Connecting Businesses with Opportunities in India
Connecting Businesses with Opportunities in India

Business Articles

Submitted by Shashi Mohan on Wed, 08/09/2017 - 2:40am.

NOTE: Structure of the company in context here is 'Private Limited'

1. I am a US Passport holder; can I own a company in India?

Yes, you can very well own a company in India (partly or even wholly) or set up your own company in India. Setting up or owning a company in India can broadly be achieved with the following options:

  • Buying shares in an existing business
  • Starting a new company (please see Point No. 3 below)

The above option to buying shares in an existing company or starting up a new one is same for Foreign National, Foreign Resident, Non Resident Indian`s (NRI), Person of Indian Origin (PIO), Overseas Citizen of India (OCI) [termed as ‘foreign investor’]

2. What are prerequisites to buy shares in an existing business?

In case of a closely held company (Private Limited, Limited Liability Partnership) procedures of valuation of shares, documentation of shares transfer and reporting to Reserve Bank of India need to be carried out.

Shares held by resident Indian can be purchased at a value not less than the value arrived based on guidelines issued by Reserve Bank of India (Please follow the link https://www.rbi.org.in/Scripts/FAQView.aspx?Id=26 to get more information). Resident shareholders need to comply with the requirement of ‘transfer of shares from resident to Non-Resident’, as prescribed by RBI.

3. What are different structures/formats to start my own company?

Legal Structure

Private Limited Company

(Wholly/Partially Owned or Joint venture)

Liaison Office (LO)

Project Office (PO)

 

Branch Office (BO)

Limited Liability Partnership

Permissible Business Activities

Wide range of activities permitted under automatic route/approval route

Please check the link http://dipp.nic.in/English/policy/changes/press2_00.htm for list of activities under automatic/approval route)

Marketing & branding. No commercial activities that involves revenue generation

Execution of any awarded project in India. Example is project of Installation of Machinery at Airport

All activities of parent company, except manufacturing activities

Wide range of activities permitted under approval route

Legal Composition

  • Entire Share Capital can be owned by foreign investor- Wholly Owned Subsidiary-WOS
  • 2 or more parties can jointly hold the share capital-Joint Venture -JV

Representative Office only

For executing a time bound project

Representative office of Head Office

Limited Liability Partnership Firm.

Minimum Number of Directors

2 Directors, 1 to be resident in India

1 Representative

1 Representative

1 Representative

2 Partners

Minimum Number of Investors

2

N.A.

N.A.

N.A.

2

Minimum Share Capital

Authorized Capital: Rs. 100,000

Paid-up Capital: No Minimum requirement

N.A.

N.A.

N.A.

NIL

Legal Permission

Automatic Route/Approval by individual Government Departments

Advance approval from RBI

Advance approval from RBI

Advance approval from RBI

Advance approval from RBI

Corporate Liability

Limited to the subscribed share capital

Full liability of parent

Full liability of parent

Full liability of parent

Partners liability up to agreed contribution

Tax Structure

Taxed as Domestic Company @30% plus surcharge

Not Applicable, as there is no revenue/profit

Taxed as Foreign Company @40% plus surcharge

Taxed as Foreign Company @40% plus surcharge

Tax based on highest marginal rate of partners

 

*Starting as a Proprietorship, local Partnership, One Person Company (OPC) is not permitted

*The above discussed business format does not apply in case the objective is ‘Not for Profit’. For Example Trusts, Societies, Educational Setups etc

4. What is the owner of company called in India?

Shareholders are owner of the company and enjoy rights based on their shareholding percentage. ‘Director is a legal position who takes care of operational activities and also represents to various legal authorities governing the business.

In order to become a Director it is not required ‘to become a Shareholder. A shareholder however can also be a Director. You can also be appointed as a Director in an Indian company wherein you are not a shareholder/owner.

Generally, owner/shareholders of business retain the position of Director as well to take important decision of the business. One can however also appoint any other person to work as a Director on their behalf.

5. Do I need an Accountant or Consultant to start my business (buying shares or starting own company) in India?

Yes, apparently, you cannot do it yourself. You must hire an accountant or consultant to take care of entire process of setting up of your business.

Complete process of registering a company in India is online and one need to prepare documents, fill form and upload everything at website of Registrar of Companies (http://www.mca.gov.in/mcafoportal/login.do). Such forms also need to be verified by a Chartered Accountant (CA)/Company Secretary (CS) before being uploaded online.

6. What are prerequisite to become Director in an Indian Company?

The process starts from getting a Director Identification Number (DIN) in India. In order to obtain DIN, the person must prepare his/her Digital Signature (DSC).

In order to prepare DSC and DIN, one needs to arrange Appostile or Legalised Identity Proof (Passport), Address Proof (Bank Statement, Countries Identity Card etc), DSC Form and few Photographs. 

7. What are prerequisite to become a Shareholder in an Indian Company?

None of typical registrations (Tax, DIN etc) are required to become a shareholder in an Indian company. You need to however prepare a DSC (New Process of Company Registration at MCA) and you need to arrange Appostile or Legalised Identity Proof (Passport), Address Proof (Bank Statement, Countries Identity Card etc), DSC Form etc and few Photographs. 

8. What exactly I need to do to arrange the documents for being a Director?

(a) Steps to arrange for DSC

  • Get an accountant/consultant (CA, CS, Lawyer, Business Consultant), who will help you in entire process in preparing government forms, uploading on portals and if required following it up.
  • Get your Identity Proof (Passport), Address Proof (Bank Statement, Countries Identity Card etc), DSC Form and few Photographs, Appostile/Legalised in your home country
  • Post the documents in Original to your Indian Consultant, who will arrange to get a DSC on your behalf, which is generally valid for a period of 2 years. Give a written authorization to the consultant to affix the DSC only on your approval

(b) Steps to arrange DIN

  • Your consultant can fill out form of DIN at Registrar of Companies (ROC) portal, get the same verified and approved from you and upload the same.
  • The DIN issued by ROC is a 8 digit number, which is valid for the life time. DIN is a permanent number for being appointed as a Director.

