Connecting Businesses with Opportunities in India

India Legal System

Submitted by Ashish Porwal on Sun, 01/21/2018 - 12:58am.

India, a land of opportunities, is one of the few countries in the world which has demonstrated a sustained economic growth despite a not-so-good global economic scenario. India is blessed with two of the most important factors for economic growth - abundance of natural resources and a deep consumption market.

India has a fairly liberalized foreign investment regime and a regular revamp of the foreign direct investment policy on a continuous basis has ensured that India stays on top of the development scenario. India offers multiple options and avenues for a foreign investor to invest into businesses in India and / or to set up business presence in India. Depending upon an investor’s preference and business objective, there are various options to have difference kinds of business presence viz. representative office, branch office, liaison office, project office, joint venture, wholly owned subsidiary or other forms of direct and indirect investments.

Certain forms of business presence like representative office, branch office, and project office require prior approval of the banking and foreign exchange regulator in India i.e., the Reserve Bank of India (“RBI”). The foreign investment in business entities is primarily regulated under the provisions of the Foreign Exchange Management Act, 1999 (“FEMA”) and the Foreign Direct Investment Policy (“FDI Policy”) issued by the Government of India, from time to time. The FDI Policy and the FEMA contemplate foreign investments in Indian companies under two routes viz., automatic route and approval route. Most of the investment attractive sectors like IT, ITES, software services, manufacturing, construction development, infrastructure etc., are under the automatic route. The sectors where the foreign investment is subject to approval route require prior approval of the Government of India. The foreign investment can also be made in form of debt in accordance with policy relating to the external commercial borrowing as contemplated under the FEMA.

Since the time the Indian economy was opened up for foreign investment in the year 1991, there has been a significant evolution in the FDI regime. Except for few strategic and core sectors, almost all the sectors have been opened up for foreign investment. In several sectors foreign investment upto to the extent of 100% is allowed, thereby making it possible to set up completely foreign owned ventures in India. Under the FDI Policy, foreign investors can invest into Indian business using various investment instruments like equity shares, convertible preference share, convertible equity shares etc. Subject to compliance with certain investment conditions, exit is also convenient and does not contemplate any lengthy and complicated process.

India offers an open investment regime with a stable legal and taxation system The financial and the capital market in India is also very deep and mature, offering investors and other entities a very effective and competent infrastructure. The Government of India is also constantly working towards rationalizing the process of setting up business in India and has undertaken several notable steps to improve the ease of setting up and doing business in India. The recent legal and taxation reforms like coming into effect of the Insolvency and Bankruptcy Code and the Goods & Services Tax clearly demonstrate India’s resolve to emerge as one of the most business friendly jurisdictions in the world. The flagship programs of the Government of India like ‘Make in India’ and ‘Digital India’ have only added to the impetus and have clearly demonstrated India’s resolve to make India as one of the most attractive investment destinations in the world.
Given the Government initiatives like Start-up India and Digital India, the start-up culture in India is also witnessing a tremendous boom. This offers immense investment opportunities for investors who wish to be part of this new phenomenon wherein young ventures, with disruptive business propositions, are changing the way businesses are run and are creating great value for all the stakeholders.
India is on the path of being an economic superpower and therefore it is imperative for global entrepreneurs and investors to have pie of the India’s growth story.

Keywords/Phrases: Doing Business in India, Investing in India, Indian Legal System, Starting a company in India

Author: Ashish Porwal

Ashish is the founder of Hreem Legal. Hreem Legal is a corporate law firm specializing in India entry strategies and aspects relating to investments in India and setting up business presence in India. The author can be reached out at ashish@hreemlegal.com

Submitted by Navin Pathak 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.

 
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