not utilized for charitable performance.
Misuse of the contribution of the earnings of the trust.
Noncompliance of the AOA and MOA of the deed of the trust.
If the trust is misusing the contribution of the trust for the personal benefits of the trustee, director, donors, relatives of the person having influence in the management of the trust.

The impact of donation upon the donor {under section 80G of the income tax act 1961}

The donor presented for the purpose of the charitable trust must be a legal person and any legal person can enjoy this right of donation to charitable trust. The person who is a rightful tax payer can become a donor for the purpose of this charitable trust.
The donations advanced towards any foreign trusts would not have any privilege under this law only donations made within India will have the enjoyment of such benefits not otherwise.
The donations made to charitable trusts are only eligible for any sort of tax benefit otherwise no person individual or company could claim any sort of donation made to any political parties as they are not formed with an intention to commit public service.
The donation to enjoy the benefit of tax exemption the donation must be made in a prescribed manner and to a prescribed institution for prescribed fund. It is done with a view to maintaining the transparency and scrutiny on the trust so receiving and the donor so making such donations.
In order to curtail the adverse usage of the charitable trusts the sum of donation if exceed more than 10% of the total gross income the additional donation made by the person will not have any special privilege for the income percentage donated in excess of the 10 % of the income.

Necessary compliance to obtain maximum benefit of the donations made under section 80G of the income tax act 1961: In order to obtain maximum benefit of the donation for taxation purpose the donor must follow following instructions.

The most important document is the receipt of the donation and the donation made under section 80 G must have a stamped receipt of the trust. Which bear the pan number and the address of the receiver trust receiving the donation with the name of the donor to the trust which has the clear amount of donation described and the mode of the donation upon the receipt itself.
The donation when made in the particular head that is entitled to 100% exemption the donor must emphasis on the receiver to provide him with form 58. So that he may further claim his 100% exemption regarding his donation. Without form no. 58 the donor cannot enjoy the complete 100% deduction benefit although his receipt mentions 100%exemption.
The donor must also check for the registration number upon the receipt issued by the trust as all trust receipt must have registration number issued by the income tax department under 80G.
The donor must ensure that the trust to which he is making any donation possesses a valid certificate of 80G otherwise his donation would not have the exemptions of 80G of the income tax act.
The donor should produce the photocopy of the 80G certificate of the trust.
Donation made in cash or by means of cheque are only entitled to tax benefits not otherwise as donations made by means of a donation of blanket, other utility based articles do not fall under the ambit of Section 80 G of the income tax act.
Donation made in any natural disaster or any natural emergency situations the maximum amount of the exemption which could be enjoyed from tax liability would be 10,000 Rs when mode by any medium other than cash (i.e cheque or electronic transfers.)
The employees can claim deduction under the same section 80 G after providing a certificate obtained by their employer that such an amount is already deducted from their salary.
There is no capping limitation upon the amount of donation a person can make. However, as per statutes there are various heads in which the limit of obtaining the deduction is restricted to 10%.
The donations made to specific organization are entitled to specific deduction and tax exemptions.

100 % deductions without any qualifying limits (no capping on the amount and full deduction): – Prime minister`s national relief fund.
50% deduction without any qualifying limit (no capping on the amount and half deduction) Indira Gandhi memorial trust.
100 % deduction to a qualifying limit (full deduction but capping on the for specific amount): – An approved institution for health planning.
50 % deduction to a qualifying limit (half deduction but capping on the for specific amount): – approved institution for charitable purpose other than promoting family planning.