9. Are there any other formalities to be fulfilled to become a Director in Indian Company?

For Indian passport holder there is a formality to obtain a Permanent Account Number (PAN) from Income Tax Authorities. A Foreign National, Foreign

10. Do I need to be present in India in during the process of setting up my business?

It is not necessary to be present in India for being appointed as a director or a shareholder. Similarly, the entire process of business registration can be done online and there is no requirement to travel to India or be present physically at any stage.

In case you are travelling India on a business visa, you can sign all the documents during your India visit. Such documents would not be required to be appostile or legalised in your home country.

In other case, one can arrange to post the stated documents (duly signed, appostiled, legalised), to their hired accountant, consultant in India, who can handle the entire process of obtaining DIN, DSC and coordinate in filing the required form at Registrar of Companies.

11. Is there any local partner (Indian Resident) required by Indian Law?

Companies Act 2013 brought a new provision wherein there must be at least 1 Resident Director in Board of an Indian Company. Resident director is defined as a citizen of India which has resided at least 180 days in a calendar year.

Responsibilities of the resident director are primarily to coordinate with the local government authorities, as and when there is any requirement. He may or may not be involved business decisions or even operational matters. From legal side, there is no predefined remuneration for such director.

12. Can I own 100% equity in Indian business (existing or new)?

Companies Act 2013 allows a Foreign National, Foreign Resident, Non Resident Indian`s (NRI), Person of Indian Origin (PIO) or their business entities overseas to own 100% equity in their business set up in India.

13. Can I open a Single person/ One person company (OPC) in India?

NRI`, PIO`s, Foreign Nationals are not eligible to form a OPC in India. Companies Act 2013 allowed a new concept to form a single person company called ‘’One Person Company (OPC)’, however its only allowed for a Resident Indian.

14. Is there any minimum capital requirement to start a business in India?

There is no minimum required share capital. Recently, the Companies Act 2013 removed the minimum authorized share capital limit (INR 100K for a Private Limited Company, INR 500K for a Public Limited Company)

15. Is there any restriction in starting a Partnership Firm, Limited Liability Partnership (LLP) or buy shares therein?

You can do the same, if the following conditions are met:

  1. Indian Partnership Firm should not be engaged in agricultural, plantation, real estate, media businesses (restricted sectors)
  2. Amount can only be invested  by way of inward remittance or out of NRE,  FCNR or  NRO accounts maintained with authorized Banks
  3. Repatriation of invested fund outside India, not permitted unless permitted by Reserve Bank of India (RBI)

16. What are sources to fund my newly acquired/setup business in India?

In an event where revenue of Indian entity is below Break Even Point (BEP), the initial Capex (Capital Expenses) & Opex (Operational Expenses) requirement can be met through Share Capital (Investment) funded from the shareholders.

External Commercial Borrowings (ECB) is allowed for Capital Expenditures. In current scenario, ECBs are also allowed for Working Capital Expenditure; however certain conditions are imposed by Reserve bank of India (RBI) need to be followed. Please click on the link for more information https://rbi.org.in/SCRIPTs/BS_ViewMasCirculardetails.aspx?id=9840

17. What are further formalities for making the business operational?

Once the legal structure of business (Private Limited Company, Limited Liability Company, Limited Liability Partnership etc) is registered, following activities need to be completed:

  1. Registration with Income Tax Authorities: Obtain Permanent Account Number (PAN), Tax Account Number (TAN)
  2. Open a Bank Account in desired local or MNC Bank
  3. Registration under Value Added Tax: State laws require a registration for trading in Goods
  4. Registration of Service Tax: Register for doing trade in Services
  5. Register under Shops & Establishment: Location based registration in few states
  6. Registration under Professional Tax:  Location based registration in few states

 

​Appendix:

  • Foreign National: A person who is not a naturalized citizen of the country in which he is residing or citizen of a country other than India.
  • Foreign Resident: Resident of a foreign country. Generally the term is used for a foreign national.
  • Non Resident Indian: Citizens of India, holding Indian Passport, immigrated to any other country for six months or more.
  • Person of Indian Origin (PIO): Not a citizen of India but a person of Indian origin or ancestry. As per Gazette of India (Part-I, Section-I) published on 09.01.2015, all the existing Persons of Indian Origin (PIO) card holder registered as such under new PIO Card scheme 2002, shall be deemed to be Overseas Citizens of India Cardholder (http://boi.gov.in/content/person-indian-origin-pio)
  • Overseas Citizen of India: Person of Indian Origin (PIO), who was citizen of India on Jan 26, 1950 or thereafter, residing overseas, can register them as Overseas Citizen of India (OCI). OCI`s are entitled to general 'parity with Non-Resident Indians.

 

Note: Definition of above terms need to be checked from respective section of Foreign Exchange Management Act (FEMA) in specific cases such as acquisition of shares, acquisition of immovable properties, purchasing of Jewelry & bullions etc. This document only covers, these terms with respect to buying shares in an existing business or starting a new company in India.

Submitted by Shashi Mohan on Wed, 02/10/2016 - 5:07am.

1) For doing business in India, what are the various business structures in India?

Foreign Representation Incorporated Entity Distribution Only
Liaison Office ('LO') Wholly Owned Subsidiary ('WOS') Distributor/Importer
Branch Office ('BO') Joint Venture ('JV') Franchisee/ Agent
Project Office ('PO') Limited Liability Partnership ('LLP')*  

* Foreign Direct Investment (FDI) in LLP is only under Approval Route & Conditional

2) What form of Business is most appropriate?

Business ‘Form’ purely depends on the business need. Such need could be to execute one time project in India, promote the product, understand the market, appoint a distributor, just have a place of business or hire an employee in India etc.

3) Can I do business in India without incorporating there?

Till the time investment decisions are not firm, business in India can be done by appointing an agent, distributor in India or directly providing services from abroad.

Such arrangements are subject to applicable tax withholding rules in India. The payment from India is governed by rules of Foreign Exchange Management Act (FEMA) and controlled by Reserve bank of India (RBI)

4) Can a Liaison Office (LO)/Representative Office (Rep Office) operate in India for an unforeseeable time period?

Initial approval of a LO is granted by Reserve Bank of India for 3 years. Subsequent request for an extension is generally approved for next 3 years. Further extensions can again be applied, however approval by Reserve Bank of India (RBI), is granted on a case to case basis.

