Transcript General Conditions of Sale, Hiring and Firing & Winding Up

India’s Business, Legal
System & Labour Laws
Raj Chakrabarti
Partner
Kochhar & Co.,
Mumbai
Kochhar & Co.
• Full Service Commercial Law Firm.
• One of the Largest Law Firms in India.
• Firm with a True National Presence.
• Representing Major International Corporations.
• Unique Client Satisfaction Policy.
• Proactive, Modern and Responsive Culture.
• Preferred Law Firm for most of the Fortune 500
companies doing business in India.
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Practice Areas
• Foreign Investment
• Regulatory Approvals
• Commercial Contracts
• Labour & Employment
• Taxation
• Real Estate
• Exchange Control
• Litigation & Arbitration
• Joint Ventures & Technical
Collaborations
• Establishment of Indian
subsidiaries
• Corporate Governance
• Infrastructure Projects
• Project and Corporate Finance
• Banking & Finance
• Privatization & Divestments
• Consumer Protection
• Competition/Anti-Trust
• Securities Law
• Mergers & Acquisition
• Intellectual Property
• Outsourcing Arrangements
• Anti-Dumping
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Dinsmore & Shohl LLP
• National and Regional Law Firm
• Offices: Ohio, Kentucky, Pennsylvania, and West Virginia
• Over 280 Lawyers
• Clients: 60 Foreign (including Indian) clients with offices in the USA
• Clients: 60 Non-U.S. (including Indian) clients who do business in the
USA without official offices
• Large Automotive and Manufacturing Practice
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Harvey Jay Cohen, Esq.
[email protected]
Telephone: 1-513-977-8144
Facsimile: 1-513-977-8423
At Dinsmore & Shohl for more than 19 years
Georgetown University, A.B. Cum Laude 1982
Columbia University, Master International Affairs,
Magna Cum Laude 1984
University of Cincinnati, Juris Doctor, Order of the Coif 1987
Please do not hesitate to ask questions during our presentation and afterward
by e-mail or telephone.
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Accolades…
• India is the 2nd fastest growing economy in the world.
- Standard & Poor’s Ratings Services
• Most attractive investment destination.
- AT Kearney FDI Confidence Index 2005
• Indian economy expected to grow at 5% per annum till 2050.
- Goldman Sachs
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Go India Go!!!
• Foreign investment encouraged in almost all sectors.
• Vibrant & diverse country with an economy increasingly integrating with
the world economy.
• Expanding markets with improved infrastructure and rapid urbanization
fuelled by the explosion of electronic media.
• Increasing domestic and foreign travel coupled with the changing nature
and composition of expenditure.
• Cost-competitive workforce.
• Well established and modern legal system together with a transparent
regulatory environment.
• Legal protection for IPR.
• English is the preferred business language.
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Supreme Court of India
High Courts
CIVIL
District Court
CRIMINAL
Sessions Court
Civil Judge Senior Division
Chief Judicial Magistrate
Civil Judge Junior Division
Judicial Magistrate
Indian Judiciary…
• Rule of Law prevails.
• No local litigant advantage.
• It is possible to obtain urgent interim relief from Courts.
• Enforcement of foreign court judgments is possible.
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…Indian Judiciary
• Parties are free to choose foreign law as the governing law.
• Subject to public policy, Courts recognise and enforce foreign laws.
• Courts are conversant with international legal norms and precedents
and rely on them as well.
• Punitive damages generally not allowed, courts require evidence/
proof of actual damage suffered.
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Arbitration – The Preferred Mode
• Indian arbitration laws modeled after the UNCITRAL Rules.
• Parties free to choose the governing law and venue of arbitration.
• Clear provisions for enforcement of foreign awards.
• Courts can grant interim relief notwithstanding arbitration clause
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Relevant Business Laws & Policies
• Indian Contract Act, 1872
• The Companies Act, 1956
• The Securities Exchange Board of India (“SEBI”) Act, 1992 and allied
regulations
• The Foreign Exchange Management Act (“FEMA”), 1999 and allied
regulations
• The Competition Act, 2002
• The Special Economic Zones Act, 2005
• Intellectual Property Laws
• Administrative Guidelines/ Regulations – Foreign Direct Investment (FDI)
Policy, EXIM (Export – Import) Policy
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Regulatory Authorities…
• Foreign Investment Promotion Board (“FIPB”) is a body set up to promote
and regulate FDI into India.
• The Reserve Bank of India (“RBI”) is the Central Bank of the country
which inter alia monitors and implements policies relating to foreign
exchange transactions.
• Registrar of Companies (“RoC”) is the regulatory authority for companies
incorporated under the (Indian) Companies Act.
• Directorate General of Foreign Trade (“DGFT”) is the authority to regulate
all export and import transactions.
• SEBI is a statutory and autonomous regulator of the financial & securities
markets in India.
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Passage to India…
Foreign Direct Investment into India:
 Automatic Route - No prior government or regulatory approval required
for FDI within specified sectoral caps.
