FDI IN RETAIL TRADING IN INDIA

FDI IN RETAIL TRADING IN INDIA

The Indian retail sector has tremendously grown over the last decade with a significant shift towards organised retailing format. India’s retail market contributes to over 10 percent of the country’s Gross Domestic Product (GDP). The share of the Indian retail market is expected to increase by 60 percent to reach USD 1.1 trillion by the year 2020. Typically, retail is understood to be the sale of goods to end users, not for resale, but for use and consumption by the purchaser. The retail transaction is at the end of the supply chain. Interestingly, courts in India have defined the term ‘retail’ as a sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale). Traditionally, the retail sector in India was considered to be a sensitive sector especially due to factors, such as (i) the employment it generates and (ii) of its early and undeveloped stage (particularly the domestic organized retail segment) it is not in a position to compete with large players. As a result, the Government policy has largely been to protect agriculturist and small retailers and therefore has discouraged entry of bigger retailers. However, that has now changed, and the government of India has revised its foreign direct policy (FDI Policy) to allow foreign direct investment (FDI) in the retail sector subject to certain conditions. Some of the key changes are discussed below:

 

Conclusion

While opening of the retail sector to FDI is a welcome step, some regulatory aspects need to be examined by the government to ensure robust growth of this sector. Some of these aspects relate to (a) local sourcing requirements which adversely impacts quality control for big retail giants. Further, the relaxations, from local sourcing requirement, provided to the SBRT entities, having state of the art technology, needs clarity as there is no specific definition set out in the FDI Policy setting out what constitutes state of the art technology; (b) government approval in connection with MBRT and food retail can be time consuming resulting in high costs for such entities; (c) Restrictions on ecommerce entities having relations with any of its vendors needs to be balanced keeping in mind the interest of the consumer as such relations do benefit the end consumer in the nature of discounts etc.

BLACKLISTING AND DEBARMENT OF CONTRACTORS IN PUBLIC PROCUREMENT

BLACKLISTING AND DEBARMENT OF CONTRACTORS IN PUBLIC PROCUREMENT

The decision to enter into a contractual relationship is inherent in every person capable of entering into a contract. Where a person has the right to make a contract, it also has a concomitant right not to make a contract. The Government’s right to contract flows from Article 298 of the Constitution. Hence, the analogous right not to contract also rests with the Government who can choose either to annul the contract or to adapt debarment or suspension as a tool for ensuring compliance of erring contractors who fail to perform the procurement actions for the Government. However, these decisions taken on behalf of the Government have to be mandatorily balanced with the Wednesbury principle of reasonableness[1] and natural justice. The traditional view that the executive is not answerable in the matter of exercising of prerogative power over erring contractors has long been discarded.

INDIAN COURT RULINGS. The subject matter of debarment, suspension and blacklisting of delinquent contractors in government contracts is discussed in a spectrum of cases, each laying down the ground rules to be considered by both the contractors and the government. The principles laid down by these judgments can be categorized as under:

  1. The effect of debarment on contractors and its nexus with Article 19 (Right of Business) as enshrined under the Constitution of India.
  2. Proportionality of the period of such debarment vis-à-vis the fault of the contractor.

The limits of powers of statutory authorities to take coercive action against companies was identified in the judgment of Kulja Industries v. Proj. BSNL[1]. The Supreme Court held that permanent blacklisting of the Contractor is against the principles of reasonableness and proportionality. The quantum of the period of debarment should be balanced by the offence of the delinquent contractor, and no permanent debarment/blacklisting shall be ordered by the Authority in any circumstance.

  • Issuance of show cause notices prior to the issuance of debarment orders-

The flag bearer of this issue was the decision of the Supreme Court way back in 1975 in the case of Eurasian Equipment & Chemicals Ltd. v. State of West Bengal[2] wherein it directed the Government to mandatorily issue a show cause notice to the contractor before blacklisting. It was held that the blacklisting order involves serious civil consequences, as in effect it casts a slur on the reputation of the Company. Thus, Government being a Government of laws and not of men is bound to act in conformity with the principles of natural justice which require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist.

  1. The principle of audi alteram partem (opportunity to the contractor to explain its case) shall be duly exercised before the issuance of debarment orders.

In the case of Raghunath Thakur v. State of Bihar[3], the Supreme Court held that even if the rules do not specify so, it is an implied principle of law that an order having civil consequences should be passed only after following the principles of natural justice. The blacklisting order in respect of business ventures has serious implications upon the future business of the concerned person and merits an opportunity of being heard and making representations against the order.

In another case of Patel Engineering Ltd. v. Union of India[4], the Supreme Court held that the absence of a contract provision providing for blacklisting is not determinative of the authority to blacklist a bidder. The Court held that if the Contractor had once been given an opportunity of being heard by way of a show cause notice, there is no further requirement for the State to give a personal or oral hearing before taking a decision of blacklisting.

  1. The detailed reasoning and application of mindfulness by the Employer in the debarment orders-

The Courts have further reaffirmed the application of reasoning and mindfulness while issuing debarment orders. In the case of Grosons Phamaceuticals (P) Ltd. v. the State of Uttar Pradesh[5], the Supreme Court held that it is true that an order blacklisting an approved contractor results in civil consequences and in such a situation in the absence of statutory rules, the only requirement of law while passing such an order was to observe the principle of audi alteram partem which is one of the facets of the principles of natural justice. A non-speaking order shall be reprimanded in the Court of Law.

In light of the reasons as discussed, the law as of today stands settled that the authority of the Government or its organizations to blacklist a person is a necessary concomitant to the executive power of the State to carry on the trade or the business and making of contracts for any purpose, etc. There need not be any statutory grant of such power. The only legal limitation upon the exercise of such an authority is for the Government to act fairly, proportionally and rationally without in any way being arbitrary.

 

[1] Wednesbury unreasonableness -. A reasoning or decision is Wednesbury unreasonable (or irrational) if it is so unreasonable that no reasonable person acting reasonably could have made it (Associated Provincial Picture Houses Ltd v Wednesbury Corporation (1948) 1 KB 223

[1] 2013 (12) SCALE 423

[2] 1975 (1) SCC 70

[3]1989 (1) SCC 229

[4] 2012 (11) SCC 257

[5] 2001 (8) SCC 604

ENFORCEMENT OF FOREIGN AWARDS AGAINST INDIAN COMPANIES IN AN INTERNATIONAL ICC ARBITRATION

ENFORCEMENT OF FOREIGN AWARDS AGAINST INDIAN COMPANIES IN AN INTERNATIONAL ICC ARBITRATION

Introduction

An international commercial arbitration which is governed under the arbitration regime of International Chamber of Commerce (‘ICC’) can either be seated in India or be seated in a foreign country. While the enforcement and execution of an Indian seated arbitral award would be governed by the Part I of the Arbitration & Conciliation Act, 1996 (“Indian Act”), the enforcement of foreign seated awards would be governed by the provisions of Part II of the Indian Act.

In India “foreign awards” are acquiescent under Part II of the said Act which specifically is in consonance with the provisions of the 1958 – New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention“) or the Convention on the Execution of Foreign Arbitral Awards 1927 – (“Geneva Convention”). India is a signatory to both the New York Convention as well as Geneva Convention. Section 44 of the Indian Act provides that in order for a foreign award to be recognized as such under Part II, Chapter I (New York Convention Awards) certain conditions need to be fulfilled, which are as under:

  1. The territory should be signatory to the New York Convention
  2. The Indian Central Government should have notified in the Official Gazette that it has reciprocal provisions with such a territory.

Therefore any foreign award received by a party/country under the ICC arbitration regime who is a signatory to either New York Convention or the Geneva Convention can get the same enforced within the territory of India.

Enforcement

The enforcement of a foreign award under the ICC arbitration regime in India is a binary process. The dualistic approach begins with filing of an execution petition in an Indian court, wherein the Court at the first instance shall ascertain whether the foreign award had adhered to the requirements of the Arbitration & Conciliation Act, 1996.  These requirements are listed as under:

  1. Whether the original award or an authenticated copy in accordance with the act was filed.[1]
  2. Whether the original agreement or certified copy of the arbitration agreement in accordance with the act was filed.[2]
  3. Whether necessary evidence to prove that the award is a foreign award was filed.[3]

Once the Court is satisfied that the foreign award is found to be enforceable, the same shall be enforced like a decree of that Court.[4] While doing the same, Indian Courts are mindful of the following conditions as set out under Section 48 of the Indian Act, which may be met before execution of such awards. These conditions can also be the grounds adopted by the other/aggrieved party for challenging the said award. These conditions/grounds which shall render the foreign award unenforceable are listed as under:

  1. That the subject agreement is not in accordance with the law to which the parties have subjected it or under the law of the country where the foreign award was made.
  2. The award is ultra vires to the agreement.
  3. The award contains decision on matters beyond the scope of arbitration.
  4. The arbitral procedure was not in accordance with the law of the country where the arbitration took place.
  5. The foreign award has not yet become binding on the parties or was set aside by the higher authority of the country in which that award was made.
  6. Enforcement of foreign award will be contrary to public policy of India.
  7. Subject matter of the dispute is not capable of settlement under the Indian Arbitration & Conciliation Act, 1996.

Once the award has survived the challenge and the Court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that Court[5]. After this stage it can be executed under Order XXI of the Code of Civil Procedure, 1908 in the same manner as a decree from an Indian court. Where the subject matter of the foreign award is money, the Commercial Division of any High Court in India where assets of the opposite party lie shall have jurisdiction. In case of any other subject matter, the Commercial Division of a High Court which would have jurisdiction as if the subject matter of the award was a subject matter of a suit shall have the jurisdiction.

[1] Section 47 of the Indian Act

[2] Section 47 of the Indian Act.