5) Who can be appointed as an Authorized Representative of LO?

There is a requirement to appoint an Authorized Representative of an LO. He/She can be a resident of India or US. An Authorized Representative can be changed at the will of the Board of Parent Company. The person however must have an Indian Permanent Account Number (PAN). PAN is a unique number, obtained by registering at Indian Income Tax.

6) Can I open a Branch Office (BO) of my US company?

BO can be opened with a prior approval from RBI and it’s regarded as Foreign Company in India. As it’s not a separate entity from its parent company, all business risk and liabilities are directly assumed by the Parent company. It can conduct full fledged business activities in India, except Manufacturing. It can however subtract such activities to Indian vendors. BO, being a foreign company taxed at a higher rate (presently 40%).

7) Do I need to incorporate in India for executing a Time Bound Project?

You don't need to incorporate. In case you have awarded a specific contract in India, you can set up a PO without prior approval of Reserve Bank of India. After completion for the project the net of tax, proceeds can be repatriated to the Parent Company.

8) Is there any restriction in Foreign Direct Investment (FDI) in India?

Most of the business sectors don't require a prior approval and 100% FDI is permissible. In all such cases, only reporting is required to RBI, within 30 days of receipt of equity/allotment of shares. Where ever automatic route is not available i.e. sectors which has a cap on FDI, prior approval from Foreign Investment Promotion Board (FIPB) is required e.g Whole Sale Trading.

9) Is there any threshold on Capital, Shareholders, Directors etc.?

Recently the requirement of Minimum Share capital (Private Limited- INR100K, Public Limited- INR500K) is being lifted by Indian Government. There is however requirement of minimum 2 Shareholders & 2 Directors (at least 1 to be resident director). There is also a provision of One Person Company (OPC), however it is allowed only to a resident Indian.

10) Do I need a physical business address to register in India?

An address to be termed as a “Registered Office’ is required. Commercial or business address can be at a different location. There is no requirement of any minimum area, location etc. A business incorporated at any place in India, can do business throughout India. State Government however may require some local registrations.

11) How can I fund my Wholly Owned Subsidiary (WOS), until it breaks even?

Initial funding can be done though injecting share capital i.e. FDI. A loan from parent company (External Commercial Borrowing- ECB) is permissible only for Capex. ECB for working capital is permitted subject to certain conditions and a lock in period of seven years for capital repatriation. Local financing is always available subject to required collaterals.

12) Can a US citizen become a Director in Indian PLC?

There is no restriction of any foreign citizen for becoming a Director in Indian PLC. The person is not necessarily be a Shareholder as well. He/She should however require obtaining a Directors Identification Number (DIN) in India. In case, the Director from US also requires signing on behalf Board of Indian PLC, He/She also needs to get a Digital Signature (DSC).

13) Is there any taxability issue, in India due to my Directorship in Indian Private Limited Company (PLC)?

No, taxability in India arises based on residential status in India and incomes accrue or arise in India. A Director is however is liable for any negligence or any wrong doing on behalf of the PLC, as he/she is termed as a Key Managerial Person (KMP).

14) Can both the Directors of a PLC, be a resident of US?

It is permissible. Board meetings can even be held outside India. Recently a board meeting via video conferencing is also permitted subject to certain conditions. As per a recent amendment in 2014, at least one resident director is required in every PLC.

15) Can I transfer my shares in a PLC?

There is a restriction in transferring shares in a Private Limited Company. It can however be transferred to another shareholder or a related person, subject to certain conditions. A Non-Resident (NR) can transfer its shares to another NR without any permission from RBI. A NRI however need to get prior permission from RBI to transfer his/her shares in an India PLC to another NR.

16) What legal registration required in order to start a Back Office in India?

Back Office operates as a fully fledged business unit, however for the captive consumption of output by the Parent Company. Indian entity is generally established as a WOS, however it can also be a JV or Associate. In case the activities are under 100% automatic route, no prior approval from RBI or FIPB is required.

Apart from registering a PLC, you also require to get domestic registrations such as PAN, Tax Account Number, Service Tax, Shops & Establishment etc. Other registrations are conditional. Import Export Code (IEC) only in case of specified services. Provident Fund, once your employee level reached at 20, Value Added Tax in case you also trade in goods.

17) Is there any Tax Benefit to US Companies in India?

There are no tax benefits now days to WOS from any country. In case the WOS is 100% exporting its services, it may prefer in establishing in a Special Economic Zone (SEZ), to avail benefit of tax exemption (Service tax, VAT etc) on input services.

18) What is the general tax structure of a back Office?

An incorporated entity in India becomes a tax resident, tax rate of a domestic company (presently 30.09%) applies on its Profit before Tax (PBT). In case the India entity work s for the parent company in a foreign territory, Transfer Pricing Regulations gets applied, which requires establishing that the financial transactions between related parties are done at a Arms Length Pricing.

19) Basic difference in Private Limited Company and Public Limited Company?

Both forms, allows a Limited Liability for the Shareholders. A recent amendment in 2015 has done away with requirement of a minimum share capital in both the formats. Minimum 2 Shareholder required in a Private Limited, however you need o have minimum 7 shareholders in a Public Limited setup. Maximum number of members /shareholders is restricted to 50 in case of a Private Limited, however it’s unlimited in case of a Limited Company. Transferability of shares in a Private Company is ‘Restricted’ however its permitted in a Limited Company (subject for Foreign Exchange Regulations)

Most foreign businesses, SMBs prefer to register as a ‘Private Limited’ also due to a minimum regulatory & compliance disclosure requirements.

20) What is a general tax structure in India?

India has a federal system of levying tax on businesses. Income Tax, Service Tax, Customs Duty etc. are levied & collected by Central Government, however Value Added Tax, Local Body Tax, Municipal Taxes, etc are state subjects.

Submitted by Shashi Mohan on Tue, 02/09/2016 - 10:45am.

Currently the process to get a PAN in India is semi-automated. An online application can be made by using the link https://tin.tin.nsdl.com/pan/form49AA.html. Please be careful in mentioning particulars exactly same as per your identity proof, address proof etc.