 Approval Route – FDI upon permission from the FIPB.
 Previous joint venture/ technology transfer/ technical collaboration in
India – Provisions of Press Note 1 of 2005 applicable.
Entry Strategies:
 Joint venture/ Wholly owned subsidiary.
 Project/ Liaison/ Branch/ Representative office.
 Acquisition of shares/ business assets of an existing Indian company.
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About Private Companies…
• Setting up a ‘Private Limited Company’ the most preferred option.
• Private companies subject to fewer regulatory compliances.
• Charter documents of a private company can be fine-tuned to ensure
maximum operational flexibility.
• Incorporation process fairly simple, e-filing system introduced.
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Taxation
Income Tax
Corporate Tax
Domestic
33.66%
Foreign
41.82%
Capital Gains Tax
Short Term*
10.45%
Withholding Tax
Long Term
20.91%
Royalties
10.45%
The aforesaid rates include Surcharge and Education Cess.
Dividends are tax-free in the hands of shareholders.
Dividend distribution tax @ 14.025% payable by the company.
* Short term capital gains tax applicable only on the capital gains made out of the
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transfer of equity shares.
Other Taxes & Duties…
• Central Excise: Duty payable on manufacture/ production of goods in
India. General rate of duty is about 16% of the Value of Goods as per
the Central Excise Tariff Act, 1985.
• Central Sales Tax (“CST”): Tax paid on the inter state (between two
states in India) sale of goods. Rate of tax is about 4%.
• Value Added Tax (“VAT”)/ Local Sales Tax: Tax paid on intra state (within
a state in India) sale of goods. VAT @ 4% of the taxable turnover of the
dealer is charged on industrial inputs, capital goods and items of mass
consumption.
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Are you a Service Provider ?
Service tax is levied
on certain identified
services listed
in the Finance Act.
Service Tax @
12.24%
Service Tax
Export of Services No Service Tax.
Transfer/ Permitting the
use of any IPR
except Copyright
classified as “Service”.
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Other Taxation Issues
• India has incorporated elaborate transfer pricing regulations in its tax
laws.
• India is a signatory to various Double Taxation Avoidance Agreements
including countries like USA, UK and other tax haven countries.
• Avoidance of Permanent Establishment (PE) status is critical.
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Special Economic Zones…
• Special Economic Zones Act, 2005 – SEZs are designated duty free
enclave to be treated as foreign territory only for trade operations and
duties and tariffs.
• 100% FDI under the Automatic Route allowed subject to the sectoral
policy.
• 7 SEZs operational, several more on the anvil.
• The units would have to be physically located in the SEZ in order to
avail the incentives.
• Single Window Clearance system for granting all approvals.
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…Special Economic Zones
• Income Tax Incentives:
- 100% income tax exemption for a block of five years;
- 50% tax exemptions for two years; &
- 50% of ploughed back export profits for 5 years thereafter for SEZ
units.
• Exemption from capital gains on transfer of an undertaking from an
urban area to SEZs.
• Exemption from Customs duty & Central Excise.
• Reimbursement of Central Sales Tax (“CST”).
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Software Technology Parks of India
• 100% FDI under the Automatic Route allowed for carrying on IT/ ITES
activities.
• Single window clearance mechanism for approvals.
• STP units may be set up anywhere in India.
• STP units would have to maintain a positive NFE (Net Foreign
Exchange Earnings).
• 100% Income Tax exemption – ONLY UPTO 2010.
• Incentives in terms of Customs duty, Excise duty and CST.
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Repatriation of Investment and Profits
• All foreign investments are freely repatriable subject to sectoral policies.
• Dividends declared can be remitted freely through an authorised dealer.
• Repatriation of payments for foreign technology transfer/ technical
collaboration made by Indian Companies are allowed under the
automatic route subject to following limits:
 Lump sum payment not exceeding US$ 2 million.
 Royalty upto 5% on domestic sales and 8% on exports allowed,
without restriction on the duration of the royalty payments.
• Use of Trade marks and Brand name without any technology transfer:
 Payment of royalty upto 2% for exports and 1% for domestic sales
allowed without government approval.
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If Yes…
Don’t forget these golden rules while handing out the pink slip to your
workmen…
• Only the workman in continuous service of more than 1 year
protected
• Workman to be given due notice/remuneration in lieu thereof
• Principle of Last Come, First Go to be followed
• Workman to be paid retrenchment compensation = 15 days’ average
pay for every completed year of service
• Government approval required in certain cases
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Employment Contracts…Is
Your IPR Safe?
• Copyright law in India – All IPR developed under a contract of
employment to belong to the employer
• Strict IPR/Confidentiality obligations/Non-disclosure obligations
that would survive termination of employment
• Scope of obligations/assignment of IPR – should extend
worldwide
• In case of a Consultancy Agreement, insist upon a contractual
assignment of the IPR for perpetuity, worldwide
• It is advisable to stipulate in the employment contract the importance
of the proprietary information that may be shared
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Smell a rat in your ranks??