[3] Section 47 of the Indian Act

[4]  M/s Fuerst Day Lawson Ltd. V. Jindal Exports Ltd. 2001(6)SCC 356 – “In one proceeding there may be different stages. In the first stage the Court may have to decide about the enforceability of the award having regard to the requirement of the said provisions. Once the court decides that foreign award is enforceable, it can proceed to take further effective steps for execution of the same. There arises no question of making foreign award as a rule of court/decree again.”

[5] Section 49 of the Indian Act.

DISPUTE RESOLUTION IN INDIA-FREQUENTLY ASKED QUESTIONS

DISPUTE RESOLUTION IN INDIA-FREQUENTLY ASKED QUESTIONS

1. What is the structure of the court system in respect of civil proceedings? What is the role of the judge in civil proceedings?

The Indian Judicial/Court System is one of the oldest legal systems in the world today. The framework of the current legal system has been laid down by the Indian Constitution and the judicial system derives its powers from it. There are various levels of judiciary in India—different types of courts, each with varying powers depending on the tier and jurisdiction bestowed upon them. They form a hierarchy of importance, in line with the order of courts in which they sit, with the Supreme Court of India at the top, followed by High Courts of respective states with District Judges sitting in District Courts and Magistrates of Second Class and Civil Judge (Junior Division) at the bottom.
Hierarchy of Courts and Judges in India:
a. The District Court of India are established by the State Government in India for every district or more than one district taking into account the number of cases, and population distribution in the district. These courts are under the administrative control of the High Court of the State to which the district concerned belongs. The District Court is presided over by one District Judge appointed by the State Government. In addition to the district judge there are many Additional District Judges and Assistant District Judges depending upon the workload
b. In every state, besides the High Court there are number of judicial Courts to administer justice. These courts function under the complete control and supervision of the High Court. A state has got exclusive Legislative competence to determine the constituent organization and territorial jurisdiction of all courts subordinate to the High Court. The organization of subordinate courts throughout the country is generally uniform. There are two type of law courts in every district; (i) Civil Courts (ii) Criminal Courts
c. The court of the District Judges is the highest civil court in a district. It exercises both judicial and administrative powers. It has the power of superintendence over the courts under its control. The court of the District judge is located at the district headquarters. It has power of trying both civil and criminal cases. Thus, he is designated as both the District and Sessions Judge
d. Below the court of the District Judge are the courts of Sub-judge, Additional Sub-Judge and Munsif Courts, which are located in the sub-divisional and district headquarters. Most of the civil cases are filed in the court of the Munsif. A case can be taken in appeal from the court of the Munsif to the court of the sub-Judge or the Additional Sub-Judge. Appeals from the courts of the sub-Judges and Additional sub-Judges shall lie in the District-Court. The Court of the District Judge has both original and appellate jurisdiction. Against the decision of the District judge an appeal shall lie in the High Court
e. Civil Court has been further categorized on the basis of Jurisdiction which is discussed as follows
i. Subject Matter Jurisdiction: It can be defined as the Authority vested in the court to try and hear cases of the particular type and pertaining to a particular subject matter
ii. Territorial Jurisdiction: The court can decide within the geographical limits of a court’s authority and it cannot exercise authority beyond that territorial and geographical limits

iii. Pecuniary Jurisdiction: Pecuniary Jurisdiction is related to money, whether a court can try cases and suits of monetary value/amount of the case or suit in question
iv. Appellate Jurisdiction: It refers to the authority of a court to rehear or review a case that has already been decided by a lower court. Appellate jurisdiction is generally vested in higher courts. In India, both the High Courts and the Supreme Court have appellate jurisdiction to hear matters which are brought in the form of appeal before them. They can either overrule the judgment of the lower court or uphold it

2. Are court hearings open to the public? Are court documents accessible by the public?
a. Court hearings are open to the public – India has an open court system till the court proceedings are converted into an ‘in-camera trail’. Where there is an open court hearing, litigants are entitled to know the progress in their case. The concept of access to justice provides that though a litigant is not in court, they are able to know what is happening in their case inside the court. Barring few exceptions like hearings in a rape case, the courts are open to the public for all hearing and the Supreme Court in order to facilitate this concept has even started to frame appropriate guidelines for allowing live streaming of the proceedings so that the citizens have the right to information and matters of constitutional and national importance can be live-streamed for awareness
b. Court judgments are public records but not court documents. If a case is heard by a court of India, no one can argue that the opinion should not be published and view able by all, unless the court itself expressly says it cannot be published or a law says it cannot. The decisions of the Supreme Court are the law of the land, and all citizens can read their decisions. Not just the Supreme Court, courts today are publishing their judgments and orders on the Internet. The Copyright Act s 52(1)(q)(iv) states that publication of court judgments does not constitute an infringement of copyright
In R. Rajagopal vs State of T.N on 7 October, 1994 where the Supreme Court defined the scope of the right to privacy, it was stated that publication of court records will not constitute any violation of the right to privacy. It held: ‘The rule aforesaid is subject to the exception, that any publication concerning the aforesaid aspects becomes unobjectionable if such publication is based upon public records including court records. This is for the reason that once a matter becomes a matter of public record, the right to privacy no longer subsists and it becomes a legitimate subject for comment by press and media among others. We are, however, of the opinion that in the interests of decency [Article 19(2) an exception must be carved out to this rule, viz., a female who is the victim of a sexual assault, kidnap, abduction or a like offence should not further be subjected to the indignity of her name and the incident being publicized in press/media’
3. Do all lawyers have the right to appear in court and conduct proceedings on behalf of their client? If not, how is the legal profession structured?
A lawyer can appear in any matter on behalf of its client provided such lawyer has filed a Vakalatnama or memo for the same client before the Court of Law. A Vakalatnama or memo is a privileged document signed by the client authorizing only one lawyer or two-lawyers (in case of a firm) to represent his interest before the Hon’ble Court. Any other lawyer will not appear in any matter where another advocate has filed a Vakalatnama or memo for the same party.

In such a case, a lawyer who is not able to present the consent of the advocate who has filed the matter for the same party must apply to the court to be allowed to appear on behalf of the client. He shall in such application mention the reason as to why he could not obtain such consent. He shall appear only after obtaining the permission of the Court

4. What are the limitation periods for commencing civil claims?
The law relating to Law of Limitation to India is the Limitation Act 1859 and subsequently Limitation Act 1963 which was enacted on 5th of October, 1963 and which came into force from 1st of January, 1964 for the purpose of consolidating and amending the legal principles relating to limitation of suits and other legal proceedings. According to the Limitation Act 1963 s 2(j), ‘period of limitation’ means the period of limitation prescribed for any suit, appeal or application by the Schedule, and ‘prescribed period’ means the period of limitation computed in accordance with the provisions of this Act.
The Law of Limitation signifies to prevent from the last date for different legal actions which can take place against an aggrieved person and to advance the suit and seek a remedy before the court. The limitation periods for commencing civil claims in India are categorized as:
a. The limitation period is reduced from a period of 60 years to 30 years in the case of suit by the mortgagor for the redemption or recovery of possession of the immovable property mortgaged, or in case of a mortgages for the foreclosure or suits by or on the behalf of Central Government or any State Government including the State of Jammu and Kashmir
b. Whereas a longer period of 12 years has been prescribed for different kinds of suits relating to immovable property, trusts and endowments, a period of 3 years has been prescribed for the suits relating to accounts, contracts and declarations, suits relating to decrees and instruments and as well as suits relating to movable property
c. A period varying from 1 to 3 years has been prescribed for suits relating to torts and miscellaneous matters and for suits for which no period of limitation has been provided elsewhere in the Schedule to the Act
d. It is to be taken as the minimum period of seven days of the Act for the appeal against the death sentence passed by the High Court or the Court of Session in the exercise of the original jurisdiction which has been raised to 30 days from the date of sentence given
e. The Limitation Act 1963 has a very wide range considerably to include almost all the Court proceedings. The definition of ‘application’ has been extended to include any petition, original or otherwise. The change in the language of the Limitation Act 1963 ss 2 and 5 includes all the petition and also application under special laws
f. The Act has been enlarged with the definition of ‘application’, ‘plaintiff’ and ‘defendant’ as to not only include a person from whom the application. The plaintiff or defendant as the case may be may also be a person whose estate is represented by an executor, administrator or other representatives
g. According to the Civil Procedure Code ss 86 and 89, it requires the consent of the Central Government before suing foreign rulers, ambassadors and envoys. The Limitation Act 1963 provides that when the time obtained for obtaining such consent shall be excluded for computing the period of limitation for filing such suits

h. The Limitation Act 1963 with its new law signifies that it does not make any racial or class distinction since both Hindu and Muslim Laws are now available under the law of limitation as per the existing statute book. In the matter of Syndicate Bank v.Prabha D. Naik AIR [2001] SC 1968, the Supreme Court has observed that the law of limitation under the Limitation Act 1963 does make any racial or class distinction while making or indulging any law to any particular person

5. Are there any pre-action procedures with which the parties must comply before commencing proceedings?
As soon as a dispute is imminent, parties need to consider a number of factors which can be regarded as pre-action procedures:
a. One is to issue a forewarning to the other side by issuing a Legal Notice which specifies the cause of action, the quantum of loss if any and intimation to the other party of the alleged wrong-doing. The said Legal Notice which is usually issued through a Lawyer should carry a diligent time-line such that the other party can peruse the same and take corrective measures if any within the said period. The Notice shall also state that in case of no rebuttal from the other party, a suit shall be instituted in the Court of law
b. The other factor is to consider if at all, there is a reasonable cause of action because the court will strike out a claim which fails to disclose a reasonable cause of action
c. The party instituting civil proceedings shall also consider who the proper defendant is and whether it is worth pursuing the defendant at all by checking their financial means. If the defendant does have assets, it may be relevant if these are located out of the jurisdiction and if so, how easy it will be to enforce judgment against these assets
d. The party instituting civil proceedings may need to consider whether any emergency procedures are required before the claim is commenced, for example to restrain a party from moving assets out of the jurisdiction, or whether other pre-action procedures are necessary, such as making an application for pre-action discovery
e. The party instituting civil proceedings will also need to establish whether or not the claim is subject to any limitation period
f. The party instituting civil proceedings shall need to assess the claim amount in case of a recovery suit and accordingly enquire about the amount of the Court fee which shall be required to institute such suit in the Court of law
g. If the dispute emerges out of a contract between the parties, then the party instituting the civil proceedings needs to check and affirm if any specific pre-action procedure is envisaged in such contract. Usually contracts may envisage mediation or conciliation procedures which are mandatory in nature and compliance of which is necessary for any party before they start to institute such civil proceedings

6. What is the typical civil procedure and timetable for the steps necessary to bring the matter to trial?
The typical procedure for trial of a civil case and its different stages is governed as per the provisions of the Code of Civil Procedure 1908 (“CPC”) and the Rules of the respective Courts.