Manual Form 49AA can also be downloaded from https://www.tin-nsdl.com/download/pan/form49aa.pdf at NSDL Facilitation Centre available across India. Please check address at https://www.tin-nsdl.com/tin-facilities.php

Fee for processing PAN Application is Rs. 107 including taxes. In case the communication address is outside India, processing fee is Rs. 989 (including tax and dispatch charges) and in such case PAN cards will be dispatched outside India.

The requisite fee can be paid through a Demand Draft of an Indian Bank on through Credit Card, Debit Card. In case you provide ‘office address or residential address’ in India, the payment can also be done through Net Banking.

On confirmation of the application, an acknowledgement number (unique 15-digit number) will be generated. Take a print of the acknowledgement receipt, paste 2 recent, color photographs and sign exactly in the given box, just below. Photographs are required only in case of Individuals.

Non Resident Indians can use their OCI/PIO card or a NRI bank account as their address proof abroad. A person holding a foreign passport is required to get his/her documents attested by “Apostille” or Indian Embassy or High Commission or Consulate in that country

In case of any other entity, Foreign Organisation, their Certificate of Registration needs to be duly attested by “Apostille” or Indian Embassy or High Commission or Consulate in that country

Once you are through, please put the following documents in an envelope:
  • Acknowledgement receipt signed and affixed with photograph
  • Demand Draft (Original) or payment acknowledgement receipt
  • Proof of Identity and Proof of address

Subscribe the envelop with “APPLICATION FOR PAN…….ACKNOWLEDGEMENT NUMBER” and send through speed post addressed at “Income Tax PAN Services Unit, NSDL e-Governance Infrastructure Limited, 5th floor, Mantri Sterling, Plot No. 341, Survey No. 997/8, Model Colony, Near Deep Bungalow Chowk, Pune – 411016”

Please ensure that the above documents are received at the above within 15 days from the date of online application.

The process would complete in approx 2 weeks time. The acknowledgement number can be used to track the status of application at https://tin.tin.nsdl.com/pantan/StatusTrack.html.

For more details on PAN card for NRIs and foreign companies that want to do business in India, click here.

Submitted by Navin Pathak on Wed, 01/20/2016 - 12:50am.

Though I personally don't feel that Startup India Action Plan will bring any significant changes in India's entrepreneur eco-system, but here is a chart to see if your company is eligible to benefit from this action plan.

Click on image to see a full size version in a new tab

Details about the action plan can be downloaded from the site http://dipp.nic.in.

Submitted by Sandeep Bhosle on Tue, 01/19/2016 - 5:53am.

 

India's Prime Minister Mr. Narendra Modi launched startup India Action Plan on 16th January 2016.

The following are the keypoints of the startup India action plan for growth of startups in India.

  1. Compliance Regime based on Self-certification
  2. Startup India Hub – A single point of contact for the entire startup ecosystem
  3. Rolling out of a Mobile App & Portal – Starting a Startup in 24 hours on a Mobile App
  4. Fast track mechanism of Startup patent applications
  5. Relaxed Norms of Public Procurement for Startups
  6. Faster Exit for Startups
  7. Rs 10,000 crore Fund of Funds for funding support
  8. Credit Guarantee Fund for Startups
  9. Tax Exemption on Capital Gains
  10. Tax Exemption to Startups for 3 Years (for startups registering after April 1, 2016)
  11. Tax Exemption on Investment above Fair Market Value
  12. Organising Startup Fests for Showcasing Innovation and Providing a Collaboration Platform
  13. Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilisation (SETU) Program
  14. Harnessing Private Sector Expertise for Incubator Setup
  15. Building Innovation Centres at National Institutes
  16. Setting up of 7 New Research Parks Modeled on the Research Park Setup at IIT Madras
  17. Promoting Startups in the Biotechnology Sector
  18. Launching Innovation Focused Programs for Students
  19. Annual Incubator Grand Challenge

  

Submitted by Shashi Mohan on Tue, 11/17/2015 - 10:02pm.

Background

PAN Card or Permanent Account Number is a MUST for both a Non-Resident Indian (NRI) and a Non-Resident organization in case they receive income and need to file income tax return in India. Indian Income Tax Authority keeps a track and consolidates financial transactions through PAN and it is regarded as a Tax Registration Number in India. Legislation has accordingly mandated to quote PAN at several financial transactions. As a practice, requirement of PAN is also considered mandatory in non-financial activities such as opening a Bank Account or becoming a “Director” (getting Director Identification Number) in a company registered in India.

Now days, it works as an Identity card in India. Similar to an EIN or Social Security Number in USA, a PAN in India is a 10 digit alphanumeric number issued by Income Tax Department.  It’s a unique number issued for lifetime. In certain cases, it can also be surrendered or cancelled under a valid reason. Having more than one PAN is not permitted and one can be penalized for having more than 1 PAN.

What makes PAN card a Mandatory requirement?

There are specific transactions which cannot be carried out unless valid Pan is presented. Relevant authorities simply deny such transactions in absence of a PAN. Below are a few examples:

  • Opening a Bank Account, getting a Credit Card, apply for a Loan
  • Getting a Digital Signature of obtaining a Director Identification Number (for being appointed as a Director in Indian Companies).
  • Insurance Payment, Other Financial transactions > INR 50,000
  • Transaction in Property, Vehicles >INR 500,000
  • Investment in Shares, Mutual  Fund
  • Utility connections (Telephone, Electricity, Gas etc)
  • Domestic registrations such as Service Tax, Value Added Tax, Import Export Code

NRIs and Foreign Companies that are doing business in India also need a PAN

Every recipient of income from India needs to furnish PAN. It is also required that in the absence of PAN, the tax withholding rate will be higher (20%) even if a lower rate is prescribed in Double Taxation Avoidance Agreement (DTAA) with that particular country. The following are the sample cases in which PAN is required by NRIs and foreign companies doing business in India.

  • Carry out financial or investment related transactions
  • Employment or rendering of professional services
  • Trading in Shares through a Depository or even a Broker
  • Invest in Mutual Funds
  • Purchase Land (not Trading) or some property in India
  • Being appointed as a Director in Indian Companies
  • Being appointed as a “Authorised Representative” in a Liaison Office, Branch Office, Project Office
Submitted by Reena Kaushik on Thu, 09/24/2015 - 8:18pm.