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…Employment Contracts
• Non – compete Clauses:
– Absolute restriction possible during employment.
– Reasonable non-solicitation obligations can be imposed beyond
the term of employment.
– Reasonable restrictions beyond term of employment on engaging
in a similar or competing business – Not generally viewed
favourably by the Indian courts.
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COMMITMENT TO
SAFEGUARDING IPR
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IP Protection in India – An Overview
• Adequate protection under various Indian laws for infringement of
registered/ unregistered IPR. India is TRIPS compliant.
• IPR implemented by statutory compliance, common law and by written
agreement.
• Indian IP laws, notably the Patents Act, have been amended to bring
them in sync with international IPR regime.
• Measures to strengthen, streamline and modernize the IPR
administration & enforcement system.
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What’s India Got to Offer???
The Patents Act, 1970
The Copyright Act, 1957
Regulatory
Framework
The Industrial Designs
Act, 2000
The Trade Marks Act, 1999
The Geographical Indications
of Goods Act, 1999
India is a member of the WTO and has ratified GATT and TRIPS.
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Basic Principles …
Copyrights:
• Copyrightable matter: Original literary, dramatic, musical, artistic
work; cinemtographic films; sound recording.
• First Owner of Copyright: Author of original work.
• Term of protection: 60 years from date of publication or Life + 60
years.
• Registration of Copyrights not necessary.
• Performer’s Rights included.
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Statutory Remedies
Copyrights
Civil
Criminal
 Suit for Damages
In junction
Temporary
Permanent
Suit for Account of Profits
Delivery of the infringing
copies upto the owner
Imprisonment 6 months – 3 years
Fine Rs. 50,000 (approx USD
1087) – 200,000 (approx USD
4348)
Search and Seizure
…Basic Principles…
Trade Marks:
• Registrable Marks: Trade Marks, Service Marks, Well-known
Trade Marks, Collective Marks.
• Trademark protection extends to the shape of goods, packaging
and combination of colors.
• Term of protection: 10 years from the date of registration of the
trademark.
• Registration advisable to claim proprietary rights. However, action
for passing off available for unregistered trademarks.
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Statutory Remedies
Trademark
Registered
Infringement
Criminal
Imprisonment 6 months – 3 years
Fine Rs. 50,000 (approx USD
1087) – 200,000 (approx USD
4348)
Search and Seizure
Forfeiture and/or destruction of infringing
goods
Unregistered
Passing off
Civil
 Suit for Damages
In junction
Temporary
Permanent
Suit for Account of Profits
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…Basic Principles
Patent Law:
• What is patentable: Any invention / innovation having novelty,
utility and an inventive step.
• Recognition of ‘Product patents’ – A boon for all foreign pharma
and chemical companies.
• Term of protection: 20 years from the date of filing the patent
application.
• Mail box system devised for filing applications.
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Statutory Remedies
Patents
Civil
 Suit for Damages
In junction
Temporary
Permanent
Suit for Account of Profits
Delivery of the infringing copies
upto the owner
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India Calling!!!
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The Global Back Office
• India emerging as the No.1 outsourcing destination.
• IT and ITES is one of the top 5 priority industries in India - policies
framed to obtain maximum benefit out of IT outsourcing to India.
• Over the past 5 years, India's share of global sourcing grew from 62
per cent to 65 per cent for the IT sector and 39 per cent to 46 per cent
for ITES-BPO sector
• NASSCOM along with the government is playing a notable role in
protecting the interests of the IT sector.
• By 2007, total global offshore spending on IT services in India is
expected to reach $50 billion.
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What’ve We Got That They Ain’t Got
• Human resources: Abundance of highly qualified, English speaking
and technically skilled IT professionals.
• Cost efficiency: Wide gap between personnel costs in India and
those in developed countries – Significant cost savings.
• Superior quality of work: Compliance with international standards
and certification requirements.
• Reliable communication facilities: Excellent telecom, ISP, and
cellular networks available in most cities & towns in the country.
• Other factors facilitating the IT growth: Favourable government IT/
ITES policies, rapid economic growth, tax incentives, good
infrastructure, industrial parks & special economic zones have all been
helpful in the BPO Boom.
© Kochhar & Co., Mumbai (2006)
Closing Comments…
• Choice of business vehicle:- Analyze your short to mid-term
requirements and decide on entry strategies.
• Choice of Location :- Identify the region/state most suited for your
business needs.
• Choice of partner : - Assess the strength (or the lack thereof) of local
partner.
• Planning:- Knowledge of Indian business environment helps in
planning for growth.
© Kochhar & Co., Mumbai (2006)
Thank You
Raj Chakrabarti, Partner
Kochhar & Co., Mumbai
Harvey Jay Cohen, Esq.
Dinsmore & Shohl LLP
© Kochhar & Co., Mumbai (2006)