A Civil Suit is instituted by filing of a plaint before the Civil Court of competent jurisdiction. At the outset, it is important to ascertain the cause of action, the parties against which the cause of action has arisen and the Court which is competent to hear the matter i.e. the Court where the suit will be instituted.
Typical stages of a Civil Suit as per the provisions of CPC are as under:
a. Institution of suit: As per the CPC s 26(1), a civil suit is instituted by the presentation of a plaint accompanied with an affidavit in support of the facts pleaded therein. The particulars to be contained in a plaint have to be as provided under Order 7 of CPC which states that a plaint shall contain the following:
i. Name of the Court in which the suit is to be filed
ii. Name, description and place of residence of the Plaintiff
iii. Name, description and place of residence of the Defendant so far it can be ascertained
iv. Where the Plaintiff or Defendant is a minor or person of unsound mind statement to that effect
v. Facts constituting the cause of action and when it arose
vi. Fact showing that the Court has jurisdiction
vii. Relief which the Plaintiff claims
viii. Where Plaintiff has allowed a set off or relinquishes a portion of his claim, the amount so allowed for relinquishment; and
ix. Statement of the value of the subject matter of the suit for purpose of jurisdiction and Court fees
The plaint has to be filed with all relevant evidences and documents in support of the claim. It is also important to ensure that the plaint is filed within the statutory period of limitation as applicable, failing which an application seeking an extension of time shall be required to be filed along with the plaint.
b. First hearing/ Admission of case: After filing of the plaint, the case shall be listed for first hearing before the Court. The Plaintiff will typically be required to provide an overview of the case and satisfy the Court that a cause of action exists against the Defendant. If the Court is satisfied, it admits the case and issues summon/ notice u/s 27 read with Order V of the CPC to the Defendant to appear and answer the claim. It is important to note that if the Plaintiff fails to appear on the first date of hearing, then the Court may dismiss the suit in default
c. Service of Summons: Once the summons has been issued by the Court, it will be served by the Court on the address of the Defendant provided by the Plaintiff. It is incumbent upon the Plaintiff to ensure that the address provided to the Court is correct so that the summons is duly served upon the Defendant. The Plaintiff may also seek permission from the Court under Ord. V R 9A to effect service of the summons upon the Defendant on its own to further ensure that the Defendant is duly served

In case the address of the Defendant is not traceable, and the Court and the Plaintiff are unable to effect service of summons upon the Defendant after using all reasonable diligence, the Plaintiff may apply to the Court seeking permission to effect service by way of a publication as per Ord. V R 17 and R 20 of the CPC. The service of summon/notice upon the Defendant is presumed to effectuated by way of such publication and in case the Defendant still does not enters appearance in the case, the suit is proceeded ex-parte.
d. Appearance of Parties: On the day specified by the Court in the summons, the Defendant is required to enter its appearance and file its reply to the plaint and in circumstances where the reply is not filed, request the Court to grant it more time to file the reply. In case if the summons/ notices have been duly served upon the Defendant and the Defendant still fails to enter appearance, the Court may either grant another opportunity to the Defendant to enter appearance and re-issue summons or proceed ex-parte against the Defendant noting that it has failed to appear despite reasonable opportunity and thus, closing its right to defend
e. Filing of Reply by the Defendant: – After service of summons to the Defendant, as per Ord. VIII R 1 of the CPC, the Defendant is required to file its reply (termed as Written Statement) within 30 days from the date of service of the summons on him. However, the Defendant may seek extension of time for filing of its reply and such extension may be granted by the Court at its discretion
f. Production of Documents: – After filing of the written statement by the Defendant, the next stage of the suit is production of documents. At this stage both parties are required to file the documents in Court which are in their possession or power. If the parties rely on some documents which are not in their possession, they have to apply to the Court for issue of summons to the authority or the persons in whose possession those documents are
g. Examination of parties by the Court (Order X): At the first hearing of the suit after filing of the written statement by the Defendant, the Court shall ascertain from each party whether it admits or denies such allegations of fact as are made in the plaint or the written statement. Such admissions and denials shall be recorded. After such recording, the Court shall direct the parties to the suit to opt for one of the following modes of settlement outside the Court
I. Arbitration
ii. Conciliation
iii. Judicial settlement including settlement through Lok Adalat or
iv. Mediation
h. Discovery and Inspection (Order XI): The purpose of discovery and inspection of document and facts is to enable the parties to ascertain the facts to be proved. With the leave of the Court the Plaintiff or Defendant may deliver interrogatories in writing for examination of opposing parties which are required to be answered and which are related to the matter
i.Admission and denial of documents (Order XII): Either party may by giving notice, call upon the other party to admit within seven days from the date of service of the notice, all documents saving just exceptions and each party shall submit a statement of admissions or

denials of all documents disclosed and of which inspection has been completed, within fifteen days of the completion of inspection or any later date as fixed by the Court. The statement of admissions and denials shall set out explicitly, whether such party was admitting or denying
i. correctness of contents of a document
ii. existence of a document
iii. execution of a document
iv. issuance or receipt of a document
v. custody of a document
An Affidavit in support of the statement of admissions and denials shall be filed confirming the correctness of the contents of the statement. In the event that the Court holds that any party has unduly refused to admit a document under any of the above criteria, costs (including exemplary costs) for deciding on admissibility of a document may be imposed by the Court on such party. The Court may pass orders with respect to admitted documents including for waiver of further proof thereon or rejection of any documents.
j. Framing of Issues (Order XIV): The next stage is framing issues. Based on the questions of law arising and the admission-denial of the facts, the issues are framed by the Court in accordance with the provisions of the CPC Ord. XIV R 1 as under
I. Rule 1 sub rule (1) states, “Issues arise when a material proposition of fact or law is affirmed by one party and denied by the other”
ii. Sub rule (2) states, “Material propositions are those propositions of law or fact which a Plaintiff must allege in order to show a right to sue or a Defendant must allege in order to constitute his defense”
iii. Sub rule (3) States “Each material proposition affirmed by one party denied by other shall form subject of distinct issues”
• Issues of fact
• Issues of law
The suit moves for trial after framing of issues
k. Summoning and Attendance of Witnesses (Order XVI): On the date appointed by the Court and not later than 15 days after the date on which issues are settled parties shall present in Court a list of witnesses whom they propose to call either to give evidence or to produce documents
l. Hearing of suit and examination of Witnesses (Order XVIII): The Plaintiff is entitled to have the first right to begin unless the Defendant admits the facts alleged by the Plaintiff and contends that either in point of law or on some additional facts alleged by the Defendant, the Plaintiff is not entitled to any part of relief. In such case Defendant has the right to begin
The Plaintiff has to state his case and submit the evidence filed and marked before the Court. If any evidence was not marked earlier then the same shall not be considered by the Court. The Plaintiff shall carry out examination in chief of its witnesses followed by cross-examination of the witnesses by the Defendant.

The same procedure is followed for the Defendant’s witnesses.
m. Arguments: After completion of evidence, final arguments are submitted by both the arties
n. Judgment (Order XX): Judgment is defined as the statement given by the judge on the grounds of which a decree is passed. The Court after the case has been heard shall pronounce judgment in open Court either within one month of completion of arguments or as soon thereafter as may be practicable, and when the judgment is to be pronounced the Judge shall fix a day in advance for that purpose

7. Are parties required to disclose relevant documents to other parties and the court?
Yes, parties to the suit are required to voluntarily disclose all relevant documents relied upon to the Court and the other parties along with their pleadings. In case the Court or any of the other parties object that any relevant document has not been disclosed by the other party, it may move an application before to Court for discovery and inspection of said documents under the CPC 1908, s 30 read with Ord. XI.
a. Under the CPC 1908, s 30, the Court may at any time either on its own motion or on the application of any party make such order as may be necessary or reasonable in all matters relating production of documents, and it may also issue summons to persons whose attendance is required to produce documents
b. Under Order VII R. 14, where a plaintiff sues upon a document or relies upon document in his possession or power in support of his claim, he shall enter such documents in a list, and shall produce and file a copy of the documents in Court when the plaint is presented by him
A document which ought to be produced in Court by the plaintiff when the plaint is presented, or to be entered in the list to be added or annexed to the plaint but is not produced or entered accordingly, shall not, without the leave of the Court, be received in evidence on his behalf at the hearing of the suit.
c. Under Order VIII R 1A, where the defendant bases his defence upon a document or relies upon any document in his possession or power, in support of his defence or claim for set-off or counter-claim, he shall enter such document in a list, and shall produce and file the documents in Court when the written statement is presented by him
A document which ought to be produced in Court by the defendant under this Rule, but, is not so produced shall not, without the leave of the Court, be received in evidence on his behalf at the hearing of the suit.
d. After the plaint has been presented by the Plaintiff and the written statement by the Defendant in Court, if it appears to the plaintiff or the defendant that all material facts constituting the case of opposite party and all documents in his possession have not been disclosed, it may move an application before the Court seeking directions against the other party to disclose such documents. This is known as discovery of documents
e. The process of the discovery of documents operates generally in three successive stages, namely
i.The disclosure in writing by one party to the other of all the documents which he has or has had in his possession, custody or power relating to matters in question in the proceedings