With the dollar surging against the Indian rupee, NRIs are taking advantage of the depreciating rupee by sending money to India. The surge in money sent to India increased to 48% in the first four months of this financial year –according to The Economic Times.

Non-Resident Indians are stashing away more to remit home in order to take advantage of the weakening rupee and the eight- to nine-percent interest rate on domestic deposit in India. Remittances are also fueling the real-estate market, as real-estate is viewed as long-term investment with a lifetime appreciation.

On the flip side, an appreciating U.S. currency is a worry to the manufacturing sector in India. Exports have become expensive eroding the margins of the sellers.

For the recipients of money sent by NRIs, remittances are a lifeline, and ‘dollars wrapped with care,’ according to Dilip Ratha, Head of KNOMAD (Global Knowledge Partnership on Migration and Development). Funds sent help pay for education, housing, care for the elderly and business investments. In some cases, remittances act as emergency funding for unforeseeable situations, when money is needed the most.  

According to World Bank data, India received remittances worth US $70 billion in 2014 way ahead of China, Philippines and Brazil, and continues to grow as one of the top recipients of remittances among developing nations.

Remittances into India constitute almost 4% of India’s GDP. Money transfer from USA to India constituted almost 12billion dollars and is expected to grow to 15 -20 billion dollars by 2016.

This market has seen the emergence of Fintech disruptors like Transfast, Xoom and Remitly instrumental in reshaping the FX market and helped in lowering the cost of global remittance fee. Established players like Western Union and Moneygram are already feeling the heat from the online disruptors.  With offerings like instant bank deposit, high exchange rates and zero fee transfers, these companies have significantly increased their share of remittance in the online market space.

As long as we see US dollar surge against the INR we will see a surge in money transfers to India, fueling businesses, changing lives and aiding in the growing economy.

Submitted by Vijay Dalmia, Vaish Associates on Fri, 01/23/2015 - 9:33am.

India has well defined substantive and procedural laws along with a well established system of judicial enforcement of rights. An elaborate mechanism is provided for grievance redressal under Indian statutes. A complete hierarchy of courts and tribunals has been set up [http://indiancourts.nic.in/index.html]. India has three tier system of judiciary, which includes District Courts, at the first tier, comprising judges for adjudicating upon civil disputes and criminal cases at the lowest level. At the second tier, each state in India has a High Court which has the appellate and supervisory jurisdiction over all the courts and tribunals in such state. The Supreme Court of India [http://www.supremecourtofindia.nic.in], which is at the third tier, is the highest court of justice in India having appellate and supervisory jurisdiction over High Courts of all the states. The Supreme Court of India and all the High Courts also act as the custodians of the constitution of India. Government of India has also formed special tribunals to deal with matters of specific nature, such as Intellectual Property Appellate Board (IPAB) [http://www.ipab.tn.nic.in], Income Tax Appellate Tribunal (ITAT) [http://itat.nic.in], Debt Recovery Tribunal(DRT) [http://www.drt.co.in], Central Administrative Tribunal(CAT) [http://cgat.gov.in], Board for Industrial and Financial Reconstruction (BIFR) [http://www.bifr.nic.in] and Central Excise Service Tax Appellate Tribunal(CESTAT) [http://cestat.gov.in].

Doing litigation in India may be an unending process, frustrating the entire purpose of litigation. Indian Judicial System is marred with exceptional judicial delays and slow process. The present sad scenario of Indian courts can be understood from the data derived from the website of the Supreme Court of India [http://www.supremecourtofindia.nic.in/new_s/pendingstat.htm], pertaining to the pendency of cases in various Indian Courts. A glimpse at the data given hereinafter of the pending cases in the Indian courts is grave enough to pose caution. As of May 2010, 55,797 cases are pending with the Supreme Court of India, over 3 million cases are pending in the 21 High Courts and over 26.3 Million civil and criminal cases are pending in the District Courts [http://www.supremecourtofindia.nic.in/HCquarterly_pendency_Dec2008.pdf].

The litigation in India should be initiated only after a well thought strategy about the entire process, time and cost involved. Litigation in India should not be initiated impulsively. Though it may not be possible to avoid litigation at all times but strategies can be formed to successfully end the litigation by achieving practical objects. It should also be kept in mind that Indian Courts are not very pro-active in granting heavy damages or compensation. Alternative Dispute Resolutions like arbitration is a well recognised method of avoiding litigation in India.

Time frame for Litigation

In view of the above data, it is very difficult to predict a time band within which litigation in India can be completed from the filing of the suit and till the appellate stages are over. However, a well thought strategy can definitely put an end to the unending and unpredictable litigation in India.

So, while doing business in India, the first endeavour should be to avoid litigation. However, there may be situations when a foreign entity may get embroiled in an unavoidable forced litigation in Indian Courts.

It has been observed that most of the litigation which takes place in India during the course of business by a foreign entity with an Indian, is a result of bad contracts, which could be avoided by  taking care of  and contemplating various contingencies which may arise during the course of business in India.

Cost of Litigation

Any peculiar civil action in the Court of law involves following components of costs i.e. Court Fee, Professional Fee and Miscellaneous Expenses and Disbursements.

In a Civil action, court fee is required to be paid at the time of the institution of the suit, which may be fixed or ad-valorem (a percentage of the amount claimed). Generally, the fixed court fee is negligible. However, any claim relating to recovery, damages, compensation or property etc. may attract a court fee which is based on a percentage of the claim amount or the valuation of the subject matter of the suit, e.g. for a suit for recovery of a sum of INR 60 Million (approx. US$ 1290000) in Delhi High Court, an amount equivalent to  1 % of the claim i.e. INR 0.6 Million (approx. US$ 12900) has to be paid as court fee at the time of the institution of the suit. In Criminal matters, only a trifling court fee is payable.

For any matter relating to litigation, the component of professional fee may include fee for advice, drafting of pleadings and appearances before the Court. In India, for professional fees, generally the system of lump-sum fee and fee on 'hourly rate' basis is followed. However, Indian law does not allow the payment of contingent fees or conditional fees, i.e., any fee for services provided where the fee is only payable if there is a favorable result.

