india business and labor laws 2006

8/3/2019 India Business and Labor Laws 2006

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Indias Business, Legal

System & Labour Laws

Raj Chakrabarti

Partner

Kochhar & Co.,

Mumbai


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Kochhar & Co., Mumbai (2006)

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 & TechnicalCollaborations

Establishment of Indiansubsidiaries

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, [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 1984University 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.
mailto:[email protected]:[email protected]


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Accolades

India is the 2nd fastest growing economy in the world.- Standard & Poors 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 withthe 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 CRIMINAL

District Court

Civil Judge Senior Division

Civil JudgeJunior Division Judicial Magistrate

Chief Judicial Magistrate

Sessions Court


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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 precedentsand rely on them as well.

Punitive damages generally not allowed, courts require evidence/

proof of actual damage suffered.


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ArbitrationThe 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 regulateall 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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Income Tax

Corporate Tax Capital Gains Tax Withholding Tax

Domestic

33.66%

Foreign

41.82%

Royalties

10.45%Short Term*

10.45%

Long Term

20.91%

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 thetransfer of equity shares.

Taxation


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Other Taxes & Duties

Central Excise: Duty payable on manufacture/ production of goods inIndia. General rate of duty is about 16% of the Value of Goods as perthe Central Excise Tariff Act, 1985.

Central Sales Tax (CST): Tax paid on the inter state (between twostates 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 turnoverof the dealer is charged on industrial inputs, capital goods and items ofmass consumption.


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Are you a Service Provider ?

Service Tax @12.24%

Transfer/ Permitting theuse of any IPR

except Copyrightclassified as Service.

Export of Services -No Service Tax.

Service Tax

Service tax is leviedon certain identifiedservices listed

in the Finance Act.


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Other Taxation Issues

India has incorporated elaborate transfer pricing regulations in its taxlaws.

India is a signatory to various Double Taxation Avoidance Agreementsincluding 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, 2005SEZs are designated duty freeenclave 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 SEZunits.

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/ ITESactivities.

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 exemptionONLY 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

Dont forget these golden rules while handing out the pink slip to yourworkmen

Only the workman in continuous service of more than 1 year

protected

Workman to be given due notice/remuneration in lieu thereof

Principle ofLast 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 ContractsIs

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 TOSAFEGUARDING IPR


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IP Protection in IndiaAn Overview

Adequate protection under various Indian laws for infringement ofregistered/ 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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Whats India Got to Offer???

The Industrial DesignsAct, 2000

The Patents Act, 1970

The Trade Marks Act, 1999

The Geographical Indicationsof Goods Act, 1999

The Copyright Act, 1957

Regulatory

Framework

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. Performers 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 infringingcopies upto the owner

Imprisonment 6 months 3 years

Fine Rs. 50,000 (approx USD

1087) 200,000 (approx USD

4348)

Search and Seizure


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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, actionfor passing off available for unregistered trademarks.

S R di


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Statutory Remedies

Trademark

Registered Unregistered

Suit for Damages


Permanent


Imprisonment 6 months 3 yearsFine Rs. 50,000 (approx USD

1087) 200,000 (approx USD

4348)

Search and Seizure

Forfeiture and/or destruction of infringinggoods

Infringement Passing off

Criminal Civil


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Basic Principles

Patent Law:

What is patentable: Any invention / innovation having novelty,utility and an inventive step.

Recognition ofProductpatents A boon for all foreign pharmaand chemical companies.

Term of protection: 20 years from the date of filing the patentapplication.

Mail box system devised for filing applications.


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Statutory Remedies

Patents

Civil

Suit for Damages


Permanent


Delivery of the infringing copiesupto 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 centfor 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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Whatve We Got That They Aint Got

Human resources: Abundance of highly qualified, English speakingand technically skilled IT professionals.

Cost efficiency: Wide gap between personnel costs in India andthose in developed countries Significant cost savings.

Superior quality of work: Compliance with international standardsand 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, goodinfrastructure, industrial parks & special economic zones have all beenhelpful in the BPO Boom.


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Closing Comments

Choice of business vehicle:- Analyze your short to mid-termrequirements 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.


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Thank You

Raj Chakrabarti, PartnerKochhar & Co., Mumbai

Harvey Jay Cohen, Esq.

Dinsmore & Shohl LLP

india business and labor laws 2006

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