ii. The inspection of the documents disclosed, other than those for which privilege from or other objection to production is properly claimed or raised and
iii. The production of the documents disclosed either for inspection by the opposite party or to the court
f. A party may seek the assistance of the Court for causing production of the document by his adversary or he may independently issue a notice to his adversary requiring production of documents under Order XI r16 CPC
The Hon’ble Apex Court in the case of Sasanagouda v. S.B. Amarkhed AIR 1992 SC 1163 held that the Court is very well empowered to direct any of the parties to produce all such documents which are material to the issue at hand. The Hon’ble Court in para 7 of the judgment held as under:
“The Court, therefore, is clearly empowered and it shall be lawful for it to order the production, by any party to the suit, such documents in his possession or power relate to any matter in question in the suit provided the Court shall think right that the production of the documents are necessary to decide the matter in question. The Court also has been given power to deal with the documents when produced in such manner as shall appear just. Therefore, the power to order production of documents is coupled with discretion to examine the expediency, justness and the relevancy of the documents to the matter in question. These are relevant considerations, which the Court shall have to advert to and weigh before deciding to summoning the documents in possession of the party to the election petition.”
g. Further, provisions regarding inspection of documents are divided in two categories by virtue of rr15 to 19 of order XI
I. First one deal with documents referred to in pleadings or affidavits of parties, and
ii. Second one (is it referring to rule 19?) deals with other documents in possession or power of the party but not referred to in the pleadings of the parties
A party is entitled for inspection in regard to documents of first class only. Since privileged documents are protected from production such as public records, confidential communications and documents having exclusive evidence of parties’ title. etc.
h. The order of discovery is binding in nature and therefore non-compliance thereto would lead to penalties mentioned in Order XI Rule 21

8. Are there rules regarding privileged documents or any other rules which allow parties to not disclose certain documents?
a. The term “Privileged Document” has not been defined in CPC however, as per the general understanding, Privileged Documents are those which need not be disclosed to the other party, neither before nor after the commencement of the trial containing such confidential information having protection under law
b. The Hon’ble Andhra Pradesh High Court in its judgment Rajesh Bhatia & Ors. v. G. Parimala & Anr. 2006 (3) ALD 415 has specified provided an indicative list of grounds based on which protection can be claimed over documents considered as Privileged Documents

i. legal professional privilege
ii. that production is contrary to public policy
iii. that the documents in question may tend to criminate the party or his or her spouse
iv. that the production is contrary to some statutory provision which imposes secrecy
v. that production is contrary to some express or implied agreement between the parties and
vi. that production would, in the circumstances of the particular case, be oppressive
c. A party who is directed by court to make discovery of documents and who wants to claim privilege over any of the documents has to file an affidavit under Ord. XI R 13 specifying which documents does the party object to produce i.e. the documents on which privilege is sought to be claimed and provide supporting reasons
d. Where privilege is claimed for any document and the other part questions the claim of privilege, the Court shall have the right to inspect the document for the purpose of deciding the validity of the claim of privilege

9. Do parties exchange written evidence prior to trial or is evidence given orally? Do opponents have the right to cross examine a witness?
a. The parties to the suit exchange written evidence of their witnesses prior to the commencement of trial. The parties to the suit have to provide a list of witnesses they intend to testify to the Court under the CPC 1908, Ord. XVI r 1. The said list of witnesses, if any has to be filed in the Court by the respective parties before the commencement of the hearing of evidence. It is important to note that no party shall be entitled to produce any witness not named in the list of witnesses provided to the Court, without taking permission of the Court in writing and stating the reasons therefore. The evidence of the witness is recorded by way of an affidavit and the party conducts examination in chief of its witness. It is mandatory to supply a copy of examination- in-chief to the other party as specified under the CPC Order XVIII, R 4(1)
b. After completion of the examination in chief, the opposite party has the right to cross-examine the witness as per the CPC Order XVIII R 4(2). The cross-examination is recorded by the Court or the Commissioner, as the case may be. The party has a right to undertake re-examination after the completion of cross-examination by the other party

10. What are the rules that govern the appointment of experts? Is there a code of conduct for experts?
a. Indian Evidence Act 1872 u/s 45 defines experts as “When the Court has to form an opinion upon a point of foreign law, or of science, or art, or as to identity handwriting or finger impressions, the opinions upon these points of persons especially skilled in such foreign law, science or art or in questions as to identity of handwriting or finger impressions, are relevant facts. Such persons are called experts”
b. Section 45 of the Evidence Act 1872 makes the opinions of experts admissible. If the subject matter of the suit requires, any party may call a person as an expert witness on showing that the person has made a special study of the subject or has acquired a special experience therein. Refer State of H.P. v Jai Lal & Ors., (1999) 7 SCC 280

The appointment of expert may be suo moto by way of an order of the Court or if the expert witness is desired to testify by any party, then the expert is named by the said as a witness in its list of witnesses. The expert is then subject to examination in chief and cross examination in the same manner as per the procedure provided under CPC.
c. The Court considers the reliability of the expert witness based on his education, training, experience, memberships, affiliations, publications etc
d. However, the opinion of an expert is not binding on the Court. As held in Titli v. Jones, AIR 1934 All 237, the function of the expert is to put before the Court his opinion based on all the materials so that the Court, although not an expert, may form its own judgment by its own observation of those materials
e. Like other witnesses, the expert witness is also subject to examination and cross examination in the Court. The Apex Court in the case of State of Maharashtra v. Damu s/o Gopinath Shinde & Ors., AIR 2000 SC 1691 held that without examining the expert as a witness in Court, no reliance can be placed on an opinion alone
f. There is no specific code of conduct for expert witnesses however, for the opinion to be credible and to increase the evidentiary value of the opinion, the expert should provide all relevant data based on which the opinion has been made

11. What interim remedies are available before trial?
As regards arbitration, a party can invoke jurisdiction of a court for an interim remedy u/s 9 of the Arbitration and Conciliation Act 1996. Section 9 prescribes that a party to an arbitration agreement can invoke jurisdiction of a court prior to an arbitration proceeding and can seek an interim relief mentioned thereunder. However, it is also stipulated that a party cannot enjoy the interim relief for an infinite period and the arbitration in such a case should be invoked within 3 months from the date of order granting any interim relief. As regards the matter when there is no arbitration agreement and the dispute is to be adjudicated by a civil court, for availing any interim remedy, a party has to first file a plaint/petition before the court and only thereafter the interim relief which is deemed appropriate by the court is granted. Order 39 of Code of Civil Procedure, 1908 envisages granting of interim injunction in such cases.

12. What are the principal methods of enforcement of judgment?
As per the provisions of Code of Civil Procedure 1908, after the case has been heard, the Courts pronounce a judgment and, on such judgment, a decree follows. Order XXI of the Code deals with execution of judgment/decrees. A decree may be executed by either the court who passed such decree or by the Court to whom it is sent for execution. The holder of a decree who desires to execute it, shall apply to the court by way of an application as per the form and format given in Schedule I to Order XXI. As regards enforcement of an arbitral award, the party has to invoke the Arbitration and Conciliation Act 1996 s 36 read with Order XXI of Code of Civil Procedure 1908.

13. Are successful parties generally awarded their costs? How are costs calculated?
The Code of Civil Procedure 1908, s 35 governs the aspect of costs incurred by a party in legal proceedings. Section 35 prescribes that the court has the discretion to determine whether cost are payable by one party to another, the quantum of costs and when they are to be paid.

Whereas s 35A provides for compensatory costs in respect of false or vexatious claims or defences, s 35B prescribes costs for causing delay. However, the provision being discretionary in nature, by and large the courts adopt a reasonable approach while dealing with the aspect of costs. Mostly costs, if any granted to a party, are not on actuals and only the reasonable costs corresponding to the subject matter of the dispute are granted by the court.

14. What are the avenues of appeal for a final judgment? On what grounds can a party appeal?
The Code of Civil Procedure 1908, s 96 read with Ord. XLI provides for appeal from original decree and s 100 read with Ord. XLII provides for appeal from appellate decree. An appeal from original decree shall lie from every decree passed by any court exercising original jurisdiction to the court authorized to hear appeals from the decisions of such court on no ground except on a question of law. An appeal against appellate decree shall lie to the High Court from every decree passed in an appeal by any court subordinate to the High Court if the High Court is satisfied that the second appeal raises a substantial question of law. A party also has the remedy of filing a special leave to appeal to the Apex Court under the Constitution of India 1949, Art. 136.

The grounds on which a party can assail the decision of the court before the appellate court are as following:
a. if the judgment is contrary to facts
b. if the judgment is not coherent with the settled legal position
c. if the judgment is in teeth of a contractual provision
d. if the judgment is not in conformity with the true and correct interpretation of a contractual or legal provision
e. if the judgment is based on no evidence; f. if the judgment is passed in violation of principles of natural justice such as not granting a hearing opportunity to a party

15. Are contingency or conditional fee arrangements permitted between lawyers and clients? Is third-party funding permitted?
No. The Bar Council of India prohibits advocates from charging fees to their clients contingent on the results of litigation or pay a percentage or share of the claims awarded by the Court. The Bar Council of India Rules r 20 of Section II of Chapter II of Part VI, stipulates that an advocate shall not stipulate for a fee contingent on the results of litigation or agree to share the proceeds thereof.

16. May Litigants bring class actions? If so, what rules apply to class actions?
The aspect of class actions or commonly known as representative suits are dealt with under of Code of Civil Procedure 1908, Ord. 1 r 8. Ord. r 8 of the Code provides that when there are number of persons similarly interested in a suit, one or more of them can with the permission of the court or upon a direction from the court, sue or be sued on behalf of themselves or may defend such suit on behalf of or for the benefit of all persons so interested.