The third component of litigation cost, is usually not very high since the same pertains to miscellaneous issues related to litigation including typing, photocopying, postage and courier charges etc.

Mechanism for Enforcement of Judgments

Indian judicial system is a creation of the Constitution of India. The distinguishing feature of the Indian Judiciary lies in its independence from the executive / government. The Central & State Governments and their functionaries are duty bound to obey and implement the orders of the Courts in India, and any non compliance on their part results in the initiation of contempt proceedings against them. Besides coded laws, India also follows the common law principles. The judgments of the High Courts and Supreme Court of India, as precedents, have the same force as that of the "law of the land".

The Indian Government Machinery including the police is under an obligation to follow and implement the orders of the court. There are special provisions for the enforcement of the orders of the court, including Contempt of Court proceedings, which provides for a fine as well as imprisonment, in case of disobedience. There are also other legal means for execution / compliance of the orders of the court i.e. by way of appointment of Local Commissioner / Receivers.

As already stated that the Indian Judiciary does not suffer from a nationalistic approach, which is itself good to build confidence in foreign entities.

 
DISCLAIMER: This article is for informational and educational purposes only.While every care has been taken in writing this article to ensure its accuracy at the time of publication, the Author or  Vaish Associates Advocates assumes no responsibility for any errors which despite all precautions, may be found therein. This article neither constitutes a contract nor will form the basis of a contract. The material contained in this document does not constitute/substitute professional advice that maybe required before acting on any matter. No claim is made by virtue of the use of any trademark or images used in this article. All trademarks and images belong to their respective owners. 

*COPYRIGHT NOTICE:  © 2014, India. All rights reserved with Vaish Associates Advocates, 1st & 11th Floors, Mohan Dev Building, 13, Tolstoy Marg, New Delhi-110001, India.

Submitted by Vijay Dalmia, Vaish Associates on Tue, 01/13/2015 - 6:17pm.

The history of Patent law in India starts from 1911 when the Indian Patents and Designs Act, 1911 was enacted. The present Patents Act, 1970 came into force in the year 1972, amending and consolidating the existing law relating to Patents in India. The Patents Act, 1970 was again amended by the Patents (Amendment) Act, 2005, wherein product patent was extended to all fields of technology including food, drugs, chemicals and micro organisms. After the amendment, the provisions relating to Exclusive Marketing Rights (EMRs) have been repealed, and a provision for enabling grant of compulsory license has been introduced. The provisions relating to pre-grant and post-grant opposition have been also introduced.

An invention relating to a product or a process that is new, involving inventive step and capable of industrial application can be patented in India. However, it must not fall into the category of inventions that are non-patentable as provided under Section 3 and 4 of the (Indian) Patents Act, 1970.  In India, a patent application can be filed, either alone or jointly, by true and first inventor or his assignee.

Procedure for Grant of a Patent in India

After filing the application for the grant of patent, a request for examination is required to be made for examination of the application by the Indian Patent Office. After the First Examination Report is issued, the Applicant is given an opportunity to meet the objections raised in the report. The Applicant has to comply with the requirements within 12 months from the issuance of the First Examination Report. If the requirements of the first examination report are not complied with within the prescribed period of 12 months, then the application is treated to have been abandoned by the applicant. After the removal of objections and compliance of requirements, the patent is granted and notified in the Patent Office Journal. The process of the grant of patent in India can also be understood from the following flow chart:

 

 

 

Filing of Application for Grant of Patent in India by Foreigners

India being a signatory to the Paris Convention for the Protection of Industrial Property, 1883 and the Patent Cooperation Treaty (PCT), 1970, a foreign entity can adopt any of the aforesaid routes for filing of application for grant of patent in India.

 

Where an application for grant of patent in respect of an invention in a Convention Country has been filed, then similar application can also be filed in India for grant of patent by such applicant or the legal representative or assignee of such person within twelve months from the date on which the basic application was made in the Convention Country i.e. the home country. The priority date in such a case is considered as the date of making of the basic application.

 

Pre-Grant Opposition

A representation for pre-grant opposition can be filed by any person under Section 11A of the Patents Act, 1970 within six months from the date of publication of the application, as amended (the "Patents Act") or before the grant of patent. The grounds on which the representation can be filed are provided under Section 25(1) of the Patents Act. There is no fee for filing representation for pre-grant opposition. Representation for pre-grant opposition can be filed even though no request for examination has been filed. However, the representation will be considered only when a request for examination is received within the prescribed period.

 

Post-Grant Opposition

Any interested person can file post-grant opposition within twelve months from the date of publication of the grant of patent in the official journal of the patent office.

 

Grounds for Opposition

Some of the grounds for filing pre-and post-grant opposition are as under:

(a)    Patent wrongfully obtained;

(b)   Prior publication;

(c)    The invention was publicly known or publicly used in India before the priority date of that claim;

(d)   The invention is obvious and does not involve any inventive step;

(e)    That the subject of any claim is not an invention within the meaning of this Act, or is not patentable under this Act;

(f)    Insufficient disclosure of the invention or the method by which it is to be performed;

(g)   That in the case of a patent granted on convention application, the application for patent was not made within twelve months from the date of the first application for protection for the invention made in a convention country or in India;

(h)   That the complete specification does not disclose or wrongly mentions the source and geographical origin of biological material used for the invention; and

(i)     That the invention was anticipated having regard to the knowledge, oral or otherwise, available within any local or indigenous community in India or elsewhere.

 

Term of Patent

The term of every patent in India is twenty years from the date of filing the patent application, irrespective of whether it is filed with provisional or complete specification. However, in case of applications filed under the Patent Cooperative Treaty (PCT), the term of twenty years begins from the priority date.

 

Payment of Renewal Fee

It is important to note that a patentee has to renew the patent every year by paying the renewal fee, which can be paid every year or in lump sum.

 

Restoration of Patent

A request for restoration of patent can be filed within eighteen months from the date of cessation of patent along with the prescribed fee. After the receipt of the request, the matter is notified in the official journal for further processing of the request.

 

Patent of Biological Material

If the invention uses a biological material which is new, it is essential to deposit the same in the International Depository Authority ("IDA") prior to the filing of the application in India in order to supplement the description. If such biological materials are already known, in such a case it is not essential to deposit the same. The IDA in India located at Chandigarh is known as Institute of Microbial Technology (IMTECH).

 

What are the Rights granted by Patent?

If the grant of the patent is for a product, then the patentee has a right to prevent others from making, using, offering for sale, selling or importing the patented product in India. If the patent is for a process, then the patentee has the right to prevent others from using the process, using the product directly obtained by the process, offering for sale, selling or importing the product in India directly obtained by the process.

 

Before filing an application for grant of patent in India, it is important to note "What is not Patentable in India?" Following i.e. an invention which is (a) frivolous,  (b) obvious, (c) contrary to well established natural laws, (d) contrary to law, (e) morality, (f) injurious to public health, (g) a mere discovery of a scientific principle, (h) the formulation of an abstract theory, (i) a mere discovery of any new property or new use for a known substance or process, machine or apparatus, (j) a substance obtained by a mere admixture resulting only in the aggregation of the properties of the components thereof or a process for producing such substance, (k) a mere arrangement or rearrangement or duplication of known devices, (l) a method of agriculture or horticulture and (m) inventions relating to atomic energy, are not patentable in India.

 

Maintainability of Secrecy by the Indian Patent Office (IPO)

All patent applications are kept secret up to eighteen months from the date of filing or priority date, whichever is earlier, and thereafter they are published in the Official Journal of the Patent Office published every week. After such publication of the patent application, public can inspect the documents and may take the photocopy thereof on the payment of the prescribed fee.

 

Compulsory Licensing

One of the most important aspects of Indian Patents Act, 1970, is compulsory licensing of the patent subject to the fulfillment of certain conditions.  At any time after the expiration of three years from the date of the sealing of a patent, any person interested may make an application to the Controller of Patents for grant of compulsory license of the patent, subject to the fulfillment of following conditions, i.e.

  • the reasonable requirements of the public with respect to the patented invention have not been satisfied; or
  • that the patented invention is not available to the public at a reasonable price; or
  • that the patented invention is not worked in the territory of India.

 

It is further important to note that an application for compulsory licensing may be made by any person notwithstanding that he is already the holder of a license under the patent.

 

For the purpose of compulsory licensing, no person can be stopped from alleging that the reasonable requirements of the public with respect to the patented invention are not satisfied or that the patented invention is not available to the public at a reasonable price by reason of any admission made by him, whether in such a licence or by reason of his having accepted such a licence.

 

The Controller, if satisfied that the reasonable requirements of the public with respect to the patented invention have not been satisfied or that the patented invention is not available to the public at a reasonable price, may order the patentee to grant a licence upon such terms as he may deem fit. However, before the grant of a compulsory license, the Controller of Patents shall take into account following factors:

  • The nature of invention;
  • The time elapsed, since the sealing of the  patent;
  • The measures already taken by the patentee or the licensee to make full use of the invention;
  • The ability of the applicant to work the invention to the public advantage;
  • The capacity of the applicant to undertake the risk in providing capital and working the invention, if the application for compulsory license is granted;
  • As to the fact whether the applicant has made efforts to obtain a license from the patentee on reasonable terms and conditions;
  • National emergency or other circumstances of extreme urgency;
  • Public non commercial use;
  • Establishment of a ground of anti competitive practices adopted by the patentee.

The grant of compulsory license cannot be claimed as a matter of right, as the same is subject to the fulfilment of above conditions and discretion of the Controller of Patents. Further judicial recourse is available against any arbitrary or illegal order of the Controller of Patents for grant of compulsory license.

 

Infringement of Patent

Patent infringement proceedings can only be initiated after grant of patent in India but may include a claim retrospectively from the date of publication of the application for grant of the patent. Infringement of a patent consists of the unauthorized making, importing, using, offering for sale or selling any patented invention within the India. Under the (Indian) Patents Act, 1970 only a civil action can be initiated in a Court of Law. Further, a suit for infringement can be defended on various grounds including the grounds on which a patent cannot be granted in India and based on such defence, revocation of Patent can also be claimed.

 

Author

Vijay Pal Dalmia
Partner
New Delhi, Mumbai, Gurgaon, Bengaluru
IPR & IT Laws Practice Division
Phone: +91 11 42492532 (Direct)
Mobile: +91 9810081079
Email: vpdalmia@vaishlaw.com
www.vaishlaw.com

DISCLAIMER: This article is for informational and educational purposes only.While every care has been taken in writing this article to ensure its accuracy at the time of publication, the Author or  Vaish Associates Advocates assumes no responsibility for any errors which despite all precautions, may be found therein. This article neither constitutes a contract nor will form the basis of a contract. The material contained in this document does not constitute/substitute professional advice that maybe required before acting on any matter. No claim is made by virtue of the use of any trademark or images used in this article. All trademarks and images belong to their respective owners.

*COPYRIGHT NOTICE:  © 2014, India. All rights reserved with Vaish Associates Advocates, 1st & 11th Floors, Mohan Dev Building, 13, Tolstoy Marg, New Delhi-110001, India.

Submitted by Ritambhara Agrawal on Sat, 10/05/2013 - 9:56am.

The new Companies Bill proposes seminal changes in the manner in which Companies are governed and regulated in India & brings easy and efficient way of doing business in India, better governance, improves levels of transparency while enhancing accountability, inculcating self compliance and making Corporate socially responsible. The bill could potentially trigger a spate of domestic and cross-border mergers and acquisitions, strategic alliances and make Indian firms more attractive to PE investors. We are briefly discussing the changes impacting Mergers & Acquisitions.