Other statutes that accommodate class actions include –
Companies Act 2013 more particularly ss 245 and 37, Competition Act 2002, s 53(4), Consumer Protection Act 1986 s (12(1)(c) and even the Industrial Disputes Act 1947 makes room for collective bargaining by workers (Employees) represented by a Union.

17. What are the procedures for the recognition and enforcement of foreign judgment?
The recognition and enforcement of a foreign judgment is governed by the provisions of Code of Civil Procedure 1908. A foreign judgment is defined u/s 2 (6) to mean the judgment of a foreign court. Section 2(5) stipulates that a foreign court means a court situated outside India and not established or continued by the authority of the Central Government.

A foreign decree is defined in the CPC 1908, Explanation II to section 44A as, “Decree” with reference to a superior court means any decree or judgment of such court under which a sum of money is payable, not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty, but shall in no case include an arbitral award, even if such an award is enforceable as a decree or judgment.

Foreign judgment or decree to be conclusive
A foreign judgment or decree should be conclusive as to any matter adjudicated by it. The test for conclusiveness of a foreign judgment or decree is laid down in the CPC s 13 which states that a foreign judgment shall be conclusive unless:
• It has not been pronounced by a court of competent jurisdiction
• It has not been given on the merits of the case
• It appears, on the face of the proceedings, to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases in which such law is applicable
• The proceedings in which the judgment was obtained are opposed to natural justice
• It has been obtained by fraud
• It sustains a claim founded on a breach of any law in force in India. Thus, before enforcing a foreign judgment or decree, the courts have to

ensure that the foreign judgment or decree passes the seven tests above If the foreign judgment or decree fails any of these tests, it will not be regarded as conclusive and hence not enforceable in India.

Mode of enforcement of a foreign judgment or decree There are two ways in which a foreign judgment or decree can be enforced in India depending on whether the judgment or decree has been given by a court in a reciprocating territory or not.

a. Foreign decree of a reciprocating territory be executed as an Indian decree
By virtue of the Code of Civil Procedure 1908, s 44A, a decree of any superior court of a reciprocating territory shall be executed in India as a decree passed by the Indian district court.

A reciprocating territory is defined in Explanation I to section 44A to be any country or territory outside India which the Central Government may, by notification in the Official Gazette, declare to be a reciprocating territory for the purposes of this section, and “superior courts”, with reference to any such territory, means such courts as may be specified in the said notification.

A judgment from a court of a reciprocating territory can be directly enforced in India by filing an execution application. Section 44A (1) of the Code states that where a certified copy of a decree of any superior court of a reciprocating territory has been filed in a district court, the decree may be executed in India as if it had been passed by the district court (meaning that the entire scheme of execution of decrees as laid down in the CPC Ord. 21 will be applicable).

While filing the execution application, the original certified copy of the decree along with a certificate from the superior court stating the extent to which the decree has been satisfied or adjusted has to be annexed to the application.

b. Filing a suit in case of decrees from nonreciprocating territories Where a judgment or decree is not of a superior court of a reciprocating territory, a suit has to be filed in a court of competent jurisdiction in India on that foreign judgment or on the original cause of action or both.
A suit on a foreign judgment/decree must be filed within a period of three years from the date of the judgment/decree

18. What are the main forms of alternate dispute resolution? Which are the main alternative dispute resolution organisations in your jurisdiction?
As far as process of arbitration in India is concerned, there are two types- institutional and ad-hoc. Some of the institutes conducting institutional arbitration are as follows:
a. Indian Council of Arbitration;
b. Delhi International Arbitration Centre;
c. Mumbai Centre for International Arbitration
d. London Court of International Arbitration
e. FICCI

Other form of dispute resolution prevalent in India is Lok Adalat. Lok Adalat is an informal court convened to dispose of the matters through amicable settlement
The third widely practiced dispute resolution process is the mediation. In mediation, either of the parties can mutually appoint a mediator or the court can refer the parties to mediation. One such centre conducting mediation proceedings is run by Delhi High Court by the name of “Samadhan”.

19. Are there any proposals for reform to the laws and regulations governing dispute resolution currently being considered?
After the amendment of the Arbitration and Conciliation Act 1996 in 2015, the Saikrishna Committee Report recommended further amendments on the back of the 2015 amendments.

Consequently, the Arbitration and Conciliation (Amendment) Bill 2018 has been passed by Lok Sabha. One of the outstanding feature of Arbitration and Conciliation (Amendment) Bill, 2018 is the establishment of an independent body namely the Arbitration Council of India.

20. Are there any features regarding dispute resolution in your jurisdiction or in Asia that you wish to highlight?
In India, disputes are resolved by litigation where Courts adjudicate upon issues from the very inception of the disputes. The Supreme Court is the Apex Court and the Highest Judicial body in the country. The High Courts in their respective States act as the highest adjudicatory institutes at the State level, followed by District Courts at lower levels. Modes of Alternate Dispute Resolution, with minimal Court intervention, recognized by law, include Arbitration, Mediation, Conciliation and Judicial Settlement by Lok Adalats.

As published in the LexisNexis® Dispute Resolution Law Guide 2019. Save & Exit

COMPANY LAW IN INDIA-FREQUENTLY ASKED QUESTIONS

COMPANY LAW IN INDIA-FREQUENTLY ASKED QUESTIONS

1. What is the general situation for foreign companies in your jurisdiction? (For example, common presence, difficulty to setup, restrictive system, open and welcoming jurisdiction)
Foreign companies generally enter into India by way of liaison office, branch office or wholly owned subsidiary or joint venture. Some of the features of each structure are as follows:
a. A foreign body corporate may open a liaison office in India
i. to represent the parent company/group companies in India
ii. to promote export/import from/to India
iii.to promote technical/financial collaborations between parent/group companies and companies in India or
iv. to act as a communication channel between the parent company and Indian companies.
However, liaison offices are not allowed to carry on any business or earn any income in India and all expenses are to be borne by remittances from broad. The Reserve Bank of Indian grants permission for a period of three (3) years, which is eligible for renewal for a block of three (3) years.

From Income tax perspective, liaison office is a good option as there are no tax implications on a liaison office and there is no business activity undertaken by liaison office in India.

Reporting requirements: Liaison offices are required to file Annual Activity Certificate from the auditors with the Reserve Bank of India. Additionally, a liaison office is also required to file the financial statements with the Registrar of Companies on an annual basis.
Issues: It currently takes 6–8 months to set up a liasion office in India and approximately the same time to close its operations.
b. A foreign body corporate may open a branch office for the purpose of engaging in the activities in which its parent company is engaged.

Such activities may include
i. Export or import of goods or rendering of professional or consultancy services
ii. To conduct research, in which the parent company is engaged
iii. Promoting technical and financial collaborations between Indian and parent overseas group company or
iv. To represent the parent company in India and acting as buying/ selling agent in India
Under this structure, tax liability is relatively high in comparison to the wholly owned subsidiary of foreign companies in India.
Reporting requirements: Branch offices are required to file the Annual Activity Certificate from the auditors with the Reserve Bank of India and the financial statements with the Registrar of Companies on an annual basis.
Issues: It currently takes 6–8 months to set up a branch office in India and approximately the same time to close its operations.
c. A foreign company may enter into India by setting up wholly owned subsidiary or joint venture company in collaboration with Indian business house/company. Under this structure, overseas entities may infuse foreign funds into these companies subject to the restrictions as imposed by the Reserve Bank of India.

Tax liability and other company law related filings for wholly owned subsidiaries or joint ventures are at par with other Indian companies. Setting up a wholly owned subsidiary is relatively simpler in comparision to a liaison office or branch office and currently it takes approximately 2 to 4 weeks to incorporate a company depending on the availability of documents.

2. What are the key laws and regulations that govern company law in your jurisdiction?
Following are the governing laws for the companies:
a. The Companies Act, 2013 and Rules made there under for unlisted companies such as private companies, foreign companies, public companies, not-for profit companies
b. The Securities and Exchange Board of India 1992 and the Securities Exchange Board of India (Listing Obligations and Disclosure Requirement) Regulations, 2009 for companies listed on a stock exchange in India
c. The Foreign Exchange of Management Act, 1999 and Regulations made there under in case of a foreign subsidiary
d. The Reserve Bank of India Act, 1934 and Regulations made there under in case the company is a non-banking financial company

3. What are the most common types of companies in your jurisdiction?
Following are the most common types of companies:
a. a private limited company under the Companies Act, 2013 which can be incorporated with zero capital
b. a not for profit company (as a private company limited by guarantee or having no share capital) under the Companies Act, 2013. This structure is used mostly to promote charitable objects, corporate social responsibility (CSR) related activities, etc and
c. a public company under the Companies Act, 2013 which can be incorporated with zero capital

4. How long does it take to set up a company in your jurisdiction? (For example, it could be as fast as X amount of time, average setup time and then as slow as Y amount of time based on your experience – are there any mechanisms to fast track setup?)
The time to register a company very much depends on the type of the company the applicant chooses. Below are listed the time frames to incorporate the following companies:
a. Private / Public limited company: Registration of a private/public limited company generally takes around 2–4 weeks depending on the completion and availability of documents
b. Section 8 Company: Registration of a Section 8 company generally takes around 4–6 weeks to complete
5. What are the main registration requirements for companies in your jurisdiction? What are the fees?
The registration requirements for companies are as under:
a. Registration under the Companies Act, 2013 to incorporate a company, requirements of which are as follows

i. Identification of
(i) suitable name
(ii) location of the registered office
(iii) directors and
(iv) subscribers to the memorandum of association of the proposed company and
ii. Preparation of documents to be filed with the incorporation forms such as charter documents of the proposed company (i.e. memorandum of association and articles of association), declarations and affidavits in the prescribed form

Fee schedule is as under:

One Person Company and small company Other Companies
If nominal share capital is less than or equal to INR 10,00,000 – Nil

If nominal share capital exceeds INR 10,00,000, INR 2000 with the following additional fees:

i. for every INR 10,000 of nominal share capital or part thereof after the first INR 10,00,000 and upto INR 50,00,000 – INR 200.

If nominal share capital exceeds INR 10,00,000, INR 2000 with the following additional fees:

i. for every INR 10,000 of nominal share capital or part thereof after the first INR 10,00,000 and upto INR 50,00,000 – INR 200.

If nominal share capital exceeds INR 10,00,000, the fee of Rs 36,000 with the following additional fees:

i.   for every INR 10,000 of nominal share capital or part thereof after INR 10,00,000 upto Rs. 50,00,000 – INR 300;

ii. for every INR 10,000 of nominal share capital or part thereof after INR 50,00,000 upto INR 1 crore – INR 100; and

iii. for every Rs. 10,000 of nominal share capital or part thereof after INR 1 crore – INR 75.

6. What are the main post-registration reporting requirements for companies in your jurisdiction?
The post registration reporting requirements for companies are set out as under:
a. Filing of form AOC – 4 (for filing audited accounts) latest by October 30th of the relevant year and form MGT – 7 (Annual Return) latest by November 29th of the relevant year with the Registrar of Companies electronically on an annual basis

b. Filing of Annual Return on foreign liabilities and assets with the Reserve Bank of India by July 15th of every year in case the company has foreign exposure
c. Filing of Income tax return latest by September 30th of the year with the Income tax authorities electronically on an annual basis
d. Filing of GST returns electronically on monthly or quarterly basis and
e. Filing of various returns (quarterly/halfyearly/ yearly) in case the company is a non-banking financial company such as NBS – 1, NBS – 2, Statutory Auditor’s certificate, etc

7. Are there any controlling factors or restrictions on foreign companies in your jurisdiction?
Indian subsidiaries (Foreign Companies) are governed by the regulations or provisions of following laws
a. Companies Act, 2013 or Companies Act, 1956 (if applicable)
b. The Foreign Exchange Management Act, 1999 and
c. Reserve Bank of India, 1934. Indian Subsidiaries can be incorporated as a company under the Companies Act, 2013, as a Joint Venture or a Wholly Owned Subsidiary or can be set up as a Liaison Office/ Representative Office/Project Office/Branch Office in India, which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000 and the same will be governed by the provisions of the Foreign Exchange Management Act, 1999

8. What is the typical structure of directors (or family management structure) and liability issues for companies in your jurisdiction?
The Companies Act, 2013 provides for the following categories of the directors
a. Executive director (including managing director or whole time director)
b. Non-executive director and
c. Independent director. The Companies Act, 2013 also provides the list of officers who may be held liable (with fine or imprisonment or both) in case the company has contravened the provisions of the said Act. Apart from the Companies Act 2013, directors may also be held liable under the other legislations such as the Negotiable Instruments Act, 1881, Insolvency and Bankruptcy Code 2016, Securities Exchange Board of India Act, 1992, Foreign Exchange Management Act, 1999, Income Tax Act, 1961, The Payment of Gratuity Act, 1972, environmental laws, etc
Non-executive directors (not being a promoter or key managerial personnel) and Independent directors may be held liable only in respect of such acts of omission which had occurred with their knowledge, consent or connivance or where they have not acted diligently. Companies are also liable to pay penalties along with the directors in default.

9. What is the minimum number of directors and shareholders required to set up a company in your jurisdiction? Are there any requirements that a director must be a natural person?
a. Minimum number of directors required for setting up a

i. Public company – three
ii. Private company – two
iii. One person company – one
Every company must have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year.
The following class of companies must also appoint at least one woman director:
i. every listed company or
ii. every other public company having paid-up share capital of one hundred crore rupees or more; or turnover of three hundred crore rupees or more
Every listed public company is required to have at least one-third of the total number of directors as independent directors and following companies is required to have at least two directors as independent directors:
i. the Public Companies having paid up share capital of ten crore rupees or more or
ii. the Public Companies having turnover of one hundred crore rupees or more or
iii. the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees
b. Minimum number of shareholders required for setting up a
i. Public company – seven
ii. Private company – two
iii. One person company – one

10. What are the requirements on how shares are offered in your jurisdiction?
Shares may be offered in the following manner as provided under the Companies Act, 2013:
a. To the general public by issuing a prospectus in case the company is intending to list its securities on the stock exchange
b. To the selected group of persons by issuing a private placement offer letter (generally opted by private companies to raise further funds) or
c. To the existing shareholders by issuing a letter of offer (rights issue)

11. What are the key laws and regulations on employment in your jurisdiction that companies should be aware of? Are there any aspects of employment law that are heavily regulated?
A company is generally required to comply with certain employment laws based on nature of activities, number of employees, type of products, etc. Following are some of the labour laws and regulations in India
a. Industrial Disputes Act, 1947
b. Industrial Employment (Standing Orders) Act, 1946
c. Shops and Establishments Act, 1954

d. Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
e. Equal Remuneration Act, 1976
f. Minimum Wages Act, 1948
g. Payment of Bonus Act, 1965
h. Payment of Wages Act, 1936
i. Employee’s Compensation Act, 1923
j. Employees Provident Fund and Miscellaneous Provisions Act, 1952
k. Employees State Insurance Act, 1948
l. Maternity Benefit Act, 1961
m. Payment of Gratuity Act,1972
n. Apprentices Act, 1961
o. Child and Adolescent Labour (Prohibition and Regulation) Act, 1986
p. Contract Labour (Regulation and Abolition) Act, 1970
q. Environment (Protection) Act, 1986 and
r. Rights of Persons with Disabilities Act, 2016
In India, laws pertaining to social security benefits such as employees provident fund, gratuity, pension fund, employment termination related laws, and change in conditions of service of employees are the most critical aspects and hence highly regulated.

12. What is the nature of the corporate governance regime in effect in your jurisdiction? What agencies or government bodies regulate corporate governance?
Corporate governance is the system by which the interests of the stakeholders are protected. Basically, it is conducted for the benefit of the shareholders of the company. It refers to the accountability of the Board of directors towards the stakeholders. In India, the shareholders are considered the true owners of the company while the directors are considered as the trustees of the shareholders. The aim is to align the interests of the management with that of the stakeholders. The corporate governance mechanism in India is enumerated by the following government and regulatory bodies:

a. Ministry of Corporate Affairs (MCA): MCA regulates corporate affairs in India through the Companies Act, 2013 and other related Acts, rules etc. MCA formulates and governs various corporate laws in India. Few of the provisions under the Companies Act, 2013 which deals with corporate governance are as follows

I. Board of directors are required to lay down the annual financial statements at every annual general meeting of the company and it must give a true and fair view of the state of affairs of the company. The company is also required to file the annual audited financial statements with the concerned Registrar of Companies. Additionally, the Board’s report shall also to be presented before the shareholders which includes the company’s state of affairs, directors’ responsibility statement, and particulars of loans, details about the policy on corporate social responsibility etc

ii. Independent Directors: Public listed companies and specified unlisted public companies are required to have minimum one-third of the total number of directors as independent directors and they shall have a duty to act in good faith and in the best interests of the shareholders
iii. Audit Committee: Public listed companies and specified unlisted public companies are required to constitute an audit committee which shall review and monitor auditor’s performance, examine the financial statement and the auditor’s report, evaluate internal financial controls etc
iv. Stakeholders’ Relationship Committee: Every company that consists of more than 1,000 shareholders, debenture holders, deposit holders and other security holders shall constitute a stakeholders’ relationship committee. The chairman of the committee shall be a non-executive director. The main function of the committee is to resolve grievances of stakeholders. The grievances of the security holders of the company may include complaints related to transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends, which shall be handled by this committee
b. Securities and Exchange Board of India (SEBI): SEBI is another important body that oversees corporate governance of listed companies. As per the listing agreement entered between a listed company and the concerned stock exchange, disclosures are required to be made with respect to Corporate Governance. The same also enumerates the whistle blower policy wherein the company is required to have mechanism for reporting unethical behavior

13. Does establishing a company in your jurisdiction grant any kind of residency rights? Are there any conditions that in order to receive these residency rights (if applicable) one must partner or establish a joint venture with a local (e.g. a citizen of your jurisdiction)?
A company incorporated in India by foreign shareholders shall be treated as an Indian company for all purposes including from the perspective of Companies Act or Income Tax Act. Further, a company is a separate legal entity irrespective of the nationalities of its stakeholders. A company holds its properties in its own name and not in its shareholders’ names.
Further, please note that Foreign Direct Investment (“FDI”) policy of the Government of India provides for various conditions for foreign ownership in Indian companies. 100% foreign direct investment is allowed in most of the sectors under automatic route without requiring any partnership with a local citizen or entity. In a few sectors, there is a cap on foreign ownership. In some cases prior government approval is required for foreign ownership beyond the specified threshold. The foreign companies would need to find local shareholders only in the sectors where 100% FDI is not permitted.