  • Global integration and cross-border mergers are now permitted by new Bill thereby allowing merger of an Indian company with a foreign company. Earlier, only foreign companies were allowed to merge with Indian companies. Exits will be easier, because the new law allows the consideration on a merger to be settled in the form of cash or depository receipts. 
  • Allows fast & quick merger between two or more “small companies”, “holding company and its wholly owned subsidiary” or such other class(es) of companies as may be prescribed by the central government, without the approval of the high court or National Company Law Tribunal (NCLT).
  • The Companies Bill specifically provides for provisions relating to a merger of a listed company with an unlisted company and gives power to the National Company law Tribunal to order exit of the dissenting shareholders (made easy) of the transferor listed company in case they opt out of the unlisted transferee company with payment of the value of shares held by them and other benefits in accordance with a pre-determined price formula or after a valuation has been made.
  • For good governance and investor protection, the new Bill advocates price determination by a registered valuer for any preferential allotment of equity. Such a measure is in sync with the principals set out under the exchange laws and the tax framework. This should prevent the dilution of existing investors' interests at an unfair price.
  • Prohibits the retaining of any treasury stock, arising on consolidation, pursuant to a merger and requires all such shares to be cancelled or extinguished, thereby restricting trust structure used by listed entities to retain control or future monitization.
  • Pooling of assets under a single company in any jurisdiction is achievable now by access to large capital without need to go public as number of member restriction under Private limited company increased to 200 from 50.
  • The bill provides that no civil court shall have jurisdiction over any suit or proceeding in respect of any matter that the NCLT is empowered to determine under the bill. And NCLT along with National Company Law Appellate Tribunal (NCLAT), will replace several existing forums, including the Company Law Board, the BIFR and the Appellate Authority for Industrial and Financial reconstruction.

By Ritambhara Agrawal, Managing Partner, Intelligere; www.intelligere.in

Submitted by Ritambhara Agrawal on Fri, 08/02/2013 - 12:37pm.

With the liberalization of FDI policy 2013, most restrictions on foreign investment have been removed and procedures have been simplified. Today, there are very few industries where foreign investment is prohibited. Moreover, investment ceilings, which are applicable in certain cases, are gradually being removed or phased out. Government of India on a yearly basis formulates a consolidated FDI Policy, with the intent and objective to promote FDI through a policy framework, which is transparent, predictable, simple and reduces regulatory burden.

A non-resident entity can invest in India, subject to the FDI Policy, except in those sectors/activities, which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. An entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other then defence, space and atomic energy and sector prohibited for foreign investment.

FDI is allowed either under the automatic route without prior approval of the Government or the RBI in all the sectors as specified in the FDI Policy. FDI in sectors not covered under the automatic route requires prior approval of the Government, which is considered by the Foreign Investment Promotion Board (FIPB).

Depending upon its business needs, a foreign company can choose between setting up a liaison office, a branch office or a project office or incorporating an Indian company, either its wholly owned subsidiary or joint venture with an Indian/overseas partner.

A.    AS AN INDIAN COMPANY

A foreign company can start its business operations in India by incorporating a company under the Companies Act, 1956 through either a Joint Venture (JV) or forming a Wholly Owned Subsidiary (WOS). Foreign equity in such Indian companies can be up to 100%, subject to sectoral equity caps under the FDI policy.

1.    Joint Venture with an Indian partner

Foreign companies can set up their operations in India by entering into strategic partnership with Indian entities and forming a Joint Venture (JV). JV can provide many advantages to the foreign investor, like access to established distribution/marketing set up of the Indian partner and established contacts of Indian partners to smoothly run the operations in India.

2.    Wholly Owned Subsidiaries

Foreign companies can also set up their operations in India by forming a Wholly Owned Subsidiary in sectors, where 100% foreign direct investment is permitted under the FDI policy. An application has to be filed with the registrar of Companies (ROC) for registration and incorporation of the Company in India. Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations, as applicable to other domestic Indian companies. Such a subsidiary is treated as an Indian resident and an Indian company for all Indian regulations (including Income Tax, Foreign Exchange Management Act, 1999 and the Companies Act), despite being 100% foreign owned. For detailed procedure and guidelines for incorporation of company in India, read here.

B.    AS A FOREIGN COMPANY
       
    Foreign companies can set up their operations in India through Liaison Office, Project Office or a Branch Office.

1.    LIAISON OFFICE
   

Foreign companies are allowed to open liaison offices in India, subject to obtaining specific approval from the RBI, to undertake liaison activities on their behalf. Liaison office acts as a channel of communication between the principal places of business and entities in India.

Scope of Activities

Under the current exchange control regulations, a liaison office is permitted to: 

•     Represent the parent/group companies in India; 
•     Promote exports and imports from/to India; 
•     Promote technical /financial collaborations between parent/group companies and companies in India; 
•     Act as a communication channel between parent/group companies and companies in India. 
 
Typically, a liaison office is not permitted to: 

•    Earn any income; 
•    Undertake any industrial, trading or commercial activity; 
•    Enter into any agreement on behalf of the head office; 
•    Borrow or lend money for any commercial activity; 
•    Charge any fee or commission or otherwise earn any income, in respect of liaison activities carried on in India. 

    For detailed procedure and guidelines for opening the liaison office in India, read here.

2.    BRANCH OFFICE

Foreign companies engaged in manufacturing and trading activities abroad     are allowed to set up Branch Office in India for the following purposes:

•    Undertake the export and import of goods; 
•    Render professional or consultancy services; 
•    Carry out research work in which the parent company is engaged; 
•    Promote technical and financial collaborations between Indian companies and parent/overseas group companies; 
•    Represent the parent company in India and act as buying and selling agents; 
•    Render services in information technology and development of software in India; 
•    Render technical support to the products supplied by the parent/group companies; 
•    Operate as a foreign airline/shipping company.     

    Apart from obtaining RBI approval for establishing a liaison office, project     office/branch office, the foreign company is also required to register with the     Registrar of Companies ("ROC"). An application has to be filed in the prescribed     form within 30 days of the establishment of the office in India with ROC, pursuant     to which ROC would issue a certificate of establishment of place of business in     India to the foreign company.
 

3.    PROJECT OFFICE   

Foreign companies planning to execute specific projects in India can set up     temporary project/site offices in India. RBI has now granted general permission     to foreign entities to establish project offices, subject to specified conditions.     Such offices cannot undertake or carry on any activity other than the activity     relating and incidental to execution of the project. Project offices may remit     outside India the surplus of the project on its completion, general permission for     which has been granted by the RBI.

- By Ritambhara Agrawal, Managing Partner, Intelligere; www.intelligere.in

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