14. When is a company subject to tax in your jurisdiction? What are the main taxes that may apply to companies in your jurisdiction? A company will be liable for the following taxes:
a. Income Tax – This tax shall be payable by the company when the company is having taxable income in a particular financial year

b. Capital Gains Tax – The tax levied on any profit or gain that arises from the sale of a capital asset is known as capital gains tax and shall be payable as and when there is capital gain on sale of capital asset
c. Dividend Distribution Tax (DDT) – This tax is payable by the company on the amount of dividend distributed to the shareholders of a company

15. How does the Competition law in your jurisdiction regulate companies?
The Competition Act, 2002 (“Act”) is the legislation that regulates competition law in India. Practices having appreciable adverse effect on competition are strictly prohibited under the aforesaid Act. The main objectives of the Act are to promote competition in the business environment, to protect the interest of consumers and also to ensure freedom of trade carried on in Indian markets. The idea of the aforesaid Act is to discourage anti-competitive practices in India. Anti-competitive agreements, abuse of dominant position, and mergers, amalgamations and acquisitions are prohibited if they cause appreciable adverse effect on competition. It eliminates practices having adverse effect on competition and promotes freedom of trade. The Competition Commission of India (CCI) has been established to oversee the implementation of the Act. The Act prohibits the following three practices:-

a. Anti Competitive Agreements: No enterprise is permitted to enter into any agreement that may have an appreciable adverse effect on the competition in India. Activities that may determine purchase/sale prices of goods, limits/controls production/ supply of services, or activities that result in bid rigging are considered to be those that have an appreciable adverse effect on competition. Tie-in agreements, exclusive supply agreements, exclusive distribution agreements, refusal to deal, and resale price maintenance agreements are all prohibited under the Act

b. Abuse of Dominant Position: Dominant position means a position of strength for an enterprise in the relevant market that allows it to operate independently in the competition market and affects its consumers/ market in its own favor, imposition of unfair conditions on the purchase/sale of goods/ services or the prices of goods/services. It does not include such conditions which may be necessary to meet the competition like putting limitations on the production/provision of goods/services or some scientific development relating to the goods/services etc

c. Mergers, Amalgamations and Acquisitions: A combination that causes appreciable adverse effect on competition is void under the Act. Any enterprise/person entering into such a combination is required to give a notice to the CCI disclosing the details of the combination. If the CCI is of the view that the combination might cause an appreciable adverse effect on competition, it will direct the combination to not take effect. Where the CCI feels that certain modifications in the combination might prevent an appreciable adverse effect on the competition, it shall direct the enterprise/person to make such modifications. The enterprise/person may accept the modification or make amendments which will have to be approved by the CCI

Further, the CCI has the power to make inquiries in case of certain agreements, abuse of dominant position or any combination being so formed. Additionally, the CCI has the power to impose penalties in case of any offence under the Act

16. What are the main intellectual property rights companies should be aware of in your jurisdiction?
Amidst the increasing significance of the Intellectual Capital and growth of the legal jurisprudence in the Intellectual Property regime, awareness of the Intellectual property rights which may be available to a company in the Indian jurisdiction is crucial.
Broadly, following kinds of Intellectual Property Rights exist in India:

Trade Marks
A trade mark is a ‘mark’ that may include a device, brand, heading, label, ticket, name, signature, word, letter, numeral, shape of goods, packaging or combinations of colours and is protected under the Trade Marks Act 1999.

Patents
A Patent is an invention relating to a product or a process that is new, involves an inventive step and is capable of industrial application. The provisions of the Patents Act 1970, govern patents.

Copyrights
The Copyright Act, 1957, protects artistic work which comprises of a dramatic, literary and musical work, sound recording and/or cinematographic films.

Industrial Designs
Industrial Designs are governed by the Industrial Designs Act, 2000, and protect a shape, configuration, surface pattern, colour, or line which improve the visual appearance of the design.

Geographical Indications
A Geographical Indication is an indication in the form of a name of sign used on goods that have a specific geographical origin and reputation and is protected under the Geographical Indications Act, 1999.

Layout Designs of Integrated Circuits
The semi-conductor for Integrated Circuits Layout Act, 2000, accords protection to the Semiconductor Integrated Circuits which are products having transistors and other circuitry elements formed inseparably on a semiconductor material.

Plant Varieties
The Protection of Plant Varieties and Farmer’s Rights Act, 2001 provides for the development of new plant varieties and protection of farmers and breeders.

Data protection
Data protection refers to the set of privacy laws, policies and procedures that aim to minimise intrusion into one’s privacy and are primarily governed by the Information Technology Act, 2000.

17. Does your jurisdiction have laws or regulations that govern data privacy?
Data privacy refers to the laws and legislations which are aimed at minimizing invasion of one’s privacy caused by storage of data on a digital/electronic platform. There is no express legislation dealing with data privacy.

However, the Information Technology Act, 2000 (hereinafter referred to as ‘The Act’) does focus on privacy of data in digital format and provides for compensation to the victim in the case of unauthorized access and leakage of sensitive personal information. The Act provides for punishment for damaging the computer system without permission of the owner/person in charge of the computer system, which includes inter alia downloading of information, installing a virus, tampering or manipulation of data etc. Further, the Act talks about offences such as tampering with the computer source documents, hacking a computer system, and publishing of obscene information in electronic form. The Act also mentions that network service providers will not be made liable for any contravention made without his knowledge.

18. Are there any incentives to attract foreign companies to your jurisdiction?
There is no specific incentive for foreign companies intending to set up business in India.

19. What is the law on corporate insolvency?
The Insolvency and Bankruptcy Code 2016 (hereinafter referred to as ‘Code’) is the main legislation on corporate insolvency in India. The Insolvency and Bankruptcy Board of India is the regulatory body established under the Code. The object of the Code is to provide a resolution mechanism within the prescribed timeline and maximization of value of assets for the benefit of stakeholders. As per the Code, the Corporate Insolvency Resolution Process (hereinafter referred to as CIRP) can be initiated by a financial creditor (itself or with other financial creditors), an operational creditor or by the corporate debtor itself when a default is committed by a corporate debtor.

20. Have there been any recent proposals for reforms or regulatory changes that will impact company law in your jurisdiction?
There are certain amendments to the Companies Act, 2013 which are expected to be notified shortly. These amendments will further facilitate workings of the company.

21. Are there any features regarding company law in your jurisdiction or in Asia that you wish to highlight?
The Government of India has been trying constantly to introduce various changes in the corporate laws in India to create business friendly environment in India.

As published in the LexisNexis® Company Law Guide 2019.

MERGERS & ACQUISITION LAWS IN INDIA-FREQUENTLY ASKED QUESTIONS

MERGERS & ACQUISITION LAWS IN INDIA-FREQUENTLY ASKED QUESTIONS

1. What are the key laws and regulations that govern mergers and acquisitions in your jurisdiction?
Mergers and acquisitions in India are governed by the following main legislation:
a. The Companies Act 2013
b. The Competition Act 2002
c. The Foreign Exchange Management Act 1999 (In case of cross border merger).
d. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011.
e. The Income Tax Act 1961
f. Indian Stamp Act 1899

2. What are the government regulators and agencies that play key roles in mergers and acquisitions?
Following government regulators and agencies play key roles in the process of merger and acquisition in India:
a. Registrar of Companies and Regional Director under Ministry of Corporate Affairs
b. National Company Law Tribunal (NCLT)
c. Competition Commission of India (CCI)
d. Securities and Exchange Board of India (SEBI)
e. Reserve Bank of India (RBI)
f. The Income Tax Department (ITD)

3. Are hostile bids permitted? If so, are they common in your jurisdiction?
A bid from an acquirer is considered to be hostile when the promoter does not wish to sell off its shares, voting rights and control to the acquirer whilst the acquirer is still making all the possible efforts to purchase the shares and the rights attached to the same. The above situation relating to takeovers in India is governed by the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011 which mandates the acquirer to make several disclosures at various stages of acquisition of shares, voting rights and control of the listed company. Hostile bids are possible but the person acquiring shares will also have to comply with the aforesaid Regulations. Hostile bids are rare in our jurisdiction.

4. What laws may restrict or regulate certain takeovers and mergers, if any? (For example, anti-monopoly or national security legislation).
A transaction that causes appreciable adverse effect on competition is void under the Competition Act 2002 (“Act”). Any acquirer entering into a transaction above a specified threshold is required to give a notice to the Competition Commission of India (‘CCI’) disclosing the details of such transaction. If the CCI is of the view that the transaction might cause an appreciable adverse effect on competition, it will direct that the transaction not to take effect. Where the CCI feels that certain modifications in the transaction might prevent an appreciable adverse effect on the competition, it shall direct the acquirer to make such modifications. The acquirer may accept the modification or make amendments which will have to be approved by the CCI. Further, the CCI has power to make inquiries in case of certain agreements, abuse of dominant position or any combination thereof. Additionally, the CCI has the power to impose penalties in case of any offence under the Act.

5. What documentation is required to implement these transactions?
Documentation will depend on the nature of transaction. However, generally the following documentation will be required:
a. Documents for obtaining approval from the Board of Directors and Shareholders of both the acquirer and target company, wherever applicable
b. Scheme/Petition to be filed before the concerned authority
c. Notices to the shareholders and creditors
d. Consent from the shareholders and creditors
e. Notice to be published in newspaper
f. Public Announcement in case of acquisition of shares of a listed company
g. Various affidavits, declarations and other documents
h. Share subscription/ purchase agreement
i. Share Transfer form and
j. Reporting to stock exchanges in a prescribed format in case of a listed company, as applicable

6. What government charges or fees apply to these transactions?
The following government charges/ fees shall apply, as applicable:
i. Fee for filing merger petition before NCLT
ii. Share transfer stamp duty on consideration for acquisition of shares where shares are held in physical form
iii. Fee payable to the Regional Director/ Registrar of Companies on filings the forms/ application
iv. Stamp duty on Share Purchase/Subscription agreement, Affidavits, merger order, etc. as applicable
v. Fee payable to notary for notarisation of affidavits/ undertakings

7. Do shareholders have consent or approval rights in connection with a deal?
In case of a scheme of merger, approval from the shareholders of respective companies shall be required. However, where written consent of the shareholders has already been filed along with the merger petition before the NCLT, the NCLT may dispense with the requirement of convening a shareholders meeting at its discretion. In case of acquisition of shares, the Indian acquirer company may be required to obtain approval of the shareholders where its total investment is in excess of the threshold provided under Indian laws in this regard. Where the acquirer is a foreign company, the requirement of shareholders’ approval shall be governed by the laws of its overseas jurisdiction.

8. Do directors and controlling shareholders owe a duty to the stakeholders in connection with a deal?
The Companies Act 2013, casts a fiduciary duty on the directors of a company to act for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. Directors are required to exercise their duties with due and reasonable care, skill and diligence and to exercise independent judgment. At the time of placing a deal for the approval of the shareholders, the directors are required to inform the shareholders of the company about the rationale, benefits and risks of the deal, to enable the shareholders to take a considered decision. Further, the directors are responsible for ensuring that the deal is in the best interest of the company as well as the stakeholders. Additionally, the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011, requires the board of directors of a listed company to constitute a committee of independent directors to provide reasoned recommendations on each offer, which are required to be published by the company.
Further, the code for independent directors detailed under the Companies Act 2013 imposes an obligation on an independent director to safeguard the interest of all stakeholders, balance the conflicting interests of the stakeholders and acting within his authority, assist in protecting the legitimate interests of the company, shareholders and its employees.

The law imposes no obligation on the controlling shareholders of the company towards the stakeholders. However, balancing provisions have been provided for the minority shareholders to challenge the deal if the same is prejudicial to their interests.

9. In what circumstances are break-up fees payable by the target company?
Although break fees are not provided for under the law, they can be contractually agreed between the parties. The Indian Contract Act 1872, allows damages to the non-breaching party to a contract to the extent of losses as may be reasonably foreseeable as a natural consequence from the non-performance of the contract by the breaching party. The commonly agreed instances under which the obligation to pay break-up fees is triggered are as follows:
a. Break-up of the negotiations by one of the parties
b. A seller choosing a different buyer than the one named preliminary agreement
c. When a seller opts to open the investment opportunity to the public instead of the private investor named in the agreement
and
d. If a defect is discovered in the target company that had not been previously disclosed. In most cases, the party breaching the letter of intent or memorandum of understanding is required to reimburse the expenses incurred by the other party in connection with the transaction

10. Can conditions be attached to an offer in connection with a deal?
In India, it is open for the parties entering into a deal to negotiate and agree upon the terms and conditions of the deal. Some of the common conditions attached to an offer in connection with a deal are the fulfilment of the conditions precedent and subsequent (findings of the comprehensive due diligence exercise), lock-in period of the securities, restriction on transfer of shares and affirmative voting rights to be provided to the investor. In case of acquisition of a listed company, the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011, requires the acquirer to make an open offer conditional as to the minimum level of acceptance.

11. How is financing dealt with in the transaction document? Are there regulations that require a minimum level of financing?

Mergers are generally different from acquisitions in the way they are financed. Mergers are generally cashless and involve share swaps. In case of acquisition of an unlisted company, the law is silent on the level of financing by the purchaser and the acquisition agreement records the terms of financing by the purchaser therein.

In the case of acquisition of a listed company where the acquisition triggers a mandatory public offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011, the said regulations contains provisions for securing the acquirer’s performance of the financial obligations. The acquirer is required to deposit a part of the consideration (as prescribed under the said regulation) payable under the open offer in an escrow account not later than 2 (two) working days prior to the date of the detailed public statement of the open offer for acquiring shares. The escrow account may be created by way of a cash deposit, a bank guarantee issued in favour of the manager to the open offer by any scheduled commercial bank, or a deposit of frequently traded and freely transferable equity shares or other freely transferable securities with an appropriate margin.

12. Can minority shareholders be squeezed out? If so, what procedures must be observed?
The Companies Act 2013, contains provisions for squeezing out of minority shareholders form the company.
The Act requires an acquirer holding 90% (ninety percent) or more of the issued equity shares in a company, to make an offer to the minority shareholders to buy the equity shares held by such minority shareholders in the company and the minority shareholders may sell their equity shares to the majority shareholders at the price determined on the basis of valuation by a registered valuer.
The procedure for the same has been detailed here under:

a. The acquirer holding at least 90% (ninety percent) of the shares will be required to notify the company of their intention to buy the minority shares
b. The majority shareholders will have to make an offer to the minority shareholders to buy their equity shares at the price determined on the basis of valuation by a registered valuer
c. The majority shareholders will have to deposit an amount equal to the value of the equity shares to be acquired by them, in a separate bank account to be operated by the company for payment to the minority shareholder
d. The payment is required to be disbursed to the minority shareholders by the company within a period of 60 (sixty) days which will be continued to be made to the minority shareholders who have not received the payment, for a period of 1 (one) year and
e. The company will be required to deliver the equity shares to the majority shareholders upon receipt of the same
Further, the said Act also gives a right to the minority shareholders to make an offer to the majority shareholders to purchase their shares.

13. What is the waiting or notification period that must be observed before completing a business combination?
For the purposes of business combinations, the Competition Act 2002 prescribes the following timelines for various actions to be undertaken by the applicant and the Competition Commission of India:

 

 

Activity

 

Timeline

Notification to the Competition Commission of India by the party proposing to enter into a combination Within 30 (thirty) days of approval of the proposal relating to the merger or amalgamation by the board of directors of the enterprise concerned, or execution of any agreement or other documents for acquisition of shares, assets, voting rights or control, as the case may be.
Order or directions to be issued by the Competition Commission of India Within a period of 210 (two hundred and ten) days from the date of filing the notice with the Competition Commission of India.

 

14. Are there any industry-specific rules that apply to the company being acquired?
The industry specific rules that apply to the company being acquired depends on the particular sector to which the company falls. Typically, the said rules apply to highly regulated sectors or sectors of strategic importance, such as banking, financial services, insurance, media, telecommunications, defence, civil aviation, electricity etc. Accordingly, sector-specific regulators have been established to regulate some of the aforesaid industries, e.g. the Telecom Regulatory Authority of India and the Department of Telecommunications regulate the telecommunications sector, the Directorate General of Civil Aviation regulates civil aviation, the Reserve Bank of India regulates the banking and financial services sectors, the Insurance Regulatory and Development Authority regulates the insurance sector, and the Ministry of Information and Broadcasting regulates the electronic media sector.

Further, the Foreign Direct Investment Policy, the Foreign Exchange Management Act 1999 and its regulations contain industry specific rules such as the permissible limit of foreign investment, entry routes etc.

15. Are cross-border transactions subject to certain special legal requirements?
The Companies Act 2013 contains provisions pertaining to inbound and outbound mergers and amalgamations. The provision envisages a scheme of amalgamation providing for, amongst other things, payment of consideration, including by way of cash or depository receipts or a combination of both.

The Foreign Direct Investment Policy provides that foreign investment in India can be made either with or without the approval of the Reserve bank of India. Further, the rules and regulations framed by the Reserve Bank of India under the Foreign Exchange Management Act 1999 will be applicable to cross border transactions in India.

The Foreign Direct Investment Policy prescribes certain conditions for making investments in India in different sectors, such as maximum permissible limits on investment by a foreign party, pricing guidelines to be adhered to for making the investments, lock-in requirements of such foreign investment, etc.

16. How will the labour regulations in your jurisdiction affect the new employment relationships?
Where the ownership or management of an undertaking is transferred, every workman who has been in continuous employment for not less than 1 (one) year in that undertaking immediately before such transfer must be given a notice of transfer. Also, every such workman is entitled to 1 (one) month written notice or salary in lieu of notice and retrenchment compensation in accordance with the provisions of the Industrial Disputes Act 1947. Retrenchment compensation shall be an average pay of 15 (fifteen) days for every completed year of continuous service and a notice has to be served in the prescribed manner on the appropriate government or such authority as specified by the appropriate government.

No such compensation shall be payable by the employer to a workman in any case there has been a change of employer by reason of the transfer, if
a. the service of the workman has not been interrupted by such transfer
b. the terms and conditions of service applicable to the workman after such transfer are not in any way less favourable to the workman than those applicable to him immediately before the transfer and
c. the new employer is, under the terms of such transfer or otherwise, legally liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer

17. Have there been any recent proposals for reforms or regulatory changes that will impact M&A activity?
Foreign Exchange Management (Cross Border Merger) Regulations 2018 (“Merger Regulation”) was notified by the Reserve Bank of India on 20th March, 2018 which regulates the cross-border mergers in India. Cross border mergers are categorised as:
a. ‘In bound merger’ when an Indian company (“IC”) acquires assets and liabilities of a foreign company. Some of the essentials of an Inbound Merger are
i. Merger Regulations allow transfer of securities to a foreign shareholder, subject to compliances applicable to a foreign investor under the foreign direct investment regulations (“FDI Regulations”)
ii. Where the cross border merger results in transfer of securities of a joint venture (“JV”) or a wholly owned subsidiary (“WOS”) of an IC, situated in a foreign jurisdiction, the same is subject to compliance, such as pricing of shares in a specified manner, any outstanding’s owed to the IC being cleared prior to such transfer, etc. set out under the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations 2004)
iii. If the cross-border merger results in acquisition of a step-down subsidiary (situated in a foreign jurisdiction) of the JV/WOS, by an IC, then certain additional conditions laid down in the Foreign Exchange Management (Transfer or issue of any foreign security) Regulations 2004 will have to be complied with
iv. The IC has to ensure that the overseas borrowings of the foreign company, proposed to be taken over by it, are compliant with the provisions of the overseas borrowing Regulations (“Overseas Borrowing Reg.”) under Indian law within a period of 2 (Two) years from the date of sanction of the scheme pertaining to such cross-border merger by the relevant authority. However, the IC cannot remit any monies from India for repayment of such overseas borrowings

v. Further, it is to be noted that the Overseas Borrowing Reg. inter-alia stipulates specified interest rates, maturity, end use restrictions, on borrowings, from overseas, by an IC (however, end use restrictions are not applicable to an IC per the Merger Regulations)
b. ‘Outbound Merger’ when a foreign company (“FC”) acquires assets and liabilities of an IC. Some of the essentials of an Outbound Mergers are
i. In such cases the law applicable in the jurisdiction where the FC is situated will regulate such cross-border merger
ii. Merger Regulations also stipulate certain conditions by which guarantees that outstanding borrowings of the IC shall, as a result of such cross-border merger, become guarantees or borrowings of the FC. This however is subject to the FC not acquiring any such guarantee or outstanding borrowing, in rupees payable to Indian lenders, non-compliant with the relevant foreign exchange law in India

As published in the LexisNexis® M&A Law Guide 2019.